M/S. Nagarjuna Fertilizers And ... vs Idbi Bank
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THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI

                     WRIT PETITION No.8509 of 2020
ORDER:

This writ petition is filed seeking the following relief:

"...to issue a Writ, Order or Direction more in the nature of Writ of Mandamus:

(i) to declare the letter dated 04.06.2020 which imposed unilateral changes to the Resolution Plan agreed vide JLMs dated 19/27th March, 2020 and 20.04.2020 as arbitrary, illegal and in violation of principles of natural justice;

(ii) to direct the Respondent Banks to implement the Resolution Plan agreed vide JLMs dated 19th/27th March, 2020 with full funding as agreed in the above said JLMs and detailed in the TEV Report, Information Memorandum and Credit Rating within 6 months;

(iii) to pass such other order or orders as this Hon'ble Court may deem fit and proper in the circumstances of the case and in the interest of justice."

2. Heard Sri D. Prakash Reddy, the Senior Counsel, appearing on

behalf of Sri P.Vikram, counsel for the petitioner, Sri D.V.Seetharam

Murthy, the Senior Counsel, appearing on behalf of Sri

G.P.Yashvardhan, counsel for the 1st respondent, and Sri G. Kalyan

Chakravarthy, counsel for the 3rd respondent.

3. It has been contended by the petitioner that it is a registered

Company under the Companies Act, 1956 and it is doing the business

of manufacturing urea and other fertilizers. The petitioner Company

has obtained loans from various Banks including the respondent

Banks for running its business, however due to various issues 2 AKS,J W.P.No.8509 of 2020

including lockdown, the petitioner Company could not repay the loan

amount to the respondent Banks. As per the circular dated 07.06.2019

issued by RBI, the lender Banks have entered into Inter-Creditor

Agreement (ICA) for the purpose of finalizing and implementing the

Resolution Plan (RP) on 19th and 27th of March, 2020, and as per the

Joint Lenders Meetings held on 19th and 27th of March, 2020, all the

lenders, in principle, based on the discussions, have come to the

conclusion that the broad contours of modified RP (at existing Cut-

Off date of March 31, 2020) will now be as under:

Particulars Amount Remarks/Broad terms of proposed treatment Rs.Cr Total Debt (Principal) 1675 Excluding Interest accrued

Sustainable Debt 854 10% (Rs.85 crore) payment in FY (51%) 2021, balance in structured quarterly instalments till Q3 FY 2036. Rol 9.75% Unsustainable Debt 821 Upfront Settlement against Rs.100 (49%) crore. Balance to be waived.

Interest accrued after 404 Waiver against allotment of NPA date till Cut-off OCRPS of Rs.32 crore or dated equivalent cash. OCRPS would be convertible to equity after 18 months of prevailing market price, subject to SEBI guidelines.

Working Capital Limit 770 Release of WC of Rs.770 crore (FB Rs.340 crore + NFB Rs.430 crore), with NFB to FB interchangeability.

Estimated WC of Rs.993 crore (FB Rs.613 Cr + NFB Rs.380 Cr) in FY 2021 and peak WC of Rs.1103 crore (FB Rs.726 Cr + NFB Rs.377 Cr) from FY 2023 onwards.

Capex Loan 250 Energy Efficiency; Rs.250 Cr + Reliability Scheme; Rs.140 Cr.

Source: (Equity-Rs.100 Cr, Debt-

Rs.250 Cr, Accrual-Rs.40 Cr) Equity Infusion 280 (upto By IFFCO and IPL for combined Rs.310) equity stake of min.26%.

Acquisition under open offer additional. End Use: Rs.85 crore (10% of sustainable debt) + Rs.100 3 AKS,J W.P.No.8509 of 2020

crore (towards settlement of unsustainable debt) + Rs.95 crore (margin for WC, pressing credits and issue expenses). Rs.31 crore for settlement of accrued interest.

4. A perusal of the above said Resolution Plan and its conclusions

would make it abundantly clear that all lenders Banks have, in

principle, decided to revive the petitioner Company with certain terms

and conditions, like there should be new promotors and with the

assistance of Indian Farmers Fertilizers Cooperative Limited [IFFCO]

and Indian Potash Limited [IPL] (Persons acting in Concert [PAC] as

per SEBI), with the following conditions:

"i) that the New Promoters to hold minimum equity stake of 26%;

ii) shall hold the largest block of capital jointly; and

iii) shall have 'control' as per Companies Act, 2013 and as applicable by SEBI guidelines."

5. Further, as per the Resolution Plan, the entire loan obtained by

the petitioner Company was to be restructured and the Company

should be revived and new funds would be pumped in the petitioner

Company. Thereafter, once again the Joint Lenders Meeting was held

on 20.04.2020, wherein the Joint Lenders, in principle, have reiterated

its earlier conclusions which were arrived on 19th and 27th of March,

2020.

6. Learned Senior Counsel appearing for the petitioner had

contended that the Joint Lenders have met behind the back of the

petitioner on 04.06.2020 and taken a U-turn by declining to revive the 4 AKS,J W.P.No.8509 of 2020

petitioner Company contrary to the conclusion assured in meeting

held on 19th & 27th March 2020. Challenging the same, the present

writ petition is filed.

7. Senior Counsel appearing for the petitioner had further

contended that without considering the fact that the petitioner is a

manufacturing unit of urea, which is of paramount importance for the

development of the country, and without taking the national interest

into account, the respondents have taken a U-turn from its earlier

Resolution Plan, and therefore, the action of the respondents in taking

a U-turn vide letter dated 04.06.2020 is an arbitrary exercise. Senior

Counsel also contended that the petitioner can always challenge, by

way of writ proceedings, any arbitrary action of the respondent Banks.

With regard to maintainability of a writ, the Senior Counsel contended

that a writ petition is maintainable whenever there is any violation in

contractual matters. In support of his contention, the Senior Counsel

has relied upon a judgment of the Honourable Apex Court in

Shrilekha Vidyarthi v. State of U.P1, wherein the Honourable

Supreme Court held as under:

"In our view, bringing the State activity in contractual matters also within the purview of judicial review is inevitable and is a logical corollary to the stage already reached in the decisions of this Court so far. Having fortunately reached this point, we should not now turn back or take a turn in a different direction or merely stop there. In our opinion, two recent decisions in Dwarkadas Marfatia and Sons v. Board of Trustees

(1991) 1 SCC 212 5 AKS,J W.P.No.8509 of 2020

of the Port of Bombay ((1989) 3 SCC 293) and Mahabir Auto Stores v. Indian Oil Corporation ([1990] 3 SCC 752: JT (1990) 1 SC 363) also lead in the same direction without saying so in clear terms. This appears to be also the trend of the recent English decisions. It is in consonance with our commitment to openness which implies scrutiny of every State action to provide an effective check against arbitrariness and abuse of power. We would much rather be wrong in saying so rather than be wrong in not saying so. Non- arbitrariness, being a necessary concomitant of the rule of law, it is imperative that all actions of every public functionary, in whatever sphere, must be guided by reason and not humour, whim, caprice or personal predilections of the persons entrusted with the task on behalf of the State and exercise of all power must be for public good instead of being an abuse of the power."

8. Senior Counsel appearing for the petitioner had also relied upon

a judgment rendered by the Honourable Supreme Court in Embassy

Property Developments (P) Limited v. State of Karnataka2,

wherein the Honourable Supreme Court held as under:

"Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right."

9. Senior Counsel has further relied upon a judgment of the

Honourable Apex Court in Ramesh Ahluwalia v. State of 6 AKS,J W.P.No.8509 of 2020

Punjab3, wherein the Honourable Apex Court held as under:

"11. On the other hand, Mr.S.S. Ray, learned counsel appearing on behalf of Respondents 2 to 4 submitted that no writ petition would be maintainable against the respondent institution. In support of his submission, the learned counsel has placed reliance on Pradeep Kumar Biswas v. Indian Institute of Chemical Biology [(2002) 5 SCC 111: 2002 SCC (L&S) 633] particularly making reference to para 40 of the aforesaid judgment. Para 40 of the aforesaid judgment is extracted hereunder: (SCC p.

134) "40. The picture that ultimately emerges is that the tests formulated in Ajay Hasia v. Khalid Mujib Sehravardi [(1981) 1 SCC 722 : 1981 SCC (L&S) 258] are not a rigid set of principles so that if a body falls within any one of them it must, ex hypothesi, be considered to be a State within the meaning of Article 12. The question in each case would be - whether in the light of the cumulative facts as established, the body is functionally, functionally and administratively dominated by or under the control of the Government. Such control must be particular to the body in question and must be pervasive. If this is found then the body is a State within Article 12. On the other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State."

...

14. In view of the law laid down in the aforementioned judgments of this Court, the judgment of the learned Single Judge (Ramesh Ahluwalia v. State of Punjab, WP (C) No.11691 of 2009, decided on 5-8-2009 (P&H)) as also the

(2020) 13 SCC 308

(2012) 12 SCC 331 7 AKS,J W.P.No.8509 of 2020

Division Bench (Ramesh Ahluwalia v. State of Pubjab, LPA No.368 of 2010, order dated 25.10.2010 (P&H)) of the High Court cannot be sustained on the proposition that the writ petition would not be maintainable merely because the respondent institution is a purely unaided private educational institution. The appellant had specifically taken the plea that the respondents perform public functions i.e., providing education to children in their institutions throughout India."

10. This Court, while issuing notice before admission on

18.06.2020, directed the respondents not to take any coercive steps

against the petitioner pursuant to the letter dated 04.06.2020, pending

disposal of the present writ petition.

11. Senior Counsel appearing for the petitioner had further

contended that with the decision of the Joint Lenders Meeting held on

19th and 27th of March, 2020, a Resolution Plan was crystalised and all

the lenders Banks have deliberated various issues and, in principle,

decided to revive the petitioner Company, and thereafter, the same

was reiterated in another subsequent Joint Lenders Meeting held on

20.04.2020, but without taking the conclusions to the logical end, the

respondents have taken a U-turn vide letter dated 04.06.2020 and,

therefore, the action of the respondents in taking the decision vide

letter dated 04.06.2020 without consulting the petitioner, is arbitrary

action of the respondent. Counsel further submitted that since the

respondents have taken the decision on 04.06.2020 in an arbitrary

fashion, hence the letter dated 04.06.2020 be set aside and the

respondents be directed to act on the conclusions arrived in the Joint 8 AKS,J W.P.No.8509 of 2020

Lenders Meeting held on 19th and 27th of March, 2020 and revive the

petitioner Company in terms of the conclusions arrived in the Joint

Lenders Meeting.

12. The Senior Counsel appearing for the 1st respondent had

contended that the decision taken by the respondents on 04.06.2020 is

in the interest of respondent Banks and the Banks are dealing with

public money; that the conclusions which were drawn in the Joint

Lenders Meeting held on 19th and 27th of March, 2020, have not been

fructified into an agreement/contract, therefore, in the absence of an

agreement/contract entered in pursuance of the conclusions drawn in

the meeting held on 19th and 27th of March, 2020, no conclusiveness

has been arrived; and that to revive the petitioner Company was one

of the deliberations made in the Joint Lenders Meeting, but since the

petitioner Company was not agreeing to various issues and not willing

to extend the guarantees / surieteis and also, in spite of repeated

requests, the petitioner company was not cooperating with regard to

change of management and other issues, the respondents had no other

option except to take a decision vide letter dated 04.06.2020.

13. Senior Counsel appearing for the 1st respondent further

submitted that the respondents have approached the National

Company Law Tribunal (NCLT) by filing a petition i.e., CP(IB)

No.348/7/HDB/2020 and the NCLT would examine whether the

Company can be revived or not and the matter would be referred to a

Committee of Creditors and if the petitioner Company can be revived, 9 AKS,J W.P.No.8509 of 2020

then every step would be taken to revive the Company by the NCLT

under Section 18 (c) of Insolvency and Bankruptcy Code, and if it is

not possible to revive the Company, then, for insolvency, appropriate

action would be initiated against the petitioner Company by the

NCLT; and that since the matter is already pending before NCLT, this

writ petition is not maintainable and the question of arbitrary exercise

by the respondents would not arise.

14. Senior Counsel appearing for the 1st respondent also submitted

that the decision taken on 04.06.2020 is purely a commercial decision

of the respondent Banks in the interest of public money and no final

agreement nor contract was entered with the petitioner Company in

terms of the conclusions arrived in the Joint Lenders Meeting held on

19th and 27th of March, 2020 and, hence, the question of honouring the

conclusions, which were part of deliberations in the Joint Lenders

Meeting held on 19th and 27th of March, 2020, does not arise. Senior

Counsel further contended that since no agreement/contract was

entered with the petitioner Company, the question of maintainability

of the writ petition also would not arise.

15. Senior Counsel appearing for the 1st respondent also contended

that similar issue fell for consideration before Delhi High Court in

Amira Pure Foods Pvt. Ltd., v. Canara Bank & others4, wherein it

was held as under:

Manu/DE/3176/2018 (W.P. (C) 8814/2018 and CM.No. 33880/2018 decided on 24.08.2018) 10 AKS,J W.P.No.8509 of 2020

"10. A plain reading of the Minutes of the JLF Meeting held on 16.01.2018 and 15.05.2018 clearly indicate that the bankers had held discussions with regard to the proposals submitted by the petitioner. However, the respondents were not agreeable to the same. The minutes of the meeting held on 16.01.2018 indicate that the DGM of Canara Bank had summarised the views of the JLF as under:-

"Company's presentation for regularisation of accounts/clearing overdues is unable to build confidence and not convincing Nothing new has been added.

Sufficient time has been given to the company to present concrete action plan but company has failed to do so.

Company's progress on compliance matters/operationalization is very poor. Looking all the aspects, JLF has decided to initiate recovery steps/filing the case with NCLT." ......................

12. In the aforesaid view, the contention that the respondent banks have not explored the possibility of a restructuring plan, is unmerited. The relief as sought by the petitioner - to direct the respondent banks to consider and accept the resolution plan and the options put by the petitioner - is plainly not maintainable. This Court cannot issue a mandamus directing the respondent banks to restructure the financial assistance granted by them to the petitioner."

16. Senior Counsel for the 1st respondent had also contended that

since the petitioner was not willing to extend the sureties, the

respondents have no other option except to approach the NCLT by

filing a case and the question of the respondents taking a U-turn, as 11 AKS,J W.P.No.8509 of 2020

contended by the petitioner, would not arise; that the decision taken

by the respondents on 04.06.2020 was in the interest of public money,

therefore, the writ petition itself is not maintainable; that all the

contentions which are being raised by the petitioner in the present writ

petition, can always be raised before the NCLT for revival of the

Company under Insolvency and Bankruptcy Code, and the NCLT

would refer the matter to professionals for revival of the Company

and the professionals would be in a better position and well equipped

to assess the chances of revival of the Company; that since no

agreement/contract has been entered with the petitioner by the

respondent Banks in pursuance of the deliberations made in the Joint

Lenders Meeting held on 19th and 27th of March, 2020, the

conclusions so arrived in the said meeting are of no consequence, as

the same were never taken to the logical end in the form of an

agreement or contract; and that since the conclusions arrived are only

deliberations made in the meeting, the same cannot be treated as

conclusive, therefore, the writ petition is not maintainable.

17. Sri G.Kalyan Chakravarthy, counsel appearing for the 3rd

respondent, has adopted the arguments advanced by

the Senior Counsel appearing for the 1st respondent.

18. This Court, having considered the rival submissions made by

learned counsel for respective parties, is of the considered view that

the conclusions arrived in the Joint Lenders Meeting held on 19th and

27th of March, 2020, have not been taken to the logical end by the 12 AKS,J W.P.No.8509 of 2020

respondent Banks either in the form of an agreement/contract and it

would mean that there is no contractual obligation between the

petitioner and the respondents for enforcement of the conclusions

arrived in the Joint Lenders Meeting held on 19th and 27th of March,

2020. If those conclusions are to be acted upon, more money has to

be pumped in pursuant to the conclusions and this Court cannot give

any mandamus to pump in money to revive the petitioner Company,

more so when there is no agreement or contract entered in pursuance

of the conclusions which were arrived in the Joint Lenders Meeting

held on 19th and 27th of March, 2020. It is for the respondent Banks to

take a decision as to whether the petitioner Company should be

revived and whether additional money has to be pumped in by them,

but this Court cannot give a direction to take forward the conclusions

arrived in the Joint Lenders Meeting held on 19th and 27th of March,

2020, to the logical end. It is left open to the respondent Banks to

take a decision as to whether to take the conclusions arrived on 19th

and 27th of March, 2020 to the logical end or not, but there cannot be a

direction to the respondent Banks to revive the petitioner Company in

terms of the conclusions arrived in the Joint Lenders Meeting held on

19th and 27th of March, 2020. The grounds which are being urged by

the petitioner in the present writ petition can be urged before the

NCLT in the petition filed by the respondent Banks and the NCLT can

revive the petitioner Company if there is any possibility of reviving

the Company. Thus, this Court is not inclined to interfere with the

impugned letter and the writ petition is liable to be dismissed. The 13 AKS,J W.P.No.8509 of 2020

Delhi High Court has also rightly declined to interfere and dismissed

the case i.e., Amira Pure Foods Pvt. Ltd., v. Canara Bank & others4,

reported in Manu/DE/3176/2018 (w.p.(c) 8814/2018 and CM.No.

33880/2018 decided on 24.08.2018).

19. Accordingly, the writ petition is dismissed. No order as to costs.

Pending miscellaneous petitions, if any, shall stand closed.

______________________________ ABHINAND KUMAR SHAVILI, J 30-04-2021 vv