Delhi High Court
M/S Lakshmi Energy & Food Ltd vs Reserve Bank Of India & Ors on 6 February, 2019
THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: November 30, 2018
Judgment delivered on: February 06, 2019
+ LPA 579/2018
M/S LAKSHMI ENERGY & FOOD LTD
..... Appellant
Through: Mr. Kapil Sibal, Sr. Adv. and
Mr. Vivek K. Tankha, Sr. Adv.
with Mr. Amitabh Chaturvedi,
Mr. Vivek Chib, Mr. Prashant
Sivarajan, Mr. Himesh Thakur
& Mr. Kaushal Sharma, Advs.
versus
RESERVE BANK OF INDIA & ORS
..... Respondents
Through: Mr. H.S. Parihar with Mr. K.S.
Parihar, Advs. for R-1/RBI.
Mr. Rajesh Kr. Gautam with
Mr. Aakash Sehrawat, Advs. for
R-2/PNB.
Mr. Ramji Srinivasan, Sr. Adv.
with Mr. Diwakar Maheshwari,
Mr. Aditya Vikram Singh &
Ms. Syloma Mohapatra, Advs.
for R-3/ICICI Bank.
Mr. Sumit Nagpal, Adv. for R-
4/Axis Bank.
Mr. Rama Subba Raju, Adv. for
R-5/Syndicate Bank.
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE V. KAMESWAR RAO
JUDGMENT
V. KAMESWAR RAO, J
1. Present appeal has been filed challenging the judgment
dated 24th September, 2018 passed by the learned Single Judge
dismissing the petition being W.P.(C) 5555/2018 filed by the
appellant herein (Lakshmi Energy).
2. The case of the appellant in the writ petition was
primarily for appropriate writ / order / direction directing the
Reserve Bank of India to ensure compliance / implementation of
its Guidelines / Circulars dated 30th January, 2014, 26th February,
2014 and 5th May, 2017, vis-à-vis the Joint Lenders Restructuring
Agreement (JLRA) dated 27th June, 2015.
FACTS
3. The facts as averred in the appeal are that the appellant
Lakshmi Energy, a Company incorporated under Companies Act,
1956 is involved in the business of processing paddy and
exporting rice. In the year 2010, it had availed of certain
financial assistance from a Consortium of Banks comprising of
respondent nos. 2 to 5 herein with respondent no.2 (Punjab
National Bank, hereinafter referred to as PNB) being the lead
banker. Sometime in 2014 on account of non-conducive market
conditions in the paddy / rice industry which adversely affected
the appellant‟s business, the drawing power of the appellant
suffered heavily and the appellant company informed the
consortium of banks accordingly. However, the account was not
an NPA at that point of time.
4. Meanwhile, the Reserve Bank of India in exercise of its
powers under the Banking Regulations Act, 1949 („Act of 1949‟
in short) issued Guidelines on 30th January, 2014 by way of
which it introduced the framework of identifying stressed assets
and prescribed detailed steps that had to be taken by banks in
order to re-vitalize such stressed assets. These Guidelines were
further supplemented by another set of Guidelines issued on 26 th
February, 2014. The rationale behind the said Guidelines was to
arrive at an early and feasible solution in order to "preserve the
economic value of the underlying assets as well as the lenders
loans". According to the appellant on a conjoint reading of the
said circulars, the following salient features are noted:-
1. Banks are to mandatorily constitute a Joint
Lender‟s Forum, i.e., JLF as soon as a loan account of
any borrower is classified as SMA-2 or on the request
of a borrower to that effect.
2. As soon as the aforesaid is done, JLF is to
arrive at a suitable Corrective Action Plan, i.e., CAP
in a time bound manner, which as per the said
Guidelines can be either "rectification",
"restructuring" or "recovery".
3. If the JLF chooses to opt for "restructuring"
then a detailed Techno-Economic Viability (TEV) study
has to be carried out in a time bound manner and if
"restructuring" is thereafter found viable then a
"restructuring package" has to be finalized in a time
bound manner.
4. However, in accounts with exposure of more
than Rs.5000 million, the said Guidelines further
stipulate that the TEV Study will be subject to
evaluation by an Independent Evaluation Committee,
i.e., IEC (Constituted by RBI & IBA) before
restructuring package is finalized by the JLF.
5. Once a Restructuring Agreement is executed, the
same shall be complied with by both the lender as well
as the borrower."
5. It was the case of the appellant that in the light of the
prevalent market conditions and its consequent impact on the
appellant‟s business the appellant approached the Consortium of
banks with a request to constitute a Joint Lenders Forum (JLF) in
terms of the aforesaid circulars and accordingly restructure the
financial assistance it had availed from the banks. On 19th
March, 2015 the JLF in its meeting considered the appellant‟s
request and formally adopted "restructuring" as the Corrective
Action Plan (CAP). It was further decided that a Techno
Economic Viability (TEV) study had to be conducted in terms of
the extent RBI Regulations and M/s. Dunn and Bradstreet (D&B)
was appointed for the task.
6. It was the case of the appellant that D&B submitted its
TEV report (D&B TEV Report) on 27th March, 2015 wherein it
not only recommended "restructuring" as the CAP but also laid
out a detailed blueprint for the next 10 financial years, wherein
the lenders work to infuse working capital in terms of the TEV
report into the appellant‟s business on a proportionate basis and
the same had to be repaid by the appellant company over a period
of 10 years following a moratorium of two years. In terms of the
said report and proposal contained therein the cut-off date was
fixed as 1st October, 2014 on which date the term loan
outstanding was `32 Crores and cash credit outstanding was
`860.88 Crores. The restructuring plan involved converting the
drawing power shortfall of `436 Crores into a working capital
term loan bearing an interest @ 10.75% per annum. Interest on
the said loan was to be converted into a term loan (Funded
Interest Term Loan-FITL), the repayment of which would start
after the aforementioned moratorium (a period of 24 months from
the cut-off date). The proposal also included another Working
Capital Term Loan (WICTL-II). The interest on cash credit
facility was also proposed to be converted into a term loan.
7. Since the total exposure of the appellant company was
more than `500 Crores in terms of the RBI Guidelines the TEV
study had to be subjected to an independent evaluation by an
Independent Evaluation Committee (IEC) constituted by the
Reserve Bank of India / Indian Bank‟s Association. The minutes
of the meeting of the IEC, held on 11th May, 2015 record that
"after detailed deliberations and justification given by the
Company restructuring with additional working capital limit of
`75 Crores as proposed in the package was approved".
8. On 23rd June, 2015, the JLF in its meeting approved the
restructuring proposal and consequently on 27th June, 2015 A
Joint Lenders Restructuring Agreement (JLRA) was executed
between the appellant company and respondent Banks. On the
same date the Consortium of respondent Banks also entered into
an Inter-Credit Agreement. Prior to that each of the members of
the Consortium issued sanction letters for sanctioning the
restructuring package in terms of the CAP. It is stated that `75
Crores in terms of the approved restructuring package was
released in the month of June-Jul/2015.
9. It was the appellant company‟s case that the Approved
JLF Package, incorporating the D&B TEV report had assessed
the company‟s working capital requirements for the next 10 years
and therefore the lending banks were obligated to release working
capital limits in compliance thereof which is represented as
follows:
2015- 2016- 2017- 2018- 2019- 2020- 2021- 2022- 2023- 2024-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Addl.
Working
205.80 66.00 19.60 72.20 48.60 38.60 44.60 47.00 5.00 5.00
Capital to be
released by
banks (in
crores)
10. According to the appellant company in terms of the said
restructuring package the Consortium members were liable to
release `205.8 Crores for the fiscal year 2015-16, however apart
from the aforesaid `75 Crores, the remaining `130.8 Cores were
never released, despite the appellant company making several
requests to that effect. According to the appellant release of
aforesaid amounts was necessary for it to meet the cash flow
projections as envisaged under the restructuring scheme.
11. It was the appellant‟s case that on account of non-
adherence to the Approved Restructuring Package on part of the
lender banks, the appellant company was unable to optimally run
its business which was already suffering on account of
recessionary market conditions and the stressed financial
condition. Consequently, the appellant company‟s efforts and
ability to meet the projected cash flow as envisaged in the
approved JLF package was severely impeded and jeopardised.
12. It was the case of the appellant that on 1st December,
2015, following several representations and requests made by the
appellant company for the release of the remainder of the
working capital in terms of the approved JLF package, Punjab
National Bank, (PNB) formally sanctioned the release of ad-hoc
facilities of `59.68 Crores against furnishing of further additional
third-party ad-hoc securities commensurate with the said amount.
However, only `30 Crores were released out of the said
sanctioned amount. It was the appellant‟s case that since the ad-
hoc limit was merged with the approved JLF package, it was
entitled to release of remainder of total sum envisaged for the
fiscal year 2015-16 by the other banks according to their pro-rata
share. Despite several letters sent to respondent banks repeatedly
requesting release of additional working capital no further limits /
funds were released.
13. The moratorium period envisaged in the restructuring
package was to get over by December, 2016, however, on
account of non-release of funds / limits by respondent banks, the
appellant company could not operate its business efficiently and
therefore, the projected cash flows were not met. The appellant
Company therefore requested for convening an urgent JLF
meeting to resolve the issue.
14. On June 13, 2016, RBI issued a circular whereby it
introduced a scheme for Sustainable Structuring of Stressed
Assets (S4A Scheme), wherein a framework was laid down for
deep restructuring of large accounts which were facing several
financial difficulties.
15. It was the appellant‟s case that in the JLF meeting
convened on 22nd December, 2016, the appellant company raised
the issue of non-release of additional working capital and the
respondent banks on the other hand raised other issues including
allegations of financial indiscipline on part of the appellant. The
appellant company ultimately suggested that the present case was
fit for invocation of the S4A Scheme of RBI. Consequently, in
the JLF meeting held on 21st June, 2017, the JLF formally
adopted S4A Scheme and appointed PNB Investment Services
Limited (PNBISL) to carry out a detailed TEV Study. The date
of 21st June, 2017 was also adopted as a reference date for the
purpose of implementation of the S4A scheme, which was to be
finalized within 90 days thereof and to be implemented within a
further period of 90 days.
16. PNBISL conducted and submitted the detailed TEV
Study report in the month of December, 2017. In the JLF
meeting held on 12th January, 2018, it was decided that only upon
a satisfactory Forensic Audit Report, a proposal would be moved
before the RBI seeking approval for implementation of the S4A
Scheme.
17. On 18th January, 2018, appellant company received a
demand notice from ICICI Bank, respondent no.3 in terms of
Section 13 (2) of the SARFAESI Act, 2002. In the JLF meeting
held on 9th February, 2018, AXIS Bank and ICICI Bank
withdrew their consent to proceed with the S4A Scheme.
18. On 12th February, 2018 RBI issued a circular whereby
earlier schemes issued for the purpose of re-vitalizing distressed
assets were withdrawn. ICICI Bank meanwhile is also stated to
have approached the National Company Law Tribunal,
Chandigarh Bench under Section 7 of the Insolvency and
Bankruptcy Code (IBC) having completely abandoned the
restructuring process.
19. It was in this context that the appellant company filed the
subject writ petition being W.P(C) 5555/2018 inter alia seeking
implementation / compliance of RBI circulars dated 30 th October,
2014, 26th February, 2014 and 5th May, 2017, vis-a-vis JLRA
dated 27th June, 2015. The Learned single judge has dismissed
the writ petition.
APPEAL
20. Challenging the impugned order, it is the appellant
company‟s case that the learned Single Judge has erred in
concluding that the Projected Cash Flow Statements and Working
Capital Assessment as contained in the D&B TEV report was not
a part of the "Approved JLF package" and therefore it was not
entitled to any additional working capital over and above `75
Crores. It is further stated that Clause 2.6.1 of the JLRA has been
completely misconstrued inasmuch as the respondent banks‟
stand that the Approved JLF Package is limited to Schedule - X
of the JLRA and therefore did not envisage provision of fund
based working capital beyond `75 Crores, being a complete
afterthought was raised for the first time only before the learned
Single Judge. It is stated that the respondent banks had never
disputed or objected to the appellant company‟s request for
enhancement of fund based working capital and on the contrary
PNB had sanctioned its pro-rata share of `59.68 Crores in
accordance with the figures envisaged in D&B TEV report (out
of which `30 Crores had already been disbursed). It is stated that
the appellant company had also written several letters to PNB, the
lead Bank seeking sanction and release of additional working
capital limits, however, the same were never responded to. A
bare perusal of the said clause indicates that the respondent banks
were obligated to extend working capital requirements in
accordance with the Approved JLF package which had been
assessed in the D&B TEV report by way of Annexure 2 and 3
and Assessment of Working Capital Limits, wherein fund based
working capital limits were to be enhanced every year. It is
stated that the learned Single Judge‟s finding that "Approved JLF
Package" did not include enhancement of working capital limits
in accordance with the aforementioned Annexures is contrary to
the finding that the appellant company did in fact need additional
working capital to meet the position as set out in D&B TEV
Report wherein a technical consultant, having conducted a detail
study and analysis, had opined that Banks‟ loan could be repaid
only if the company could achieve higher cash flows, which in
turn could be achieved only following release of enhanced
working capital. It is therefore, stated that the learned Single
Judge has substituted his own view for that of a technical
consultant.
21. The appellant Company has relied on definition of
"Restructuring Documents" as contained in the JLRA to contend
that restructuring in the present case included the restructuring as
contemplated in the JLRA as well as the Approved JLF Package.
The said definition reads as under:
"Restructuring Documents" means this Agreement,
Trust and Retention Account Agreement, as amended
/ modified from time to time, in order to effectuate the
restructuring contemplated in this Agreement and
under the Approved JLF Package"
22. Further, the term "Approved JLF Package" is stated to
have been defined in Recital F to the JLRA wherein it has been
categorically defined to mean and include the restructuring
package as mentioned in the D&B TEV report. The said Recital
reads as follows:
"At the request of the Borrower and in consideration
of the Borrower‟s commitment to improve its
operations, the request of the Borrower was referred to
the Joint Lenders‟ Forum (hereinafter referred to as
the "JLF"), a non-statutory voluntary mechanism for
the efficient restructuring of corporate debt. Pursuant
thereto, the Lenders at their meeting held on March
19, 2015 agreed for restructuring of Existing Loans as
corrective action plan. Pursuant thereto Dun and
Bradstreet (D&B) was requested to draw a Techno
Economic Viability Report (the "TEV Report") on the
restructuring of Existing Loans and it submitted its
TEV Report on March 27, 2015 along with the final
restructuring package and after perusal of the said
report, the Lender / Lead Bank have agreed to
restructure the Existing Loan subject to the terms and
conditions as decided by the JLF, in its meeting dated
March 27, 2015 and finally approved in JLF dated
June 23, 2015 (hereinafter referred to as the
"Approved JLF Package")
23. It is the appellant‟s case that upon a conjoint reading of
the aforesaid clauses it becomes clear that the restructuring
package (proposal) as contained in the D&B TEV report is an
integral part of the restructuring under the JLRA. It is stated that
the learned Single Judge‟s conclusion that the proposed
enhancement of working capital limits as contained in the D&B
TEV report could not be read to mean that the respondent banks
had committed to provide additional funding is contrary to the
terms and conditions of the JLRA itself as also the finding that
the appellant company was in fact in need of additional working
capital to meet the cash flow projections as envisaged in the said
Report. It is stated that the D&B TEV report had categorically
stated that `75 Crores was a part of the immediate requirement of
the appellant company and that respondent banks had, at all
relevant points of time acted consistent with the package
contemplated in the said Report.
24. It is stated that Annexures 2 and 3 of the D&B TEV
report showed that fund based working capital for FY 2015-16
was supposed to be enhanced to `592.86 Crores and from the
minutes of the JLF meeting held on 22nd December, 2016, it is
clear that the respondent banks had also acted in terms of the said
projections. Reliance was placed on the relevant portion of the
minutes from the said meeting as under:-
"3. Lead Bank informed that post restructure in
March, 2015, `75 Crores as interim enhanced Working
Capital Facility for 2015-16, as recommended by the
IEC was released by the consortium banks in June-Sept
2015. The regular assessment done in Oct 2015 was
also adopted in JLF dated Oct 2015 with the prorate
share as follows:
Limits % Sanc Proposed Sanctioned
sanct as on Share Limits enhanced Limits as
31.03.2015 on Limits on Date
30.09.2015 (2015-16)
PNB 176.55 46.63% 210.77 270.45 240.77*
Synd 117.70 30.42% 140.52 180.30 140.52
Bank
ICICI 61.30 15.84% 68.47 93.88 68.47
Bank
Axis 3.139 6.11% 37.47 48.07 37.47
Bank
Total 386.93 100% 457.23 592.70 487.23
*Pending sanction by other lenders PNB has restricted the
enhanced limits to the extent of `240.77 Cr."
25. It is stated that the learned Single Judge has further failed
to appreciate that PNB / Lead Bank, having sanctioned an amount
of `59.68 Crores as its pro-rata share of enhanced working capital
requirements for FY 2015-16, and having released `30 Crores
therefrom, a right had crystallized in favour of the appellant
company towards the remaining sum of `29.68 Crores which had
been withheld unlawfully. It is therefore their case that once
working capital had been approved and sanctioned by the Banks
in their favour a right had crystallized in favour of the appellant.
Therefore, if even after sanction the banks failed to disburse the
said funds the said right accrued in favour of the appellant ought
to have been enforced by the learned Single Judge.
26. It is further stated that the stand adopted by PNB and
ICICI Bank that the said sanction of additional working capital
limits was a separate transaction altogether is factually incorrect
inasmuch as the said stand was taken only during the course of
oral arguments and not in any of the pleadings filed by them.
Moreover, treating the said transactions as a separate one would
in fact be a violation of extent RBI Circulars which stipulated that
the decisions of the JLF were binding on all constituent members.
It is stated that a perusal of the minutes of the JLF meeting dated
22nd December, 2016 would show that a decision to enhance
working capital limits for FY 2015-16 was taken by the JLF in
October, 2015 itself and therefore the said decision cannot be
termed as being independent of JLF. Further, even from PNBs
sanction letter dated 5th December, 2015 it can be seen that the
same had been expressly subjected to terms and conditions
stipulated in D&B TEV report. It is therefore the appellant‟s case
that when the respondent banks had themselves sanctioned the
aforesaid enhanced working capital limits in terms of the D&B
TEV report, it was not open for them to later argue that the said
Report was not a part of the Approved JLF Package.
27. The appellant has also drawn a reference to e-mail dated
7th December, 2015 issued by PNB / Lead Bank wherein other
members of the JLF were informed that it had sanctioned its pro-
rata share of the Consortium and further requested them to inform
the status of their respective sanctions. Moreover, when the
appellant had raised the issue of delay in sanction of enhanced
working capital limits in the JLF meeting on 22nd December,
2016, none of the respondent Banks disputed their obligation to
provide such enhancements nor was it stated that the restructuring
scheme did not envisage sanction of working capital limits
beyond `75 Crores. The reason for such delay was instead
ascribed to the purported red flagging of the appellant‟s account
by respondent no.3, which was also admittedly later abandoned.
28. It is stated that the learned Single Judge‟s interpretation
of clause 2.6.1 of the JLRA that additional funding was at sole
discretion of the Banks even if the Banks had agreed to sanction
additional funding and refuse to release the said funds later is
erroneous inasmuch as the Banks have already exercised the
discretion envisaged in Clause 2.6.1 and approve enhancement of
working capital limits.
29. It is stated that the learned Single Judge has completely
misread the appellant company‟s letter dated 7 th June, 2015 to
conclude that the agreed restructuring did not include provision
of any additional fund beyond `75 Crores. It is stated that the
said amount was only required to be released in order to meet the
appellant company‟s immediate requirements to meet demands of
the pressing creditors. It was on account of non-disbursal of the
said amount despite approval of IEC that the appellant company
had written the said letter requesting that the said amount be
released immediately. It was nowhere stated in the said letter
that the Approved JLF Package was limited to provision of `75
Crores only. In fact, the appellant company had on 22nd
September, 2015 along with supporting "Credit Monitoring
Assessment" CMA data requested that enhanced working capital
be released for FY 2015-16 thereby demonstrating the
understanding that the Approved JLF Package included
enhancement of working capital limits in the subsequent years. It
is their case that the aforesaid letter has been read completely out
of context inasmuch as several other letters written by the
appellant company requesting sanction and release of enhanced
working capital have not been considered by the learned Single
Judge.
30. It is stated that a TEV Study plays an important role in
the framework established to deal with stressed assets by the RBI
vide Circulars dated 30th January, 2014 and 26th February, 2014.
Reliance is placed on the following Clauses from the Circular
dated 26th February, 2014:
"4.3 Restructuring by JLF
4.3.1 If the JLF decides to restructure an account
independent of CDR mechanism, the JLF should carry
out the detailed Techno-Economic Viability (TEV) study,
and if found viable, finalise the restructuring package
within 30 days from the date of signing off the final CAP
as mentioned in paragraph 3.3 above.
4.3.3. For accounts with AE of Rs.5000 million and
above, the above-mentioned TEV study and restructuring
package will have to be subjected to an evaluation by an
Independent Evaluation Committee (IEC) of experts
fulfilling certain eligibility conditions. The IEC will look
into the viability aspects after ensuring that the terms of
restructuring are fair to the lenders. The IEC will be
required to give their recommendation in these cases to
the JLF within a period of 30 days. Thereafter,
considering the view of IEC if the JLF decides to go
ahead with the restructuring, the restructuring package
including all terms and conditions as mutually agreed
upon between the lenders and borrower, would have to be
approved by all the lenders and communicated to the
borrower within next 15 days for implementation."
31. It is the appellant‟s case that a reading of the aforesaid
paras clearly indicates that a TEV Study is a mandatory aspect of
restructuring by JLF and the same has to be a part of the
consequent restructuring agreement arrived at thereafter. It is
stated that the learned Single Judge has failed to appreciate that
the D&B TEV Report had not only been approved by the JLF in
its meeting held on 27th March, 2015 but also by the IEC in the
meeting held on 11th May, 2015 and hence the same could not be
viewed to be independent of the JLRA. It is therefore, stated that
the D&B TEV Report is an integral part of the restructuring
scheme and the same is even borne out of the term and conditions
of the JLRA itself.
32. It is further the appellant‟s case that even if the JLRA was
silent on provision / enhancement of additional working capital in
subsequent years, consistent conduct of respondent Banks as well
as the documents executed by them clearly show that they have
acted in terms of the D&B TEV Report, especially Annexures 2
and 3 of the Report and therefore, the Banks cannot now be
permitted to resile from the same especially since the appellant
company has now acted to its own detriment pursuant to the
promises made by the Banks. It is their case that after the
finalization of the D&B TEV Report but prior to approval of the
same by the IEC and execution of the JLRA the respondent
Banks had restructured the appellant company‟s loan accounts in
their respective books of accounts before 30th March, 2015 and
31st March, 2015 on the basis of the restructuring package
envisaged in the D&B TEV Report. Attention is drawn to the
following sequence of events:
DATE EVENT
19.03.2015 JLF in its meeting appointed D&B
as the TEV Consultant.
27.03.2015 D&B TEV Report is finalized and
submitted to JLF wherein a
"restructuring scheme" was
proposed.
27.03.2015 On the same day, the JLF approved
the aforesaid D&B TEV Report in
its entirety which included the
Annexure-2 (Balance Sheet) and
Annexure - 3 (Projected Cash Flow
Statement) and (Assessment of
Working Capital Limits) showing
enhancement of fund based working
capital which later on became the
basis of the consequent JLRA
executed between the parties.
30.03.2015 PNB and Syndicate Banks issued
Sanction Letters in terms of the
restructuring package as proposed
in the D&B TEV Report.
30.03.2015 On the same day, PNB and
Syndicate Bank, restructured the
Appellant Company‟s loan account
as WCTL, TL, FITL etc., as
proposed in the D&B TEV Report.
10.04.2015 ICICI Bank also issued a Sanction
Letter as per the restructuring
scheme proposed in D&B TEV
Report.
11.05.2015 IEC approved the D&B TEV Report
in its entirety.
25.06.2015 Axis Bank issued a Sanction Letter
as per the Restructuring scheme
proposed in D&B TEV Report.
27.06.2015 Joint Lenders Restructuring
Agreement executed.
33. It is stated that the learned Single Judge has
misinterpreted the minutes of the meeting of the IEC held on 11 th
May, 2015 inasmuch as in the said meeting the IEC had approved
the D&B TEV Report in its entirety and in the absence of a
categorical reservation expressed by the IEC regarding
Annexures 2 and 3 of the Report, it could not be concluded that
the restructuring scheme included provision of additional
working capital to the tune of `75 Cr. only. It is their case that
the release of `75 Cr. as an "immediate requirement" has been
misread to mean as the "only requirement" for working capital
facilities.
34. It is the appellant‟s case that the respondent Banks have
acted in direct contravention of their obligations under the JLRA
as well as the Circulars issued by the RBI by failing to disburse
funds to the appellant company. It is stated that RBI‟s Circular
dated 5th May, 2017 mandates that the terms of restructuring
package have to be complied with without any additional
conditionalities and it was in this context that the appellant had
filed the subject writ petition seeking implementation /
compliance of the extant RBI Circulars. Reliance is placed on
Sardar Associates and Others vs. Punjab & Sind Bank (2009) 8
SCC 257 and Gujarat State Financial Corporation vs. M/s.
Lotus Hotels Pvt. Ltd. (1983) 3 SCC 379. It is their case that
specific performance of JLRA is distinct from specific
performance of any other agreement since a JLRA is executed
under the aegis of RBI‟s Circular issued under Sections 21, 35A
and 35AB of the Banking Regulation Act, 1949. Therefore, in
the facts of the present case specific performance of the subject
JLRA would effectively mean directing the respondent Banks to
comply with Circulars issued by the RBI in exercise of its
regulatory power under the Act of 1949.
35. It is stated that negation of the aforesaid plea by the
learned Single Judge on the ground that there had been a
fundamental change in finances of the appellant company
severely and adversely affecting its ability to service its debts is
totally misconceived. It is their case that the learned Single
Judge has completely overlooked the fact that the appellant
company had failed to adhere with the repayment schedule only
on account of the respondent Banks‟ default in sanctioning
necessary working capital which hindered the appellant
company‟s ability to meet cash flow statements as envisaged in
the D&B TEV Report.
36. It is also stated that in light of the fact that the contents of
the PNBISL TEV Report had specifically been admitted by PNB
and ICICI Bank in their respective counter affidavits before the
learned Single Judge, there was no occasion to discredit and
refuse to rely on the said Report on the ground that the findings /
observations contained therein were not informed or backed by
specific analysis. Relevant extract of the said Report is as
follows:
"The Company complied with all the conditions of
restructuring scheme including payment of interest till 30-
09-2016. But WC limits were not released by Banks as
per TEV report / approved restructuring scheme.
Consequently, the restructuring scheme could not be
taken forward after 01.10.2016 and the Company could
not achieve its projections as per TEV report. Amounts
payable to Banks became overdue and loan accounts of
Company have been classified as Non-performing Assets
by the lending banks"
37. It is further the appellant‟s case that in terms of Clauses
7.3.1 and 7.3.2 of the JLRA the respondent Banks were mandated
to raise issues pertaining to an "event of default" in the manner
prescribed therein prior to initiating any recovery proceedings. It
is stated that the learned Single Judge has arrived at the finding
that there had been non-compliance of the said provisions,
however, still the action of respondent Banks in exiting the JLF
and initiating independent recovery proceedings has been
condoned. Reference is drawn to the Circular dated 5th May,
2017 to state that majority decision of the JLF would be binding
on all the lenders and the only exit option available to any lender
would be by way of substitution only.
38. It is stated that the learned Single Judge has relied on the
draft minutes of the meeting of the JLF held on 8 th February,
2017 wherein the respondent Banks had purportedly taken a
decision to change CAP from "restructuring" to "recovery"
thereby proceeding to initiate recovery proceedings. It is their
case that the said minutes of the meeting were strongly disputed /
objected to, inasmuch as the said document was introduced for
the first time only before the learned Single Judge and was never
communicated / informed to the appellant prior to the institution
of the writ petition. Further, admittedly the said minutes were
only "draft" minutes and the respondent Banks have failed to
produce any material / documents to show that the same were
eventually finalized thereby giving them a basis to initiate
recovery proceedings. In fact, from a perusal of the said draft
minutes it is seen that no formal decision to change CAP was
taken and the same was merely discussed. The relevant portion
reads as under:
"Under these circumstances JLF resolved that, in the
absence of any proposal for resolution, the CAP may be
changed to recovery mode and the necessary notices
under SARFAESI may be issued. ICICI Bank informed
that they are exploring the possibility of restructuring
under S4A and mandate for change of CAP shall be
subject to approval by their higher authority."
39. It is the appellant‟s case that in the absence of specific
documents / material showing that the aforesaid proposal to
change CAP to recovery mode was eventually approved, it could
not be concluded that the JLF had changed the CAP accordingly.
It is stated that on 24th April, 2017 the JLF had ratified the
minutes of its last meeting held on 22nd December, 2016 thereby
implying that there was no meeting convened by the JLF between
22nd December, 2016 and 24th April, 2017. Moreover, the
meeting held on 8th February, 2017 was attended by low ranking
officers and as such they were not competent to take any decision
with regard to changing the CAP.
40. Attention is drawn to the fact that in the meeting held on
21st June, 2017 the JLF had formally invoked S4A Scheme
thereby waiving and abandoning its right to initiate recovery
proceedings following the purported decision taken in the
meeting held on 8th February, 2017. The appellant therefore states
that the learned Single Judge‟s decision to uphold the action of
the respondent banks in initiating recovery proceedings is
completely unjustified and misconceived.
41. The appellant has sought to distinguish the Judgment of
the Supreme Court Innoventive Industries Ltd. v. ICICI Bank
and Anr. 2018 1 SCC 407 by contending that Section 238 of IBC
cannot override Section 35AA and 35AB of the Act of 1949,
which was introduced after the enactment of IBC, 2016. The
learned Single Judge had relied on the said judgment to state that
in view of Section 238 of IBC, insolvency proceedings once
initiated cannot be interdicted. It is their case that Section 238
will have no application in respect of laws which have been
enacted and brought into force by the Parliament after the
enactment of IBC, 2016. Reliance is placed on Shri Ram Narain
v. The Simla Banking and Industrial Company Ltd. AIR 1956
SC 614.
42. The appellant further states that the RBI issue Circulars
under Sections 21, 35A and 35AB of the Act of 1949 by virtue of
which it dictates the Banking Policy of the country which inter
alia includes the manner in which loans have to be advanced by
banking companies in larger public interest. With regard to
revitalization of stressed accounts, the RBI had issued Circulars
dated 30th January, 2014, 26th February, 2014 and 5th May, 2017.
The Circular dated 5th May, 2017 states as under:
"4. In this context, it is reiterated that lenders must
scrupulously adhere to the timelines prescribed in
the Framework for finalizing and implementing the
CAP. To facilitate timely decision making, it has
been decided that, henceforth, the decisions agreed
upon by a minimum of 60 percent of creditors by
value and 50 per cent of creditors by number in the
JLF would be considered as the basis for deciding
the CAP, and will be binding on all lenders, subject
to the exit (by substitution) option available in the
Framework. Lenders shall ensure that their
representatives in the JLF are equipped with
appropriate mandates, and that decisions taken at
the JLF are implemented by the lenders within the
timelines.
........
5. It shall be noted that
(i) .......
(ii) any bank which does not support the
majority decision on the CAP may exit
subject to substitution within the
stipulated time line, failing which it
shall abide by the decision of the JLF.
(iii) the bank shall implement the JLF
decision without any additional
conditionalities;
6. Any non-adherence to these instructions and
timelines specified under the Framework shall
attract monetary penalties on the concerned banks
under the provisions of the Banking Regulation Act
1949."
43. It is therefore the appellant‟s case that the duties and
obligations of the respondent banks under the restructuring
package / JLRA dated 27th June, 2015 are not merely contractual
in nature but are instead statutory in character. The JLRA, having
been executed under the aegis of the extant RBI Circulars, raised
certain legitimate expectations on part of the appellant company
that the respondent banks would comply with the same. It is
stated that implementation / compliance of the aforesaid Circulars
is not only important vis-à-vis the stressed assets in particular, but
is also critical in view of larger public policy involved and affects
the fiscal health of the nation at large.
44. The appellant states that the learned Single Judge has
erred in arriving at the finding that the appellant company could
have obtained credit facilities from outside the JLF. It is stated
that in terms of various clauses of the JLRA the appellant
company was precluded from obtaining multi-banking credit
facilities from outside the JLF. In fact, faced with delays / failure
on part of the respondent banks in disbursing necessary amounts,
the appellant had made a specific request to the JLF to permit
multi-banking facilities, the same was however denied.
45. The appellant also alleges malafides on part of the
respondent banks inasmuch as the S4A Scheme, in terms of RBI
Circulars dated 13th June, 2016 and 10th November, 2016, had to
be invoked and implemented within a period of 180 days,
however, the respondent banks failed to adhere to the said
timeline and admittedly delayed the appointment of a TEV
consultant as well as a forensic auditor, thereby defeating the
very purpose of invocation of S4A Scheme. Attention is also
drawn to the fact that the JLF had in its meetings held on 12th
January, 2018 and 23rd January, 2018 resolved to approach the
RBI to seek appropriate extension of time for consideration and
implementation of the S4A Scheme. However, contrary to the
said assurances the respondent banks later backed out and
withdrew their consent for invocation of the Scheme.
46. The appellant finally states that the learned single Judge
has examined the pleas taken by the appellant on a narrow and
constricted view / interpretation of the JLRA dated 27 th June,
2015 thereby treating the said Agreement as merely a commercial
contract lacking any statutory flavor. There has therefore been a
failure to appreciate the nexus between the statutory directions
issued from time to time by the RBI and the consequent
restructuring agreement arrived at between the parties. The
appellant has therefore challenged the impugned judgment on the
ground that even though it has been held that Circulars issued by
the RBI are binding on banking companies, implementations /
compliance of the same has not been directed especially in light
of the finding that respondent banks had delayed the release of
working capital which had admittedly been sanctioned by the
JLF, thereby also clearly violating the statutory duty cast on
members of the JLF under the subject RBI Circulars.
47. PNB / Lead Bank (PNB) in its counter-affidavit has only
stated that the learned Single Judge has rightly arrived at a
conclusion that the sanction of a sum of `59.68 Crores was a
separate transaction and not a part of the Approved JLF Package.
Additionally, the following documents with regard to the said
transaction have been placed on record:
1. Extract of the meeting of Board of Directors of
appellant held on 6th November, 2015.
2. Letter dated 2nd December, 2015 of the appellant
Company addressed to the answering respondent Bank.
3. Letter dated 2nd December, 2015 of the appellant
Company addressed to the answering respondent Bank.
4. Undertaking dated 2nd December, 2015 given by
appellant company to the answering respondent Bank.
5. Deed of Hypothecation of goods and Book debts to
secure cash credit facility dated 2nd December, 2015
executed and given by the appellant company to the
answering respondent Bank.
6. Agreement of Hypothecation of current assets
dated 2nd December, 2015 executed and given by
appellant Company to the answering respondent Bank.
7. Agreement of Guarantee dated 2nd December, 2015
executed and given by appellant Company to the
answering respondent Bank.
8. Agreement of 2nd Charge of Hypothecation of
moveable assets forming part of fixed / blocked assets
dated 2nd December, 2015 executed and given by
appellant Company to the answering respondent Bank.
SUBMISSIONS:-
48. Mr. Kapil Sibal, learned Sr. Counsel appearing on behalf
of the appellant submitted that the main issue arising out of the
present appeal is that respondent Banks failed to release Fund
Based Working Capital (FBWC) to the appellant Company as
envisaged in the Approved JLF Package that forms a part of the
"Restructuring" that was done by the Banks pursuant to statutory
framework introduced by RBI vide its Circulars dated 30th
January, 2014, 26th February, 2014 and 5th May, 2017. It was on
account of this failure to release Working Capital in terms of the
said Package that the Banks failed to comply with mandatory
directives of the RBI which cast a statutory duty on the Banks to
implement the Restructuring Package in a time bound manner.
49. Mr. Sibal would submit that the respondent Bank‟s
contention that the JLRA did not envision provision of working
capital beyond `75 Crores and that Annexures - 2 and 3 of the
D&B TEV Report were not a part of the Approved JLF Package
is completely misconceived and untenable inasmuch as the JLF
itself in its meeting held on 19th March, 2015 had commissioned
D&B to carry out the TEV Study, having adopted
"Restructuring" as the CAP. It was only after a detailed
assessment of working capital requirements of the appellant
Company that the said TEV Report had recommended
enhancement of working capital for each subsequent financial
year (Annexures 2 and 3). The said Report was adopted in its
entirety in the meeting held on 26th March, 2015.
50. He would also draw attention to the fact that the
subsequent sanction letter issued by PNB to the appellant on 30 th
March, 2015 was categorically subject to the aforesaid TEV
Report as were the sanction letters issued by the other Banks,
later on. He points out that the said sanction letters were issued
prior to the execution of the JLRA. Even the IEC, comprising of
senior RBI officials, had approved the said TEV Report in its
entirety without expressing any reservations with regard to the
subject Annexures.
51. Drawing attention to the definition of "Restructuring
Documents" he would submit that restructuring envisaged in the
present case, comprised of restructuring contained in the JLRA as
well as the one envisaged under the Approved JLF Package. It is
therefore submitted that the usage of the term "Approved JLF
Package" (which has been defined in Recital F to the JLRA to
mean D&B TEV Report) is distinct from the phrase "this
agreement" which two phrases have in fact been used separately
in the JLRA itself.
52. Attention is further drawn to clause 2.6.1 of JLRA
wherein the respondent Banks have undertaken to extend
working capital limits as per the "Approved JLF Package" in
terms of the projections contained in D&B TEV Report.
Mr. Sibal would submit that the said Clause uses the phrase
"Approved JLF Package" instead of "this agreement" and
therefore the respondent banks‟ contention that they were not
obligated to provide working capital in excess of `75 Crores is
contrary to the language of Clause 2.6.1 itself. He would refer to
the several letters written by the appellant to the respondent
Banks seeking release of additional working capital limits which
had never been denied / disputed by the Banks to submit that
their present contention is merely an afterthought.
53. Mr. Sibal would submit that the sanction of `59.68 Crores
by PNB is not a separate transaction but is in fact its pro-rata
share of the enhanced working capital limits envisaged in the
D&B TEV Report. He would submit that the said stance adopted
by the respondent Banks, which had never been taken before the
learned Single Judge, is false and misconceived inasmuch as after
the issuance of the said sanction letter dated 5th December, 2015,
PNB, vide letter dated 7th December, 2015, informed the other
Banks that it had sanctioned "it‟s share in the Consortium" and
requested the status of sanction by the other Banks. The
Permissible Banking Finance (PBF) note appended to the said
letter categorically states that working capital limits of `592.7
Crores had been sanctioned "as already accepted in the TEV
Study submitted at the time of restructuring".
54. Mr. Sibal would also submit that failure on the part of the
Banks to release working capital limits was discussed in the
following JLF meetings wherein none of the Banks disputed the
appellant‟s request on the ground that has now been adopted by
them. He would specifically refer to the JLF meetings held on
24th May, 2016 (read with letter dated 30th May, 2016) and 22nd
December, 2016. He would also point out that PNB in its
counter-affidavit before the learned Single Judge had
categorically admitted that the sanction letter dated 5th December,
2015 was a part of the "Approved JLF Package".
55. According to him, the said stand has been adopted by the
respondent Banks to overcome the conclusion arrived in the
PNBISL TEV Report which reads as follows:
"The company complied with all the conditions of
restructuring scheme including payment of interest till
30-09-2016. But WC limits were not released by banks as
per TEV Report / Approved Restructuring Scheme.
Consequently, the restructuring scheme could not be
taken forward after 01-10-2016 and the company could
not achieve its projections as per TEV Report. Amounts
payable to banks became overdue and loan accounts of
Company have been classified as Non-Performing Assets
by the lending Banks.
The said PNBISL TEV Report was never denied /
disputed by the banks.
56. Controverting the respondent Banks‟ argument that the
appellant had committed several defaults in its obligations under
the JLRA, he would submit that PNBISL TEV Report
categorically concludes that the appellant company had
complied with all conditions of restructuring scheme.
Moreover, in terms of Clauses 7.3.1 and 7.3.2 of the JLRA, the
respondent Banks were obligated to issue a prior notice in case
of an event of default. No such notice having been issued, the
said argument of the respondents is clearly untenable. He
would submit that in any case the said issue involves highly
disputed questions of facts and the same would be beyond the
scope of Article 226 of the Constitution of India.
57. It is Mr. Sibal‟s submission that in terms of the scheme of
IBC, specifically Section 7 thereof, in the proceedings
emanating therefrom, the appellant company would not in fact
have an opportunity to agitate its grievances before the NCLT.
The appellant company‟s accounts, having been restructured
under the JLRA governed by RBI Circular dated 5 th May, 2017,
issued under Section 35AB of the Act of 1949, must be tested
for "default" in terms of the procedure laid down in the JLRA
(Clauses 7.3.1 and 7.3.2) unlike a situation which is governed
by Section 35AA of the said Act which specifically incorporates
the definition of "default" from IBC. The respondent Banks‟
reliance on the definition of "default" as given in Section 3(12)
of IBC 2016 would therefore be completely misconceived.
According to him, resorting to IBC proceedings would be in
grave violation of the procedure given in the JLRA.
58. He would further submit that Section 238 of IBC cannot
override Section 35AB of the Act of 1949 and the Circulars
issued thereunder inasmuch as Section 238 seeks to override
such laws that stood in force as on date of enactment of IBC,
whereas Section 35AB had been introduced in the year 2017,
i.e., after the enactment of IBC, 2016. Reliance is placed on
Shri Ram Narain (Supra) and Ajoy Kumar Banerjee v. Union
of India and Ors. (1984) 3 SCC 127. Reiterating the stand
already adopted regarding reliance placed by the learned Single
Judge on Innoventive (supra), Mr. Sibal would further submit
that the Supreme Court therein merely declared supremacy of
IBC over Maharashtra Relief Undertaking Act, 1958 which is
admittedly hit by Section 238 unlike Section 35AB in the
present case. Moreover, the appellant herein had at the very
first instance raised dispute with the RBI vide letters dated 20th
January, 2017 and 17th March, 2017 with regard to failure to
release additional funds, which is quite unlike the situation in
Innoventive (Supra).
59. Mr. Sibal would refer to the judgment of the Supreme
Court in Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta,
Civil Appeal No. 9402-9405 of 2018 to submit that the
entertainment of writ petitions by a "Resolution Applicant" at a
stage after the petition has been admitted by the NCLT and an
IRP has been appointed must indeed be discouraged. However,
in the present case it is the corporate debtor / borrower which
has approached this court and therefore the said Judgment
would also have no applicability here. In conclusion Mr. Sibal
would submit that since the appellant has raised issues of
default on the part of the Banks which has led to a concomitant
violation of a statutory duty, the jurisdiction of this court under
Article 226 cannot be ousted to render the appellant remediless.
Reliance is placed on Gujarat State Financial Corporation
(supra), Sardar Associates (supra) and Mardia Chemicals v.
Union of India 2004 (4) SCC 311.
60. Mr. Rajesh Kr. Gautam, learned counsel appearing for the
PNB submits that there is no clause or provision in the JLRA in
terms of which the respondent Banks are mandated to sanction
working capital limits beyond `75 Crores to the appellant
without taking into consideration its actual performance.
Similarly, there is also no provision which mandates such
sanctions in terms of "estimated or projected figures" in terms
of D&B TEV Report. He would further submit that provisions
of the JLRA read with minutes of the meeting of the JLF dated
26th March, 2015 and the minutes of the IEC meeting dated 11 th
May, 2015 clearly indicate that there was no obligation to
sanction working capital beyond `75 Crores. Such sanction
beyond the said limit was at the sole discretion of the Banks.
61. It was Mr. Gautam‟s submission that the appellant had
vide letter dated 22nd September, 2015 submitted its audited
balance sheets as on 31st March, 2015 along with fresh CMA
data to PNB, seeking sanction of working capital in terms
thereof. The appellant company passed a Board Resolution on
6th November, 2015 "to avail credit facility from PNB" to obtain
cash credit hypothecation for execution of fresh document of
agreement and furnishing of securities by way of hypothecation,
mortgage and charge on fixed assets. Consequently, the
appellant executed separate documents such as Deed of
Hypothecation of Goods and Book Debts, Current Assets,
Guarantee, Second Charge of Hypothecation of Movable Assets
etc. on 2nd December, 2015. He would submit that the
managing Committee of PNB in the meeting held on 1 st
December, 2015 had sanctioned cash credit limit of `270.45 Cr.
(i.e. enhancement of `59.68 Cr. from existing `210.77 Cr.).
According to him, it is therefore clear that the said sanction of
`59.68 Cr. was a separate transaction on a separate request
made on 22nd September, 2015 and was on execution of separate
documents.
62. He further submitted that PNB had released only `30
Crores out of the said amount on account of the fact that the
appellant had failed to provide additional security equivalent to
the proposed enhancement limit. Even though, the PNB had,
vide letter dated 7th December, 2017, informed the other Banks
about the said sanction and requested to be informed about the
status of sanction by them, the other Banks in the consortium
decided not to take further exposer in view of financial
indiscipline on part of the appellant.
63. Mr. Gautam would further draw reference to minutes of
the meeting of the JLF held on 22nd December, 2016 and 24th
April, 2017 to submit that the decision to implement S4A
Scheme was taken at the request of the appellant company. He
would refer to the following extracts from minutes of relevant
meetings:
In the meeting held on 22.12.2016 it has been recorded
that "In Reply to the various queries by the Lenders the
Company informed that:-
(a) & (b) xxxx xxxx xxxx
(c) ......... However, the MD informed that at
present the Company‟s finances are not strong
enough to sustain the existing level of debts and so
S4A may be considered. The Company also agreed
that for this he shall have to keep the account in
standard category for which purpose he shall hold
discussion with the individual lenders........"
In the Meeting held on 24.04.2017 in Para 4 it has been
recorded:-
"4. Way forward - ...... Various options were
discussed at length at the end of which the
Company requested to consider the option of S4A
as a resolution strategy. Company also circulated
a note for reference of the JLF. After discussion it
was explained to the Company that it should
establish the eligibility criteria for S4A as per
guidelines and should come back with a detailed
working / request. Some of these guidelines are
explained to the Company are as follows:-
Eligibility criteria as per scheme
Technical Validity to be established
Sacrifice of the Company shall not be less
than that of the Banks
Immediate transfer of equity
The Company was informed that the Banks
shall not be taking any additional fresh
exposure and the funds if any shall have to
be brought in by the promoters from their
own sources.
The process shall be subject to the approval
of Overseeing Committees set up by the IBA.
Forensic Audit as per Scheme
Any other conditions as per the guidelines.
Meanwhile the Company was also advised to co-
operative with the Stock Auditor appointed by the
Lead Bank and get the Stock Audit / other audits
completed within any further delay. The Company
was also advised to submit all the necessary
information viz., financial, stock statements etc.
immediately so that a resolution strategy is put in
place in good time. Meanwhile the bankers shall
also take up internally regarding the S4A option
which shall be again discussed in the meeting
proposed to be held in the first week of June, 2017,
after the Company submits a formal proposal
accompanied by the requisite documents. It was
also decided to for a core committee of Bankers
with a representative from the Company to
coordinate the matter.
The Company was advised to ensure that all the
sale proceeds are routed through the designated
TRA account."
64. It is further submitted that the S4A Scheme could not be
implemented on account of the appellant company failing to
meet the eligibility criteria. In the JLF meeting held on 21st
June, 2015 a Core Committee was constituted for the
implementation of S4A Scheme including for appointment of a
Forensic Auditor. On 30th December, 2017 PNBISL TEV
Report, Stock Audit Report and the progress of Forensic Audit
were considered. On 12th January, 2018 the JLF agreed to
approach the RBI for condonation of delay in implementation of
S4A Scheme subject to Forensic Audit Report being
satisfactory. In the meeting held on 23rd January, 2018 the issue
of delay in finalization of Forensic Audit Report was again
considered and the appellant company was directed to furnish
all relevant data to the auditors by 24th January, 2018 and the
auditors were to submit a draft report by 25th January, 2018. The
issue of non-payment of up-front fee of the auditors by the
appellant company was also brought up. In the meeting held on
9th February, 2018 it was recorded that the Forensic Audit
Report had already been circulated and therefore High Risk and
Medium Risk Point of the report were discussed. In the meeting
held on 22nd March, 2018 the Banks decided to share the
auditor‟s fee among themselves as the company had declined to
pay the balance fee. Axis Bank and ICICI Bank, having already
conveyed their respective mandate for withdrawal from the S4A
Scheme (meeting held on 9th February, 2018), and on account of
limitation for the said scheme nearing expiry coupled with the
appellant company‟s non-cooperation, jointly decided to file
joint suit against the company and guarantors before the DRT.
65. Mr. Gautam would submit that the appellant company‟s
argument that the respondent Banks were bound to sanction
working capital beyond `75 Crores in terms of the JLRA, was
raised only after the Forensic Audit Report highlighted certain
High Risk and Medium Risk Points; ICICI Bank filed a case
before NCLT and the consortium decided to file a joint suit
before the DRT. Moreover, the said argument was also never
raised in any of the meetings of the JLF.
66. In conclusion Mr. Gautam submits that the appellant
company has not approached this Court with clean hands
inasmuch as even though it was aware about the Forensic Audit
Report being against it the same has not been mentioned
anywhere in the writ petition. Following the production of the
said audit report by PNB, the appellant company in its rejoinder
merely adopted the stand that the same was irrelevant. He would
also submit that without prejudice to his case even if there was
an actual violation of the terms of the JLRA the appellant
company could not invoke the writ jurisdiction of this Court for
the enforcement of the said terms. Reliance is placed on State
of U.P. and Others v. Bridge and Roof & Company Ltd. 1996
(6) SCC 22; Kerala State Electricity Board and Anr. V.
KUrien E. Kalathil & Ors. 2000 (6) SCC 293; Binny Ltd and
Anr. v. V. Sadasivam and Ors. reported in 2005 (6) SCC 657
and State of Kerala and Ors. vs. M.K. Jose reported in 2015 (9)
SCC 433.
67. Finally, he would submit that in terms of the law laid
down by the Supreme Court, a corporate debtor cannot seek stay
of proceedings initiated under IBC 2016 and remedy against
proceedings initiated under SARFAESI Act would lie with the
borrower only in terms of the Section 17 of the Act.
68. Mr. Ramji Srinivasan, learned Senior Counsel appearing
for the respondent No.3 would, in addition to supporting the
stance adopted by Respondent No. 2, submit that the appellant
company was in continuous default on almost all its payment /
repayment obligations due to which the JLF package failed:
a. Default on interest payment and repayment;
b. Default in routing transactions through Trust and
Retention Account (TRA);
c. Default in payment of Promoters‟ Contribution of `18.44
Cr. (out of which only `12.49 Crores was paid much later).
69. He would refer to Clause 2.6 of the JLRA to submit that
release of additional funds was subject to the discretion of the
lending Banks. Further, by virtue of Clause 5.1 (t) of the JLRA
the repayment / payment obligations of the appellant company
were unconditional and thus upon non-payment of prescribed
amounts the appellant committed default. Further, according to
him, from a bare perusal of the JLRA, in order to construe and
interpret the obligations thereunder, reference cannot be made to
any document beyond the JLRA and Restructuring Documents
as approved.
70. Mr. Srinivasan would draw our attention to the decision
in Indian Oil Corporation Ltd. v. Sanjeev Kumar 2015 SCC
Online Del. 6503 to submit that the impugned judgment, having
factored in all the contentions and submissions made by all the
parties, could not be said to be implausible or unreasoned and
therefore the question of entertaining the present appeal to
disturb any finding arrived at therein does not arise. Since it is
not the appellant‟s case that the findings of the learned Single
Judge are perverse or patently illegal, the present appeal would
be beyond the scope of interference and thus deserves to be
dismissed at the threshold. It is his submission that the subject
writ petition had been filed by the Appellant with the sole aim
of derailing the proceedings initiated against it under IBC, 2016,
despite the law laid down by the Supreme Court in Chitra
Sharma and Ors. vs Union of India, W.P. (C) 744/2017, and
Arcelor Mittal (supra).
71. He would submit that following the acceptance of the
appellant company‟s request to adopt "Restructuring" as the
CAP by the JLF and execution of JLRA in pursuance thereof,
the appellant, instead of complying with the obligations arising
thereunder, began to default in repayment of principal amount
and interest dues. The appellant‟s account was reported as a
"Red Flag Account" by ICICI Bank and in the meeting of the
JLF held on 22nd December, 2016 wherein issue of financial
indiscipline was also raised. It was therefore decided that ICICI
Bank would not undertake any additional exposure with respect
to the appellant company.
72. Vide letter dated 2nd February, 2017, the appellant
company was informed that its account maintained with ICICI
Bank was declared as an NPA as on 31st December, 2016 and
related information with regard to outstanding dues was also
conveyed. In the JLF meeting held on 8th February, 2017, the
CAP was changed from "Restructuring" to "Recovery"
following which respondent nos. 2, 4 and 5 issued notices under
Section 13 (2) of SARFAESI Act to the appellant company.
However, only as a matter of goodwill gesture, in the meeting
held on 24th April, 2017, the lenders agreed to implement any
viable proposal for resolution of the appellant‟s debt in terms of
S4A Scheme of the RBI subject to satisfactory Forensic Audit
Report. The proposal of S4A Scheme was considered in light of
the appellant‟s financial indiscipline which had resulted into a
substantial portion of the debt becoming unsustainable. It was
only on account of non-closure of the Forensic Audit Report
within 180 days that ICICI Bank withdrew its consent for the
S4A Scheme on 23rd January, 2018. Subsequently, the appellant
was also issued a recall notice whereby it was requested to pay a
sum of `1,77,77,60,053.15/- within 7 days from receipt of said
notice and not to alienate or dispose of any of its properties and
assets. The said notice, having been received by the appellant
on 8th January, 2018, and failure to repay in terms thereof led to
the appellant being in further default.
73. Accordingly, it was on 18th January, 2018 that ICICI
Bank issued notice under Section 13 (2) of SARFAESI Act. In
the JLF meeting held on 9th February, 2018, the draft Forensic
Audit Report which had already been circulated was considered
and on it highlighting several counts of high and medium levels
of unusual indication on transactions and operations of the
appellant company, ICICI Bank elected to initiate proceedings
under Section 7 of IBC. Even respondent no.4 had stated its
intention to withdraw from the S4A Scheme in the same
meeting. Mr. Srinivasan would point out that the minutes of the
said meeting categorically record that "all other member Banks
agreed to proceed with CIRP proceedings".
74. As regards the appellant‟s contention that the learned
Single Judge erred in arriving at the finding that enhancement of
working capital limits in every subsequent year as shown in the
D&B TEV Report does not figure in the JLRA, Mr. Srinivasan
would submit that the only additional working capital agreed to
and recorded in the JLRA was a sum of `75 Crores and the
same was also accepted by the IEC. According to him, there has
been a deliberate misreading of the "Approved JLF Package" by
the appellant whereby it is claiming additional capital of over
`529 Crores over 10 years including immediate release of `136
Crores. While referring to Para 2.5 of Article II of the JLRA
Mr. Srinivasan would submit that that it is only the JLRA and
other Financing Documents that constitute the entire agreement
between the parties, subject to terms and conditions mentioned
in Schedule III and Schedule XI of the JLRA. Further, details
of "Facilities" as agreed to be provided by the respondent Banks
is defined to mean "Facility A to I" in Schedule III. The
working capital limit agreed to be provided by the Banks is
defined at "Facility H" which in turn referred to Schedule X in
JLRA.
75. It is submitted that the expression "Approved JLF
Package" as defined in recital „F‟ of the JLRA is clear to the
effect that the scheme of restructuring is for the "Existing
Facilities" and would mean to be the package as was finally
approved in the JLF meeting held on 23rd June, 2015.
Mr. Srinivasan would refer to the appellant‟s letter dated 7th
June, 2015 to support the view that agreed restructuring did not
include provision of any additional working capital beyond `75
Crores. None of the documents executed by the respondent
Banks record any commitment to provide additional funding
and clause 2.6.1of the JLRA expressly provides that the same
would be at the Bank‟s sole discretion.
76. Mr. Srinivasan would point out that the appellant has also
defaulted with respect to several other stipulations contained in
the JLRA namely, (i) upfront promoter‟s contribution of `18.44
Crores; (ii) requirement to route all trading transactions through
TRA; and (iii) regular payment of monthly interests as per
respective due dates mentioned in the payment schedule in the
JLRA. Even though the respondent Banks had given liberal
extensions to the appellant to regularize its accounts, it
continued to default and, in such circumstances, it cannot
demand additional funding as a matter of right.
77. According to Mr. Srinivasan it would be incorrect to state
that the Banks have taken an unlawful step in initiating recovery
proceedings against the appellant. He would refer to minutes of
the JLF meeting held on 8th February, 2017, where the CAP was
changed from "restructuring" to "recovery" and the meeting
held on 22nd March, 2018 where all the Banks agreed to initiate
CIRP proceedings. He would submit that the appellant‟s
contention that the decision to initiate "recovery" was
abandoned by the Banks once the decision to implement S4A
scheme was taken is highly misplaced inasmuch as the same
was proposed to be invoked only as a goodwill gesture and
further, subject to the Forensic Audit Report being satisfactory.
78. As regards the appellant‟s reliance on the conclusion of
the PNBISL TEV Report that it had complied with all the
conditions but it was the Banks that had not released working
capital limits in accordance with the approved restructuring
scheme, Mr. Srinivasan would refer to the observations of the
learned Single Judge that the said conclusion was a mere
observation and not an informed finding and the respondent
Banks were under no obligation to provide any additional
working capital to the appellant. It would be incorrect to state
that the learned Single Judge has substituted his view for that of
a technical consultant and in fact he has merely observed that
the aforesaid conclusion was not backed by any substantive
material or discussion contained in the said TEV Report. In any
case, the Forensic Audit Report has made several adverse
comments against the appellant with respect to sustainability of
its debts.
79. Mr. Srinivasan submits that the case of Innoventive
Industries (Supra) is squarely applicable to the facts of the
present case inasmuch as the Clause 5.1 (t) of the JLRA is
identically worded as a subject clause that was considered in the
said case. Merely because the appellant herein had raised the
issue of non-provision of additional funds right at the threshold,
it would not mean that its unconditional obligation to pay dues
had been rendered ineffective. Further the appellant‟s argument
that Section 238 of IBC would not override Sections 35AA and
35AB of the Act of 1949 simply because the same were enacted
after enactment of IBC, is based on a principle of interpretation
of statutes, however the said principle has consistently been held
to be subject to the exception that a general provision cannot
derogate a special one. Reliance is laid on Yakub Abdul Razak
Memon v. State of Maharashtra, 2013, 13 SCC 1.
80. It is Mr. Srinivasan‟s submission that a TEV Study
Report can never be a conclusive or legally binding document
for the purposes of restructuring. In this regard, he would refer
to Clause 3.3.3 of the RBI Circular dated 30th January, 2014,
which reads as follows:
"For accounts with AE above Rs.5000 million, the
abovementioned TEV Study and restructuring package
will have to be subjected to an evaluation by an
Independent Evaluation Committee (IEC) of experts
fulfilling certain eligibility conditions. The IEC will
look into the viability aspects after ensuring that the
terms of restructuring are fair to the lenders."
81. As regards the appellant‟s contention that sanction of
additional package by PNB vide letter dated 5th December, 2015
formed a part of the JLRA, Mr. Srinivasan would submit that
had the same additional facility formed the part of the package,
there would not have been requirement of any further "sanction"
and "creation of separate additional securities" and the said
facility would have found a mention in the JLRA package itself.
The very fact that the appellant executed separate bilateral
documents with PNB and provided additional securities
confirmed that the said facility was not a part of the
restructuring package. He would refer to Inter Creditor
Agreement dated 27th June, 2015 which clearly states that all
credit decision and additional facilities would be subject to
decision of the respective lender‟s competent authority.
82. It is submitted that the provisions of the amendments
incorporated in the Banking Regulations, 1949 merely empower
the Central Government and the RBI to issue directions for
resolution of stressed assets and the same does not create any
entitlement or rights in the hands of the borrower (appellant
herein), who is admittedly a defaulter. Reference is drawn to
Ankit Patni v. State Bank of India, Company Appeal (AT)
(Insol.) No. 369/2018. Moreover, proceedings under IBC are in
the nature of judicially monitored resolution of stressed assets,
and according to Mr. Srinivasan, if the appellant does indeed
want resolution of its debts, it should not adopt malafide ways
of evading from the rigours of IBC and the time bound
resolution process prescribed therein.
83. In conclusion, Mr. Srinivasan would submit that the
impugned judgment wherein the learned Single Judge has in
fact considered all contentions of the appellant herein and
adjudicated all the issues raised is neither perverse nor patently
illegal.
84. In rejoinder Mr. Sibal would reiterate that the PNB
sanction dated 5th December, 2015 is in fact not a separate
transaction and that the projections contained in the D&B TEV
Report formed an integral part of the "Approved JLF Package".
He would also submit that in Section 7 proceedings, the
appellant would have no scope to raise the existence of any
"dispute" unlike the case of an "operation creditor". The
appellant has therefore approached this Court under Article 226
seeking relief against violation of statutory circulars issued by
the RBI. The said circulars having statutory force and are fully
binding in nature.
85. Having heard the learned counsel for the parties, the issue
which arises for consideration is whether the learned Single
Judge was justified in dismissing the writ petition. The answer
to this issue lies in the fact, whether the JLRA did provide for
working capital beyond `75 Crores.
86. The submissions of Mr. Sibal as noted above can be
summed up as below: -
(i) That the Banks have failed to comply with mandatory
directions of RBI, issued vide circulars dated January 30,
2014, February 26, 2014 and May 05, 2017, which casts a
statutory duty on the Banks to implement the
Restructuring Package in a time bound manner;
(ii) That, the stand of the Banks that the JLRA did not
envisage provision of capital beyond `75 Crores and that
Annexures 2 and 3 of the D&BTEV Report were not part
of the "Approved JLF Package" is completely
misconceived inasmuch as the JLF itself in its meeting
held on 19th March, 2015 had commissioned D&B to
carry out the TEV Study, having adopted "Restructuring"
as the CAP. The TEV recommended the enhancement of
working capital which was adopted in its entirety in the
meeting held on 26th March, 2015; sanction letter issued
by the PNB to the appellant on 30th March, 2015; IEC
comprising of Senior RBI officials had approved the TEV
report in its entirety without expressing any reservation
with regard to the subject Annexures.
(iii) The restructuring envisaged comprised of "Restructuring"
contained in the JLRA as well as the one envisaged under
the "Approved JLF Package". So, the Approved JLF
Package is distinct from the phrase "this agreement"
which phrase has been used separately in the JLRA itself.
(iv) As per Clause 2.6.1 of the JLRA, the Banks have
undertaken to extend working capital limits as per
"Approved JLF Package" in terms of the projections
contained in D&BTEV Report.
(v) Restructuring was to be done in terms of the "Approved
JLF Package" instead of "this agreement" and therefore
the respondents Banks‟ contention that they are not
obliged to provide capital over and above `75 Crores is
contrary to language of clause 2.6.1.
(vi) The sanction of `59.68 Crores is not a separate
transaction, but in fact, it was PNB‟s pro-rata share of
enhanced working capital as per TEV report and it is also
clear from the letter dated 7th December, 2015 to other
Banks saying "its share in the consortium", and the
Permissible Banking Finance note appended to the said
letter which categorically states that the working capital
limits of `592.7 Crores had been sanctioned "as already
accepted in the TEV study submitted at the time of
restructuring".
(vii) The failure on the part of the Banks to release working
capital limits was discussed in the JLF meeting, wherein
none of the Banks disputed the request on the ground
JLRA did not envisage provision of working capital
beyond `75 Crores. Reference is made to the counter-
affidavit of the PNB, wherein it is admitted that the
sanction letter dated 5th December, 2015 was part of the
"Approved JLF Package".
(viii) That the stand adopted by the Banks was to overcome
PNBISL TEV Report of December, 2017, wherein it is
stated that the Company has cleared all the conditions of
restructuring including payment of interest till 30th
September, 2016. But working capital limits were not
released by the Banks as per D&B TEV report /
Approved Restructuring Scheme. Consequently, the
restructuring scheme could not be taken forward after 1 st
October, 2016 and the company could not achieve the
projections as per the D&B TEV Report. Amounts
payable to banks became overdue and loan accounts of
company had been classified as NPA‟s by the lending
Banks.
(ix) He denied that the company had committed several
defaults. He also relied on Clauses 7.3.1 and 7.3.2 of the
JLRA which obligated the Banks to issue notice in the
case of default. No such notice was issued to the
Appellant.
(x) The appellant would not have an opportunity to agitate its
grievances before the NCLT. The company accounts
having been restructured under the JLRA in terms of
Circular dated 5th May, 2017, issued under Section 35AB,
must be tested for "default" in terms of procedure laid
down in the JLRA, unlike a situation governed by Section
35AA of the Act. So, resorting to the IBC proceedings
would be in grave violation of the procedure given in the
JLRA.
(xi) Section 238 of the IBC cannot override Section 35AB of
the Act of 1949 and the Circulars issued thereunder
inasmuch as Section 238 seeks to override such laws that
stood in force on the date of enactment of IBC, whereas
Section 35AB was introduced in the year 2017.
(xii) Reliance placed by the ld. Single Judge on the Judgement
of the Supreme Court on Innoventive (Supra) is
misconceived, inasmuch as the Supreme Court had only
declared supremacy of the IBC over Maharashtra Relief
Undertaking Act, 1958 which is admittedly hit by Section
238 unlike Section 35AB in the present case.
(xiii) He refers to the Judgment of the Supreme Court in
Arcelor Mittal India Pvt. Ltd. (supra) to submit that the
entertainment of the writ petition by a Resolution
application at a stage after the petition has been admitted
by the NCLT and an IRP has been appointed must
bediscouraged. However, in the present case, it is the
corporate debtor / borrower which approached this court
and therefore the said judgment has no application.
87. We are not in agreement with the arguments put forth by
Mr. Sibal. In fact, the submissions made by Mr. Sibal are
similar to the ones made by him before the learned Single
Judge. The learned Single Judge has dealt with these
submissions, inasmuch as there is nothing on record to show
that the Banks were under obligation to release capital beyond
`75 Crores. The said conclusion was arrived at by the learned
Single Judge in paras 49, 51 to 53 and 61 to 76. The said
paragraphs, we reproduce as under: -
"49. The next question to be examined is whether the
respondent banks had defaulted in performance of their
obligations under the JLRA. According to the petitioner, the
CAP (the approved JLF Package) as agreed to between the
petitioner and the respondent banks entail an obligation for
the respondent banks to provide additional working capital
of `75 crores in the initial year and further working capital
(as projected under the D&B TEV Report) for the
subsequent periods.
XXXXX XXXXX XXXXX
51. The restructuring proposal as set out in the D&B TEV
Report is reproduced below:
" Restructring proposal
A. Cut-off Date - October 1st . 2014
Term Loan outstanding as on cut-off date is INR 320 million and CC outstanding as on
cut- off date is INR 8,638.80 million.
i. Term Loan
The Term Loan outstanding of INR 320 millon shall be restructured as
follows:
o The Company proposes 24 months moratorium from the cut-off date for
repayment of term loan and repayment to be made in 32 quarterly instalments
from the quarter ended December 2016.
o The Interest moratorium on term loan is proposed for first 24 months from
cut-off date and the same be funded (to be converted into FITL). The
repayment of FITL to start after 24 months from cut-off date. The Company
will pay interest as and when due on FITL.
o The Company is proposing reduction in term loan Interest rate to 10.75 /o.
(INR Millions)
Particulars Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25
Opening Balance 320.00 320.00 320.00 312.00 296.00 272.00 240.00 208.00 160.00 96.00 32.00
Addition /
Disbursement
Repayment 0.00 8.00 16.00 24.00 32.00 32.00 48.00 64.00 64.00 32.00
Closing Balance 320.00 320.00 312.00 296.00 272.00 240.00 208.00 160.00 96.00 32.00 -
Interest Charged to
P&L 0.00 34.49 34.12 24.62 31.07 27.95 24.57 20.84 14.60 7.71 1.29
Interest Converted 34.49 17.25
to FITL - III
ii. Working Capital Term Loam (WTCL)-I
o Irregularity of INR 4,360 million considering all fund based limits is proposed to
be converted into WCTL-I. To assess the irregularity, the Drawing Power is
considered at INR 3,869.20 million as on Cut-off date 1st October, 2014.
Indicative breakup of WCTL- I shall be as detailed under -
(INR Millions)
Particulars Value
CC Outstanding 8,636.80
Less: Interest debited after cut-off date 407.60
Less: MPBF/Available DP 3,869.20
DP Shortfall (WCTL - I) 4,360.00
Total WCTL - I 4,360.00
o Interest Rate on WCTL -I is proposed at 10.75% through the restructuring tenure.
o Moratorium on Principal repayment is proposed to be 24 months (upto 30th
September, 2016) from Cut-off Date.
o The interest moratorium is proposed to be 24 months from cut-off date and is
proposed to be funded and converted into FITL.
o Repayment of WCTL proposed to be made in 32 quarterly installments
commencing from quarter ended December 2016. The detailed repayment is as
exhibited under -
(INR Millions)
Particulars Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25
4,360.0
Opening Balance 0 4,360.00 4,360.00 4,251.00 4,033.00 3,706.00 3,270.00 2,834.00 2,180.00 1,308.0
Addition /
Disbursement
Repayment 0.00 109.00 218.00 327.00 436.00 436.00 654.00 872.00 872.00
Closing Balance 4,360.00 4,033.00 3,706.00 3,270.00 2834.00 2,180.00 1,308.00 436.00
4,360. 4,251.0
Interest Charged to
P&L 469.99 464.33 442.35 414.55 370.11 322.28 266.67 175.86 82.
Interest Converted to
FITL - I 469.99 234.99
iii. Working Capital Term Loan (WCTL) - II
o Moratorium on Principal repayment is proposed to be 24 months (upto 30th
September, 2016) from Cut-off Date.
o Interest Rate on WCTL - II is proposed at 10.75% through the restructuring
tenure.
o The interest moratorium is proposed to be 24 months from cut-off date and
is proposed to be funded and converted into FITL.
o Repayment of WCTL-II is proposed to be made in 32 quarterly instalments
commencing from quarter ended December 2016. The detailed repayment
is as exhibited under -
(INR Millions)
Particulars Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25
245.00 245.00 238.88 226.63 208.25 183.75 159.25 122.50 73.50 24.50
Opening Balance
Addition /
Disbursement
Repayment 0.00 0.00 6.13 12.25 18.38 24.50 24.50 36.75 49.00 49.00 24.50
Closing Balance - 245.00 238.88 226.63 208.25 183.75 159.25 122.50 73.50 24.50 -
Interest Charged to
P&L 0.00 24.50 26.09 24.86 23.29 20.79 18.11 14.98 9.88 4.63 0.33
Interest Converted to
FITL - IV 24.50 13.20
iv. Fund Based Working Capital (CC)
o The total outstanding working capital as on the cut-off date is INR 8,636 million and
drawing power is arrived at INR 3,869.20 million.
o The rate of interest on working capital post restructuring is proposed to be 10.75%.
o Assessment of Fund Based Requirement for the restructuring period is as given in table
below:
(INR Million)
Particulars Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25
3,869.2 3,869.2 3,869.2 3,869.2
Opening Balance 0 3,869.20 0 3,869.20 3,869.20 3,869.20 3,869.20 3,869.20 3,869.20 0 0
Addition /
Disbursement
Repayment
Interest Rate 10.75% 10.75% 10.75% 10.75% 10.75% 10.75% 10.75% 10.75% 10.75% 10.75% 10.75%
Interest Charged to
P&L 415.94 415.94 415.94 415.94 415.94 415.94 415.94 415.94 415.94 415.94
Interest Converted to
FITL - II 415.94 207.97
v. Funded Interest Term Loan (FITL)
o Interest on sustainable part CC / fund based working capital, WCTL and TL is
proposed to be funded for 24 months from cut-off date and converted to FITL.
o Interest on FITL is proposed to be charged at 10.75% annually.
o Interest on FITL shall be paid as and when due.
o Principal repayment moratorium up to quarter ended December 2016.
o Repayment in 32 quarterly instalments commencing from quarter ended
December 2016.
The detailed repayment schedule of FITL - I (on WCTL - I) is as under -
(INR Million)
Mar-
Particulars 15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25
Opening Balance 240.34 240.34 710.33 921.71 874.50 803.67 709.24 614.81 473.16 284.30 95.43
Addition / 469.99 234.99
Disbursement
94.4
Repayment 0.00 23.61 47.22 70.82 94.43 3 141.65 188.86 188.86 95.44
Closing Balance 240.34 710.33 921.71 874.50 803.67 709.24 614.81 473.16 284.30 95.43 -0.00
Interest Charged to 69.9
P&L 0.00 49.12 93.30 95.92 89.90 80.28 2 57.86 38.20 17.92 1.29
The detailed repayment schedule of FITL - II (on Working Capital) is as under -
(INR Million)
Mar- Mar- Mar-
Particulars 15 Mar-16 Mar-17 18 Mar-19 Mar-20 21 Mar-22 Mar-23 Mar-24 Mar-25
Opening Balance 213.28 213.28 629.22 816.26 774.41 711.62 627.90 544.19 418.61 251.18 83.75
Addition /
Disbursement 415.94 207.97
Repayment 0.00 20.93 41.86 62.79 83.72 83.72 125.57 167.43 167.43 83.72
Closing Balance 213.28 629.22 816.26 774.41 711.62 627.90 544.19 418.61 251.18 83.75 0.03
Interest Charged to
P&L 0.00 43.54 82.61 84.95 79.60 71.07 61.88 51.21 33.77 15.79 1.12
The detailed repayment schedule of FITL - III (on Term Loan) is as under -
(INR Million)
Mar- Mar- Mar-
Particulars 15 Mar-16 Mar-17 18 Mar-19 Mar-20 21 Mar-22 Mar-23 Mar-24 Mar-25
Opening Balance 25 25.00 59.49 74.82 70.98 65.23 57.56 49.88 38.37 23.02 7.67
Addition /
Disbursement 34.49 17.25
Repayment 0.00 1.92 3.84 5.76 7.67 7.67 11.51 15.35 15.35 7.67
Closing Balance 25.00 59.49 74.82 70.98 65.23 57.56 49.88 38.37 23.02 7.67 0.00
Interest Charged to
P&L 3.88 7.47 5.91 7.45 6.70 5.89 5.00 3.51 1.85 0.31
The detailed repayment schedule of FITL - IV (on WCTL - II) is as under -
(INR Million)
Mar- Mar- Mar-
Particulars 15 Mar-16 Mar-17 18 Mar-19 Mar-20 21 Mar-22 Mar-23 Mar-24 Mar-25
Opening Balance 24.50 24.50 36.76 34.87 32.05 28.28 24.51 18.85 11.31 3.77
Addition /
Disbursement 13.20
Repayment 0.00 0.00 0.94 1.89 2.83 3.77 3.77 5.66 7.54 7.54 3.77
Closing Balance - 24.50 36.76 34.87 32.05 28.28 24.51 18.85 11.31 3.77 -
Interest Charged to
P&L 0.00 1.09 3.60 3.82 3.58 3.20 2.79 2.30 1.52 0.70 0.05
52. It is apparent from the above that restructuring
proposal did not include induction of any immediate funds.
However, the D&B TEV Report also contained a tabular
statement depicting the projected Financial highlights of the
petitioner. This statement was not a part of the restructuring
proposal as set out hereinbefore. The said table is
reproduced below:-
"The below table depicts the projected financial highlight of
the LEFL.
Particulars Projected
2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
13,427.8
Net Sales 7,158.96 10,703.08 11,952.14 7 15,876.83 18,253.04 20,047.94 21,070.31 22,142.14 22,169.94 22,199.21
% Growth -55.89% 49.51% 11.67% 12.35% 18.24% 14.97% 9.83% 5.10% 5.09% 0.13% 0.13%
EBITDA -1,921.10 1,193.97 1,457.79 2,074.56 2,213.22 2,606.44 2,888.87 3,014.12 3,132.04 3,085.71 3,036.13
EBITDA Margin -26.83% 11.16% 12.20% 15.45% 13.94% 14.28% 14.41% 14.31% 14.15% 13.92% 13.68%
Net Profit (3,390.52) (352.00) (228.15) 295.26 389.62 759.50 1,266.48 1,442.54 1,626.37 1,708.96 1,767.27
Net Profit Margin -47.36% -3.29% -1.91% 2.20% 2.45% 4.16% 6.32% 6.85% 7.35% 7.71% 7.96%
11,003.7
Break-Even Sales -1,739.91 16,512.72 15,549.41 1 12,138.67 10,978.15 7,277.59 6,413.62 5,510.33 4,436.25 3,546.94
Break-Even Capacity -7% 89% 83% 57% 64% 58% 38% 34% 29% 23% 19%
Share Capital (Incl.
Promoters'
Contribution) 132.98 132.98 132.98 132.98 132.98 132.98 132.98 132.98 132.98 132.98 132.98
Reserves and Surplus 3,743.56 3,391.57 3,163.42 3,458.68 3,848.30 4,607.80 5,874.28 7,316.82 8,943.19 10,652.15 12,419.42
Total Net Worth
(TNW) 3,876.54 3,524.55 3,296.40 3,591.66 3,981.28 4,740.78 6,007.26 7,449.80 9,076.17 10,785.13 12,552.40
13,093.7
Secured Loan 9,777.92 12,195.78 13,238.72 9 13,304.64 13,108.35 12,812.06 12,235.24 11,340.73 9,981.41 9,303.43
Unsecured Loan 190.00 190.00 190.00 190.00 190.00 190.00 190.00 190.00 190.00 190.00 190.00
Debt-Equity Ratio 2.57 3.51 4.07 3.70 3.39 2.81 2.16 1.67 1.27 0.94 0.76
Total Outside 13,809.1
Liabilities (TOL) 10,830.60 13,164.72 14,083.63 9 13,887.52 13,565.37 13,265.20 12,697.13 11,809.04 10,454.06 9,778.53
TOL/ TNW 2.79 3.74 4.27 3.84 3.49 2.86 2.21 1.70 1.30 0.97 0.78
Cash / Bank Balance 93.50 245.07 384.57 624.43 698.21 1,093.03 1,429.04 1,619.99 1,639.75 1,938.43 3,044.13
53. The D&B TEV Report was submitted on
27.03.2015. Thereafter, the respondent banks (other than
Axis Bank) issued sanction letters for restructuring of the
existing facilities. PNB and Syndicate Bank issued their
respective sanction letters on 30.03.2015; ICICI Bank
issued its sanction letter dated 10.04.2015 and Axis Bank
issued its sanction letter on 25.06.2015. The sanction letter
issued by PNB also indicated a reference to `75 crores as
additional working capital limit. The same was in reference
to the condition requiring the petitioner to secure a working
capital limit of `461.93 crores the breakup of which was
indicated as "Current DP of `386.93 C + `75.00 Cr as
additional proposed". None of the sanction letters had any
reference of any further funding in addition to `75 crores.
XXXXX XXXXX XXXXX
61. In any view of the matter, the parties had reduced
their agreement in writing by entering into the JLRA. Thus,
the question whether the respondent banks had any
commitment to provide additional funding must be
examined on the basis of the express terms of the JLRA.
62. The term "approved JLF Package" is defined
under Article 1 of the JLRA to have the same meaning as
given to the said term in recital „F‟ of the JLRA. Recital „F‟
of the JLRA reads as under:-
"F. At the request of the Borrower and in consideration
of the Borrower‟s commitment to improve its operations,
the request of the Borrower was referred to the joint
lenders forum (hereinafter referred to as the "JLF"), a
non-statutory voluntary mechanism for the efficient
restructuring of corporate debt. Pursuant thereto, the
Lenders at their meeting held on March 19, 2015 agreed
for restructuring of Existing Loans as corrective action
plain. Pursuant thereto Dun & Bradstreet (D&B) was
requested to draw a Techno Economic Viability Report
(the "TEV Report") on the restructuring of Existing
Loans and it submitted its TEV Report on March 27,
2015 along with the final restructuring package and
after perusal of the said report, the Lenders /Lead Bank
have agreed to restructure the Existing Loan subject to
the terms and conditions as decided by the JLF, in its
meeting dated March 27, 2015 and finally approved in
JLF dated June 23, 2015 (hereinafter referred to as the
"Approved JLF Package")."
63. Paragraph 2.5 of Article II of the JLRA provides
for restructuring and reads as under:-
"2.5 RESTRUCTURING
Each of the Lenders and the Borrower hereby agree that
the Existing Loans shall hereby stand reconstituted and
or restructured as mentioned herein below
On and from the Effective Date the provisions of the
Existing Financing Documents and Existing Security
Documents relating to each of the Lenders shall
continue to be binding in so far they not inconsistent
with the provisions of the Restructuring Documents and
the Security Documents in relation thereto.
It is agreed that the reasonable determination by the
Lenders as to whether provision of the Existing
Financing Documents and Existing Security Documents
is inconsistent with the terms of the Restructuring
Documents shall be binding on the Borrower.
Subject to the aforesaid, on and from the Effective Date,
this Agreement and the other Financing Documents
constitute the entire agreement between the parties on
the term and conditions mentioned in Schedule III to
Schedule XI"
64. The last sentence of Paragraph 2.5 of the JLRA
makes it amply clear that the JLRA and other financing
documents constituted the entire agreement between the
parties on the terms and conditions as mentioned in
Schedule III to Schedule XI. Schedule III provides the
details of all „Facilities‟ agreed to be provided by the
respondent banks.
65. The expression „Facilities‟ is defined in the JLRA
to mean collectively „Facility A, Facility B, Facility C,
Facility D, Facility E, Facility F, Facility G, Facility H and
Facility I. Schedule II sets out the particulars of existing
loans and Part A of Schedule III sets out details of all
Facilities. Schedule IV to Schedule XI includes details of
separate facilities. The working capital limit agreed to be
provided by the respondent banks was referred to as
Facility H in the JLRA. Facility „H‟ is defined in the JLRA
as under:-
"Facility H" means the revised Fund based working
capital limits including Cash
Credit/LOCSTL/EPC/PCFC/PSCFC Facility (FBWC) to
be extended to the Borrower by continuation of regular
portion of existing fund based working capital limits,
more specifically defined in Schedule X."
66. The particulars of working capital facility were set
out in Schedule X. Part B of the said Schedule included the
terms and conditions of such facility.
67. Part A of the Schedules II and III and Schedule X
to the JLRA are relevant and are set out below:
"SCHEDULE II
Particulars of Existing Lenders and Existing Loan
A. Existing Loans
Secured term loans
(Rs in Crore)
Lender O/s Principal
Punjab National Bank 32.0
Total 32.0
Working capital dues
(Rs in Crore)
Lenders Sanctioned Limits
FB NFB Total
Punjab National Bank 360.00 25.00 385.00
Syndicate Bank 240.00 - 240.00
ICICI Bank 125.00 - 125.00
Axis Bank 64.00 5.00 within FB 64.00
Total 789.00 25.00 814.00
"SCHEDULE III
PART A
Details of Facilities
Particulars of facility A - Term Loans
(Rs in Crore)
Bank TL
PNB 32.00
ICICI Bank -
Syndicate Bank -
Total 32.00
Particulars of facility B - Working Capital Term Loan - I (WCTL - I)
(Rs in Crore)
Bank WCTL-I
PNB 228.11
ICICI Bank 64.97
Syndicate Bank 117.09
Axis Bank 29.79
Total 439.96
Particulars of facility C - Working Capital Term Loan - II (WCTL - II)
(Rs in Crore)
Bank WCTL-II
PNB 24.50
ICICI Bank -
Syndicate Bank -
Axis Bank -
Total 24.50
Particulars of facility D - Funded Interest Term Loan - I (FITL - I)
(Rs in Crore)
Bank FITL - I
PNB 49.40
ICICI Bank 12.47
Syndicate Bank 25.38
Axis Bank 6.46
Total 93.71
Particulars of Facility E - Funded Interest Term Loan - II (FITL - II)
(Rs in Crore)
Bank FITL - II
PNB 38.20
ICICI Bank (sanctioned only one (FITL) 14.09
Syndicate Bank 25.48
Axis Bank 6.79
Total 84.56
Particulars of Facility F - Funded Interest Term Loan - III (FITL - III)
(Rs in Crore)
Bank FITL - III
PNB 7.67
ICICI Bank -
Syndicate Bank -
Axis Bank -
Total 7.67
Particulars of Facility G - Funded Interest Term Loan - IV (FITL - IV)
(Rs in Crore)
Bank FITL - IV
PNB 3.77
ICICI Bank -
Syndicate Bank -
Axis Bank -
Total 3.77
Particulars of facility H- fund Based working Capital facilities
Bank FBWC-I FBWC-II Total
FBWC
PNB 176.55 34.22 210.77
ICICI Bank 57.35 11.12 68.47
Syndicate Bank 117.70 22.80 140.52
Axis bank 31.39 6.08 37.47
Total 382.99 74.24 457.23
Particulars of facility I - Non Fund Based Working Capital facilities
(Workable within fund based)
(Rupees in crores)
Bank NFB
PNB -
ICICI Bank* 9.70
Syndicate Bank -
Total 14.70
(*Derivate)
PARTICULARS OF FACILITY J (FCNR - B LOAN)
(Rupees in crores)
Bank NFB
PNB -
ICICI Bank 64.96
Syndicate Bank -
Axis bank -
Total 64.96
Total Particulars of all the facilities
(Rs in Crore)
Bank TL WCTL-I WCTL-II FITL-I FITL-II FITL-III FITL-IV FB Total
NFB
PNB 32.00 228.11 24.50 49.40 38.20 7.67 3.77 598.93
4.51
210.77
ICICI - 64.97 - 12.47 14.09 - - 68.47 169.69
Bank 9.70
Syndicat - 117.09 - 25.38 25.48 - - 140.52 308.47
e Bank -
Axis - 29.79 - 6.46 6.79 - 37.47 80.51
bank *5.00
"SCHEDULE X
PART A
Particulars of facility H-Fund Based Working Capital
facilities
(Rupees in crores)
Bank FBWC-1 FBWC-2 TOTAL FBWC
PNB 176.55 34.22 210.77
ICICI Bank 57.35 11.12 68.47
Syndicate Bank 117.70 22.82 140.52
Axis Bank 31.39 6.08 37.47
Total 382.99 74.24 457.23
*ICIII
ICICI Bank has sanctioned single limit with additional facilities.
PART B
Terms and Conditions of Facility H
Facility H shall carry an interest rate of Base Rate+
0.50% payable monthly.
Lenders shall have right to reset interest rate every year
from the date of approval. Interest would be payable
monthly, on the last date of each month or as and when
levied. However interest on existing working capital
facitielies for a period of two years from cut of date will
be funded as FITL-2,
(b) The repayment of the same shall be on demand.
The Facility H shall be utilised for funding the working
capital requirements of the Borrower without
reference/restriction to any particular division of the
Borrower.
(c) Drawing power shall be calculated based on the
stock statement received from the Borrower
(d) Cover period for book debt is 90 days with margin
of 25% and uniform margin of 25% against all
components of inventory.
(e) All other conditions as mentioned in Article XII
All other terms and conditions (which are not
enumerated/specifically mentioned in the JLRA) will be
applicable as per sanction letter issued by respective
lenders."
68. As is apparent from the relevant extracts of the
Schedules to the JLRA, as set out above, there is no
reference to provision of additional working capital limits in
the subsequent years.
69. As noticed above, the expression "approved JLF
Package" has been explained in recital „F‟ of the JLRA. A
plain reading of the recital „F‟ of the JLRA indicates that
the approved JLF Package is the scheme of restructuring of
existing loans, as decided by the JLF in its meeting dated
27.03.2015 and as approved by the JLF on 23.06.2015. A
perusal of the Minutes of the said Meeting do not refer to
any additional capital other than `75 crores which was
expressly approved by the IEC.
70. In view of the above, this Court finds it difficult to
accept that the Approved JLF Package included a
commitment to provide additional working capital other
than `75 crores as expressly mentioned. The sanction letters
issued by the respondent banks (three of which were issued
prior to entering into the JLRA) are in terms of the agreed
restructuring package and none of the said letters referred
to providing any additional funding other than `75 crores.
71. The petitioner relies on Paragraph 2.6.1 of the
JLRA in support of its claims that the respondent banks
were obliged to provide additional working capital.
Paragraph 2.6.1 of the JLRA reads as under:-
"2.6.1 Additional Working Capital Limits
To meet the working capital requirements of the
Borrower, the Lenders agree that the working capital
limits shall be extended as per the Approved JLF
Package and the same shall be re assessed depending
on the need of the Borrower. The Lenders may at their
sole discretion, agree to sanction additional working
capital limits in proportion to their respective
exposure.-"
72. Paragraph 2.6.1 of the JLRA must be read in its
context. It is apparent that the respondent banks had agreed
to provide working capital limits as per the approved JLF
package and the details of such facilities were expressly
mentioned in Schedule III to the JLRA. Insofar as any
additional working capital is concerned, it was expressly
provided that the same would be at the sole discretion of the
lenders.
73. In terms of paragraph 2.6.1 of the JLRA, the
respondent banks were required to reassess the working
capital limits. However, that does not mean that they were
obliged to provide additional funding. The decision whether
to provide additional funding would depend on various
factors including the confidence in the business and the
management. Funding an ongoing business is a dynamic
process and requires to be re-evaluated and reassessed.
Whilst the respondent banks had agreed to reassess the
same, they had also made it expressly clear that additional
funding would be at their discretion.
74. It also evident from the Minutes of the Meeting of the
JLF held on 22.12.2016 that the decision to process the
petitioner‟s request for additional funding was delayed on
account of ICICI bank red flagging the account.
Concededly, this was not justified because the reasons for
the same were already factored in at the time of approving
the restructuring package. Thus, the contention that the
respondent banks had unduly delayed the process is perhaps
justified. But the same does not lead to the conclusion that
the respondent banks were obliged to provide additional
funding. As noticed above, the JLRA made it expressly clear
that any additional funding would be at the discretion of the
respondent banks.
75. In view of the above, this Court is unable to accept that
any directions are required to be issued to the RBI for
implementing the Circulars to enforce the JLRA. As noticed
above, the additional funding was always to be at the
discretion of the respondent banks. It is also relevant to
note that Article 4 of the JLRA also provides for prepayment
of the facilities. The petitioner was expressly permitted to
re-finance the Facilities on terms and conditions not more
onerous than the terms and conditions of the Facilities
being prepaid. The petitioner could also seek funding from
other sources.
76. The petitioner has relied heavily on the PNBISL TEV
Report wherein it was observed that the petitioner had
complied with all the conditions but the working capital
limits were not released by the respondent banks as per the
approved restructuring scheme and consequently, the
restructuring scheme could not be taken forward after
01.10.2016 and the petitioner could not achieve its
projection as per the D&B TEV Report. It was contended
that the said report established that the respondent banks
had in fact failed to comply with the obligations under the
JLRA. In addition, the petitioner also relied upon the
communications with PNB wherein PNB, had, in fact,
sanctioned additional working capital pro rata to their
share. However, this Court is unable to accept that the
aforesaid documents establish that the respondent banks
were obliged to issue additional working capital in terms of
the JLRA. This is so because the provisions of the JLRA do
not support this view. It also appears that the statement that
the projections could not be achieved due to non provision
of working capital is a mere observation and not an
informed finding. The PNBISL TEV Report also does not
indicate any analysis of the effect of non provision of the
additional working capital and, therefore, the observation
that the petitioner could not achieve the financial
projections due to lack of additional funding is not
supported by any reasons/analysis."
88. A reading of the aforesaid conclusion of the learned
Single Judge reflects the following position: -
(i) The sanction letter issued by PNB also indicated a
reference to `75 crores as additional working capital limit. The
same was in reference to the condition requiring the petitioner to
secure a working capital limit of `461.93 crores, the breakup of
which was indicated as "Current DP of `386.93 C + `75.00 Cr
as additional proposed".
(ii) The term "approved JLF Package" is defined under
Article 1 of the JLRA to have the same meaning as given to the
said term in recital „F‟ of the JLRA. Recital „F‟ of the JLRA
reads as under: -
"F. At the request of the Borrower and in consideration
of the Borrower‟s commitment to improve its operations,
the request of the Borrower was referred to the joint
lenders forum (hereinafter referred to as the "JLF"), a
non-statutory voluntary mechanism for the efficient
restructuring of corporate debt. Pursuant thereto, the
Lenders at their meeting held on March 19, 2015 agreed
for restructuring of Existing Loans as corrective action
plain. Pursuant thereto Dun & Bradstreet (D&B) was
requested to draw a Techno Economic Viability Report
(the "TEV Report") on the restructuring of Existing
Loans and it submitted its TEV Report on March 27, 2015
along with the final restructuring package and after
perusal of the said report, the Lenders /Lead Bank have
agreed to restructure the Existing Loan subject to the
terms and conditions as decided by the JLF, in its
meeting dated March 27, 2015 and finally approved in
JLF dated June 23, 2015 (hereinafter referred to as the
"Approved JLF Package").
(iii) The last sentence of Paragraph 2.5 of the JLRA makes it
amply clear that the JLRA and other financing documents
constituted the entire agreement between the parties on the
terms and conditions as mentioned in Schedule III to Schedule
XI. Schedule III provides the details of all „Facilities‟ agreed to
be provided by the respondent banks.
(iv) From the relevant extracts of the Schedules to the JLRA,
as set out above, there is no reference to provision of additional
working capital limits in the subsequent years.
(v) The expression "approved JLF Package" has been
explained in recital „F‟ of the JLRA. A plain reading of the
recital „F‟ of the JLRA indicates that the approved JLF Package
is the scheme of restructuring of existing loans, as decided by
the JLF in its meeting dated 27.03.2015 and as approved by the
JLF on 23.06.2015. A perusal of the Minutes of the said
Meeting do not refer to any additional capital other than `75
crores, which was also expressly approved by the IEC.
(vi) The sanction letters issued by the respondent banks (three
of which were issued prior to entering into the JLRA) are in
terms of the agreed restructuring package and none of the said
letters referred to providing any additional funding other than
`75 crores.
(vii) Paragraph 2.6.1 of the JLRA must be read in its context.
It is apparent that the respondent banks had agreed to provide
working capital limits as per the approved JLF package and the
details of such facilities were expressly mentioned in Schedule
III to the JLRA. Insofar as any additional working capital is
concerned, it was expressly provided that the same would be at
the sole discretion of the lenders.
(viii) In terms of paragraph 2.6.1 of the JLRA, the respondent
banks were required to reassess the working capital limits.
However, that does not mean that they were obliged to provide
additional funding. The decision, whether to provide additional
funding, would depend on various factors including the
confidence in the business and the management. Funding an
ongoing business is a dynamic process and requires to be re-
evaluated and reassessed. Whilst the respondent banks had
agreed to reassess the same, they had also made it expressly
clear that additional funding would be at their discretion.
89. Suffice it to state, we agree with the conclusion arrived at
by the learned Single Judge. The aforesaid shows that the
Banks had never committed to infuse working capital in favour
of the appellant over and above `75 Crores. During the course
of his submissions Mr. Sibal had relied upon the action of the
PNB in sanctioning a sum of `59.68 Crores (out of which it had
also disbursed `30 Crores), that there was an obligation on the
Banks to release capital beyond `75 Crores. It was the stand of
the PNB that the sanction of `59.68 Crores was part of a
different transaction. Mr. Sibal had relied upon a
communication dated December 07, 2015 said to have been sent
by the PNB to the other Banks calling upon other Banks to
sanction their share of the amount.
90. It is a conceded case that other Banks had neither
sanctioned, nor released any money in favour of the appellant
herein. So, PNB is right in contending that the sanction of sum
of `59.68 Crores was part of a separate transaction as, new
agreements like Deed of Hypothecation of Goods and Book
Debts etc. were signed and new securities were furnished. In
any case, only an amount of `30 Crores was disbursed out of the
said amount and it is PNB‟s stand, that the rest could not be
released as, the appellant itself had failed to provide additional
security for the enhanced limit. That even otherwise, the fact
that it was at the asking of the appellant, that the process of
implementation of S4A Scheme in its favour was initiated, the
issue of contribution of capital over and above `75 Crores had
seemingly been given up by the appellant or in other words had
not been insisted upon.
91. Had the appellant really wanted implementation and
enforcement of obligations arising out of the JLRA, it should
have taken appropriate steps at the relevant time, before having
requested for implementation of the S4A Scheme, or even
consenting to the same. Present action, in our opinion, is highly
belated, at least as regards seeking specific performance of the
JLRA. Moreover, the CAP having been changed from
"restructuring", to "recovery", granting the appellant‟s prayers
would necessarily mean overlooking the appellant‟s own action
in abandoning its efforts under the JLRA, and moving on to the
S4A Scheme, and thereby turning the clock back on a process,
which, under the current legal and economic scenario in the
country, is mandated to be extremely time bound and forward
moving. We therefore agree with the conclusion as drawn by the
learned Single Judge in paras 78 to 81 of the impugned order
which read as under:
"78. Even if it is accepted (which this Court does
not) that the respondent banks were obliged to
provide additional working capital as claimed by the
petitioner and have defaulted in their obligation, the
relief as sought for by the petitioner cannot be
granted. The petitioner seeks enforcement of the
Circulars dated 26.02.2014 and 05.05.2017. This is
in the context of the JLRA and, essentially, the
petitioner seeks specific enforcement of the JLRA,
which entails (i) restraining ICICI Bank from
proceeding under the IBC; and (ii) direction to
provide additional working capital.
79. This Court is unable to accept that any such
directions for providing additional working capital
to the respondent banks can be issued by this Court
or the RBI. As noticed above, in terms of the
Circular dated 26.02.2014, the respondent banks
were obliged to form the JLF for exploring the CAP.
In the present case, even if the respondent banks are
directed to once again examine an appropriate CAP,
it is apparent that the result would be different. The
respondent banks had already agreed to change the
CAP to Recovery instead of Restructuring in a
meeting held on 08.02.2017. Although, the petitioner
has raised several disputes in relation to the minutes
of the aforesaid meeting, it is apparent that the
consensus amongst the respondent banks is to
proceed with recovery. This is also reflected in their
stand in these proceedings.
80. Clearly, a specific performance of the JLRA
cannot be granted. The events that have unfolded
subsequent to the parties entering into the JLRA
indicate that the fundamental assumptions on which
the approved JLF package was founded, no longer
holds good. In the JLF meeting held on 22.12.2016,
the respondent banks have noticed that the revenue
being generated by the petitioner was insufficient to
support the existing level of debt. The respondent
banks were thus of the view that the petitioner‟s case
could be considered under the S4A Scheme subject
to the viability being established. At the said
meeting, the Managing Director of the petitioner
company also agreed that there was no perceptible
improvement in the earnings from the
milling/trading operations due to the shortage of the
working capital. He conceded that the petitioner
company‟s finances were not strong enough to
sustain the existing level of debt and agreed that a
S4A scheme may be considered. At the meeting of
the JLF held subsequently, on 24.04.2017, the
petitioner company requested the respondent banks
to consider the option of S4A as a resolution
strategy. The petitioner company also circulated a
note for the reference of the JLF. At the said
meeting, the whether a S4A scheme could be
sanctioned was discussed and the petitioner
company was called upon to establish its eligibility
for such a scheme. Thereafter, at the meeting held
on 21.06.2017, the JLF agreed to implement the S4A
Scheme and adopted 21.06.2017 as a reference date.
PNBISL was also directed to conduct a TEV Study
for the said purposes. However, there was a delay
in completion of the TEV Study and the S4A Scheme
could not be implemented within the period of 180
days as required."
"81. There is much controversy with regard to the
proceedings for a S4A Scheme. The petitioner claims
that the respondent banks had no intention to adopt
any S4A scheme and had intentionally delayed the
implementation of the same. It was finally abandoned
by them on grounds, which the petitioner claims are
untrue. The respondent banks, on the other hand
claim that the S4A scheme was subject to a forensic
audit and the draft Forensic Audit Report contained
adverse observations against the petitioner and, thus,
the petitioner was disentitled for any such scheme.
The petitioner company counters the same by
challenging the observations made in the draft
Forensic Audit Report. It is not necessary for this
Court to examine this controversy. However, it is
clear from the minutes of various meetings that it is
conceded position that the existing indebtedness of
the petitioner company cannot be serviced by the
revenue being generated by the petitioner company.
The approved JLF Package (the JLRA), which the
petitioner now seeks enforcement of (albeit by
issuance of directions to the RBI) was premised on
restructuring the financial facilities by converting the
outstanding interest as loans and a moratorium in
payment of interest. Undisputedly, the said scheme is
not feasible where the revenue generated is
insufficient to service the same. This is accepted by
the petitioner and is evidenced from its agreement to
accept the S4A Scheme (where the level of sustainable
debt is not less than 50% of the total debt can be
adopted.).
92. That apart, we note the writ petition was filed by the
appellant on 21st May, 2018 much after the ICICI Bank
approached the NCLT, Chandigarh on 9th March, 2018. So, it is
clear that the writ petition was filed as an afterthought, only
with a view to possibly interdict the proceedings already
initiated by ICICI.
93. Insofar as the plea of Mr. Sibal that Section 35AB of the
Banking Regulation Act, 1949 will override Section 238 of the
IBC is concerned, the same is inconsequential and not necessary
to be gone into in view of our conclusion above that there was
no obligation on the part of the Banks to release capital over and
above `75 Crores. It would be futile to dwell on the precursory
position. Moreover, the fact that the circulars on which reliance
was placed by the appellants have since been withdrawn, cannot
be overlooked.
94. That apart, we cannot overlook the fact that the account
maintained with the ICICI Bank was declared as NPA on 31st
December, 2016. The respondents 2, 4 and 5 issued notices
under Section 13(2) of the SARFAESI Act to the appellant
Company. A recall notice was sent to the appellant to pay a
sum of `1,77,77,60,053.15/- which the appellant had failed to
pay. Merely because the amendments incorporated in the
Banking Regulations Act, 1949 empower the Central
Government and the RBI to issue directions for resolution of
stressed assets, the same does not create any entitlement or right
in the hands of the borrower, who is admittedly a defaulter.
Moreover, proceedings having been initiated by the ICICI Bank,
which are in the nature of judicially monitored resolution of
stressed assets, nothing precludes the appellant from seeking
resolution before the NCLT in those proceedings. This appeal
necessarily has to be rejected. Ordered accordingly. No costs.
CM. No. 42534/2018
Dismissed as infructuous.
V. KAMESWAR RAO, J
CHIEF JUSTICE
FEBRUARY 06, 2019/jg
