Core Hotels Ventures Private Limited & ... vs Bank Of Baroda & Anr

(Arising out of Order dated 27th February, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in CP(IB) No. 248/7/HDB/2017)

IN THE MATTER OF:

Core Hotels Ventures Private Limited and Anr. ...Appellants

Vs.

Bank of Baroda and Anr. ...Respondents

Present: For Appellants:- Mr. Amit Sibal, Senior Advocate assisted by Mr. P. Vikram, Mr. Anirudh Wadhwa, Mr. Vipul Kumar and Mr. Hirish Chaudhary, Advocates.

For Respondents:- Mr. Arun Kathpalia, Senior Advocate assisted by Mr. Pankaj Vivek and Ms. Bidyarani, Advocates for R-1.

Mr. Subodh Kr. Agarwal, Advocate for Resolution Professional

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Respondent- 'Bank of Baroda'- ('Financial Creditor') filed an

application under Section 7 of the Insolvency and Bankruptcy Code, 2016

('I&B Code' for short), by inter-alia seeking to initiate 'Corporate

Insolvency Resolution Process' in respect of 'M/s. Golden Jubilee Hotels

Private Limited'- ('Corporate Debtor'). By impugned order dated

Company Appeal (AT) (Insolvency) No. 84 of 2018 2

27th February, 2018, the Adjudicating Authority (National Company Law

Tribunal), Hyderabad Bench, Hyderabad admitted the application. The

Appellants, Shareholders have challenged the same.

2. Learned Senior Counsel for the Appellants highlighted the following

facts in support of the submissions.

3. 'M/s. Golden Jubilee Hotels Private Limited'- ('Corporate Debtor')

is a special purpose vehicle for the purpose of setting up and operating a

Five Star Hotel at Madhapur, Telangana. For the construction of the said

Hotel, from 2009 to 2016 'M/s. Golden Jubilee Hotels Private Limited'-

('Corporate Debtor') availed various financial assistance and credit

facilities from a consortium of banks, including the 1st Respondent, Dena

Bank, Syndicate Bank, Corporation Bank, Punjab National Bank,

Jammu and Kashmir Bank, Punjab and Sindh Bank and Bank of

Maharashtra ('consortium'). The consortium executed various facilities

agreements dated 2nd September, 2009, 2nd March, 2013, 13th

September, 2014 and 29th March, 2016.

4. It was submitted that the said consortium advanced a total amount

of Rs. 688.75/- Crores (Fund Based) and Rs. 30.84/- Crores (Non Fund

Based) in terms of the facilities agreements. 'M/s. Golden Jubilee Hotels

Private Limited'- ('Corporate Debtor') has already paid over Rs. 350 Crores

as interest to the consortium.

Company Appeal (AT) (Insolvency) No. 84 of 2018 3

5. On 24th May, 2014, the said consortium formed a Joint Lenders

Forum. During the course of these Joint Lenders Forum Meetings, the

consortium and 'M/s. Golden Jubilee Hotels Private Limited'- ('Corporate

Debtor') entered into a restructuring agreement under a Corrective Action

Plan in the following manner:

a. 15th March, 2017─ 'Proposal'/ 'offer' made by 'M/s. Golden

Jubilee Hotels Private Limited'- ('Corporate Debtor') to

restructure its debt and its 'in- principle' acceptance by

consortium upon deliberation.

b. 27th September, 2017─ Minutes record that 'M/s. Golden

Jubilee Hotels Private Limited'- ('Corporate Debtor') acted

upon the restructuring agreement and disbursed payments

of Rs. 33 Crores to the consortium.

c. 25th January, 2018─ 'M/s. Golden Jubilee Hotels Private

Limited'- ('Corporate Debtor') circulated a revised

'offer/proposal'.

d. 6th February, 2018─ Decision of the 'M/s. Golden Jubilee

Hotels Private Limited'- ('Corporate Debtor') to accept revised

offer dated 25th January, 2018 which is binding on the

consortium in terms of Reserve Bank of India circular dated

5th May, 2017. 75% lenders by number and 70.31% by value

voted in favour of the same. As per this decision, first

Company Appeal (AT) (Insolvency) No. 84 of 2018 4

repayment date for the debt stood deferred to 31st March,

2018.

6. Learned Senior Counsel appearing on behalf of the Appellants

submits that the Adjudicating Authority (National Company Law

Tribunal) without considering the above facts that there was no default

as the debt stood restructured passed the impugned order dated 22nd

February, 2018 initiating the 'Corporate Insolvency Resolution Process'

against the 'M/s. Golden Jubilee Hotels Private Limited'- ('Corporate

Debtor').

7. According to him, a petition under Section 7 of the 'I&B Code'

cannot be admitted if there is no default on the date of the decision

regardless of whether there was default at the time of filing.

8. Further, according to him, the issue of whether 'default' is to be

assessed as on the date of filing or as on the date of admission was not

raised or pleaded by the 1st Respondent either before the Adjudicating

Authority or before this Appellate Tribunal.

9. It was further submitted that the Adjudicating Authority's duty to

satisfy itself as to 'default' is a two-step process. At the first stage, the

Adjudicating Authority satisfies itself as to whether there is a 'default' at

the time of filing of Section 7 application by the 'Financial Creditor' to

Company Appeal (AT) (Insolvency) No. 84 of 2018 5

assess whether the application is maintainable at all (Section 7(1) of the

'I&B Code'). If there is no default at this stage, the application will be

dismissed as not maintainable. However, if there is a default as on the d

ate of filing, the Adjudicating Authority then still has to satisfy itself that

there is a default on the date of admission/rejection for the purpose of

admitting the application (Section 7(5) of the 'I&B Code').

10. Section 7(5) and Section 7(6) of the 'I&B Code' make it clear that

for the purposes of admitting an application under Section 7, 'default'

has to be 'ascertained' as on the date of decision of the Adjudicating

Authority and not at the time of filing the application.

11. It was further submitted that if interpreted otherwise, this would

mean that even if all debts to all creditors are satisfied (either repaid,

deferred, restructured or otherwise interdicted by law) after filing of

Section 7 application but prior to admission, the Adjudicating Authority

would still be mandated to initiate the insolvency process when no

insolvency exists. The object of 'I&B Code' is not to send healthy

companies into an 'Corporate Insolvency Resolution Process'. That this is

not the object of 'I&B Code' is also borne out by the fact that the Hon'ble

Supreme Court in a number of decisions has exercised its power under

Article 142 of the Constitution of India to terminate insolvency

proceedings when there has been a settlement/repayment of debts.

Company Appeal (AT) (Insolvency) No. 84 of 2018 6

12. Reliance was placed on the decision of the Hon'ble Supreme Court

in "Innoventive Industries Ltd. v. ICICI Bank and Anr.─ (2018) 1 SCC

407" .

13. Following plea has been taken to highlight that there was no

'default', in view of the binding decision of the Joint Lenders Forum which

restructured the debt prior to date of admission of the application.

13.1. On 25th January, 2018, 'M/s. Golden Jubilee Hotels Private

Limited'- ('Corporate Debtor') proposed a revised Corrective Action Plan

for restructuring of debt. Under the said proposal the first date of

repayment was 31st March, 2018.

13.2. The same was put to vote in the Joint Lenders Forum Meeting held

on 6th February, 2018. This meeting took place in the presence of 'M/s.

Golden Jubilee Hotels Private Limited'- ('Corporate Debtor') (represented

by 2nd Appellant) and the Joint Lenders Forum, including the 1st

Respondent. Out of eight Banks, five Banks holding 62.5% by number

and 64.46% by value voted in favour of the said proposal. Bank of

Maharashtra observed that if more than 60% are in favour of the

restructuring proposal, they would fall in line with the majority decision

of the Joint Lenders Forum. As such Bank of Maharashtra's vote is also

Company Appeal (AT) (Insolvency) No. 84 of 2018 7

in favour of the restructuring as more than 60% voted in favour. The final

voting mandate is set out below for ease of reference.

S.No. Name of Bank Vote Vote by Vote by % % of of value Members 1 Punjab Yes 12.5% 16.09% National Bank 2 Dena Bank Yes 12.5% 15.99% 3 Corporation Yes 12.5% 13.26% Bank 4 Jammu Yes 12.5% 6.13% Kashmir Bank 5 Punjab & Sind Yes 12.5% 12.99% Bank Sub Total in 62.5% 64.46% absolute favour of the Proposal 6 Bank of Yes 12.5% 5.85% Maharashtra (submitted in the voting mandate that they would be in line with the majority decision i.e., more than 60% in the JLF) Sub Total in 75% 70.31% favour of Proposal 7 Syndicate Mandate 12.5% 9.8% Bank Awaited 8 Bank of Baroda No 12.5% 19.89% Total 100% 100%

13.3. According to learned Senior Counsel for the Appellants, the

Reserve Bank of India notification dated 5th May, 2017 provides that

Company Appeal (AT) (Insolvency) No. 84 of 2018 8

approval by a minimum of 60% creditors by value and 50% of the

creditors by number in Joint Lenders Forum would be considered the

basis for deciding the Corrective Action Plan, and the same will be binding

on all lenders.

13.4. In view of the fact that more than 75% of the lenders by

number and 70.31% by value approved the resolution proposal, the debt

stood restructured and there was no default as on the date of admission

i.e. 27th February, 2018.

14. Learned Counsel appearing on behalf of the 1st Respondent

submitted that the decision of the Joint Lenders Forum that more than

75% lenders vote is not binding on all the 'Financial Creditors'. Bank of

Baroda has not voted in its favour. Similarly, Syndicate Bank has also

not mandated in favour of the decision of the Joint Lenders Forum.

15. According to learned counsel for the 1st Respondent- 'Bank of

Baroda', it had already rejected the initial restructuring proposal as the

same was not found viable and filed petition before the Adjudicating

Authority, Hyderabad on 17th October, 2017. Since the matter was sub-

judice before NCLT, Hyderabad, Bank of Baroda had not agreed to the

restructuring proposal dated 25th January, 2018, hence the decision of

the other lenders in Joint Lenders Forum was not binding for it.

Company Appeal (AT) (Insolvency) No. 84 of 2018 9

16. It was further submitted that different kinds of proposals were

being brought forward by 'M/s. Golden Jubilee Hotels Private Limited'-

('Corporate Debtor') so as to delay and defeat the objective of the Bank(s)

and it resulted in erosion of the value of the business as the interest was

mounting on the loans. Hence, in order to safeguard the economic value

of the asset from eroding further, it was necessary to act in quick and

expedient manner as provided in the 'I&B Code' and the Bank of Baroda

deemed it expedient to proceed ahead with the proceedings filed on 17th

October, 2017.

17. It was further submitted that the fresh proposal of restructuring

was discussed in the Joint Lenders Forum initially called by Punjab

National Bank on 6th February, 2018 and subsequently Bank of Baroda

as a lead Bank called on 6th February, 2018 and chaired the meeting in

which no final decision was arrived at as majority of lenders had not

provided their final approval.

18. The Appellant has enclosed the copy of the meetings of the Joint

Lenders Forum dated 15th March, 2017, 27th September, 2017 and 28th

December, 2017. The 1st Respondent has taken specific plea that in the

meeting dated 6th February, 2018, no final decision was taken by the

Joint Lenders Forum. The Joint Lenders Forum meeting dated 6th

February, 2018, as enclosed by the Appellants show that before the said

Company Appeal (AT) (Insolvency) No. 84 of 2018 10

meeting the Bank of Baroda had already moved a petition before the

Adjudicating Authority, Hyderabad on 17th October, 2017 for initiation of

'Corporate Insolvency Resolution Process'. It was taken into

consideration by the other lenders in Joint Lenders Forum meetings held

on August, 2017. The relevant portion of minutes of the Joint Lenders

Forum meeting dated 6th February, 2018 is quoted below:

"Lenders who have not having mandate have

been provided-1-week time from the date of JLF

meeting i.e., upto 13.02.2018 to provide clear

mandate to the JLF.

PNB informed that if the super majority agreed for

restructuring they will be circulating the draft

restructuring proposal to the other lenders.

BOB informed that forum that earlier company

has submitted various resolution plans, however

the same was not materialised. Accordingly, BOB

has filed Insolvency petition before NCLT,

Hyderabad on 17.10.2017 (Already informed

BOB decision to the other lenders as well as the

company in the JLF meetings held during Aug'

2017). Further BOB have already communicated

that BOB is not evincing interest on the

Company Appeal (AT) (Insolvency) No. 84 of 2018 11

restructuring proposal submitted by the company

along with additional funding to the company and

other lenders in the JLF meetings held during Aug'

17 and accordingly proceeded under IBC 2016.

Since there are no major changes in the revised

restructuring package, the decision of JLF will not

bind on BOB's decision of NCLT.

As there are no other matters to discuss, the

meeting ended with vote of thanks to the Forum."

19. From the aforesaid proceeding dated 6th February, 2018, we find

that the meeting of the Joint Lenders Forum held on 6th February, 2018

is not final as the Punjab National Bank has informed that if the super

majority agreed for restructuring, they will be circulating the draft

restructuring proposal to the other lenders and before the said date the

Bank of Baroda has already preferred the insolvency petition before the

Adjudicating Authority on 17th October, 2017 which was taken care and

noted by the Joint Lenders Forum.

20. In view of the aforesaid proceeding, the Appellants cannot rely on

decision of the Joint Lenders Forum in the meeting dated 6th February,

2018 to hold that restructuring has already been done by the Joint

Lenders Forum.

Company Appeal (AT) (Insolvency) No. 84 of 2018 12

21. We find no merit in this appeal. It is accordingly dismissed.

However, in the facts and circumstances of the case, there shall be no

order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 6th September, 2018

/AR/

Company Appeal (AT) (Insolvency) No. 84 of 2018