Amitabh Kumar Jha vs Bank Of India & Anr

Amitabh Kumar Jha ...Appellant

Vs.

Bank of India & Anr. ...Respondents

Present: For Appellant: - Mr. Krishnendu Datta, Mr. Nikhil Chawla, Mr. Aditya Panda and Mr. Jaydeep Krol, Advocates.

For Respondents:- Mr. Anant A. Pavgi and Mr. Siddhartha Nagpal, Advocates for IRP. Mr. Abhishek Singh and Mr. J. Amal Anand for Banks. Mr. I.P.S. Oberoi, Advocate for R-1. Mr. D. Lalitha and Mr. Deepak, Advocates.

J U D G M E N T

Bansi Lal Bhat, J.

Through the medium of this appeal, Sh. Amitabh Kumar Jha, the

Director of 'TD Toll Road Private Limited'- ('Corporate Debtor') seeks to

assail the impugned order dated 25th November, 2019 passed in CP (IB)-

2803/MB/2019 by virtue whereof the Adjudicating Authority (National

Company Law Tribunal), Mumbai Bench, Mumbai admitted the

application under Section 7 of the Insolvency and Bankruptcy Code, 2

2016 ("I&B Code" for short) filed by the 'Bank of India' ('Financial

Creditor') slapping Moratorium on the 'Corporate Debtor' besides

appointing the 'Interim Resolution Professional'. The impugned order is

challenged primarily on the ground that the admission of application by

the Adjudicating Authority has unjustly tilted the balance in favour of

the 'Financial Creditor' to the detriment of all other stakeholders which

is designed to defeat the object of the 'I&B Code'.

2. For appreciating the issue raised in this appeal, a brief reference

to the factual matrix of the case is inevitable. The 'Financial Creditor'-

'Bank of India' approached the Adjudicating Authority with an

application under Section 7 of the 'I&B Code' seeking initiation of the

'Corporate Insolvency Resolution Process' on the ground that the

'Corporate Debtor' committed default on 16th July, 2019 to the extent of

Rs. 21,68,44,477/-. It was asserted in the application that the

'Corporate Debtor' is a Special Purpose Vehicle setup by 'Reliance

Infrastructure Limited' for the purpose of executing the project awarded

to it by 'National Highways Authority of India' for four laning of Trichy-

Dindigul Road in Tamil Nadu. The 'Corporate Debtor' approached the

'Financial Creditor' besides other lenders for financial assistance. A

Common Rupee Loan Agreement came to be executed by the 'Corporate

Debtor' along with 'Canara Bank', 'Corporation Bank', 'India

Infrastructure Finance Company Limited (IIFCL)', 'Oriental Bank of

Commerce' and 'UCO Bank' with 'Canara Bank' acting as the lenders'

Company Appeal (AT) (Insolvency) No. 1392 of 2019 3

agent and security trustee. The 'Financial Creditor' i.e., 'Bank of India'

advanced loan of Rs. 25 Crores to the 'Corporate Debtor' with other

lenders as members of consortium advancing different amounts.

According to 'Bank of India', the 'Corporate Debtor' failed to clear the

outstanding liability of Rs. 21,68,44,477/-, in respect whereof a

Demand Notice was issued on 12th November, 2018 specifying that the

date of classifying the account as Non-Performing Asset as 29th October,

2018. It appears that the factum of default was not disputed by the

'Corporate Debtor' before the Adjudicating Authority as emerges from

paragraph 8 of the impugned order. However, the 'Corporate Debtor'

raised the contention before the Adjudicating Authority that since it had

faced difficulties in implementing the project and was entitled to

restructure the loan, it had proposed a 'Resolution Plan' to the lenders

who appointed 'Ernst and Young Merchant Banking Service' to evaluate

the same, but before the 'Resolution Plan' could be discussed, the

'Financial Creditor'- 'Bank of India' filed an application under Section 7.

It was contended that the consortium members have entered into an

'Inter-Creditor Agreement' in pursuance whereof no member of the

consortium can take any action in respect of default individually and

only a collective action is envisaged. The Adjudicating Authority, while

brushing aside the argument that an 'Inter-Creditor Agreement' had an

overriding effect and without its compliance no individual creditor could

approach the Adjudicating Authority for triggering 'Corporate Insolvency

Resolution Process', admitted the application in terms of the impugned

Company Appeal (AT) (Insolvency) No. 1392 of 2019 4

order. The Adjudicating Authority appears to have been influenced by

the decision of the Hon'ble Apex Court in "Innoventive Industries Ltd.

v. ICICI Bank and Ors.− (2018) 1 SCC 407" in passing the impugned

order. The Adjudicating Authority further observed that Section 238 of

the 'I&B Code' provides overriding effect to the provisions of the Code

and the 'Inter-Creditor Agreement' entered between the consortium

members would not stand in the way of admission of the application

under Section 7 of the 'I&B Code'. It further observed that by

consenting to and executing the 'Inter-Creditor Agreement' with other

Creditors, the 'Financial Creditor' i.e., the 'Bank of India' had not

waived its statutory rights by a contractual agreement, but only

envisaged a mechanism/ procedure to jointly enforce the loan as a

consortium. Thus, having been satisfied that there was a financial debt

and the 'Corporate Debtor' had committed default in respect of such

debt payable under law, the Adjudicating Authority admitted the

application in terms of the impugned order.

3. The limited issue arising for consideration is whether the 'Inter-

Creditor Agreement' devising a mechanism for enforcement of rights qua

the 'Corporate Debtor' would bar an individual Creditor from triggering

'Corporate Insolvency Resolution Process' in the event of default qua

outstanding liability in respect of its financial debt without the consent

of other lenders forming the consortium of the same 'Corporate Debtor'.

Company Appeal (AT) (Insolvency) No. 1392 of 2019 5

4. It is contended on behalf of the Appellant that the three contracts

entered inter se the lenders including the 'Bank of India' with the

'Corporate Debtor' on 28th March, 2008 were part of the same

transaction. The consortium of six Banks had advanced total amount of

Rs. 322.40 Crores to the 'Corporate Debtor' in terms of financing

documents i.e., 'Common Rupee Loan Agreement (CLA)', 'Security

Trustee Agreement (STA)', 'Inter-Creditor Agreement (ICA)'. It is

submitted that the share of loan amount advanced by the 'Bank of

India' constituted only 7.75% of the consortium. It is further submitted

that the CLA clearly specified that no enforcement action will be taken

without complying with the procedure laid down therein and since said

procedure has not been complied with, 'Bank of India' could not take

enforcement action against the 'Corporate Debtor'.

5. Learned counsel for the Appellant further submits that in view of

the aforesaid, the debt was not due and payable in law or in fact. It is

further submitted that the 'Corporate Debtor' is a confirming party to

the ICA and as CLA and ICA were entered into on the same day, these

form part of the same transaction. Thus, the 'Corporate Debtor' has a

locus standi under ICA. As regards the overriding effect of Section 238

of the 'I&B Code', it is submitted that the ICA only lays down a

procedure to be followed before an application can be made by lender

against the 'Corporate Debtor' and does not in any manner take away

the right of a single lender to approach the Adjudicating Authority. It is

Company Appeal (AT) (Insolvency) No. 1392 of 2019 6

further submitted on behalf of the Appellant that an arbitral award has

been passed in favour of the 'Corporate Debtor' as against NHAI and the

same has been challenged. 'Canara Bank', the lead Bank of the

consortium is said to have issued notice for a meeting of consortium

and the 'Corporate Debtor' is prepared to settle the dispute with all the

lenders.

6. Per contra, it is submitted on behalf of the 'Financial Creditor'-

'Bank of India' that the 'I&B Code' empowers a single 'Financial

Creditor' to initiate 'Corporate Insolvency Resolution Process', for which

consent of other 'Financial Creditors' is not required. It is submitted

that since the factum of debt and default has not been disputed, the

independent right of 'Bank of India' as individual lender to enforce its

rights and seek triggering of 'Corporate Insolvency Resolution Process'

is not affected by the terms of CLA.

7. It is further submitted by the 'Financial Creditor' that the

'Corporate Debtor' is not a party to ICA and cannot derive any benefit

therefrom.

8. The consortium of lenders has sought intervention. Written

submissions have been filed to buttress the point that the 'Inter-

Creditor Agreement' governs the inter se rights and duties of the

consortium lenders and none of the consortium members have objected

to filing of the Section 7 petition against the 'Corporate Debtor'. The

Company Appeal (AT) (Insolvency) No. 1392 of 2019 7

Intervenors submit that the Appellant has no locus to raise an objection

in this regard.

9. Having heard learned counsel for the parties including the

Intervenors, we find that existence of financial debt and its default on

the part of the 'Corporate Debtor' is not the issue in controversy as the

same has admitted. The factum of the 'Corporate Debtor' having

obtained financial facility from consortium of lenders including the

'Bank of India', the 'Financial Creditor' and default on the part of the

'Corporate Debtor' in discharging its liability do not form issue for

consideration. It is also not in controversy that the financial debt in

respect whereof the 'Financial Creditor' herein sought triggering of

'Corporate Insolvency Resolution Process' is payable both in law as also

in fact. The 'Corporate Debtor' is merely banking upon the Financing

Documents including CLA, STA and ICA to assail the impugned order

notwithstanding the fact that neither the claim is barred by law nor do

such Financing Documents clothe the 'Corporate Debtor' with a right to

disentitle the 'Financial Creditor' from enforcing its claim, in its

individual capacity, despite being a member of the consortium of

lenders. It is queer that the 'Corporate Debtor' is making a vain bid to

get out of the rigours of its liability in terms of loan documents

sanctioning the loan and giving rise to contractual liability as against it

on the basis of an 'Inter-Creditor Agreement', to which admittedly it is

not a party. It would be a travesty of justice to raise a plea that since

Company Appeal (AT) (Insolvency) No. 1392 of 2019 8

the Creditors has an inter se agreement in regard to enforcement of the

liability of the debtor qua the Creditor, an individual Creditor should

not be permitted to enforce its right arising under a contract in regard

to discharge of liability for loan advanced by the Creditor which is

otherwise payable in law and not barred by any legal framework

including the law of limitation. What transpires among the Creditors in

regard to 'Inter-Creditor Agreement' is a matter exclusively inter se the

Creditors. The debtor has no locus to meddle with the internal

arrangement and affairs of the Creditors in regard to their joint or

individual interests, more so when in the instant case the Intervenors

who are the consortium of lenders have supported the action taken by

the 'Bank of India' in triggering 'Corporate Insolvency Resolution

Process'. None of the members of the consortium of lenders has taken

exception to enforcement of individual rights by the 'Bank of India' in

regard to the financial debt payable to it and to the extent of its interest.

10. The statutory right across the ambit of Section 7 of the 'I&B Code'

cannot be curtailed or made subservient to any 'Inter-Creditor

Agreement'. The contractual rights, unless recognised by the statute as

a permissible mode, would not override the statutory mechanism and

right created and enforceable under statute. This legal proposition

appears to have been recognised in Clause 2.2 of the 'Common Rupee

Loan Agreement', which is reproduced under:

Company Appeal (AT) (Insolvency) No. 1392 of 2019 9

"2.2. Nature of Rights and Obligations of Rupee

Lenders−

The rights of each Rupee Lender under the Finance

Documents are separate and independent. Any

Rupee Lender may separately enforce any of its

rights arising out of any Finance Documents. This

Agreement will govern the right and obligation of the

Rupee Lenders and the Borrower and not the inter-

se relationship among the Rupee Lenders.

The obligations of each of the Rupee Lenders

hereunder are several. No Rupee Lender shall be

responsible for the obligations of any other Rupee

Lender."

11. The language employed in this Clause is eloquent enough to hold

that each lender who is a member of the consortium may separately

enforce its rights and no Rupee Lender having separate and

independent rights shall be responsible for the obligations of any other

Rupee Lender. The Clauses in the 'Inter-Creditor Agreement' would not

supersede the rights and obligations of Rupee Lenders in their

independent capacity and this is further re-inforced by Clause 1.3 of the

'Inter-Creditor Agreement', which reads as under:

Company Appeal (AT) (Insolvency) No. 1392 of 2019 10

"1.3 Rights against the Borrower not affected

Nothing in this Agreement is intended or meant to

alter, modify or impair any of the rights of any of the

Rupee Lenders against the Borrower under the

Finance Documents."

The aforesaid Clause 1.3 speaks in unambiguous terms that the

'Inter-Creditor Agreement' would not in any manner alter, modify or

impair any of the rights vesting in the Rupee Lenders against the

Borrower under the Finance Documents. This leaves no room for the

'Corporate Debtor' to contend that these financing documents do in any

manner enure to the benefit of the 'Corporate Debtor' who has

absolutely no locus to raise an issue in this regard.

12. In view of the foregoing discussion, we are of the considered

opinion that the issue raised in this appeal is devoid of merit. The

Financing Documents do not in any manner curtail or limit the rights of

the 'Financial Creditor'- 'Bank of India' in its individual capacity to

enforce its rights against the 'Corporate Debtor' in regard to the

financial debt which is payable in law and in fact and in respect whereof

default as alleged is not disputed.

Company Appeal (AT) (Insolvency) No. 1392 of 2019 11

The appeal is dismissed as being frivolous. However, in the

circumstances of the case, we do not intend to impose any cost on the

Appellant.

[Justice Bansi Lal Bhat] Member (Judicial)

[ Justice Venugopal M.] Member (Judicial)

[ V.P. Singh ] Member (Technical)

NEW DELHI

22nd May, 2020

AR

Company Appeal (AT) (Insolvency) No. 1392 of 2019