Dheeraj Wadhawan vs Yes Bank Limited & Anr

[Arising out of Order dated 27.09.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court No.V, in CP No. 30/(IB)-MB-V/2020]

In the matter of:

Dheeraj Wadhawan Resident of 13th, 14th, 15th and 16th floor, D.B. Breeze, 16th Road, Khar (West), Mumbai 400 052 Presently in judicial custody, Maharashtra Email: mail@aglaw.in ....Appellant Vs. 1. Yes Bank Ltd. Having registered office at: Yes Bank House, Off Western Express Highway, Santacruz East, Mumbai- 400 055 Email- sharehlders@yesbank.in

2. RKW Developers Private Limited Through Interim Resolution Professional, Mr. Ajit Sood Having registered office at: 4th Floor, HDIL Towers, Anant Kanekar Marg, Bandra (E), Mumbai 400 051 Email- ajitsood14@gmail.com ...Respondents

For Appellant: Mr. J. P. Sen, Sr. Advocate with Mr. C. Rashmikant, Mr. Mahesh Agarwal, Mr. Rohan Dakshini, Mr. Divyang Chandiramani, Mr. Ankur Saigal, Mr. Pranav Narsaria and Mr. Shivam Shukla, Advocates

For Respondents: Mr. Ritin Rai, Senior Advocate with Mr. Aman Sharma, Ms. Anamika Singh, Mr. Bhargav Kosuru and Ms. Sushmita Gandhi, Ms. Vaishnavi Rao, Advocates for R-1. Mr. Aniruth Purusothaman, for R-2, IRP 2

JUDGMENT

(16th March, 2022)

Ashok Bhushan, J.

1. This Appeal has been filed challenging the order dated 27.09.2021

passed by the Adjudicating Authority (National Company Law Tribunal),

Mumbai Bench, Court No.V, admitting the Application filed by the

Respondent No.1- 'Yes Bank Limited' (Financial Creditor). The Appellant,

Suspended Director of the Corporate Debtor- 'RKW Developers Private

Limited' (Respondent No.2), aggrieved by the impugned order has come up in

this Appeal. The brief facts of the case and sequence of events necessary to

be noted for deciding this Appeal are:

(i) 'Belief Realtors Pvt. Ltd.' (Principal Borrower) approached the

'Yes Bank Limited' (hereinafter referred to as "Bank") for

disbursement of a term loan of Rs. 1,700 crores for development

of a part of the property situated at Bandra (West) Mumbai. The

loan to be given by the Bank was split into two tranches, 1st

tranche of Rs. 750 crores to be issued to the 'Belief Realtors Pvt.

Ltd.' (Principal Borrower) and the 2nd tranche of Rs. 950 crores

to be issued to 'RKW Project Management Pvt. Ltd.'.

(ii) By facility letter dated 28.06.2018, disbursement of 1st tranche

of the loan of Rs. 750 crores to Principal Borrower by the Bank

was sanctioned. The facility letter recorded the Facility Fee for

the loan as Rs. 118 crores (Rs. 100 crores facility fees + Rs. 18 Comp. App. (AT) (Ins.) No. 953 of 2021 3

crores GST). The loan was secured by a registered mortgage of

the development rights over the project land.

(iii) On 27.09.2018, a corporate guarantee was issued by the

Corporate Debtor as well as the Appellant before us. On

27.09.2018, the first loan of Rs. 750 Crores was disbursed and

facility fee of Rs. 100 Crores was deducted from the borrower

accounts. Under the terms of the loan agreement, the borrower

would be liable to make payments towards the principal

amounts only after 36 months from the date of the first

disbursal made by the Bank i.e. after 26th September, 2021 and

until then, only interest instalments were required to be paid.

(iv) 'RKW Project Management Pvt. Ltd.' by letter dated 12.12.2018

requested the Bank for cancellation of the facility of INR 950

Crores.

(v) On 13.12.2018, Bank issued a letter to the 'RKW Project

Management Pvt. Ltd.' cancelling the facility of Rs. 950 crores.

(vi) The Principal Borrower continued to deposit amounts towards

the interest instalment till June, 2019. The Borrower followed

with the Bank for the refund of the proportionate facility fee or

to have the same adjusted towards the interest payments which

were required to be paid under the facility letter dated

28.06.2018.

(vii) On 29.07.2019, the borrower send a letter to the Bank seeking

the refund of proportionate facility fee to the extent of the second

tranche of the loan which was cancelled i.e. of Rs. 55.88 Crores.

Comp. App. (AT) (Ins.) No. 953 of 2021 4

The Bank did not respond to the aforesaid letter dated

29.07.2019.

(viii) On 23.09.2019, Internal Credit Memorandum of the Financial

Creditor was issued stating that on the basis of original

understanding between the Group and the Bank, fees of INR

1000 MM (+ GST INR 180 MM) was agreed on the credit facility

of INR 17000 MM. The entire facility fee was recovered from the

disbursement of facility of INR 750 Crore and with regard to

facility of Rs. 950 Crores, NIL facility fee was proposed. The

request of the borrower was noticed where the borrower has

prayed for refund of facility fee towards the term loan of Rs. 950

Crores. The Internal Credit Memorandum of the Financial

Creditor further stated that they are negotiating with the

Company on the same, meanwhile, recommendation was made

to refund of INR 10 Crores to the Borrower.

(ix) On 24.09.2019 and 25.09.2019, partial reimbursement of the

facility fee aggregating to Rs. 10 Crores was made by the

Financial Creditor to the borrower. On 30.10.2019, the Bank

declared the account of the borrower as NPA. The date of default

claimed on the part of the borrower was 01.08.2019.

(x) On 18.11.2019, Bank issued a recall notice to the borrower and

the Corporate Debtor. On 28.11.2019, a letter was addressed by

Principal Borrower and the Corporate Debtor to the Bank in

response to the recall notice requesting the Bank not to take any

action until they respond.

Comp. App. (AT) (Ins.) No. 953 of 2021 5

(xi) On 17.12.2019, a letter was sent on behalf of the Borrower to

the Bank asking them to adhere to the understanding between

the parties and to adjust the interest instalments against the

balance facility fees due and payable to the borrower.

(xii) In July, 2020, the Bank filed an Original Application before the

Debt Recovery Tribunal seeking to recover the loan from the

borrower as well as the Corporate Debtor.

(xiii) In January, 2021, the Bank filed an Application under Section 7

of the Insolvency and Bankruptcy Code, 2016 claiming an

amount of Rs. 839,59,87,999/- alongwith interest from the

Corporate Debtor. The Corporate Debtor on 12.03.2021 filed an

I.A No. 589 of 2021 challenging the maintainability of the

Company Petition. The borrower pleaded in the Application that

in fact there was no default by the Principal Borrower on the

date of issuance of the recall notice dated 18.11.2019, therefore,

all actions on the basis of such recall was illegal. Before the DRT

in the Original Application, the borrower filed Written Statement

and Counter Claim. The Bank filed its Reply to the I.A. filed by

the borrower before the Adjudicating Authority to which a

rejoinder was also filed by the Corporate Debtor. During the

hearing the Corporate Debtor submitted before the Adjudicating

Authority that contentions, submissions, and averments in the

I.A. be treated as its reply to the Company Petition. The

Corporate Debtor as well as Bank filed their written submission

before the Adjudicating Authority. On 27.09.2021, impugned Comp. App. (AT) (Ins.) No. 953 of 2021 6

order was passed by the Adjudicating Authority admitting the

Application under Section 7.

2. We have heard Shri J.P. Sen, Learned Senior Counsel for the

Appellant, Shri Ritin Rai, Learned Senior Counsel for the Respondent and

Shri Aniruth Purusothaman, Learned Counsel for the Interim Resolution

Professional.

3. Shri J.P. Sen, Learned Senior Counsel appearing for the Appellant

submits that there was no default committed by the Corporate Debtor on

01.08.2019 on basis of which default the Application under Section 7 was

filed by the Bank. It is submitted that the total loan sanctioned by the Bank

was in two tranches, 1st tranche of Rs. 750 crores to 'Belief Realtors Pvt. Ltd.'

(Principal Borrower) and the 2nd tranche of Rs. 950 crores to 'RKW Project

Management Pvt. Ltd.'. The entire facility fee for the loan of Rs. 1700 crores

was decided by the Bank to recover from 1st tranche of loan of Rs. 750

Crores which was disbursed on 27.09.2018. On disbursal of Rs. 750 Crores,

total facility fee of Rs. 100 Crores for entire loan alongwith Rs. 18 Crores as

GST was recovered from the borrower's account. According to the loan

agreement, there was Moratorium for 36 months and first instalment was to

be paid after 36 months i.e. after 26.09.2021. The Principal Borrower was

only obliged to pay the interest which was diligently paid by the borrower till

June, 2019. A request was made by the Bank for getting the 2nd tranche i.e.

facility of Rs. 950 Crores to be cancelled due to certain financial constraints

on the Bank. Acting on such request, a request was made by the Corporate

Debtor on 12.12.2018 for cancellation of a facility of Rs. 950 Crores. The Comp. App. (AT) (Ins.) No. 953 of 2021 7

Bank on the next day i.e. on 13.12.2018 issued a letter cancelling the facility

of Rs. 950 crores. After cancellation of facility of Rs. 950 Crores, the Bank

was obliged to reverse the facility fee for loan of Rs. 950 Crores for which the

Bank was persuaded by the principal borrower. A letter dated 29.07.2019

was written by the principal borrower to the Bank for refund of proportionate

facility fee to the extent of Rs. 55.88 crores for the second tranche of the loan

which was cancelled. The Bank did not submit any reply to letter dated

29.07.2019 but Internal Credit Memorandum of the Bank dated 23.09.2019

clearly noted that there was understanding between the Bank and the

borrower that facility fees of Rs. 100 Crores was agreed on the credit facility

of Rs. 1700 Crores. The Internal Credit Memorandum further decided to

reverse Rs. 10 crores towards the facility fee pending negotiation with the

borrower. On 24.09.2019 and 25.09.2019, Rs. 10 crores was refunded

towards facility fee regarding second tranche. The amount of Rs. 45.88

crores which was due to be refunded or adjusted by the Bank was illegally

retained and only Rs. 10 crore was given in September, 2019. Hence, no

default was committed by the borrower on 01.08.2019. The interest was

serviced by the borrower till June, 2019 and in case the amount of Rs. 45.88

crores which was still due to the Bank is adjusted towards interest liability,

payment of the interest upto February, 2020 was sufficient. On 18.11.2019

when recall notice was issued by the Bank, the Borrower was not in default

by taking into consideration the proportionate facility fee which was required

to be reversed by the Bank. All actions subsequent to 18.11.2019 were illegal

and unauthorised there being no default on 01.08.2019 by the Corporate

Debtor. The Application filed under Section 7 was unfounded and could not Comp. App. (AT) (Ins.) No. 953 of 2021 8

have been admitted. The Application which has been filed under Section 7,

the date of default was clearly mentioned as 01.08.2019 and in the event the

Bank has acted fairly and adjusted and reversed the facility fee which was

obtained by the Bank on the disbursement of 1st tranche, there was no

default on the part of the borrower. It is the Bank which has by its omission

and commission of not reversing proportionate facility fee has engineered the

default on the part of the Corporate Debtor. The Bank cannot be allowed to

take benefit of its own wrong and push the Corporate Debtor to Insolvency.

4. Shri Ritin Rai, Learned Senior Counsel for the Bank refuting the

submission of Shri J.P. Sen, Learned Senior Counsel for the Appellant

submits that the entire facility fee of Rs. 100 crore was to be paid on

disbursement of 1st tranche of Rs. 750 crores which was clearly mentioned

in the facility letter dated 28.06.2018 as well as the loan agreement. The

facility fee for the 2nd tranche of Rs. 950 crore was shown as NIL meaning

thereby the facility of Rs. 100 Crores was to be paid on the disbursement of

1st tranche of Rs. 750 crores. There is no entitlement of borrower to claim

any reversal of the facility fee. The loan agreement clearly mentioned that

facility fee is non-refundable. The borrower and the Corporate Debtor were in

default w.e.f. 01.08.2019, hence, Application for initiating Insolvency Process

against the Corporate Debtor was rightly filed by the Bank in July 2021. The

Internal Credit Memorandum of Bank dated 23.09.2019 on which reliance is

placed by the Appellant does not contain any representation by the Bank

that Bank has agreed for refund of proportionate facility fee. Rs. 10 Crores

was decided to reverse on account of financial difficulties of the Corporate

Comp. App. (AT) (Ins.) No. 953 of 2021 9

Debtor and the said amount was disbursed for payment to the contractors

and other claimants. The case of the Appellant at best is, dispute regarding

reversal of proportionate facility fee which need to be pursued by the

Appellant before the Competent Court and the said issue could not have

gone into in the proceeding of Section 7. The Bank has not committed any

wrong. The Appeal filed by the Appellant lacks merit and is filed on

unsubstantiated grounds. The borrower/ Corporate Debtor cannot go away

from the payment obligation under the loan agreement. Interest payment

was made only till June 2019 and admittedly, no payments were made by

the borrower despite being contractually liable to make monthly interest

payment. Borrower has defaulted since 01.08.2019.

5. When this Appeal was first heard on 26.11.2021, pointed query was

made to Shri Ritin Rai, Learned Senior Counsel for the Bank regarding

guidelines, office memorandums and circulars of the Bank for charging of

facility fee on the borrowing. This Appellate Tribunal asked the Learned

Counsel for the Respondent to bring on record any relevant guidelines of the

Yes Bank or any other material regarding charging of facility fee on

borrowing.

6. We have heard Learned Counsel for the parties and have perused the

record.

7. We need to first notice particulars of the Application filed under

Section 7 by the Bank. Part-IV of the Application which gives 'particulars of

the financial debt' including, the date of default is as follows:-

Comp. App. (AT) (Ins.) No. 953 of 2021 10

"PART-IV PARTICULARS OF FINANCIAL DEBT

1. TOTAL AMOUNT OF DEBT Nature of loan: Term Loan GRANTED DATE(S) OF Date of First Sanction: 28th June 2018 DISBURSEMENT Date of Disbursement: Disbursed on 28 th September 2018 Total Amount Disbursed:

Rs.750,00,00,000/- (Rupees Seven Hundred and Fifty Crores only)

2. AMOUNT CLAIMED TO BE IN Amount in Default:

DEFAULT AND THE DATE ON (in Rs.) WHICH THE DEFAULT OCCURRED Term Loan 750,00,00,000/- (ATTACH THE WORKINGS FOR Principal 750,00,00,000/- COMPUTATION OF AMOUNT AND outstanding DAYS OF DEFAULT IN TABULAR Normal Interest at 62,36,74,503/- FORM) the rate of 10.90% calculated from 27th Sept 2018 till June 26, 2020 Penal Interest at 27,23,13,496/- the rate of 2% calculated from 27th Sept 2018 till June 26, 2020 Total outstanding 839,59,87,999/-

Total outstanding amount as on 26th June, 2020: Rs.839,59,87,999/- (Rupees Eight Hundred Thirty Nine Crores Fifty-Nine Lakhs Eighty Seven Thousand Nine Hundred Ninety-Nine Only)

The Date on which Default occurred: 1st August 2019

The Statement of Accounts of the Belief Realtors Private Limited (hereinafter referred to as the "Borrower") as on 26 th June 2020 is annexed hereto and marked as Exhibit "C".

8. A perusal of Part-IV of the Application indicates that interest is

calculated from 27.09.2018 along with the penal interest and the whole term

loan of Rs. 750 Crores is shown to be outstanding. The date of default as

mentioned in Column-2 is 01.08.2019.

9. The principle submission which has been pressed by Counsel for the

Appellant in this Appeal is that there was no default on 01.08.2019, hence,

filing of the Application under Section 7 on the ground of default on

01.08.2019 is not maintainable. The ground on which it is claimed that no

default occurred on 01.08.2019 has been noticed above. To recapitulate, the

Comp. App. (AT) (Ins.) No. 953 of 2021 11

submission is, loan of Rs. 1700 Crores was to be disbursed in two tranches,

1st tranche of Rs. 750 Crores and the 2nd tranche of Rs. 950 Crore. The

facility fee charged by the Bank was Rs.100 Crore on the entire loan of Rs.

1700 Crores. However, the facility fee of Rs.100 Crores with GST of Rs.18

Crores was deducted after disbursement of 1st tranche on 27.09.2018 itself.

Subsequently, when 2nd tranche was cancelled on 13.12.2018 by the Bank

on the request made by the Corporate Debtor, the proportionate facility fee

was not reversed. The proportionate fee for Rs. 950 Crore which loan was

never disbursed was Rs.55.88 Crores. Further, as per the loan agreement,

there was Moratorium of 36 months i.e. repayment of the principal amount

was to restart on 26.09.2021 and only interest amount per month was to be

serviced by the borrower. The Appellant's case is that the interest upto June,

2019 was paid by the Appellant and had the Bank reversed the facility fee

which was taken at the disbursement of 1st tranche or had adjusted in the

interest there was no default. The amount of facility fee which was to be

reversed was sufficient to take care of the interest instalment till February,

2020. The default is claimed by the Bank as 01.08.2019 and partial reversal

of the facility fee of Rs.10 Crore was made on 24.09.2019 and 25.09.2019.

Thus, if the balance proportionate facility fee of Rs.45.88 Crores was

reversed or adjusted, there could have been no default on 01.08.2019.

10. As noted above, the submission of the Appellant that Appellant was

entitled for reversal of the adjustment of proportionate fee has been

vehemently disputed by the Bank. The Bank's case is that the entire facility

has been charged on the disbursement of 1st tranche of Rs.750 Crore and in

Comp. App. (AT) (Ins.) No. 953 of 2021 12

the 2nd tranche which was to be disbursed of Rs. 950 Crores, the facility fee

was NIL. Hence, the facility fee was payable only on first disbursal and no

facility fee was payable on 2nd tranche, hence, there is no claim of reversal of

the facility fee.

11. The main question to be considered and answered in the present

Appeal is as to whether the Appellant was entitled for refund of the facility

fee on account of cancellation of the 2nd tranche of Rs. 950 Crore on

13.12.2018.

12. The 'facility fee' has been defined in P. Ramanatha Aiyar, Advanced

Law Lexicon, 6th Edition, in following words:-

"Facility fee. An annual percentage fee payable to a

bank providing a credit facility on the full amount of the

facility, whether or not utilised."

13. The Banks and financial institutions charge a facility fee/ process fee

for advancing loan and other financing, from the borrower who is beneficiary

of such financing. In the present case, Yes Bank has charged facility fee of

Rs. 100 Crores on a loan which was asked for Rs. 1700 Crores. We, on the

first hearing of the case, have asked the Learned Counsel for the Yes Bank to

find out whether there are any guidelines, circulars, office memorandums for

charging the facility fee and whether there are any cap/limit on the charging

facility fee and what are the parameters for charging facility fee from

borrower. Although Reply has been filed by the Bank in the present Appeal

but in the reply, no details of any guidelines and circulars regarding facility Comp. App. (AT) (Ins.) No. 953 of 2021 13

fee has been brought on record nor there is any pleading in the reply as to

what are the parameters and basis for charging facility fee from the

borrower. Learned Senior Counsel for the Bank during oral submission has

submitted that facility fee is charged on case to case basis taking into

consideration the nature of borrowing and extent of borrowing.

14. When we look into the extent of facility fee i.e. Rs. 100 Crores charged

on a loan of Rs. 1700 Crores, it appears to be exorbitant and unreasonable.

Learned Senior Counsel for the Appellant, however, has very fairly submitted

that since the Appellant has accepted the loan on the payment of facility fee

of Rs. 100 Crore, they cannot raise any grievance about the extent of facility

fee.

15. One of the reasons for our enquiring from the Bank regarding

parameters of the facility fee was also to adjudge as to whether as per norms

facility fee of Rs. 100 Crores, as charged, can be proved to be charge on Rs.

1700 Crores loan or only on the 1st tranche of Rs. 750 Crores as is the case

of the Bank but no guidelines, parameters having been filed, we have to

consider the question on the materials which are available on the record and

were before the Adjudicating Authority.

16. Before proceeding further, we may notice the credit facility of Rs.750

Crores was sanctioned by letter dated 28.06.2018. Facility details as

contained in the letter dated 28.06.2018 are to the following effect:-

"YBL/MUM/CF/FL/0130/2018-2019 June 28, 2018

Comp. App. (AT) (Ins.) No. 953 of 2021 14

Belief Realtors Private Limited HDIL Towers, 4th Floor, Anant Kanekar Marg, Bandra East, Mumbai- 400051

Dear Sirs,

Re: Credit Facilities.

We (the "Lender") have pleasure in offering you (the "Borrower") the following facilities (the "Facilities") on the terms and conditions set out below:

S. Facility Description Interest/ Commission Security No.

1. Facility: Term Loan Pricing: As per Note 1 1 (TL 1) Spread of 0.95% p.a. given below Amount: INR over 1 year YBL MCLR 7500,000,000/- (INR Seven Thousand Five Hundred Million) Facility set up fees: INR Nature: Non Revolving 1,000 MM (plus applicable taxes) on the Purpose: total Facility amount of Towards construction, INR 7500 MM (payable development and on acceptance of associated expenses sanction) (non-

of the Project including refundable) mobilisation advances, property affairs etc. Escrow Fees: INR and including 500,000 plus taxes as reimbursement of applicable per annum unsecured loans infused towards Interest Payment Dates: project expenses monthly

Project: Residential project Condition Precedent: As under SRA 33(10) per Note 2 given below scheme, with plot area of ~10,305 square meters having minimum saleable carpet area of ~5.51 lac sq ft located at Bandra, Clubbed with land parcel at alternate site for development of Rehab component with minimum carpet area of 5.27 lac sq ft.

Land Parcel 1: Plot area of ~10,305 square meters located in Bandra, Mumbai to generate minimum saleable carpet area of Comp. App. (AT) (Ins.) No. 953 of 2021 15

~5.51 lac sq. ft.

Land Parcel 2: Land parcel for development of Rehab component on alternate site with minimum carpet area of 5.27 lac sq ft for Rehab portion

Tenor & Repayment: 84 Months

Door to door tenor of 84 months including a moratorium period of 36 months from first disbursement and followed by structured quarterly instalments as per below schedule. Installments shall be due on last day of respective quarter.

Prepayment penalty: Nil Availability period: Till 36 months from date of first disbursement

SCOD: 30th September 2025

17. The above letter clearly mentioned that facility fee of Rs. 100 Crores on

total facility amount of Rs. 750 Crores is payable on acceptance of sanction

which was non-refundable. The next facility fee for the 2nd tranche was

issued on 29.08.2018 to the 'RKW Project Management Pvt Ltd.'. The facility

details of the 2nd tranche of Rs. 950 Crores is as follows:-

"YBL/MUM/CF/FL/0384/2018-2019 August 29, 2018

RKW Project Management Pvt. Ltd.

HDIL Towers, 4th Floor, Anant Kanekar Marg, Bandra East, Mumbai- 400051

Dear Sirs,

Comp. App. (AT) (Ins.) No. 953 of 2021 16

Re: Credit Facilities.

We (the "Lender") have pleasure in offering you RKW Project Management Pvt. Ltd. (the "Borrower") the following facilities (the "Facilities") on the terms and conditions set out below:

S. Facility Description Interest/ Commission Security No.

1. Facility: Term Loan Pricing: As per Note 1 1 (TL 1) Spread of 0.95% p.a. given below Amount: INR over 1 year YBL MCLR 9500,000,000/- (INR Nine Thousand Five Hundred Million) Interest Payment Nature: Non Revolving Dates: monthly

PMC projects: Facility Set up fees:

SRA Residential Nil projects to be developed under DCR Legal Fees: Nil 33(10)

Purpose: Towards Escrow Fees: Nil Rehab construction, relocation, property Pre disbursement Affairs/ Liasioning condition: As per Note Cost, approval cost 2 given below and allied cost(s) including placement of refundable deposits as part of "PMC Agreement(s)" to be entered by the borrower with "PMC Counterpart(ies)"

Tenor & Repayment: 84 Months

Door to door tenor of 84 months including a moratorium of 36 months from first disbursement and followed by structured quarterly instalments as per below schedule. Installments shall be due on last day of respective quarter. (Schedule as per clause 2.1.2)

Prepayment penalty: Nil

Availability: 36 months from date of first disbursement

Comp. App. (AT) (Ins.) No. 953 of 2021 17

18. The above two letters clearly indicate that the Bank has charged the

facility fee of Rs. 100 Crores on sanction of 1st tranche of Rs. 750 Crores.

There being dispute between the submissions of both the parties on the

question as to whether facility fee was payable on entire loan of Rs. 1700

Crores or only on 1st tranche of Rs. 750 Crores, we need to look into other

materials on record to find out as to whether facility fee of Rs.100 Crore was

payable on Rs.1700 Crores loan so as to entitle the Appellant to get refund of

proportionate facility fee on the cancellation of 2nd tranche loan of Rs. 950

Crores. The Appellant's case is that after cancellation of the 2nd tranche of

the loan, they persuaded the Bank to refund the proportionate fee

amounting to Rs. 55.88 Crores which was payable on Rs. 950 Crores loan.

The borrower on 29.07.2019 has written to the Bank claiming refund/

adjustment of excess processing fees. It is useful to extract the aforesaid

letter dated 29.07.2019, which is to the following effect:-

"Date- 29th July 2019

To,

1. Ms. Lata Pillai, Group President, Corporate Finance, Yes Bank, Mumbai.

2. Mr. Satya Mahapatra, Sr. Vice President, Yes Bank, Mumbai.

Sub: Refund/ Adjustment of Excess Processing Fees

Ref: (1) Sanction letter Reference no.

YBL/NUM/CF/FL/0130/2018-19 dated 20th June 2018.

Comp. App. (AT) (Ins.) No. 953 of 2021 18

(2) Sanction letter Reference no.

YBL/NUM/CF/FL/0384/2018-19 dated 29 August, th

2018.

Dear Sirs,

We had approached your bank, for availing credit facilities for meeting the cost construction of rehab tenements, relocation of the Slum dwellers, Liasoning cost, payment of refundable cost and other allied expenses for development of our upcoming SRA Residential project to be developed under the provisions of DCR 33(10), situated at Village Bandra, Bandra Reclamation, Mumbai.

Vide the above-referred sanction letters your bank was pleased to sanction us an aggregate credit facility of Rs.1700 Crores i.e., Rs. 750 Crores in favour of Belief Realtors Pvt. Ltd. and Rs.950 Crores in favour of RKW Project Management Pvt. Ltd. on the terms and conditions as set out therein including the payment of processing fees of Rs. 100 Crores applicable on the entire loan.

Pursuant thereto, while your bank has disbursed the first loan amount of Rs. 750 Crores in favour of Belief Realtors Pvt. Ltd., your bank was scheduled to disburse the balance loan of Rs.950 Crores sanctioned in favour of RKW Project Management Pvt. Ltd. in due course which sanction was subsequently withdrawn. However, your bank has collected the entire processing fee of Rs. 100 Crores applicable on the aforesaid loan amount of Rs. 1700 Crores.

We therefore request you to refund us the proportionate amount of Rs. 55:89 Crores which will enable us to make the overdue interest payment to your bank.

For Belief Realtors Pvt. Ltd.

-sd/-

Authorized Signatory"

19. No reply was given to the letter dated 29.07.2019 by the Bank.

However, Bank officials internally examined and an O.M dated 23.09.2019

was issued by the Bank in the above context. The said O.M is part of the

Application which was filed by the Appellant in Company Petition No. 30 of

2020 seeking dismissal of the Company Petition. The subject of the O.M Comp. App. (AT) (Ins.) No. 953 of 2021 19

"Subject:- Reversal of partial fee paid by the Company to YBL towards facility

set-up fee for sanction of Term Loan Facility of INR 7,500 MM". O.M notices

background facts which are relevant to be noticed are to the following effect:-

"Background:

 The Company had proposed a total debt requirement of INR 17000 MM at the time pf submission of proposal for the Bandra

Reclamation project. Post evaluation of proposal, YBL sanctioned the following facility:  TL facility of INR 7500 MM to the project SPV viz Belief Realtors Pvt. Ltd. (BRPL) for construction, development and associated expenses of the Project including mobilization advances, property affairs etc. and including re-imbursement of unsecured loans infused towards project expenses.

 YBL retained the Right of first refusal (ROFR) for tie-up of balance debt of INR 9500 MM in the project.

 The Group approached YBL for debt requirement of INR 9500 MM in another group Company viz.

RKW Project Management Pvt. Ltd. (RKW) around the same time. RKW was in the business of undertaking all activities relating to slum rehabilitation work on PMC basis. Post evaluation of proposal, YBL sanctioned TL facility of INR 9500 MM to RKW towards rehab construction, relocation, property affairs/ liasoning cost, approval cost and allied cost(s) including placement of refundable deposit as Comp. App. (AT) (Ins.) No. 953 of 2021 20

part of PMC agreements proposed to be entered by RKW with PMC counterparties.

 Basis the original understanding between the Group and YBL, fees of INR 1000 MM (+GST INR 180 MM) was agreed on the credit facility of INR 17000 MM.

 However, basis subsequent discussions with the client, entire fees of INR 1000 MM (+GST INR 180 MM) was charged and recovered from the disbursement of TL facility of INR 7500 MM in BRPL. Accordingly, NIL fee was proposed in the sanction of TL facility for RKW.

 Further, owing to market conditions, RKW vide letter to YBL dated 12 Dec' 18 informed YBL that they wish to discontinue/ exit with the proposed EPC/PMC business and accordingly the sanction of INR 9500 MM be cancelled. Considering client request, YBL sanction of TL of INR 9500 MM was cancelled."

20. Two more sentences of the O.M which needs to be noticed are to the

following effect:-

"Basis above, the Company has requested for fee refund wrt sanction of INR 9500 MM which was never disbursed. We are negotiating with the Company on the same, meanwhile, we recommend refund of INR 100 MM.

The refund amount will be paid to various Contractors/ Vendors/ PMC payments engaged by the group companies."

Comp. App. (AT) (Ins.) No. 953 of 2021 21

21. The O.M recommends refund of INR 10 Crores. The said O.M was

implemented by the Bank immediately, on 24.09.2019 and 25.09.2019 the

Bank aggregate reversed the facility fee amounting to Rs. 10 Crore. The Bank

statement of the account of the principal borrower has been brought on the

record from 02.07.2018 to 02.12.2019 where bank entries of 24.09.2019 and

25.09.2019 is to the following effect:-

TXN DATE VALUE DATE DESCRIPTION REFERENCE DEBITS CREDITS BALANCE

24-SEP-2019 24-SEP-2015 402212313257000 000000000000 0.00 76,778,101.00 76,778,101.00 2- FACILITY FEES REVERSED

-BANDRA (E) 25-SEP-2019 25-SEP-2019 402211419268000 000000000000 0.00 23,224,899.00 23,224,899.00 2- FACILITY FEES REVERSED

-BANDRA (E)

22. The Office Memorandum dated 23.09.2019 of the Bank as well as the

Bank entries of 24.09.2019 and 25.09.2019 as above clearly indicate that

what was reversed in the account of the principal borrower was reversal of

facility fee although it was only Rs. 10 Crores on the aforesaid date. The

Office Memorandum dated 23.09.2019 which has been relied by the

Appellant has not been disputed by the Bank either before the Adjudicating

Authority or before this Tribunal. The Office Memorandum as well as

reversal of Rs. 10 Crores of facility fee clearly support the case of the

Appellant that facility fee of Rs. 100 Crores was taken by the Bank against

total loan of Rs. 1700 Crores. Had it not been related to total sanction of

Rs.1700 Crores, there was no question of Bank reversing any facility fee in

September, 2019. The above clearly indicates that Appellant was represented

by the Bank that the facility fee of Rs. 100 Crores is of the entire loan of Rs.

Comp. App. (AT) (Ins.) No. 953 of 2021 22

1700 Crores. Although Bank deducted the entire facility fee on the

disbursement of the 1st tranche only which is as per the agreement between

the parties but when loan of Rs.950 Crores was cancelled, the Appellant was

clearly entitled for reversal of the entire proportionate facility fee of Rs.950

Crores.

23. The above case of the Appellant also finds support from the reply filed

by the Bank before the Adjudicating Authority to I.A filed by the Appellant

for dismissing the Section 7 Application. In para 8 of the reply, the Bank has

made following pleadings:-

"8. It was mutually agreed between the Financial Creditor and the borrower group entities that the facility fees of approx. Rs.100 Crores (plus approx. Rs.18 Crores towards GST) which was applicable on both the loans, would be charged against the first facility of Rs.750 Crores sanctioned to the Borrower. This was based on mutual discussion and understanding between the parties and the Borrower had duly accepted the same, without any demur or protest. In the first facility letter dated 28 June 2018 to the Borrower, it was stipulated that a facility fee shall be applicable to the tune of Rs.100,00,00,000/- (Rupees Hundred Crores Only) and the same was duly accepted by the Borrower while signing the loan agreement dated 27 September 2018 and other facility documents. Whereas, in the second Facility Letter dated 29 August 2018, the facility fees is mentioned as "NiL", which indicates the undisputed understanding between the parties."

Comp. App. (AT) (Ins.) No. 953 of 2021 23

24. The statement made in para 8 to the extent "it was mutually agreed

between the Financial Creditor and the borrower group entities that the facility

fees of approx. Rs. 100 Crores (plus approx. Rs. 18 Crores towards GST)

which was applicable on both the loans, would be charged against the first

facility of Rs.750 Crores sanctioned to the Borrower" clearly indicates that

facility fee of Rs. 100 Crores was chargeable on both the loan i.e. loan of

Rs.750 Crores and Rs. 950 Crores. However, the entire facility fee to be

deducted from the disbursal of first loan. When Bank charges facility fee on

borrowing, it cannot be accepted that on a loan of Rs. 1700 Crores facility fee

shall be charged on the first tranche of Rs. 750 Crores and no facility fee was

chargeable on 2nd tranche of Rs. 950 Crores. The payment of facility fee was

received by the Bank on disbursement of 1st tranche which was facility fee

for both the tranches and when 2nd tranche of Rs.950 Crores stood

cancelled, the Bank was obliged to refund the proportionate facility fee. The

action of Bank in not refunding/ adjusting the proportionate facility fee is

unjust enrichment by the Bank at the cost of borrower. The relationship

between a banker and borrower is of trust. The purpose of all financing is for

the purpose of promotion and completion of project by different borrowers.

Bank is supposed to extend a helping hand and to act as a facilitator in

carrying out the project.

25. In the present case, we find that Bank has not acted fairly and even

after cancellation of 2nd tranche of Rs.950 Crores, it did not of its own

refunded the proportionate facility fee which it ought to have been done in all

fairness so as the borrower may be relieved from some financial burden but

Comp. App. (AT) (Ins.) No. 953 of 2021 24

instead of refunding the proportionate fee, the Bank has pushed the

borrower into serious financial constraint. The payment of monthly interest

which was to be made for a period of 36 months was substantial amount of

more than Rs.6 Crores per month and refund of proportionate facility fee

would have brought great help to the borrower to meet the interest

instalment. Bank who was obliged to reverse/ refund the proportionate

facility fee, it could not be allowed to withhold the aforesaid facility fee and

contend that borrower has committed default on 01.08.2019. Had the facility

fee on the account of borrower adjusted in the interest instalment, there was

no occasion of any default on 01.08.2019. We, thus, are of the view that it

was omission or commission of the Bank in not refunding the facility fee to

the borrower due to which Bank cannot contend that any default was

committed by the borrower on 01.08.2019. We, thus, are satisfied that in

above view of the matter, there being no default on principal borrower on

01.08.2019, the Bank also cannot proceed against the Corporate Debtor by

filing of Application on the basis of default dated 01.08.2019.

26. The Adjudicating Authority in its impugned judgment has noted the

above submission of Counsel for the Appellant in paras 10, 12 and 13 of the

judgment, which is to the following effect:-

"10. The Corporate Debtor pointed out that the entire facility was originally proposed to be obtained from the Applicant by the borrower to a tune of Rs. 1700 crores, however, the loan was split into two tranches; one amounting to Rs. 750 crores in favour of the borrower and Rs. 950 crores in favour of one RKW Comp. App. (AT) (Ins.) No. 953 of 2021 25

Project Management Private Limited (RKW Project). Therefore, it was agreed that the entire facility for a loan of Rs. 1700 crores would be disbursed upfront from the loan of Rs.750 crores granted to the borrower.

12. The Borrower was regularly paying interest and after a period of 2 months sometime in November 2018, the Corporate Debtor requested as per the understanding between the parties, RKW projects to cancel the sanctioned facility of Rs. 950 crores. It was agreed that the proportionate processing fee and GST paid thereon which had already been deducted in regard to Rs. 950 crores facility will be duly refunded/adjusted towards the dues of the borrower. The proportionate processing fee charges and GST amounts to Rs. 55.88 lakhs. However, no action was taken by the Petitioner on refund of proportionate processing fee. A partial reimbursement of processing amount aggregating to Rs. 10 crores was made on 24.09.2019.

13. The Corporate Debtor pointed out that the borrower paid interest up to June 30th, 2019 amounting to Rs. 61.95 crores which includes penal interest of Rs. 91,10,700.37/- which was levied by the Petitioner despite having excess amount that were to be refunded to the borrower. The Corporate Debtor further claimed that an amount of Rs. 44.84 crores are lying to the credit of the borrower and has not adjusted the same towards dues and facility and have declared the account as NPA on 30.10.2019. the Petitioner have recalled the loan and invoked the corporate guarantee as on 18.11.2019."

Comp. App. (AT) (Ins.) No. 953 of 2021 26

27. It was pleaded by the Corporate Debtor that there was no default on

01.08.2019 on the part of the Appellant when credit is given of Rs.45.88

Crores to the Appellant which Appellant was entitled to be refunded as

proportionate facility fee. The Adjudicating Authority although noticed the

above submissions and also considered the same in para 29 and also noticed

that Rs.10 Crores was refunded and noticed that adjustment of processing

fee of Rs.45.88 Crores was asked for but since the outstanding against the

Appellant is Rs.839,59,87,999/-, regardless of the issue whether

proportionate facility fee was due or not the borrower is still liable to pay

outstanding amount. In para 31, following is the discussion of the

Adjudicating Authority in the above context:-

"31. The dispute regarding adjustment of processing fee is to the extent of Rs. 45.88 crores, however, the claim of the Petitioner as outstanding is to the tune of Rs. 839,59,87,999/-. The borrower has not just failed to serve the monthly interest payment but has also failed to fulfil the terms and condition in respect of the project. The petitioner thereafter issued recall notice and invoked the bank guarantee on 18.11.2019. despite invocation of bank guarantee, the Corporate Debtor has not been able to repay the debts payable under the deed of guarantee. The default towards interest payable first occurred far back in February, 2019. However, the interest was serviced up to June 2019 and therefore, the payment towards interest accrued along with additional penal interest. The RBI circular dated 27.03.2020 r/w 11 circular dated 17.05.2020 were applicable for the period

Comp. App. (AT) (Ins.) No. 953 of 2021 27

between 1st March 2020 to 31st August 2020 and default occurred much before the moratorium of the RBI. Therefore, regardless of the issue whether any proportionate facility fee was due or not the borrower is still liable to pay outstanding amount."

28. The Adjudicating Authority failed to consider the submission that after

given credit of Rs.45.88 Crores, there was no default on the part of the

Appellant on 01.08.2019 which is the basis of initiating proceeding under

Section 7. It is now settled law that for initiating proceeding under Section 7,

the Financial Creditor has to prove that default has occurred, thus, the

crucial question for admitting Section 7 Application is that whether a default

has been committed by the Corporate Debtor. The Adjudicating Authority

has not correctly appreciated the above aspect and without returning any

finding that default was committed by the Corporate Debtor on 01.08.2019

has proceeded to admit the Application. The Bank cannot be allowed to take

benefit of its own wrong by withholding of an amount of Rs.45.88 Crores

which was liable to be reversed after 13th December, 2018, default is not

proved on the part of the Appellant rather it was omission and commission

on the part of the Bank in unfairly denying to reverse/adjust the aforesaid

amount.

29. Learned Counsel for the Respondent has laid much emphasis on the

fact that default has been reflected in the record of the information utility in

whose record, the default is recorded. Learned Counsel for the Appellant has

relied on the record of National E-Governance Services Limited. Learned

Comp. App. (AT) (Ins.) No. 953 of 2021 28

Counsel for the Appellant submits that in the record dated 31.12.2019, date

of default in the information utility was 01.08.2019 and further in the

information utility record, the date of default was clearly mentioned and the

information utility before recording the default issued notices as

contemplated in the Regulations i.e. 'The Insolvency and Bankruptcy Board

of India (Information Utilities) Regulations, 2017' and when no reply was

received by the borrower, the record of default was deemed approved.

30. With regard to the aforesaid, it is relevant to notice that the record of

default and in the information utility record where subsequent to issuance of

loan, recall notice issued by the Bank dated 18.11.2019. The loan recall

notice dated 18.11.2019 was issued by the Bank on the ground that default

has been committed in respect of loan of Rs.750 Crores by the principal

borrower. The loan recall notice was issued on the ground that principal

borrower has committed default on 01.08.2019.

31. As noted above, there being no default by the principal borrower on

01.08.2019, all subsequent action by the Bank on the alleged default dated

01.08.2019 are unsustainable. Hence, information recorded in the

information utility on the strength of loan recall notice dated 18.11.2019 in

no manner can be read as material to prove that default was committed by

the Bank on 01.08.2019. Under the statutory scheme, the record of

information utility is relevant but record of information utility is not

conclusive proof of any default and a Corporate Debtor is always at liberty to

disapprove the statement as contained in the information utility record.

Comp. App. (AT) (Ins.) No. 953 of 2021 29

32. We, thus, are of the view that sufficient ground was raised by the

Appellant in I.A which was filed by the Appellant in Section 7 Application on

which ground Section 7 Application deserves to be rejected. The Adjudicating

Authority committed error in admitting the Application under Section 7 on

the ground that default was committed by the Appellant on 01.08.2019. In

view of the foregoing discussions, we hold that there was no default on the

part of the Appellant on 01.08.2019 and it was commission and omission on

behalf of the Bank of which no benefit can be taken by the Bank.

33. In result, we allow the Appeal, set aside the order passed by the

Adjudicating Authority and dismiss Section 7 Application filed by the

Respondent Bank. The Parties shall bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Dr. Ashok Kumar Mishra] Member (Technical)

[Dr. Alok Srivastava] Member (Technical)

New Delhi Anjali

Comp. App. (AT) (Ins.) No. 953 of 2021