Deepak Raheja And Anr vs Omkara Assets Reconstruction ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No.165 of 2024 (Arising out of Order dated 09.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-I in C.P.(IB) No.291/MB/2023)

IN THE MATTER OF: Deepak Raheja & Anr. ...Appellants Versus Omkara Asset Reconstruction Pvt. Ltd ...Respondent

Present: For Appellants : Mr. Ajesh K. Shankar, Ms. Shweta Bharti, Mr. Srihari S., Ms. Suneha, Mr. Rohit Jolly, Ms. Bheeni Goyal and Mr. Raghav Sachdev, Advocates.

For Respondents : Mr. Arun Kathpalia, Sr. Advocate with Mr. Varun Kalra, Mr. Samir Malik, Mr. Shahan Ulla, Mr. Ryan Dsouza, Ms. Diksha Sharma, Advocates for R-1. Mr. Gaurav Mitra, Sr. Advocate with Mr. Ishaan Roy Choudhury and Ms. Honey Satpal, Advocates for IRP.

With Company Appeal (AT) (Insolvency) No.212 of 2024 (Arising out of Order dated 09.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-I in C.P.(IB) No.290/MB/2023)

IN THE MATTER OF: Advantage Raheja Hotels Pvt. Ltd. & Anr. ...Appellants

Versus Omkara Asset Reconstruction Pvt. Ltd. & Anr. ...Respondents

Present:

For Appellants : Mr. Ajesh K. Shankar, Ms. Shweta Bharti, Mr. Srihari S., Ms. Suneha, Mr. Rohit Jolly, Ms. Bheeni Goyal and Mr. Raghav Sachdev, Advocates.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 1 For Respondents : Mr. Krishnendu Datta, Sr. Advocate with Mr. Varun Kalra, Mr. Samir Malik, Mr. Shahan Ulla, Mr. Ryan Dsouza and Mr. Rahul Gupta, Advocates for R1.

Mr. Gaurav Mitra, Sr. Advocate with Mr. Ishaan Roy Choudhury and Ms. Honey Satpal, Advocates for RP a/w Mr. Aakash Parikh and Mr. Jay Sanghrajka.

JUDGMENT

ASHOK BHUSHAN, J.

These two Appeal(s) challenge the orders dated 09.01.2024 passed

by National Company Law Tribunal, Mumbai Bench, Court-I, initiating

Corporate Insolvency Resolution Process ("CIRP") against the two

Corporate Debtors, running two Hotels - (i) JW Marriott (five- star Hotel)

situated at Bengaluru; (ii) Crown Plaza Hotel, situated at Pune.

2. Company Appeal (AT) (Ins.) No. 165 of 2024 has been filed by

Suspended Director of the Corporate Debtor - GSTAAD Hotels Pvt. Ltd.;

and Company Appeal (AT) (Ins.) No. 212 of 2024 has been filed by

Shareholder and Suspended Director of the Corporate Debtor - Neo

Capricorn Plaza Pvt. Ltd., a subsidiary of M/s GSTAAD Hotels Pvt. Ltd.

Lenders of both the Corporate Debtors being common and lending

commenced by a common Loan Agreement dated 26.12.2017 and both

the Appeal(s) involving common issues of facts and law, have been heard

together and are being decided by this common judgment

3. Brief facts of the case giving rise to these Appeal(s) are:

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 2 Company Appeal (AT) (Ins.) No.165 of 2024

(i) Piramal Capital Housing Finance Ltd. ("Piramal") entered

into a Loan Agreement dated 26.12.2017 with Corporate

Debtor ("CD") - M/s GSTAAD Hotels Pvt. Ltd. ("GSTAAD

Hotels") and Neo Capricorn Plaza Pvt. Ltd. ("Neo

Capricorn"), agreeing to extend Term Loan Facility of Rs.600

crores, wherein GSTAAD was granted loan of Rs.450 crores,

Rs.50 crores as revolving facility and Neo Capricorn was

granted a loan of Rs.100 crores. Rate of interest was 10.5%

(per annum) payable every month. In case of default interest

of 1.25% per month was payable.

(ii) On 17.01.2018, a Cash Management Agreement was entered

between Piramal and GSTAAD Hotels (Borrower), whereby

66% of the revenue of the Hotel was to be transferred into the

Revenue Account and 34% of the Revenue Account was to be

transferred into a Retention Account, to be used for service of

debt under the Facility Agreement.

(iii) As per Loan Agreement dated 26.12.2017, there was a Debt

Service Retention Account ("DSRA") where Rs.8 crores

remained undisbursed in order to meet any shortfall.

(iv) The Corporate Debtor - GSTAAD Hotels continued to service

its Loan Agreement till March 2000. After the onslaught of

Covid-19, GSTAAD Hotels availed ECLGS Facility of Rs.98

crores on 30.12.2020 at the interest rate of 13% per annum.

The principal amount was repayable within four years.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 3 Moratorium of one year was also granted. Another ECLGS

Facility II was granted to GSTAAD Hotels on 11.03.2022 of

Rs.65 crores, repayable within five years with moratorium

period of two years.

(v) On 10.08.2021, IDBI Trusteeship Ltd. filed a Company

Petition against the CD - GSTAAD Hotels being CP(IB)

No.1292 of 2021 before the NCLT Mumbai Bench, in respect

of default under the Loan Agreement dated 26.12.2017.

Company Petition - CP(IB) No.1292 of 2021 was withdrawn

on 13.12.2022. On 27.12.2022, Lenders assigned their all

rights under Loan Agreement, ECLGS Facility-I ("ECLGS-1")

and ECLGS Facility-II ("ECLGS-2") to Omkara Asset

Reconstruction Company Pvt. Ltd. ("Omkara").

(vi) On 15.12.2023, Omkara issued a legal notice, calling upon

the CD to repay the amount of Rs.666,53,26,968/-. A

Company Petition under Section 7 being CP(IB)

No.291/MB/2023 was filed by the Omkara against GSTAAD

Hotels, claiming debt and default on 15.11.2022.

(vii) GSTAAD Hotels filed a Writ Petition No. 6037 of 2023 before

the Karnataka High Court, challenging the assignment dated

27.12.2022 seeking a declaration that there being no default

in repayment of loan facility and the account of the CD not

having been declared as NPA or stressed account, the loan

account could not have been assigned to Omkara and certain

other reliefs were also claimed in the Writ Petition.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 4

(viii) The CD - GSTAAD Hotels asked for statement of account to

close the loan account and repay the balance amount. The

Lenders continued to receive sums as per Cash Management

Agreement.

(ix) Reply to Section 7 Application was filed by the CD. The

Adjudicating Authority vide order dated 09.01.2024 admitted

Section 7 Application.

Company Appeal (AT) (Ins.) No.212 of 2024

(i) On 26.12.2017, Corporate Debtor - Neo Capricorn Plaza Pvt.

Ltd. along with GSTAAD Hotels entered into a Loan

Agreement for a loan of Rs.600 crores, out of which Corporate

Debtor - Neo Capricorn was to be given loan of Rs.100 crores

loan. On 26.12.2017, a Security Trustee Agreement was

entered into between the Lender - Piramal, the Corporate

Debtor and M/s. IDBI Trusteeship Services Ltd.

(ii) On 29.12.2020, the Lender entered into a Loan Agreement

with the Corporate Debtor - Neo Capricorn Plaza Pvt. Ltd. for

a sum of Rs.19.5 crores under the ECLGS Scheme.

(iii) On 04.03.2021, IDBI Trusteeship Ltd. issued a notice of

default, calling on GSTAAD Hotels and the CD - Neo

Capricorn to repay Rs.13 crores to the Lender. On

26.05.2021, the IDBI Trusteeship Ltd. issued a notice of

default to the GSTAAD Hotels and Neo Capricorn to repay the

entire loan of Rs.600 crores.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 5

(iv) A Company Petition being CP(IB)No.1287 of 2021 was filed on

23.10.2021 against the Neo Capricorn by IDBI Trusteeship

Ltd. for initiating Section 7 proceedings. On 22.12.2022,

Section 7 Application filed by IDBI Trusteeship Ltd. was

withdrawn.

(v) Lenders assigned their rights on 27.12.2022 for a sum of

Rs.625 crores to Omkara. On 30.01.2023, the Lender -

Piramal provided the Borrowers a Statement of Accounts,

giving a concession of about Rs.132 crores towards the loan

account.

(vi) On 15.02.2023, Omkara issued a recall notice for recalling

the loan, without enumerating any default/ date sought to

recall the entire loan. The recall notice was replied on

20.02.2023.

(vii) On 09.03.2023, CP(IB) No.290 of 2023 was filed by Omkara

against the CD - New Capricorn. The CD expressed its

willingness to repay the loan, which was recorded by the

NCLT on 11.10.2023. The CDs - GSTAAD Hotels and Neo

Capricorn wrote to the Lenders in October and November

2023 asking for statement of accounts to close the accounts

and replay the same. From 25.10.2023 to 09.11.2023, the

Lender continued to receive the amount as per Cash

Management Agreement.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 6

(viii) On 09.01.2024, order was passed by Adjudicating Authority

admitting Section 7 Application against the CD - Neo

Capricorn.

These two Appeal(s) have been filed challenging the separate

order dated 09.01.2024 passed in Section 7 proceeding as

noted above. For deciding both the Appeal(s) it shall be

sufficient to refer to facts and pleadings in Company Appeal

(AT) (Ins.) No.165 of 2024.

4. We have heard learned Counsel for the Appellant(s) as well as

learned Counsel for Respondents appearing for Omkara and learned

Counsel appearing for the IRP. The submissions advanced by learned

Counsel for the Appellant(s) being common, we proceed to consider the

submission as submissions on behalf of the Appellant. The submission of

learned Counsel for Respondent - Omkara, being also common in both

the Appeal(s), they are referred to as submissions of Respondent.

5. Learned Counsel for the Appellant challenging the orders initiating

CIRP submits that CD - GSTAAD Hotels is a running Hotel namely - JW

Marriott (a five-star Hotel) in Bengaluru, which Hotel is being run as a

profitable Company, which can be envisaged from earnings before

interest, taxes, depreciation and amortization (EBIDTA) in the year 2022-

23, which was Rs.81.26 crores. The learned Counsel for the Appellant

referring to the details of revenue earned by the Hotel, in Company Appeal

(AT) (Ins.) Nos.165 and 212 of 2024, referred to in paragraphs 7.5 and 7.6

submits that subsequent to Covid-19, the Hotel has substantial earnings

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 7 and has been making substantial payments to the Lenders. The learned

Counsel for the Appellant referring to Cash Management Agreement

("CMA") submits that as per the CMA 34% of daily gross revenue from the

revenue account was to be transferred in the retention account, which

Agreement provided reconciliation of accounts on monthly basis, whereby,

only the amounts equivalent to the Corporate Debtor's profit share from

the Hotel were to be utilized by the Lender to service its loan and in event

an amount in excess of the Corporate Debtor's profit entitlement from a

particular month, the Lender was obliged to transfer back the excess

amount to the Expense Account within 10 days. In paragraph 7.10, the

details of amount repaid to the Lenders from 2017-18 to 11.01.2024 are

mentioned, which is about Rs.418 crores for GSTAAD and Rs.78.92

crores for New Capricorn. Learned Counsel for the Appellant submits

that accounts of the Corporate Debtors were never declared as SMA

account or NPA account, hence, the accounts having never been declared

as NPA, there was no occasion to assign the debt to Omkara. It is

submitted that as per the Loan Agreement dated 26.12.2017, as per

Clause 9, there was 'Debt Service Reserve Amount' ("DSRA"), where Rs.8

crores for the Corporate Debtor GSTAAD Hotels had to be kept as

undisbursed, in order to meet any shortfall. If any sum of the DSRA was

used, the DSRA would be replenished from the amounts in 34% of the

CMA and The Lender was obliged to maintain the DSRA amount or upon

a Notice by the Lender to the Borrowers repayment thereof was to be

made to maintain the reserve. The Lender never issued any Notice to the

Borrower to replenish the DSRA. The entire sum of 34% of the CMA is in

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 8 control of the Lender - Piramal (Now Financial Creditor - Omkara/

Respondent No.1). Hence, it was upon them to first adjust the sums due

strictly as per the Agreement.

6. The earlier Section 7 Application filed by IDBI Trusteeship Services

Ltd. being CP(IB)No.1292 and 1287 of 2021 having been withdrawn,

without taking any liberty to file afresh Section 7 Application, Section 7

Applications filed by Omkara was barred by principle of res-judicata and

issue estoppel. The sanction under ECLGS Scheme on 29.12.2020 and

11.03.2022 clearly holds that CD was eligible for facility and account was

not NPA and hence, it met the requirement of ECLGS. Under the ECLGS,

an amount of Rs.98 Crores and Rs.65 crores were received by GSTAAD

Hotels, totaling to Rs.163 crores out of which Rs.140 crores were utilized

by the Lenders to evergreen their account. As per Financial Statement of

ECLGS-1, which reflects on 05.10.2022, the sum due was only about

Rs.52 crores and as on 16.02.2023, the amount due was Nil. It is

submitted that for the sake of arguments, even if there was a repayment

of the principal of the ECLGS-1 due between October 2022 to February

2023, as per the repayment schedule, which was never demanded, the

same amount could have been appropriated from the DSRA as per

Sections 59 - 61 of the Contract Act. The Lenders have given conflicting

Statement of Account. It is submitted that Adjudicating Authority has

returned a finding of default only with regard to ECLGS-1 and on the date

of default on 15.11.2022, only amount of Rs.52 lakhs was due in ECLGS-

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 9

1. There was no default of threshold amount, to enable the Adjudicating

Authority to admit Section 7 Application.

7. It is submitted that Adjudicating Authority in paragraph-11 has

held that the Applicant (Financial Creditor) has denied the existence of

CMA and no CMA having been filed, the CMA is not proved, which finding

is erroneous. The CMA was entered between Lenders and GSTAAD

Hotels, which was given effect to by maintaining Expense Account and

Retention Account and the amount being regularly transferred from

retention amount by the Lenders for returning any finding of default on

the loan account, the accounts maintained under the CMA were required

to be looked into by the Adjudicating Authority. The observation of the

Adjudicating Authority in paragraph 8 of the impugned order that

existence of loan amount and Corporate Debtors' default on such loan

amount, is undisputed fact, is without any basis. The Corporate Debtors

never admitted any default. The Appellant has brought on record Report

of the Statement of Accounts shared by Respondent, which indicate that

there are corrections in certain parts in Statement of Accounts, shared by

the Respondent on 06.05.2024 and those, which were brought before the

Adjudicating Authority. The Statement of accounts indicate that Piramal

never has added any default or penal interest, whereas Omkara has

added penal interest in the amount.

8. It is submitted that both the Hotels run by the Corporate Debtors

are profit earning Hotels, which are running Hotels and the action of

Omkara to initiate CIRP is with an intent to take over the assets of the

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 10 CDs by transferring it to its favourites. The Adjudicating Authority did

not consider that the CDs have enough cash reserves and was making

sufficient profits and the Appellant has offered to pay back the amount.

Present was not a case of admission under Section 7 against the

Corporate Debtors. The object of IBC is to revive and ensure that

Corporate Debtor stand on its own feet. When the Hotels are running and

earning profits, an Asset Reconstruction Company, who has taken the

assignment of debt, cannot be allowed to initiate insolvency as recovery

mechanism and to ensure that Corporate Debtor is stopped running as

profitable Company. The judgment of the Hon'ble Supreme Court in M.

Suresh Kumar Reddy v. Canara Bank & Ors., Civil Appeal No.7121

of 2022 relied by Adjudicating Authority is not attracted in the facts of

the present case. The order of learned Single Judge dated 28.02.2024,

dismissing the Writ Petition filed by M/s GSTAAD Hotels has already been

challenged before the High Court in Writ Appeal, which is pending

consideration.

9. Shri Arun Kathpalia, learned Senior Counsel appearing for

Respondent, refuting the submissions of the Appellant submits that

validity of Assignment Agreement executed by Lenders in favour of

Omkara dated 27.12.2022 has been challenged by M/s. GSTAAD Hotels

in the Karnataka High Court, which Writ Petition has been dismissed on

28.02.2024, upholding the assignment, hence, the Appellant is not

entitled to address any submission, questioning the assignment in favour

of Omkara, which assignment has been upheld by the High Court. The

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 11 submission of the Appellant that on account of withdrawal of the earlier

Section 7 Application filed by IDBI Trusteeship Ltd. on 13.12.2022 and

23.12.2022, Section 7 Application filed by Omkara is hit by principle of

res-judicata, cannot be accepted. Section 7 Application filed against

GSTAAD Hotels and Neo Capricorn is based on default, which was

committed by CDs on 15.11.2022, whereas earlier Section 7 Application

was filed by IDBI Trusteeship Ltd. on default, which was committed in

April and May 2021. It is submitted that principle of res-judicata or issue

of estoppel has no applicability in Section 7 Application filed by Omkara.

10. With regard to ECLGS-1 and ECLGS-2, it is submitted that as per

sanctions on 30.12.2020 and 11.03.2022, the Corporate Debtors were

liable to make payment towards interest. The Corporate Debtors having

committed default in repayment of the interest and principal as per

ECLGS-1, as per repayment schedule, the default was committed by the

Corporate Debtors. With regard to ECLGS-1, Corporate Debtor was to

make a monthly principal repayment of Rs.2,04,16,667/- from

15.12.2021 till 15.11.2025. The monthly interest rate of 13% was to be

paid under ECLGS-2 from April 2022 to April 2028. Default was

committed by the Corporate Debtor with regard to ECLGS-1 and ECLGS-2

leading the Financial Creditor to issue a legal notice dated 15.02.2023,

calling upon the Corporate Debtors to pay the outstanding amount of

Rs.666,53,26,968/-. The Corporate Debtors failed to perform its

obligation in accordance with the terms agreed and Statement of Account.

The Statement of Account clearly indicates that on 15.11.2022 there was

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 12 a clear default on the part of Corporate Debtor in making the due

payment. On the date of legal notice there was default of more than Rs.1

crore. It is settled law that once Adjudicating Authority is satisfied

regarding existence of debt and default to the extent of Rs.1 crore, the

Adjudicating Authority has to admit Section 7 Application. Default, which

was the basis of filing of first Section 7 Application, the date of default

was different.

11. With regard to DSRA as contended by learned Counsel for the

Appellant in this Appeal, no such argument was made before the

Adjudicating Authority, nor any such pleading was raised by the

Appellant before the Adjudicating Authority. The argument based on

DSRA has been raised in this Appeal for the first time. In any view of the

matter, there is no provision of DSRA in ECLGS-1 and ECLGS-2

Facilities. DSRA provisions only existed qua the Loan Agreement dated

26.12.2017. Thus, DSRA has no bearing on ECLGS-1 and ECLGS-2. No

proof has been shown by the Appellant that there existed any balance out

of the undisbursed DSRA and there was any replenishment made by the

Borrower. At the time of assignment of present facilities to Omkara, there

existed no amount in the undisbursed DSRA. The same was already

adjusted and utilized as repayment of the unpaid tranches by the

Appellant. The Corporate Debtor has not even able to service interest

component payable under the ECLGS-1 and ECLGGS-2. The 15% penal

interest, which is charged by Respondent No.1, is owing to default interest

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 13 and both penal interest and default interest have been used

interchangeably.

12. As regards, the submission of the Appellant regarding servicing of

debt from CMA, the CMA was entered on 17.01.2018, as per which 66%

of daily gross revenue to be transferred to designated account titled as

Expense Account and the remaining 34% to be transferred to a

designated account titled as Retention Account, which would be utilized

by Lenders towards servicing of the loan advanced to the Corporate

Debtors. Despite Corporate Debtors servicing 34% of the collections

towards the loan, still default was committed. The CMA only provided for

a mechanism to appropriate a percentage of the revenue towards servicing

of the debt. As per Clause 18.39 of the Loan Agreement, the Corporate

Debtor had agreed and undertook that in the event the funds lying in the

Retention Account are not sufficient for repaying the loan or any part

thereof, the Corporate Debtor shall ensure that the loan and every part

thereof is repaid through such other funds as may be necessary for this

purpose and acceptable to Lenders. Hence, when 34% of the collections

fell short of repayment of facility, it fell upon the Corporate Debtor to

make good the "default". The finding of the NCLT that there is debt and

default is based on materials on record. There being default of more than

Rs.1 crore, no exception can be taken to the admission of CIRP Against

the Corporate Debtor. There existed the clear debt and default under the

terms of Loan Agreement under ECLGS-1 and ECLGS-2. Both the

Appeal(s) filed by the Appellant deserve to be dismissed.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 14

13. We have considered the submission of learned Counsel for the

parties and have perused the record.

14. From the submissions of learned Counsel for the parties and the

materials placed on record, following issues fell for consideration in these

Appeal(s):

(1) Whether Assignment dated 27.12.2022 made in favour of

Omkara Assets Reconstruction Pvt. Ltd. by the Lenders was

not in accordance with the provisions of the Securitisation

and Reconstruction of Financial Assets and Enforcement of

Securities Interest Act, 2002 ("SARFAESI Act") as well as the

Circulars issued by the Reserve Bank of India, the account of

Corporate Debtor having never declared as NPA or SMA?

(2) Whether due to dismissal of Section 7 Application filed on

behalf of the Lenders, being CP(IB) No.1292/2021 and CP(IB)

No.1287 of 2021 as withdrawn on 13.12.2022 and

22.12.2022, the Section 7 Application filed by Omkara Assets

Reconstruction Pvt. Ltd. Being Company Petition (IB) 291 of

2023 and 290 of 2023 were not maintainable and were hit by

principle of res-judicata?

(3) Whether the Corporate Debtors, who are running five star JW

Marriott Hotel and Crown Plaza Hotel are profitable

Companies earning substantial profits?

(4) Whether the Adjudicating Authority committed error in

returning finding in paragraph 11 of the impugned order that

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 15 due to denial of existence of Cash Management Agreement,

the arguments of the Corporate Debtor on the basis of

servicing of debt as per Cash Management Agreement, cannot

be accepted?

(5) Whether the Adjudicating Authority was obliged to consider

the amount transferred to Lenders under Cash Management

Agreement towards servicing of debt for returning a finding of

default by the Corporate Debtor?

(6) Whether Lenders were obliged to maintain DSRA reserve as

per Loan Agreement dated 26.12.2017, which amount was

required to be appropriated towards payment of principal &

interest due under Loan Agreement & ECLGS-I and ECLGS-

II?

(7) Whether the finding of the Adjudicating Authority in

paragraph 8 that it is undisputed fact that the defaults in

payment of Loan amount exists, are sustainable the

Corporate Debtor having disputed the default in the pleadings

and arguments before the Adjudicating Authority?

(8) Whether out of amount sanctioned by Lenders under ECLGS-

I and ECLGS-II of Rs.98 crores + Rs.65 crores = Rs.163

crores, the Lenders have used the amount of about Rs.140

crores to service its own debts and dues contrary to

Agreement dated 30.12.2020 and 21.03.2022 and

Adjudicating Authority rightly rejected the submission of

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 16 Corporate Debtor on ground of end use Certificate issued by

Corporate Debtor.

(9) Whether Corporate Debtor has committed default towards

ECLGS-1 sanctioned on 30.12.2020 as per date of default

15.11.2022?

(10) Whether the Financial Creditors have been able to prove

default under the Loan Agreement dated 26.12.2017 and the

ECLGS-II sanctioned on 21.03.2022?

(11) To what relief, if any, the Appellant(s) are entitled in these

Appeal(s)?

Question No.(1)

15. The Assignment dated 27.12.2022 made by the Lenders in favour of

Omkara was challenged by GSTAAD before the High Court of Karnataka

at Bengaluru in Writ Petition No.6037 of 2023. The High Court vide its

judgment and order dated 28.02.2024 has dismissed the Writ Petition.

Copy of which order has been brought on record by the Appellant in its

rejoinder affidavit. The challenge before the High Court of Karnataka of

the Assignment by the Appellant was basically on the ground that

accounts of CD having not been declared as NPA or SMA, the Lenders

could not have assigned the debt in favour of Omkara. Violation of

Circulars issued by Reserve Bank of India was relied before the High

Court. The High Court by judgment dated 28.02.2024 held that

assignment is not violative of Master Circular issued by the Reserve Bank

of India. It was held that there is no statutory aberration and dispute

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 17 between private parties for enforcement of a private agreement would not

get the audience of the High Court under Article 226 of the Constitution

of India. The High Court in paragraphs 15 and 16 of the judgment laid

down the following:

"15. The underlying principle is that the assignment of asset to a new entity by the lender need not be on an express consent of the borrower. Knowledge to the borrower would be suffice and knowledge to the petitioner in the case at hand cannot be disputed. Therefore, the plea of assignment being contrary to the Master Circulars as is projected is untenable and all submissions shrouded with the plea of it being contrary to Master Circulars are all unsustainable. Assignment or re-assignment by private entities or in the business of banking is best left to bankers, borrowers and the lenders unless it runs contrary to any statutory provision either under the SARFAESI Act or Circulars issued by the Reserve Bank of India which are held to have statutory force. I do not find any statutory aberration in the case at hand qua Master Circulars issued by the Reserve Bank of India. If there is no statutory aberration, the plea would be reduced to a dispute between the petitioner, a private entity and respondents 4 to 6, a private entity and respondent No.7 another private entity. Disputes between private parties for enforcement of a private agreement would not get the audience of this Court under Article 226 of the Constitution of India. It is also submitted across the bar that the petitioner has projected these very submissions that are being projected before this Court in the proceedings instituted by the respondents before the NCLT invoking the Code. Therefore, it is for the NCLT to consider the plea of the petitioner. I do not find any warrant to interfere in the case at hand.

16. It would become germane to notice the judgment of a coordinate Bench in the case of M/S NITESH RESIDENCY HOTELS PRIVATE LIMITED v. UNION OF INDIA in answer to two submissions - one all the respondents not being a State under

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 18 Article 12 of the Constitution and other being the concept of Emergency Credit Loan Guarantee Scheme and banker's prerogative. The coordinate Bench has held as follows:

"E. AS TO EMERGENCY CREDIT LOAN GUARANTEE SCHEME AND BANKER'S PREROGATIVE:

(i) The ECLG scheme promulgated by the Central Government which the petitioner's counsel heavily banked upon in support of his case, at its guideline 18 (xiv) imposes an obligation on the lender bank to secure its interest by taking all reasonable measures. The same reads:

"The payment of guarantee claim by the Trustee Company to the lending institution does not in any way take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower. The lending institution shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of credit facility owed by it and initiate all necessary actions for recovery of the outstanding amount, including such action as may be advised by the Trustee Company."

When the lender Banks in given facts & circumstances of the case take a decision as dictated by the prudence, for abruptly recalling the credit facilities, it is not for the courts to sit in appeal over their wisdom. Writ Courts neither have means nor the expertise to re-evaluate the "prudential decisions" of the Banks that are made in the ordinary course of their commercial transactions with accumulated wisdom in the trade.

(ii) After all, the scope of judicial review of 'Bankers Decisions' is too restrictive, as observed by a Division Bench of this Court in MANNE GURUPRASAD vs. M/S.PAVAMAN ISPAT PVT. LTD10; paragraphs III

(iii) & (iv) of the said decision read as under:

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 19 "(iii) In matters between the Banker & borrower, a Writ Court has no much say except in two situations: where there is a statutory violation on the part of the Bank/financial institution, or where the Bank acts unfairly/unreasonably; Courts exercising constitutional jurisdiction u/A 226 do not sit as Appellate Authorities over the acts & deeds of the Bank and seek to correct them; even the doctrine of fairness/reasonableness does not convert the Writ Courts into appellate authorities over administrative decisions concerning the Banking business; unless the action of the Bank is apparently malafide, even a wrong decision taken by it cannot be interfered. (iv) It is not for the Court or a third party to substitute it's decision howsoever prudent or business like it may be, for the decision of the Bank; in commercial matters, the Courts do not risk their judgments for the judgments of the bodies to which that task is assigned; a Public Sector Bank or a Financial Institution cannot wait indefinitely to recover its dues; the fairness required of the Bank cannot be carried to the extent of disabling it from recovering what is due; in matters of loan transactions, fairness cannot be a one-way street; both the Bank & the borrower have to be equally fair to each other ..."

As observed by the co-ordinate Bench, banking business is better left to bankers. This Court would not sit as a supervisor to banking activities between the lender and the borrower except in cases where the dispute between the banker and the lender would touch upon violation of any statutory provision. No such violation though projected with all vehemence is found in the case at hand. Therefore, I decline to grant any of the prayers sought by the

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 20 petitioner noticed supra. It is for the petitioner to avail all such remedies as are available in law."

16. The prayer of the Appellant before the High court having not been

accepted, questioning the assignment dated 27.12.2022, we are of the

view that no fault can be found in the assignment at this stage. We, thus,

proceed to examine the contention of the parties accepting the assignment

dated 27.12.2022 in favour of the Financial Creditor.

Question No.(2)

17. The submission which has been pressed by the Appellant is that on

account of withdrawal of earlier Section 7 Application filed by IDBI

Trusteeship Ltd. on 13.12.2022 and 22.12.2022, present Application is

barred by principles of res-judicata. The earlier Section 7 Applications

being CP(IB)No.1292 of 2021 and CP(IB) No.1287 of 2021 were filed by

IDBI Trusteeship Ltd. on behalf of the Lenders alleging default on

15.04.2021 and 15.05.2021. The default in the aforesaid proceedings

was default of Loan Agreement dated 27.12.2017. Section 7 Application,

which has given rise to present Appeal has been filed alleging default of

ECLGS-1 and ECLGS-2. In the earlier Section 7 Application initiated by

IDBI Trusteeship Ltd., the ECLGS Facilities were not subject of

consideration, nor the Applications were founded on any default under

ECLGS Facility. Hence, we are of the view that the Applications - CP(IB)

No.291/MB/2023 and CP(IB)No.290/MB/2023, cannot be held to be

barred by the principle of res-judicata. We, thus, do not find any

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 21 substance in the submission of the Appellant that proceedings under

Section 7 initiated by Omkara is barred by principle of res-judicata.

18. Even though, we have found that Section 7 Application filed by

Omkara is not barred by res-judicata, the issue still needs to be

considered is as to whether Section 7 Application filed by Omkara was for

resolution of insolvency of the Corporate Debtor or was only filed as

recovery measure. Following are the facts, which need consideration

while answering the above issue:

(i) Section 7 Application, which was filed by IDBI Trusteeship

Ltd. on behalf of the Lenders was withdrawn on 13.12.2022

and 22.12.2022 and it is to be presumed that on the date

when Application was withdrawn, there was no need for

insolvency resolution process of the CD. It is to be noted that

while withdrawing Section 7 Application, neither any reasons

have been given for withdrawal, nor any liberty was given to

file a fresh application.

(ii) Immediately after withdrawal of Section 7 Application, the

debt was assigned by Lenders to Omkara on 27.12.2022, who

issued recall notice on 15.02.2023 and filed Section 7

Application on 09.03.2023, claiming debt and default as on

15.11.2022, which date was prior to withdrawal of Section 7

Application.

19. The above fact raises question on the object and motive of Omkara

to initiate CIRP against the CDs, which also needs consideration.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 22 Question No.3

20. Learned Counsel for the Appellant has pleaded in this Appeal as

well as in submission that the Hotels, which are being run by Corporate

Debtors namely - JW Marriott (a five-star Hotel) and Crown Plaza Hotel

are profitable Companies, earning substantial profits. It has been pleaded

that after the loan transaction dated 26.12.2017 till March 2020, the

Corporate Debtors have been servicing the loan without there being any

default. It is further case of the Appellant that even after onslaught of

Covid-19, which engulfed whole world, the Corporate Debtor was making

repayment and from the year 2020-21 and thereafter has been able to

make substantial repayment towards the Facilities taken from the

Lenders. It is submitted that the Hotel business was the most affected

business by Covid-19. Hotel business was great sufferer due to onslaught

of Covid-19. Both Union of India and Reserve Bank of India has taken

measures to extend financial support by means of ECLGS Scheme, which

Scheme was floated for giving financial support to the Corporate Debtors

to come out from the adverse effect of Covid-19. In the Company Appeal

(AT) (Ins.) No.165 of 2024, the Appellant has pleaded about the current

financial status of JW Marriott Hotel as well as Crown Plaza Hotel. In

paragraph 7.12 of the Appeal, payments made by Borrower to the Lenders

from April 2017 to 11.01.2024 has been tabulated. GSTAAD has made

payment of Rs.418.06 crores during this period and Neo Capricorn has

made payment of Rs.78.92 crores. Paragraph 7.12 of the Appeal is as

follows:

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 23 "7.12 The Borrowers have repaid sums to the Lenders in the following manner:

GSTAAD HOTELS PRIVATE LTD.

Sl.No. Financial Year Amount in INR (Crores) 1. April 2017- 10.28 March 2018 2. April 2018- 54.33 March 2019 3. April 2019- 60.27 March 2020 4. April 2020- 55.73 March 2021 5. April 2021- 78.34 March 2022 6. April 2022 - 96.19 March 2023 7. April 2023 - 42.04 to 11th January 2024 Piramal and 20.89 towards the Respondent 8. TOTAL 418.06

NEO CAPRICORN PLAZA PRIVATE LTD.

Sl.No. Financial Year Amount in INR (Crores) 1. April 2017- 2.12 March 2018 2. April 2018- 10.10 March 2019 3. April 2019- 12.27 March 2020 4. April 2020- 11.43 March 2021 5. April 2021- 16.60 March 2022 6. April 2022 - 17.06 March 2023 7. April 2023 - 6.54 to 11th January 2024 Piramal and 2.81 towards the Respondent 8. TOTAL 78.92"

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 24

21. The above table fully support the submissions of the Appellant that

Corporate Debtors have been earning revenue and making payments to

the Lenders during Covid-19 period as well as the period thereafter.

Further, in paragraph 7.13, it has been pleaded that between April 2022

to 11.01.2024, a sum of Rs.138.23 crores have been paid to Lenders.

Paragraph 7.13 is as follows:

"7.13 By the CMA, and notwithstanding the purported Assignment of the Loan Documents on 27.12.2022 as per Exhibit U to the Application, by the Lenders, the Corporate Debtor has continued to pay the Lenders between April 2022 to 11th January 2024, a sum of INR 138.23 Crores to the Lender and a sum of INR 20.89 Crores to the Respondent as stated supra."

22. The reply has been filed by the Financial Creditor in Company

Appeal (AT) (Ins.) No.165 of 2024. The contents of paragraphs 7.12 to

7.14 of the Appeal have been replied by Financial Creditor in paragraph

11 of the reply. The payments as pleaded in paragraphs 7.12 and 7.13

has not been denied. However, in paragraph 10, a plea was taken by the

Financial Creditor that any shortfall or insufficiency in the repayment has

to be shoulder by the Corporate Debtors and repayments were not

sufficient to discharge the liabilities towards Lenders.

23. Be that as it may, the above facts clearly support the submission

that both the Hotels were running Hotels and earning revenue and

payments were made to the Lenders even during Covid-19 period and

thereafter. The Lenders, who have given finances to the Corporate Debtor

for a Project, are also obliged to support the Corporate Debtor in running

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 25 the business and extend their helping hand to the Corporate Debtor. The

object of IBC is insolvency resolution. We, thus, find substance in the

submissions of the Appellant that JW Marriott Hotel and Crown Plaza

Hotel, which are run by the Corporate Debtors were profitable Companies,

earning substantial profits.

Question Nos.(4) & (5)

24. The Appellant has placed reliance on Cash Management Agreement

entered between the parties on 17.01.2018 in pursuance of the Loan

Agreement dated 26.12.2017. The Appellants' case before the

Adjudicating Authority as well as before this Tribunal is that as per the

CMA dated 17.01.2018, the daily gross revenue was to be transferred

from designated Revenue Account to Expense Account, 66% for Borrower

for operating capital needs of the Hotel and 34% was to be transferred to

designated account titled as Retention Account, on a daily basis, which

would be used by the Lender towards servicing of loan financed to the

Corporate Debtors. The relevant pleadings regarding CMA have been

referred to in paragraph 7.10 of the Appeal. Paragraph 7.10 of the Appeal

is as follows:

"7.10 The Trustee on behalf of the Lender would transfer from the Revenue Account as per the CMA as follows--

7.10.1. 66% of the daily gross revenue from the Revenue Account to a designated account bearing number 002284000002912 at YES Bank and 57500000439879 at HDFC Bank titled as Expense Account' also on a daily basis, which would be

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 26 utilized by the Hotel Operator for working/operating capital needs of the Hotel, and:

7.10.2. 34% of the daily gross revenue from the Revenue Account to another designated account titled as 'Retention Account' bearing number at 045881300000023 at YES Bank and 50200046058626 at HDFC Bank also on a daily basis, which would be utilized by the Lender towards servicing of the loan advanced to the Corporate Debtor.

7.10.3 That it was agreed between the Parties as per Clause 1 B (iv) of the CMA, that a reconciliation of accounts would be done on a monthly basis, whereby only the amounts equivalent to the Corporate Debtors profit share from the Hotel were utilized by the Lender to service its Loan.

7.10.4. Therefore, if upon the monthly reconciliation, an amount in excess of the Corporate Debtor's profit entitlement from a particular month had been transferred to the Retention Account, then in that event the Lender was obliged to transfer back the excess amount to the Expense Account within 10 days of being provided with the monthly reconciliation statement by the Hotel Operator, and any failure on the part of the Lender, would amount to a Cash Management Default under the CMA. Pursuant to such a default, as per Clause 2 of the CMA the Hotel Operator was no longer obliged to deposit the gross revenue collections into the Revenue Account and was instead empowered to deposit the same into the Expense account directly for meeting the working/operational capital expenses of the Hotel."

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 27

25. It was further pleaded that from the aforesaid arrangement, it is

clear that CMA was not merely a Lender-Borrower Agreement, but it

shows that Lender had keen interest in the working and profitability of

the Hotel, which arrangement was drawn after careful negotiations

between the parties. Before the Adjudicating Authority, a submission was

made by the Corporate Debtor relying on the CMA, existence of which

CMA was denied by the Omkara and the Adjudicating Authority in

paragraph 11 of the impugned order has returned the following finding:

"11. We find that the Applicant has denied the existence of Cash Management Agreement or any correspondence between the parties to substantiate the existence thereof. The Corporate Debtor has not placed on record any such agreement or document, accordingly this argument also does not have a force."

26. The CMA was contemplated in the Loan Agreement dated

26.12.2017. The CMA was defined in the Loan Agreement dated

26.12.2017 in the First Schedule of the Loan Agreement, dealing with

definition and interpretation, the CMA has been defined as follows:

"Cash Management Agreements" shall mean the agreement executed on or about the date hereof between GHPL, Marriott Hotels India Private Limited (as the operator), Global Hospitality Licensing S.A R.L. (as GHL), Renaissance. Services B.V. (as RSBV), Marriott International Licensing Company B.V. (as Marriott) and the Lender (as Financier) which sets out the cash management arrangement between the parties thereto in relation to the JW Marriott Hotel together with the non-disturbance agreement executed between the parties thereto."

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 28

27. The CMA was entered between the parties and the amounts were

regularly transferred into Retention Account, which Retention Account

was operated by the IDBI Trusteeship Ltd. on behalf of the Lenders.

Denial of Omkara before the Adjudicating Authority was wholly incorrect

and against the record. The CMA was a mechanism for repayment of

financial Facilities advanced to the Corporate Debtor and that was a key

agreement between the parties for repayment of the loan and without

adverting to the CMA and its various clauses, no findings could have been

returned by the Adjudicating Authority on default by the Corporate

Debtor. In the reply, which has been filed in Company Appeal (AT) (Ins.)

No.165 of 2024, Omkara has not denied the existence of CMA, rather it is

pleaded that CMA is merely a repayment mechanism to ensure that

portion of the revenue of JW Marriott Hotel be utilized to repay the debt.

It is useful to extract paragraph 10 of the reply of the Financial Creditor,

which is as follows:

"10. Without contrary to the aforementioned submission it is submitted that the assignment of the CMA has no bearing on the fact that there was a default on the part of the Corporate Debtor and therefore the CIRP of the Corporate Debtor initiated by the Ld. NCLT, Mumbai is right in passing the Impugned Order as the ingredient stated in the Section 7 Code has been met with. It is submitted that as per Clause 18.39 of the Loan Agreement, Clause 17.39 of the ECLGS Loan Agreement 1 and ECLGS Loan Agreement 2, respectively, the CMA is merely a repayment mechanism to ensure that a portion of the revenue of the JW Marriott hotel would be utilized to repay the debt under the Loan Agreement, ECLGS Loan Agreement 1 and ECLGS Loan Agreement 2. In case the amounts in the retention account were insufficient to service the debts of the Corporate Debtor under the Loan Agreement, ECLGS

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 29 Loan Agreement 1 and ECLGS Loan Agreement 2, the Corporate Debtor was required to ensure that shortfall/insufficiency is made up. Therefore, the amounts were payable irrespective of the amounts received under the mechanism of the CMA. Moreover, the said issue has been raised for the first time by way of the present appeal by the Appellants. The said contention was never raised nor submitted before the Ld. NCLT, Mumbai."

28. From the above, it is clear that CMA between the parties was one of

the most relevant Agreement to regulate the debt repayment. The CMA

also imposed certain obligations on the Lenders and for finding out

default on the part of the CD, CMA and consequent repayment under the

CMA was required to be examined by the Adjudicating Authority. The

Adjudicating Authority simply on mere denial of Omkara to the existence

of CMA has rejected the submission of the Appellant. The observation of

the Adjudicating Authority that CD could not prove existence of CMA by

any correspondence between the parties is also without any basis. The

CMA was duly contemplated into a Loan Agreement and was actually

executed between the parties.

29. The GSTAAD Hotels filed reply in CP(IB)No.291/MB/2023. In the

reply filed by the CD, CMA was both pleaded as well as brought on record.

It is useful to notice the pleadings in reply. In paragraph 9 of the reply,

CMA dated 17.01.2018 was specifically pleaded. Paragraphs 9 and 10 of

the reply are as follows:

"9. That the Respondent, PCHFL and the Hotel Operator had a Cash Management Agreement dated 17.01.2018 ("CMA") whereby the entire gross revenue collections of the Hotel were to be deposited by the Hotel Operator into a designated bank account on

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 30 a daily basis, which was titled and styled as the Revenue Account. Thereafter, PCHFL would transfer:

(a) 66% of the doily gross revenue from the Revenue Account to another designated account titled as Expense Account also on a daily basis, which would be utilized by the Hotel Operator for working/operating capital needs of the Hotel, and;

(b) 34% of the daily gross revenue from the Revenue Account to another designated account titled as Retention Account also on a daily basis, which would be utilized by PCHFL towards servicing of the loan advanced to the Respondent.

10. It was agreed between the Parties, that a reconciliation of accounts would be done on a monthly basis, so as to ascertain that only the amounts equivalent to the Respondent's profit shore from the Hotel were utilized by the PCHFL for servicing its loan. That is to soy, if upon the monthly reconciliation, an amount in excess of the Respondent's profit entitlement from a particular month had been transferred to the Retention Account, then in that event PCHFL was obliged to transfer back the excess amount to the Expense Account within 10 days of being provided with the monthly reconciliation statement by the Hotel Operator, and any failure on the part of PCHFL to do so would amount to a Cash Management Default under the CMA. Pursuant to such a default, the Hotel Operator was no longer obliged to deposit the gross revenue collections into the Revenue Account and was instead empowered to deposit the same into the Expense Account directly for the purpose of meeting the working/operational capital expenses of the Hotel. A Copy of the CMA is annexed hereto as

30. In paragraph 10 of the reply, the CD has stated to annexed the copy

of CMA as Exhibit R-3. The Adjudicating Authority in the impugned order

has observed that "The Corporate Debtor has not placed on record any

such agreement or document, accordingly this argument also does not have

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 31 a force". The above observation of the Adjudicating Authority can be said

to be reckless observation without adverting to the reply and documents

filed along with the reply. The CMA was brought on record as Exhibit R-

3. We, thus, are of the clear opinion that the above finding has been

returned by the Adjudicating Authority without even adverting to the

pleadings of the CD and the materials brought on the record by the CD.

The findings, thus, in paragraph 11 of the impugned order are wholly

unsustainable.

31. We may refer to the relevant Clauses of the CMA, where after

careful consideration and negotiation between the parties, the mode and

manner of repayment of loan has been thought over and agreed. Clause-

1, A, B, F, G and H are as follows:

"1. CASH MANAGEMENT ARRANGEMENT

A. The Parties agree that the operating profit which (after deduction of the amounts payable to Marriott Companies under the Marriott Agreements) would otherwise be distributed to Owner (as set out in the interim accounting referred to in section 5.02 of the Operating Agreement) ("Owner Profit") will be deposited in the Retention Account (as defined below) for Financier to repay the loan under the Facility Agreement

B. To implement t11o arrangement In Section LA above, the parties agree that, notwithstanding section 9.03 of the Operating Agreement, until there is a Cash Management Default, the Hotel's Gross Revenues in relation to each Accounting Period shall be deposited and utilized in the following manner:

(i) Operator will deposit all Hotel's Gross Revenues (Including tax or similar charges collected by the Hotel from patrons or guests, "Taxes") on a daily basis into an

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 32 account established by Owner with Financier as revenue account

(ii) On a daily basis, through an automatic transfer via standing instruction:

(a) Financier will transfer 66% of the Gross Revenues (including Taxes) from the Revenue Account into a designated account at YES Bank (Account number: 02284000002912) which will be an expense account ("Expense Account"). Operator will use the funds in the Expense Account to pay for the operating expenses of tile Hotel and Taxes;

and

(b) Financier will transfer the remaining amount of the 34% of the Gross Revenue in the Revenue Account (after transfer of the amount referred to in section 1.B(ii)(a) above) into an account established by Owner with Financier as retention account ("Retention Account"). Financier will use the funds in the Retention Account to service the debt under the Facility Agreement.

(iii) On a weekly basis, Operator will deposit the Taxes (which are accrued during the week and after adjustment of input tax credit) Into a designated account (a HDFC bank account) ("Statutory Account") which will be paid to there relevant authorities

(iv) within Seven Business Days after the end of each Accounting Period, Operator will provide a copy of the interim accounting referred to in section 5.02 of the Operating Agreement to Owner and Financier and a monthly reconciliation will be performed to ensure that only amount constituting Owner's Profit (including contribution to the Repairs and Equipment Reserve) is deposited and/ or retained in the Retention Account for

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 33 repayment of the loan under the Facility Agreement. Accordingly,

(a) if: (I) the aggregate amounts which have been transferred from the Account to the Retention Account pursuant to section 1 B(ii)(b) above in the immediately preceding Accounting Period; exceed (2) the Owner Profit (including contribution to the Repairs and Equipment Reserve) relating to the immediately preceding Accounting Period, Financier and Owner will deposit- the excess amount into the Expense Account within ten, Business Days after Operator's provision of the interim accounting to Owner and Financier; and

(b) If:(1) Owner's Profit (including contribution to the Repairs and Equipment Reserve) in relation to the immediately preceding Accounting Period; exceeds (2) the aggregate amounts which have been transferred from the Revenue Account to the Retention Account pursuant to section l.B(ii)(b) above in the immediately preceding Accounting Period, Operator will deposit the excess amount into the Retention Account within ten Business Days after Operator's provision of the interim accounting to Owner and Financier;

F. Owner will ensure Financier to comply with the terms of Section I of this Agreement. Any breach by Owner or Financier of Section J of this Agreement that Owner or Financier fails to rectify within 10 days after receiving a written notice from Operator requesting for rectification will constitute a "Cash Management Default".

G. This Agreement does not relieve Owner's obligation to advance additional funds required to maintain Wo1·king Capital and Inventories at levels determined by Operator to be necessary to satisfy the needs of the Hotel as Its operation may from time to

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 34 time require pursuant to section 7.01 of the Operating Agreement. Ow net' wit\ provide such funds to the Expense Account upon Operator's request.

H. The current split of 66% /34% ratio to allocate Hotel Gross Revenue into the Expense Account and Retention Account on a daily basis pursuant to Section l.A(ii) is determined:

(i) On the basis that the amount of Taxes collected by the Hotel will on average constitute approximately 23.5% of the Gross Revenue collected by the Hotel. If the relevant percentage of Taxes increases (e.g. due to a change in tax laws or regulations), the split ratio will be adjusted to increase the percentage of Gross Revenue to be deposited in the Expense Account on a daily basis;

and

(ii) Based on the percentage of Owner Profit (including contribution to the Rep[airs and Equipment Reserve) to Gross Revenue in the budget of the Hotel for year 2018. If there is significant change of such percentage in the future budget which may result in the daily allocation to the Expense Account becoming insufficient for the operation of the Hotel, Financier and Operator will adjust the daily split ratio in writing to ensure there is sufficient funds for the operation of the Hotel at the Expense Account."

Notwithstanding any changes to the daily split ratio as described in this Section 1.H above, the monthly adjustment pursuant to Section 1B(iv) will remain unchanged."

32. The above Clauses, thus, clearly provide mechanism for repayment

to the Lender.

33. It is relevant to notice that in Section 7 Application, which was filed

by the Omkara, neither in 'List of Dates' nor in Part-IV the Omkara has

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 35 mentioned about the CMA dated 17.01.2018, whereas all other events

and instances after Loan Agreement has been captured in the 'List of

Dates' and Part-IV, but reference to CMA was conspicuously absent in the

pleadings of Omkara. As noted above, in the reply, which has been filed

in the Appeal by Omkara, having accepted the CMA, the findings recorded

by Adjudicating Authority in paragraph-11 becomes untenable and

unsustainable. The existence of CMA and transfer of the amount in the

Retention Account, which was followed after execution of CMA was

required to be noticed by the Adjudicating Authority before returning a

finding of default. We, thus, are of the view that findings returned by the

Adjudicating Authority in paragraph-11, are untenable. We are of the

view that the Adjudicating Authority is required to consider Section 7

Application afresh, after taking into consideration various clauses of the

CMA and consequently remittance of the amount towards repayment of

the loan in the Retention Account.

34. In view of the above, we answer Question Nos. (4) and (5) in

following manner:

Ans. to Question : The Adjudicating Authority committed

No.(4) error while holding in paragraph-11

that due to denial of existence of Cash

Management Agreement, the

submission of the Appellant on the

basis of Cash Management Agreement,

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 36 cannot be accepted.

Ans. to Question : The Adjudicating Authority was obliged

No.(5) to consider the amounts transferred to

Lenders under the Cash Management

Agreement towards servicing of debt for

returning the finding of default by the

Corporate Debtor.

Question No.(6)

35. Learned Counsel for the Appellant has made emphasis on Debt

Service Reserve Amount ("DSRA"), which was contemplated in the Loan

Agreement dated 26.12.2017. It is contended that Lenders were obliged

to maintain a DSRA as per Loan Agreement and which DSRA was to be

utilized for payment of principal and interest and any shortfall in the

DRSA was to be replenished by CD. The copy of the Loan Agreement has

been brought on record by the Appellant as part of Annexure-2. Clause 9

of the Agreement dated 26.12.2017, dealt with 'Debt Service Reserve

Amount'. Clause 9 of the Agreement is as follows:

"9. DEBT SERVICE RESERVE AMOUNT

9.1 The Borrowers agree that the Lender shall reserve the Minimum DSRA Balance as an undisbursed amount under the Loan, which shall be a reserve ("DSRA")

9.2 The DSRA shall be maintained and operated in accordance with this Agreement and the other Finance Documents. Any shortfall in interest payments will forthwith be fulfilled from the DSRA.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 37 9.3 In the event that any amount has been utilised out of the DSRA, the same shall be deemed to be a Disbursement under the Loan and the Borrowers shall, within 7 (seven) days of such Disbursement Date, deposit such amounts of money into the Retention Account such that the undisbursed portion of the DSRA together with such monies deposited into the Escrow Accounts aggregate the Minimum DSRA Balance. In the event the DSRA is disbursed to service any Interest/ Principal Repayment, then the same will have to be replenished by the Borrowers within 7 (seven) days and then the amount shall be maintained in an fixed deposit with an exclusive lien marked in favour of the Lender/ Security Trustee."

36. Learned Counsel for the Appellant submits that amount of Rs.8

crores was undisbursed by the Lenders, which was the minimum DSRA

balance. Learned Counsel for the Financial Creditor refuting the

submission, submits that no contention was raised by the Appellant

relying on the DSRA and no DSRA was ever maintained by the Lender. It

is submitted DSRA amount having not been maintained, there is no

question of utilizing DSRA towards payment of any interest or principal.

37. When we look into Clause 9 of the Loan Agreement, Clause 9

provides "Lender shall reserve the Minimum DSRA Balance as an

undisbursed amount under the Loan". The aforesaid was an obligation of

Lender to maintain the minimum DSRA balance, which was to be utilized

for any shortfall in interest/ principal payment. The Appellant's case is

that amount of Rs.8 crores was undisbursed. The mere fact that no

submission was advanced by the CD before the Adjudicating Authority on

DSRA, cannot be a ground to preclude the Appellant to raise the

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 38 submission in this Appeal. The DSRA was contemplated to be utilized for

shortfall in any repayment and maintenance of debt service reserve and it

was the obligation of the Lender. Hence, it is not open for the Lender to

say that they had no obligation to maintain any DSRA and the

submission advanced on behalf of the Appellant on DSRA has to be

rejected. We are not persuaded to accept the submission of learned

Counsel for the Respondent with regard to DSRA. The submission of the

Appellant as noted above is that amount of Rs.8 crores was undisbursed

and was kept as reserved amount, which was to be utilized for shortfall in

any repayment of interest/ principal. We are of the view that said aspect

of the matter was also needs to be looked into by the Adjudicating

Authority before returning any finding of default.

38. The provision of DSRA is clearly reflected from the Loan Agreement

dated 26.12.2017 itself. Further, the Loan Agreement itself provides that

there will be DSRA of Rs.8 crores for CD - GSTAAD Hotel Pvt. Ltd. and

Rs.2 crores for Neo Capricorn Plaza Pvt. Ltd. We may refer to 11th

Schedule of the Agreement dated 26.12.2017, which contains purpose for

the loan. The 11th Schedule, Clauses 1 and 2 of the Agreement are as

follows:

"ELEVENTH SCHEDULE (PURPOSE)

1. The GHPL Loan shall be utilized for the following purpose:

(i) Up to Rs. 365,00,00,000 (Rupees Three Hundred and Sixty Five Crores) for the repayment of GHPL Existing Dues;

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 39

(ii) Upto Rs. 77,00,00,000 (Rupees Seventy Seven Crores) towards top up against receivables of the JW Marriott Hotel; and

(iii) The balance amount of Rs. 8,00,00,000 (Rupees Eight Crores) towards undisbursed DSRA.

2. The NCPPL Loan shall be utilized for the following purpose:

(i) Up to Rs. 98,00,00,000 (Rupees Ninety Bight Crores) for the repayment of NOPPL Existing Dues; and

(ii) The balance amount of Rs. 2,00,00,000 (Rupees Two Crores) towards undisbursed DSRA.

39. The above clearly indicate that out of the amount sanctioned, Rs.8

crores was towards undisbursed for GSTAAD Hotels and Rs.2 crores for

Neo Capricorn. We do not find any substance in the submission of the

Respondent that no DSRA was provided for by the Lenders. The

submission made by the Respondent that there was no DSRA is to be

rejected in face of the clear stipulation in the Loan Agreement itself and

the Clauses 1 and 2 of 11th Schedule as extracted above. Even if, no

submission was raised before the Adjudicating Authority on the basis of

DSRA as is contended by the learned Counsel for the Respondent, DSRA

is relevant for taking care of the shortfall and the Adjudicating Authority

was required to consider the amount in DSRA to return any finding of

default by the CD.

40. We, thus, answer Question No.(6) in following manner:

The Lenders were obliged to maintain Debt Service Reserve

("DSRA") amount as per the Loan Agreement dated

26.12.2017, which amount was required to be appropriated

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 40 towards payment of principal and interest due under the

Loan Agreement.

Question No.(7)

41. The Appellant has challenged the findings returned by Adjudicating

Authority in paragraph 8 "that it is undisputed fact that the Loan amount

exists and there are defaults in payment". The Adjudicating Authority in

paragraph 8 has returned following findings:

"8. We find that it is undisputed fact that the Loan amount exists and there are defaults in payment thereof. The Ld. Counsel for Corporate Debtor argued that no default has actually taken place and the present application is another attempt to initiate CIRP on same set of facts, which ought not be permitted by this Tribunal."

42. Although, it is undisputed that loan amount exists, but the finding

that there is default in payment has been challenged by the Counsel for

the Appellant. It is useful to notice that in the very next sentence, the

Adjudicating Authority has observed "The Ld. Counsel for the Corporate

Debtor argued that no default has actually taken place". When the

Corporate Debtor has submitted before the Adjudicating Authority that no

default has actually taken place, the observation of the Adjudicating

Authority that it is undisputed that there are defaults in payment thereof,

cannot be sustained. In the Appeal, the Appellant has made various

submissions challenging the finding of default and it is submitted by the

Appellant that no default was committed by the Appellant towards Loan

Agreement and ECLGS-1 and ECLGS-2.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 41

43. We, thus, answer Question No.(7) in following manner:

The observation of Adjudicating Authority in paragraph 8,

"that it is undisputed fact that the Loan amount exists and

there are defaults in payment thereof" are unsustainable. The

Corporate Debtor had disputed the default before the

Adjudicating Authority itself. Thus, it cannot be accepted

that default by the CD is undisputed fact.

Question No.(8)

44. The submission which has been pressed by learned Counsel for the

Appellant before this Tribunal is that under ECLGS-1, amount of Rs.98

crores was sanctioned and under ECLGS-2, amount of Rs.65 crores was

sanctioned, totaling to Rs.163 crores. The Appellant's submission is that

out of the above Rs.163 crores, the Lenders have utilized about Rs.140

crores towards servicing of its debts and dues, which is contrary to the

Agreement dated 30.12.2020 under which ECLGS-1 was sanctioned. The

above submission was also advanced before the Adjudicating Authority,

questioning the utilization of Rs.140 crores from the ECLGS Facilities

granted to the CD for servicing the loan account of the Lenders. In

paragraph 7.17 of the Appeal, following has been pleaded by the

Appellant:

"7.17 Out of the sums advanced under the ECLGS scheme i.e., an amount of INR 163,00,00,000/-, the Lenders used the same to an extent of INR 1,39,89,91,301/- to evergreen the loan. On many occasions it was on the same day of disbursal as per Exhibit R - 15 and

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 42 the Bank Statements produced at Exhibit 2 to the Sur-Rejoinder filed by the Corporate Debtor."

45. The above submission was also raised before the Adjudicating

Authority, which was repelled by Adjudicating Authority by returning a

finding in paragraph 12, which is as follows:

"12. As regards allegation that the ECLGS credit proceeds were used towards servicing of interest outstanding on the Loan Account, we find that the Corporate Debtor had furnished an end use Certificate stating that the proceeds were utilized towards working capital expenses. Nonetheless, the allegation of the Corporate Debtor, itself, confirms the fact that it was under financial distress that it was not able to service its interest obligations arising on Loan facility and that the proceeds of ECLGS credit came to be appropriated towards that. This is sufficient ground to conclude that there existed a default in payment of debt."

46. The ECLGS Facilities were extended to the Corporate Debtor for the

purpose of working capital requirement. The Loan Agreement dated

30.12.2020 is brought on the record along with the rejoinder affidavit of

the Appellant. In Clause-B, following has been pleaded:

"B. The Borrower is in need of funds inter-alia for the purpose of working capital requirements. In this regard the Borrower has requested the Lender to extend financial assistance aggregating up to Rs.98,00,00,000 Crore (Rupees Ninety-Eight Crores). The Borrower proposes to appoint a security trustee in respect of the security created/ proposed to be created for the purpose of securing the Loan herein."

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 43

47. Clause 2.2 of the Agreement provides "Purpose" for which ECLGS

Facility was extended. Clause 2.2 is as follows:

"2. Purpose The Loan shall be utilized only for the purpose set out in Eleventh Schedule and for no other purpose. It is agreed between the parties that the Lender will be entitled to, from time to time, stipulate any additional terms, conditions or end-use/ purpose compliances. The Lender will also have a right to require the Borrower and the Obligors to comply with such conditions precedent and conditions subsequent in addition to the conditions stipulated in the Third Schedule and Fourth-Schedule hereunder."

48. Schedule 11 of the Agreement dated 30.12.2020 provides as

follows:

"ELEVENTH SCHEDULE (PURPOSE)

The GHPL Loan shall be utilized for working capital requirements of the Project."

49. Thus, the amount, which was given under ECLGS Facility was

towards the working capital. The Appellant has pleaded that the said

amount was utilized by the Lender for meeting their loan. When the

Financial Creditor is alleging default of ECLGS-1 and ECLGS-2, the above

submission made by the Appellant becomes necessary to be considered to

find out as to whether in essence there was any default committed by the

CD in repayment. The Adjudicating Authority has relied on the end use

Certificate, which was required to be furnished by the Corporate Debtor,

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 44 as per the Agreement dated 30.12.2020. It is true that end use Certificate

was submitted by the CD as per the Agreement. The Appellant has

referred to the Bank statements to show that amounts after receipt of the

loan under the ECLGS Facility, was directly transferred from Retention

Account to the Loan Account on the same day. Even though no end use

Certificate was given by the CD, but when categorical submission before

the Adjudicating Authority was raised that amount out of Rs.163 crores,

which has been received by the CD under ECLGS-1 and ECLGS-2 and

amount of about Rs.140 crores have been utilized for servicing the debt

by the Lenders, the question was required to be considered by the

Adjudicating Authority and merely on the point of end use Certificate, the

said argument was not required to be rejected.

50. The Corporate Debtors are running two Hotels and to initiate

insolvency, it has to be found out as to whether there was any default

committed by the Corporate Debtors or default was on the part of Lenders

themselves in not fulfilling the obligation, which was fastened on the

Lenders under the Loan Agreement. We, thus, also do not approve the

findings returned by the Adjudicating Authority in paragraph 12 of the

order, rejecting the submission of the Appellant that ECLGS credit

proceeds were used towards servicing of interest outstanding on the Loan

Account. We answer Question No.(8) in following manner:

The amounts sanctioned by Lenders under ECLGS-1 and

ECLGS-2 of Rs.98 crores and Rs.65 crores, whether the said

amount was used by the Lenders for servicing its own debts

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 45 or dues, contrary to the Agreement dated 30.12.2020 and

21.03.2022, was required to be considered by the

Adjudicating Authority and the said argument raised on

behalf of the CD, could not have been brushed aside on the

ground that end use Certificate was given by the CD.

Question No.(9)

51. As noted above, the finding has been returned by the Adjudicating

Authority regarding default under ECLGS-1 of Rs.98 crores sanctioned on

30.12.2020. As per the above Facility, the principal amount was payable

within four years. There was moratorium of one year and interest amount

was to be paid from the date it became due. The pleadings in Section 7

Application was that CD defaulted in ECLGS Facility in November 15,

2022. In Section 7 Application, the Financial Creditor has brought on

record the Statement of Account from 20.12.2022 to 27.02.2023

pertaining to ECLGS Facility of Rs.98 crores. From the Statement of

Account, which is filed, it is clear that the interest was due on 05.10.2022

and repayment of principal was due on 05.10.2022 have also been

captured, including the repayment. The above Statement of Accounts

reflects default as on 15.11.2022. The learned Counsel appearing for the

Appellant refuting the allegation of default submits that there was more

than one reason to not accept the submission of the Financial Creditor

regarding default under ECLGS-1. In the reply, which was filed before the

Adjudicating Authority, the CD has categorically pleaded in paragraph

17(vii) that after pandemic situation became better, the CD has made the

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 46 payment and excess payment was made as compared to the share of

profit. It was pleaded that Piramal was obliged to refund the excess back

to the Expense Account and hence, there was multiple breaches by the

Lenders. The CMA has been alleged and it was pleaded that there was

excess overdrawn amount of Rs.13.94 crores. It is useful to extract

paragraph 17(vii) of the reply filed by the CD before the Adjudicating

Authority, which is as follows:

"17(vii) That when the pandemic situation became better and the various lockdowns were lifted, business of the Respondent gradually started picking up and the Hotel Operator continued to transfer the gross revenue collections into the Revenue account on a daily basis. Subsequently, Piramal transferred 66% to the Expense Account and 34% to the Retention account on a daily basis. Since the revenues had substantially reduced in the wake of the COVID 19 Pandemic, the Respondent's share of profit was less than the amounts transferred to the Retention Account. In view thereof, coupled with the provisions of the CMA, the Lender i.e., Piramal was obliged to refund the excess back to the Expense Account and was accordingly doing so, up until January 2021. Thereon, the Lender i.e., Piramal failed and neglected to do so, thus committing multiple breaches/ defaults of the Cash Management Agreement. Moreover, it has deprived the Respondent as well as the Hotel Operator of invaluable working capital and prevented them from discharging its financial obligations, payments to vendors and statutory authorities etc., aggregating to about 36.50 Crores. There is no gainsaying in the fact that as per the Cash Flow Statement [Reconciliation Statement] as of January 2023, there was an overdrawn amount of about INR 13.94 Crores, that Piramal is to release back into the Hotel Operator Account;

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 47 and the said situation continued as on date. A Copy of the Cash Flow Statement evidencing the same is appended hereto as Exhibit R - 6 and Exhibit R - 7."

52. A rejoinder affidavit was also filed by the Financial Creditor to the

reply dated 09.07.2023 (limited rejoinder was filed). The rejoinder does

not contain any reply to paragraph 7(vii) as extracted above.

53. In the present Appeal, an additional affidavit has been filed by the

Appellant, in pursuance of liberty granted by this Tribunal by order dated

15.07.2024. Along with the additional affidavit, the Appellant has

brought on record Review Report (Report on Forensic Audit) on

commercial loan outstanding, where ECLGS Facility has also been noted.

The Review Report submitted, indicate that there was due towards ECLGS

upto November 15, 2022. However, the Report submits that the said

amount could be set off against the excess payment made in Facility-1

and 2 and further there was un-utilized DSRA as on November 15, 2022

of Rs.3 Crores. It is useful to extract paragraph 5 of the Report, which

states following:

"5. Analysis of Statement of loan Accounts prepared by Piramal:

The following table represents the interest and principal repaid during the loan tenure upto November 15, 2022. The table has been drawn summarizing the amounts reflected in the Piramal statement and based on the interest charged by Piramal.

(Amounts Rs.___ in Crores) Transaction Particulars Loan Accounts Grand

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 48 Facility-1 RCF - ECLGS Total and 50 Start Date Facility-2 Crores*

Loan Disbursed 540.00 49.55 182.50 772.05 Transfers - - - - Moratorium Interest 27.48 2.76 - 30.24 Disbursements (Refer Note-1) - - 7.00 - DSRA Disbursed (Refer Note-2)

Amount Lent 574.48 52.31 182.50 802.29

Repaid Amount Repaid 309.12 26.06 43.72 378.89

Interest Charged to accounts net of TDS 271.79 26.3 20.70 318.72 (Refer Note-3)

Payments towards 271.79 26.06 20.27 318.72 interest Interest (Refer Note-4)

Due - 0.17 0.43 0.60 For the month of 5.86 0.58 1.77 8.21 November Due for the month of - 0.17 0.43 0.60 November Overdue - - - -

Adjustment towards Principal 37.33 - 23.45 60.87 (Refer Note-4) Principal Payable 30.00 - 29.38 59.38 (Refer Note-5) Interest

Due/ (Excess Paid) -7.33 - 5.93 -1.40 For the month of - - 2.45 2.45 November

Overdue -7.33 - 3.48 -3.85

Total Overdue/ -7.33 - 3.48 -3.85 (Excess Paid)

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 49 Inter-loan - - - - adjustment in case Overdue/(Excess of Excess paid Payment) Net Overdue/ -7.33 - 3.48 -3.85 (Excess Paid) - - 2.45 2.45

Overdue -7.33 - 3.48 -3.85

Refer to Annexure-7 to this report for detailed loan account-wise bifurcation

Conclusion:

• From the above table, there has been an excess payment towards the loan account of Facility 1 and Facility 2 of Rs.7.33 Crores upto November 15, 2022, even though the interest charged by Piramal is in excess to normal practices as discussed earlier.

• The amount due towards ECLGS principal portion is Rs.3.48 Crores upto November 15, 2022, in our opinion, which could have been set off against the excess paid in Facility 1 and 2 and also from undisbursed DSRA of Rs.3 Crores. • After setting off the excess paid towards due in ECLGS, the net excess paid to Piramal amounts to Rs.3.85 Crores. • Unutilised DSRA as on November 15, 2022, is Rs.3 Crores. • The statement of accounts furnished by Piramal vide email dated January 15, 2023, showed a write-off of loan balance amounting to Rs.132.75 Crores. However, the same has not been reckoned in the above table."

54. Although, this Tribunal on 15.07.2024 had granted time to

Respondent to file reply to additional affidavit, but no reply is on record of

Respondent No.2. Thus, we are of the view that for determining the

default even for ECLGS Facility, the Adjudicating Authority has to

consider all aspect of the matter, including excess payment under

Facility-1 and Facility-2 and unused DSRA and only after considering all

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 50 relevant facts, findings regarding default of ECLGS could have been given.

The findings of the Adjudicating Authority with regard to default under

ECLGS-1 has been returned in paragraph-16 of the order. Except the

observation "Nonetheless the default in relation to the outstanding loan and

ECLGS-I is clearly established", neither there is any reason given, nor

there is consideration of any material facts on the record for coming to the

said finding. The finding returned by the Adjudicating Authority regarding

default, thus is without considering of the materials on the record and are

unsustainable. We have already held that DSRA was also required to be

looked into, which has not even adverted to by the Adjudicating Authority.

We, thus, are of the view that the Adjudicating Authority is required to

consider the default of ECLGS and loan account, afresh, after considering

the relevant materials on record, including the observations as made in

this order.

Question No.10

55. Section 7 Application, which was filed by the Financial Creditors for

initiating CIRP against the Corporate Debtor is part of the Appeal record.

When we look into Part-IV, the specific pleadings have been made with

regard to ECLGS-1 and ECLGS-2 and in Part-IV in paragraph 24, it has

been pleaded that Corporate Debtor has defaulted in relation to ECLGS-1

on November 15, 2022. Paragraph 24 of Part-IV is as follows:

"24. The Corporate Debtor defaulted in relation to the ECLGS Facility-! on November 15, 2022. This qualified as an Event of Default under clause 18 of the ECLGS Facility- 1 Agreement."

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 51

56. Similarly, in paragraph 32, it was pleaded that Corporate Debtor

has defaulted in relation ECLGS-2 on November 15, 2022. Paragraph 22

of Part-IV is as follows:

"32. The Corporate Debtor defaulted in relation to the ECLGS Facility-2 on November 15, 2022. This qualified as an Event of Default under clause 18 of the ECLGS Facility- 2 Agreement."

57. There are no specific pleadings with regard to default under the

Loan Agreement dated 26.12.2017. However, in paragraph 34, it is

pleaded that owing to the defaults committed by the Corporate Debtor

under the Loan Agreement, ECLGS-I and ECLGS-2, the Financial

Creditors issued a Recall Notice dated February 15, 2023. In Part-IV,

Item No.2, "Amount claimed to be in default and the date on which the

default occurred", the date of default is mentioned as 15.11.2022. Item

No.2 of Part-IV is as follows:

"2. AMOUNT CLAIMED TO BE As on 27'h February, 2023, the total amount IN DEFAULT AND THE claimed to be in default is Rs. DATE ON WHICH THE 665,74,77,237/- (Rupees Six Hundred and DEFAULT OCCURRED Sixty-Five Crores Seventy-Four Lakhs (ATTACH THE WORKINGS Seventy-Seven Thousand Two Hundred and FOR COMPUTATION OF Thirty-Seven Only) which is due and AMOUNT AND DAYS payable.

DEFAULT OF IN TABULAR • Date of Default in respect of the Loan FORM) is November 15, 2022, the date on which the Corporate Debtor defaulted in payment of the outstanding amounts. • Date of Default in respect of the ECLGS Facility-1 is November 15,

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 52 2022, on which date the Corporate Debtor defaulted m payment of interest and principal. • Date of Default in respect of the ECLGS Facility-2 is November 15, 2022, on which date the Corporate Debtor defaulted in payment of interest. The table showing the workings for computation of amount is annexed and marked as Exhibit "V"."

58. When we look into the findings, which has been returned by the

Adjudicating Authority in paragraph 16 of the impugned order, where the

Adjudicating Authority has held that the default in relation to the

outstanding loan and ECLGS-1 is clearly established. Paragraph 16 of

the order is as follows:

"16. As regards default in repayment of ECLGS-2 is concerned we find that the repayment was to begin from 05.04.2024, however the interest was payable monthly after the first disbursement. Nonetheless the default in relation to the outstanding loan and ECLGS-1 is clearly established. Accordingly we do not find any merit in the contention that this application cannot be maintained as principal repayment under ECLGS-2 has not fallen due as yet."

59. The finding in paragraph 16, is thus, default regarding Loan under

ECLGS-1 is clearly established. During submissions, learned Counsel for

the Respondent has pressed on the default with regard to ECLGS-1 and

ECLGS-2. We have already held that default under the Loan Agreement

dated 26.12.2017 could not have been pronounced without considering

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 53 the CMA and amounts transferred by the Lenders to the Retention

Account. The Adjudicating Authority having not examined and

considered the CMA, no default with regard to Loan Agreement dated

26.12.2017 can be pronounced. Paragraph 16, itself indicates that with

regard to ECLGS-2, repayment has to take place from 05.04.2024. In

paragraph 16, the Adjudicating Authority has not returned any finding

that there is a default with regard to ECLGS-2. Thus, the finding of the

Adjudicating Authority is only with regard to ECLGS-1, which we have

already dealt above. We, thus, are of the view the default with regard to

ECLGS Facility could not have been pronounced by the Adjudicating

Authority, without considering the CMA and amounts transmitted to

Retention Account.

60. As noted above, in Part-IV, except statement that default is

committed towards loan account, no details of default have been given

and 15.11.2022 has been mentioned as the date of default. Nothing in

respect of what was the outstanding amount under the Loan Agreement

payable by the CD has been mentioned. We, thus, are of the view that

Adjudicating Authority is required to consider the default under the loan

account afresh. There being no finding of default regarding ECLGS-2 by

the Adjudicating Authority, no further consideration is required with

regard to ECLGS-2.

Question No.(11)

61. Now we come to the question of relief, to which the Appellant(s) are

entitled in these Appeal(s).

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 54

62. We have already held that the findings of the Adjudicating Authority

regarding denial of CMA are unsustainable. The Adjudicating Authority

has also not adverted to the DSRA and to the submissions of the

Appellant that amounts received under ECLGS-1 and ECLGS-2 have been

used by the Lenders for servicing its debt and dues, contrary to the

Agreement dated 30.12.2020 and 21.03.2022 was rejected without

adverting to materials relied. The said question was also required to be

considered by the Adjudicating Authority. We have also noticed above

that both the Hotels are running Hotels and are earning revenues. In the

written submissions, which has been filed by the Appellant in pursuance

of liberty granted by this Tribunal, it has been stated that from

09.01.2024 till 27.11.2024 an amount of Rs.78 crores is available in the

Retention Account of the CD, which has been converted as Fixed Deposits

by the IRP. Thus, after admission of the CIRP, the amount was continued

to be remitted to the Retention Account as per the Cash Management

Agreement and as per submission of the Appellant, the amount of Rs.78

crores is available in the Retention Account. While entertaining the

Appeal, we have passed the following interim order on 24.01.2024, which

is as follows:

" xxx xxx xxx

In the meantime, in pursuance of the impugned order Committee of Creditors may not be constituted. However, the IRP shall ensure that there is no hindrance caused in running of the hotel by the operating management agency, with the assistance of the ex-

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 55 management and their employees who shall cooperate with the IRP.

xxx xxx xxx"

63. The IRP has also filed its written submissions, which mentions that

Corporate Debtor is being run as a going concern and IRP has incurred

operational costs during CIRP.

64. In view of the foregoing discussions and our conclusions, we

dispose of both the Appeal(s) in following manner:

(1) Company Appeal (AT) (Ins.) No. 165 of 2024 is allowed. The

impugned order dated 09.01.2024 passed in C.P.(IB)

No.291/MB/2023 is set aside.

(2) C.P.(IB) No.291/MB/2023 is revived to be considered afresh

after hearing the parties.

(3) Company Appeal (AT) (Ins.) No. 212 of 2024 is allowed. The

impugned order dated 09.01.2024 passed in C.P.(IB)

No.290/MB/2023 is set aside.

(4) C.P.(IB) No.290/MB/2023 is revived before the Adjudicating

Authority to be heard and decided afresh after hearing the

parties.

(5) The IRP may utilize the amount, which is kept in the Fixed

Deposit by the IRP out of the Retention Account towards the

payment of the CIRP costs and rest of the amount received

after 09.01.2024 be remitted to the Financial Creditors

towards their debts and dues.

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 56

65. We make it clear that while deciding these Appeal(s), we are not

expressing any conclusive opinion on any of the issues, which are yet to

be decided by the Adjudicating Authority consequent to this remand

order. Parties shall bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

8th January, 2025

Ashwani

Company Appeal (AT) (Ins) Nos.165 & 212 of 2024 57