Allahabad High Court
Jaiprakash Associates Limited vs Reserve Bank Of India And 2 Others on 24 September, 2018
Bench: Pankaj Mithal, Mukhtar Ahmad
HIGH COURT OF JUDICATURE AT ALLAHABAD
A F R
Court No. - 29
Case :- WRIT - C No. - 31329 of 2018
Petitioner :- Jaiprakash Associates Limited
Respondent :- Reserve Bank Of India And 2 Others
Counsel for Petitioner :- Rajendra Prasad Agrawal,Abhay Kumar Singh
Counsel for Respondent :- Amit Saxena,Manish Trivedi
Hon'ble Pankaj Mithal,J.
Hon'ble Mukhtar Ahmad,J.
Heard Sri Ranjit Kumar, Senior counsel assisted by Sri R.P. Agrawal, learned counsel for the petitioner, Sri Anurag Khanna, Senior counsel assisted by Sri Amit Saxena & Sri J.K. Chokshi, learned counsel appearing for respondent no. 1, Reserve Bank of India and Sri V.K. Uhadhyaya, Senior counsel assisted by Sri Manish Trivedi, learned counsel for respondent no. 2 ICICI, Bank Limited.
The petitioner Jaipraksh Associates Limited (JAL) a public limited company and a holding company of Jaiprakash Infra- Tech Limited (JIL) has preferred this petition invoking extra-ordinary jurisdiction of this Court under Article 226 of the Constitution of India for quashing of the direction dated 14.8.2018 given by the RBI to the ICICI, Bank Limited for initiating insolvency proceedings against the petitioner; to quash the order dated 10.9.2018 passed in a company petition no. (IB) 330/ALD/2018, ICICI Bank Limited Vs. Jaiprakash Associates Limited instituted before National Company Law Tribunal (in short NCLT); and to direct the NCLT to sanction the scheme of arrangement filed by the petitioner which is pending consideration in company petition no.(AAA)90/ALD/2018 in accordance with law within a fixed period of time.
The prayers so made by the petitioner in the petition are reproduced herein below for the sake of convenience:-
(i) to issue a writ, order, or direction in the nature of certitorari quashing the impugned direction dated 14.8.2018 [Annexure-1 to this writ petition] given by the Reserve Bank of India [respondent no.1] to ICICI Bank Limited [respondent no. 2.]
(ii) to issue a writ, order, or direction in the nature of certitorari quashing the order dated 10.9.2018, [Annexure-2], and all proceedings and order passed in the Compnay Petition No. (IB) 330/ALD/2018- ICICI Bank Ltd Vs. Jaipraksh Associates Limited, which has been filed by Respondent no. 2 in the National Company Lat Tribunal, Allahabad Bench, [Respondent no. 3] pursuant to the impugned direction dated 14.8.2018 given by the Reserve Bank of India; and
(iii)a writ of mandamus directing the National Company Law Tribunal, Allahabad Bench [Respondent no. 3] to sanction the Scheme of Arrangement filed by the petitioner vide company petition No. (AAA) 19/ALD/2018 in accordance with law without any further delay and positively within such time as this Hon'ble court may deem fit.
In short and substance the petitioner is aggrieved by the direction of the RBI to the ICICI Bank to initiate insolvency proceedings against the petitioner before NCLT and wants quashing of the proceedings so initiated by the ICICI Bank against the petitioner.
At the very outset Sri Anurag Khanna and Sri V.K. Upadhyaya, Senior counsel for the respondents raised a preliminary objection regarding maintainability of this petition primarily for the reason that the proceedings before the NCLT have been initiated in pursuance of the directions of the Supreme Court and in turn that of the RBI. The petitioner has already filed objections taking the grounds on which the present petition has been filed before the NCLT and that the same can be considered and decided by the NCLT. Thus, there is no purpose for interference in exercise of writ jurisdiction in the matter.
Sri Ranjit Kumar, Senior Advocate made submissions not only meeting out the preliminary objections so raised on behalf of the respondents but substantially addressed the problem on merits as well.
Sri Ranjit Kumar argued that the directions of the RBI contained in its order dated 14th August 2018 is patently illegal and bad in law for the reason that insolvency proceedings can be initiated against the petitioner only if it is a 'defaulter'. In this regard he drew the attention of the Court to the provisions of Section 35 AA of the Banking Regulation Act, 1949 as inserted vide Banking Regulation (Amending) Ordinance, 2017 dated 4.5.2017 which authorizes the Reserve Bank of India to issue directions to any Banking company to initiate insolvency process in respect of the 'default' under the provisions of The Insolvency and Bankruptcy Code, 2016 (in short IBC). He has simultaneously attracted the attention of the Court to the definition of 'default' appearing in Sub-section (12) of Section 3 of the IBC which provides non payment of debt in whole or in part or installment of the amount of debt due and payable and which is not repaid by the debtor or the corporate debtor amounts to 'default'.
Learned Senior counsel appearing for the petitioner also stressed that there is no specific direction of the Supreme Court in the case of Chitra Sharma1 and connected petitions decided on 9th August 2018 directing or permitting the RBI to issue any direction in exercise of powers under Section 35 AA of the Banking Regulation Act for drawing insolvency proceedings against the petitioner. The direction issued by the RBI is based upon complete misreading of the aforesaid decision of the Supreme Court.
The petitioner is not a 'defaulter'. The consortium of lenders which includes ICICI Bank itself had accepted vide letter dated 7th December 2017 that a Composite Restructuring and Realignment Plan (CRRP) for JAL was approved by the majority of 90% of the Joint Lenders' Forum (JLF) present and voting under the aegis of the RBI Circular dated 5th May 2017 and that all steps required towards regulation of the account through implementation of the JLF approved CRRP have been completed.
Sri Ranjit Kumar further submits that the petitioner has no remedy in law against the direction of the RBI dated 14th August 2018 and therefore the challenge to it can only be had by taking recourse to the writ jurisdiction of this Court.
The facts as revealed in the petition establishes that the RBI vide letter dated 14th August 2018 had directed the Managing Director and the Chief Executive Officer ICICI Bank that since the Supreme Court has finally decided the matter of Chitra Sharma (Supra), the ICICI Bank is directed to initiate the insolvency resolution process in respect of 'default' committed by the petitioner under the provisions of IBC.
In pursuance of this direction the ICICI Bank has applied under Section 7 of the IBC to the NCLT at Allahabad for the corporate insolvency of the petitioner. The said petition has been entertained and notices have been directed to be served upon the petitioner fixing 17th September 2018 for admission which has now been adjourned for 26th September 2018 as is informed by both sides. Thus, insolvency proceedings against the petitioner under Section 7 of the IBC are pending before the NCLT.
Sub-section (4) of Section 7 of the IBC empowers the Adjudicating Authority ie. NCLT to ascertain the existence of 'default' from the records or on the basis of the evidence furnished by the financial creditors on receiving application for initiation of corporate insolvency. This has to be done by it within a specified period of 14 days of the receipt of the application.
Sub-section (5) of Section 7 of the IBC provides that where the Adjudicating Authority/NCLT is satisfied that 'default' has occurred and the application filed under Section 7 is complete and there is no discrepancy, it may admit such application or where there is no 'default' or the application is not complete, reject the same.
A plain and simple reading of the above provisions would reveal that the Adjudicating Authority/NCLT is obliged to determine the factum of occurrence of the 'default' on part of the alleged corporate debtor before admitting a petition under Section 7 of the IBC. In other words, determination of commission of 'default' by the corporate debtor by the Adjudicating Authority/NCLT is a per-condition for admitting the petition under Section 7 of the IBC. The said stage in the matter has not yet arrived. It is therefore, open for the petitioner to establish "no default" on its part before the Adjudicating Authority/NCLT.
The issue of default, if any, is an issue of fact depending upon the evidence and this Court finds itself unequipped for deciding such factual issue more particularly when they can be dealt with and decided by the other statutory authority before whom the proceedings are pending.
It would not be proper for us to ignore the decision of the Supreme Court in Chitra Sharma (Supra) or to leave untouched the submission of Sri Ranjit Kumar that the aforesaid decision does not in so many words directs or permits RBI to issue any direction against the petitioner for adopting insolvency proceedings.
The aforesaid proceedings before the Supreme Court were initiated by the home buyers to protect their interest in projects of JIL, a wholly owned subsidiary of the petitioner.
The insolvency proceedings under Section 7 of the IBC were initiated against the JIL by the IDBI Bank Limited contending that it had committed 'default' of Rs. 526.11 crores in repayment of its dues. In those proceedings interim resolution professional (IRP) was appointed. The petitioner therein complained to the Supreme Court that the Corporate Insolvency Resolution Process (CIRP) before the NCLT ignores the interest of vital stake holders, chief amongst whom were individuals, such as the home buyers. In those proceedings, the petitioner the holding company of JIL was directed to deposit a sum of Rs. 2,000 crores on or before 22nd October 2017 vide order dated 11th September 2017. The petitioner appeared therein and moved application for vacating the above direction of deposit of Rs. 2,000 crores or to modify the same. In the said proceedings the RBI also moved interlocutory application on 10th January 2018 seeking permission to move before the NCLT against JAL under the provisions of the IBC.
The Apex court in this situation observed that during the course of hearing there was unanimity of opinion that the liquidation of JIL alone will not sub-serve the interest of the home buyers whose interest is also sought to be protected with the amendment brought in force w.e.f. 7th June 2018 in the matter of corporate insolvency. The proposals put-forth on behalf of the petitioner were not accepted by the Court as it was of the opinion that it would cause serious prejudice to the discipline of the IBC and would set-at-naught the salutary provisions of the said statute. At the same time, serious doubts were caste about the credentials of the petitioner which was said to have diverted funds from JIL towards its own business. The court observed that it ought to follow the discipline of IBC which has been enacted for streamlining the resolution of corporate insolvencies through expert determination. The said statute is conceived in public interest and to facilitate the good corporate governance. Therefore, the Court should not take upon itself the burden of supervising the intricacies of the resolution process and to be careful not to supplant mechanism which has been laid down in IBC by substituting its own mechanism by giving directions on the judicial side.
In context with request of the RBI for permission to initiate insolvency resolution process against the petitioner referring to provisions of Section 35 AA and 35 AB of the Banking Regulation Act, it was observed as under:-
"40.......................
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The RBI constituted an internal Advisory Committee ((IAC) consisting primarily of its independent directors. The IAC took up for consideration accounts which were classified either partly or wholly non-performing from amongst the top 500 exposures in the banking system as on 31st March 2017. As a first step, the IAC recommended all such non-performing asset accounts with fund and non-fund based outstanding exceeding Rs. 5,000/- crores. The IAC has initially taken up twelve accounts involving total exposures of Rs. 1,79,769 crores. JIL was one of the twelve accounts in respect of which directions have been issued to banks for initiating insolvency resolution. Subsequently,the IAC recommended that in respect of those accounts where 60% or more had been classified as NPAs as on 30 June 2017, banks may be directed to implement a viable resolution plan within six months failing which the accounts may be directed to a reference under the IBC by 31 December 2017. JAL was one such entity. No viable resolution plan could be found as a result of which it is also required to be referred for CIRP.2
41........................
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The facts which have emerged before the Court from the application filed by the RBI clearly indicates the financial distress of JAL and JIL. The apprehension of the home-buyers in regard their financial incapacity is borne out by RBI, as a responsible institution has urged before the Court. The IBC has been enacted in the form of a comprehensive bankruptcy law and with a specific legislative intent. With the amendment brought about by the Ordinance promulgated in June 2008, the interests of the home buyers have been sought to be safeguarded. Accordingly, we accede to the request made on behalf of the RBI to allow it to follow the recommendations of the IAC to initiate a CIRP against JAL under the IBC.
42. We, accordingly, issue the following directions:
(i) ..........................
(ii) ..........................
(iv) ..........................
(v) RBI is allowed, in terms of its application to this Court to direct the banks to initiate corporate insolvency resolution proceedings against JAL under the IBC.
(vi)............................
The aforesaid decision of the Supreme Court clearly indicates that the proposals of the petitioner were not accepted and that on the interlocutory application of the RBI, it found that the petitioner is under financial distress and to safeguard the interest of the home buyers the request of the RBI to allow it to initiate CIRP against the petitioner under IBC is acceded to and the RBI is allowed to direct the Banks to initiate corporate insolvency resolution proceedings(CIRP) against the petitioner under IBC.
In view of the above conclusion drawn by the Supreme Court, the directions issued the Letter of Consortium of Lenders dated 7.12.2017 has no sanctity and pales into insignificance.
The aforesaid decision of the Supreme Court in clear and unequivocal terms allows the RBI to initiate corporate insolvency resolution process against the petitioner. No Forum not even this Court in exercise of its inherent power can sit over the above decision or direction of the Apex court. Accordingly, the directions issued by the RBI vide letter dated 14th August 2018 in purported exercise of powers under Section 35 AA of the Banking Regulation Act is neither without jurisdiction nor otherwise illegal.
Even assuming for a minute for the sake of argument alone that the aforesaid direction of the RBI is bad in law, we do not find that ICICI Bank independent of the said direction is precluded from initiating Corporate Insolvency Resolution Process against the petitioner who happens to be a corporate debtor under the IBC.
Section (7) of the IBC permits a financial creditor to file application for initiating Corporate Insolvency Resolution Process against the corporate debtor when a 'default' has occurred. Therefore, the filing of application for initiating Corporate Insolvency Resolution Process by the petitioner who is a financial creditor is not prohibited under law even if there is no direction to the said effect by the RBI.
Therefore, the direction of the RBI dated 14.8.2018 has no material bearing upon the proceedings initiated by ICICI Bank under Section 7 of the IBC.
This apart, the Court will not come to the rescue of the petitioner on mere technicalities unless there is serious miscarriage of justice which is missing in the case at hand. No serious prejudice is likely to be caused to the petitioner if it participates in the proceedings under Section 7 of the IBC wherein it has already taken objections regarding the maintainability of the petition and non commission of any 'default' which is essential for maintaining those proceedings. The aforesaid objections of the petitioner are still open for decision by the Adjudicating Authority/NCLT.
It may not be out of context to mention that there has to be minimal Court interference in such financial matters which should be left for decision by the expert Forum specially created under the statute.
In view of the aforesaid facts and circumstances, we are of the opinion that the instant case is not one which may warrant exercise of extra-ordinary jurisdiction.
The writ petition is dismissed with liberty to the petitioner to participate in the proceedings under the IBC before the NCLT and may raise all possible objections as are permissible in law.
After we have dismissed the writ petition, Sri R.P. Agrawal, learned counsel appearing for the petitioner made a request that the proceedings before the NCLT may be directed to be kept in abeyance at least for two weeks to allow him to go before the Supreme Court.
We are not inclined to grant any indulgence when we are dismissing the petition and for the reason that it is open for the petitioner to make such a request before the NCLT itself.
Date: 24.9.2018
SKS
Note:- The following abbreviations have been used in the judgment:-
1.
JAL:
Jaiprakash Associates Limited
2.
JIL:
Jaiprakash Infra-tech Limited
3.
NCLT:
National company Law Tribunal
4.
IBC:
Insolvency and Bankruptcy Code
5.
RBI:
Reserve Bank of India
6.
ICICI:
Industrial Credit and Investment Corporation of India
7.
IDBI:
Industrial Development Bank of India
8.
CRRP:
Composite Restructuring and Realignment Plan
9.
JLF:
Joint Lenders' Forum
10.
CIRP:
Corporate Insolvency resolution Process
