Indian Bank And Ors vs Infrastructure Leasing And Financial ...

Page 1 of 37 East Kidwai Nagar, New Delhi-110023.

IFCI Limited, ....Appellant No. 8 IFCI TOWER, 61, Nehru Place, New Delhi-110019

Vs.

Infrastructure Leasing & Financial Services ....Respondent Ltd. (IL&FS) No.1 IL&FS Financial Centre, Plot No. C-22, G Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051. Maharashtra

M/s. Kiratpur Ner Chowk Expressway ....Respondent Limited (KNCEL) No. 2 IL&FS Financial Centre, Plot No. C-22, G Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051.

National Highways Authority of India ....Respondent (NHAI) No. 3 G-5 & 6, Sector 10, Dwarka, New Delhi-110075.

Present:

For Appellants: Mr. Brijesh Kumar Tamber, Mr. Prateek Kushwaha, Mr. Vinay Singh Bist, Advocates. For Mr. Raunak Dhillon, Mr. Vikash Kumar Jha, Respondents: Ms. Isha Malik, Mr. Nihaad Dewan, Advocates for R-1 & R-2. Ms. Shivangi Khanna, Ms. Madhu Sweta, Advocates for R-3 (NHAI).

Judgment (Date: 1.8.2023)

[Per. Dr. Alok Srivastava, Member (Technical)]

Company Appeal (AT) No. 120 of 2021

Page 2 of 37 This appeal is filed by the Appellants under section 421 of

the Companies Act, 2013 (in short "Companies Act") aggrieved by

the judgment and order dated 24.2.2021 (in short "Impugned

Order") of the National Company Law Tribunal, Mumbai Bench (in

short "NCLT") in CA No. 03 of 2021 filed under CP No.

3638/MB/2018.

2. The Impugned Order has been passed by NCLT, Mumbai by

exercising jurisdiction under sections 241-242 of the Companies

Act, 2013 (in short "Companies Act") whereby a proposed

settlement between the National Highways Authority of India (in

short "NHAI") and Kiratpur Ner Chowk Expressway Limited (in

short "KNCEL") has been approved resulting in foreclosure of the

Concession Agreement regarding construction of Kiratpur - Ner

Chowk section of National Highway.

3. In brief, the conspectus of the case is that a Concession

Agreement was signed between the NHAI (the Concessioning Party)

and KNCEL (the Concessionaire) for constructing the Kiratpur-Ner

Chowk section of the National Highway in 2012 on Design, Build,

Finance, Operate and Transfer (DBFOT) basis. This project was

taken up by NHAI through a Special Purpose Vehicle ("SPV") Company Appeal (AT) No. 120 of 2021

Page 3 of 37 KNCEL which is a subsidiary of IL&FS Transportation Network

Limited ("ITNL"), which in turn is a subsidiary of Infrastructure

Leasing & Financial Services Ltd. ("IL&FS"). According to the

Appellants, they are senior lenders who have provided credit to

KNCEL for implementation of the project. During the course of the

implementation of the project dispute arose between NHAI and

KNCEL and there were claims and counter claims filed by both

KNCEL and NHAI against each other and after long-drawn series of

communications between the two parties it was mutually decided

to foreclose the Concession Agreement under the guidelines issued

on 9.3.2019 by the Ministry of Road Transport & Highways

("MoRTH") titled 'Guiding Principles for Resolution of Stuck

National Highways Projects' (in short "MoRTH Guidelines"). .

4. The Appellants have stated that credit facilities provided by

the Appellants to KNCEL were secured through various securities

in favour of banks and financial institutions providing the credit

facilities. Due to certain problems that arose in IL&FS and its

group companies, a Company Petition CP No. 3638/MB/2018 was

filed by the Union of India against IL&FS Limited under sections

241-242 of the Companies Act and by order of NCLT, Mumbai, the

IL&FS Board was substituted by a New Board of Directors vide

order dated 1.10.2018 of Hon'ble NCLT, Mumbai and moratorium Company Appeal (AT) No. 120 of 2021

Page 4 of 37 was declared in IL&FS and its group companies. This order of

NCLT was assailed before NCLAT, which by order dated

15.10.2018 granted 'interim stay' against any coercive action by

the creditors against IL&FS and its group entities. By order dated

11.1.2019, the NCLT observed that the process required to be

followed in the resolution of IL&FS and its group companies

through a resolution framework was akin to Corporate Insolvency

Resolution Process ("CIRP"). The Appellants have further stated

that the proposed Resolution Framework does not envisage

settlement in terms of the MORTH Guidelines. The Appellants

have claimed that the Concession Agreement dated 16.3.2012

executed between NHAI and KNCEL was for a term of 28 years,

which included three years construction period and the MoRTH

Guidelines provide that the parties to the Concession Agreement

may foreclose the Concession Agreement through mutually agreed

terms by executing a 'Supplementary Settlement Agreement'. The

Appellants have further stated that the MoRTH Guidelines

stipulate that payment to the concessionaire as full and final

settlement would be an amount which is the lower amount of the

(a) value of work done; or (b) 90% of the debt due, and the

calculation of 'Debt Due' will be as per the definition provided in

the Concession Agreement.

Company Appeal (AT) No. 120 of 2021

Page 5 of 37 5. The Appellants have further stated that due to disputes that

arose between the two parties, termination notices were issued by

both the parties, and KNCEL terminated the Concession

Agreement vide its notice dated 24.1.2019 and NHAI

communicated its notice of termination on 22.10.2019. During

the course of negotiations between the parties, the value of work

done in the project was assessed at Rs.1027.79 crores by

Independent Engineers (IE). The Appellants have further stated

that the amount of "Debt Due" was assessed to be Rs. 787.11

crores by NHAI. The Appellants have added that KNCEL proposed

foreclosure of Concession Agreement on payment of compensation

of Rs.735.56 crores, which was recalculated by NHAI and it

proposed a compensation amount of Rs.708.40 crores to KNCEL

and after recoveries of Rs.35.78 crores, a net compensation

amount payable to KNCEL was arrived at Rs.672.62 crores as 'full

and final settlement' by NHAI. The Appellants have stated that as

per calculation which should have been done in accordance with

the MoRTH Guidelines, the minimum amount payable works out

to be Rs.1025.56 crores which is the amount of compensation that

should have been paid to KNCEL as 'full and final settlement'.

6. The Appellants have submitted that they are senior secured

lenders of KNCEL and the amount of compensation as 'full and Company Appeal (AT) No. 120 of 2021

Page 6 of 37 final settlement' was arrived at without consulting the Appellants.

The Appellants have further stated that approval of settlement by

NCLT was beyond its jurisdiction and in violation of mandate

under section 241-242 of the Companies Act and, therefore,

approval of settlement amount was not in accordance with law.

7. We heard the arguments of the Learned Counsels for the

Appellants and Respondents IL&FS and NHAI also perused the

record with their able assistance.

8. The Learned Counsel for Appellants has argued that KNCEL

had terminated the Concession Agreement vide its notice dated

24.1.2019 and NHAI, after a series of communications between the

two parties NHAI and KNCEL, sent its notice of termination on

22.10.2019. Therefore, the Appellants have submitted, the

termination notice issued by NHAI was an afterthought and

relevant termination notice pertains to one issued by KNCEL on

24.1.2019. He has further argued that status quo was directed to

be maintained on account of NCLT's order dated 15.10.2018

regarding IL&FS and its group entities and in the event of

termination of contract by KNCEL, the applicable clause for

calculation of termination payment is clause 37.3.2 of the

Concession Agreement. Company Appeal (AT) No. 120 of 2021

Page 7 of 37 9. The Learned Counsel for Appellants has referred to the

circular dated 9.3.2019 issued by MoRTH titled 'Guiding Principles

of Resolution of Stuck National Highway Projects' (MoRTH

Guidelines) , wherein it is laid down that if there is inability of

concessionaire to continue with the project on account of

proceedings initiated under IBC or sections 241(2) of the

Companies Act, then a Build, Operate, Transfer BOT), or a

Design, Build, Finance, Operate and Transfer (DBFOT) project,

which qualifies as 'stuck' project, may be foreclosed through

mutually agreed Supplementary Agreement executed between the

parties and the Concessioning Party would pay as "full and final"

settlement an amount which is lower of the (a) the value of the

work done; and (b) 90% of the "debt due", and further in case of

the investment in the project by the concessionaire is not covered

under the definition of "debt due", the payment made be restricted

to the value of work done.

10. The Learned Counsel for Appellants has claimed that after

serving the termination notice, the KNCEL vide its letter dated

26.3.2019 requested for foreclosure of the Concession Agreement

and further requested NHAI to pay the settlement amount in

accordance with MoRTH Guidelines after foreclosing the Company Appeal (AT) No. 120 of 2021

Page 8 of 37 Concession Agreement. He has further claimed that in terms of

the MoRTH Guidelines, the minimum amount payable to

concessionaire is Rs.1025.56 crores and not the amount of

Rs.672.62 crores which is included in the Supplementary

Agreement.

11. The Learned Counsel for Appellants has clarified that the

Appellants are not aggrieved by the fact the settlement has been

entered into between NHAI and KNCEL, but they are dissatisfied

by the wrong calculation of "Debt Due" which has resulted in a

loss of the amount of recovery to the Appellants which should have

been in accordance with MoRTH Guidelines dated 9.3.2019. He

has submitted that, in addition, the Appellants are also aggrieved

by the extinguishment of their claims. The Learned Counsel has

submitted that the senior lenders were not privy to the terms of

the settlement between NHAI and KNCEL and were not granted

any opportunity of being heard by the learned NCLT while

upholding and approving the terms of settlement between NHAI

and KNCEL. Thus, the senior lenders could not place on record

their contention relating to calculation of 'Debt Due' and as on the

cut-off date of 15.10.2018, a total sum of Rs.1025.56 cores was

the amount of 'Debt Due' to the senior lenders of KNCEL,

according to correct calculation. Company Appeal (AT) No. 120 of 2021

Page 9 of 37 12. The Learned Counsel for Appellants has also contended that

in the Resolution Framework, it is nowhere stated that the consent

of the Committee of Creditors, which is obtained in all resolutions

of the IL&FS group companies, can be dispensed with when

foreclosure of Concession Agreement takes place after mutually

agreed settlement under the MoRTH Guidelines. He has further

contended that that the Resolution Framework has to be

interpreted in the light of prevailing methodology adopted for

IL&FS Group Companies, and in the absence of any explicit

provision to this effect in the Resolution Framework, it cannot be

interpreted to take away the creditors' rights in cases covered by

MoRTH Guidelines.

13. The Learned Counsel for Appellants has further argued that

the value of work done has been assessed at Rs.1027.79 crores by

Independent Engineers("IE") and further the calculation of the

term 'Debt Due' has to be done as clearly defined in the

Concession Agreement which would include the principal amount,

all accrued interest and other charges payable thereon. Further,

he has argued that the Appellants/Lenders' claims amounting to

Rs.1144.74 crores have been admitted by the Claims Management

Consultant appointed under the Resolution Framework. He has Company Appeal (AT) No. 120 of 2021

Page 10 of 37 pointed out that even as per NHAI, the amount of senior debt is

Rs.1240.77 crores, and when the sub debt is added to the senior

debt amount, the total debt amount comes to Rs.1421.53 crores.

He has claimed that rather than applying the definition of the term

"Debt Due" as included in the Concession Agreement, the formula

used by NHAI for calculating the "Debt Due", which is by

multiplying the Value of Total Project Cost ("TPC") for work done

and senior debt and dividing the same by (Equity + Actual Debt +

Sub Debt), is not the correct way of calculation of "Debt Due".

14. The Learned Counsel for Appellants has also claimed that no

estoppel operates in filing the appeal as has been contended by the

Respondent since there was no opportunity for representation on

the part of the senior lenders before NCLT. Moreover, an estoppel

cannot be used in the case of an ultra vires act.

15. The Learned Counsel for Appellants has cited the judgment

of Hon'ble High Court of Delhi in the matter of Jetpur Somnath

Tollways Limited & Ors. vs. National Highways Authority of

India and 7 Ors. [MANU/DE/2171/2017] in which by judgment

dated 31.7.2017, it was held that the "Debt Due" amount upon

termination on account of concessionaire's default during the

operation period made it incumbent on Concessioning Party NHAI Company Appeal (AT) No. 120 of 2021

Page 11 of 37 to pay Jetpur Somnath Tollyways by way of termination payment,

an amount equal to 90% of the "Debt Due" less insurance cover,

and upon termination on account of NHAI's default, NHAI has to

pay to the Concessionaire by way of termination payment, an

amount equal to the "Debt Due" plus 150% of the Adjusted

Equity. He has claimed that the judgment further holds that the

termination payment would be in accordance with the definition in

the Concession Agreement. The Learned Counsel for Appellant

has also contended that there is no stipulation in the Termination

Payment clause that any adjustment is to be made prior to

calculation of "Debt Due" and as per the definition of "Termination

Payment" and "Debt Due" in the Concession Agreement, only the

actual debt due has to be taken into account.

16. In reply, the Learned Counsel for R-1 & R-2 has argued that

IL&FS and its group companies including KNCEL are currently

undergoing a court-monitored resolution process under the aegis

of this Appellate Tribunal and the Resolution Framework which is

approved by NCLAT, inter-alia, contemplates the appointment of

Claims Management Consultant for invitation and admission of

claims from financial and operational creditors, resolution/sale of

the relevant IL&FS entity and distribution of the financial bid

amounts/termination amounts/settlement amounts in the manner Company Appeal (AT) No. 120 of 2021

Page 12 of 37 set out in the Revised Distribution Framework. He has further

argued that the present appeal seeks to challenge various

provisions of the Resolution Framework regarding extinguishment

of all third party claims including claims of Appellants herein, even

though the Impugned Order was passed keeping in view the

detailed order and judgment dated 12/3/2020 of the Appellate

Tribunal, wherein the Appellate Tribunal has allowed the

resolution of IL&FS Group Companies including KNCEL as per the

procedure suggested by Union of India, which, inter alia also,

includes (a) Resolution of "Stuck Projects" under MoRTH

Guidelines, (b) Distribution of settlement amounts to creditors as

per a settlement formula and on the basis of claims admitted

pursuant to an independent claims management process; and (c)

Extinguishment of such claims against the relevant entity upon

disbursal of such settlement/ foreclosure amount, subject inter-

alia to the approval of Hon'ble NCLT.

17. The Learned Counsel for R-1 and R-2 has further argued

that while passing the March 12, 2020 order, the Appellate

Tribunal considered the issue whether it could pass appropriate

order under section 241 read with section 242 of the Companies

Act for resolution of the problems faced by IL&FS and its group

companies in a time bound manner for maximization of value of Company Appeal (AT) No. 120 of 2021

Page 13 of 37 assets of the company while promoting entrepreneurship,

availability of credit and balancing the interests of all the

stakeholders and decided in the positive. He has argued that the

Hon'ble Appellate Tribunal permitted the New Board of IL&FS

appointed by NCLT vide orders dated 3.10.2021 and 21.12.2018 to

proceed with the resolution of IL&FS group entities in accordance

with the procedure suggested by Union of India vide its Affidavit

dated February 17, 2020. He has thus argued that in view of the

validity of the Resolution Framework, once the settlement was

arrived at between the NHAI and KNCEL, the extinguishment of all

claims and liabilities of the stake holders and third parties would

happen. He has also argued that since the order dated 12.3.2020

of NCLAT has attained finality, Hon'ble NCLT has full jurisdiction

and power to grant relief in terms of the Impugned Order because

it is now settled that the jurisdiction conferred upon NCLT under

sections 241-242 is an equitable distribution and NCLT is

empowered to pass such orders as it deems fit to be just and

equitable in the facts of the given case.

18. The Learned Counsel for R-1 and R-2 has further argued

that the Appellants had, without reservation, accepted the

proceeds of the settlement amount received in pursuance of the

resolution carried out for KNCEL. He has clarified that KNCEL has Company Appeal (AT) No. 120 of 2021

Page 14 of 37 received a sum of Rs.662.53 crores from NHAI Escrow Account no.

6112591866 after deducting an amount of Rs.10.09 crores

towards TDS in terms of the Settlement Agreement dated

30.3.2021 entered between KNCEL and NHAI, the KNCEL has

disbursed an amount of Rs.662.64 crores received as the

settlement amount to its creditors during the period 9.4.2021 to

6.7.2021, which includes the Appellants. He has argued that in

this situation, the principle of estoppel would apply and the

present appeal which not will be maintainable on this account

ought to be dismissed in limine with costs.

19. The Learned Counsel for R-1 and R-2 has also argued that

the Impugned Order passed by NCLT, by which the claims of the

Appellant were extinguished, is in accordance with the provisions

of the Resolution Framework and the Union of India's Affidavit

dated 7.2.2020 filed by the Union of India before the Appellate

Tribunal laying down the Resolution Framework which was

approved by the Appellate Tribunal. He has referred to Para 48

(E) of the Impugned Order regarding extinguishment of all claims

against all liabilities of KNCEL after distribution of the net KNCEL

settlement amount has been passed by the Hon'ble NCLT in

accordance with the provisions and principles enumerated in the

Company Appeal (AT) No. 120 of 2021

Page 15 of 37 Resolution Framework and Union of India's Affidavit dated

7.2.2020 filed before Hon'ble NCLT.

20. The Learned Counsel for R-1 and R-2 has also clarified that

the "Debt Due" amount has been correctly computed following

principles of fairness and transparency and value maximization

and the Appellants' contention that the computation of "Debt Due"

should have been done on the basis of relevant definition in the

Concession Agreement is completely baseless and unfounded. He

has submitted that in view of the project not having achieved

"Commercial Operations", KNCEL was not entitled to receive any

compensation under the Concession Agreement unless it could

have proved that the project has stopped due to the sole default of

NHAI. He has added that rather than engaging in any time

consuming and protracted litigation with NHAI to determine

whether default was due to NHAI or KNCEL, KNCEL decided to

enter into a settlement by foreclosing the project under MoRTH

Guidelines which is a legal way of resolving dispute, and this has

resulted in KNCEL receiving a significant settlement/foreclosure

amount of Rs.672.62 crores. He has clarified that the NHAI's

computation of "Debt Due" has been stipulated in para 39 of the

Affidavit dated 7.2.2020 of Union of India, and this Affidavit was

approved by this Tribunal vide March 12, 2020 order, and in view Company Appeal (AT) No. 120 of 2021

Page 16 of 37 of the fact that the process used for computation of "Debt Due" has

been earlier approved in an appeal by this Tribunal, the

Appellant's grievance on the same is without merit.

21. The Learned Counsel for R-1 and R-2 has further submitted

that 'Debt Due' was computed in a fair and transparent manner by

an Independent Valuer appointed by NHAI as Rs. 787.11 crores,

which was done with a view to arrive at an expeditious settlement.

He has further submitted that MoRTH Guidelines stipulate that

compensation payable in a case of "stuck project" is equal to the

lower of the value of the work done or 90% of the debt due, and the

settlement amount computed as Rs.708.40 crores being 90% of the

'Debt Due' was approved by the Conciliation Committee of

Independent Experts-II ("CCIE-II") on 21.8.2020, which is the

forum under whose aegis KNCEL and NHAI were settling their

dispute amicably. He has submitted that an amount of Rs.1030

crores as 'Debt Due' computed by the Appellants is overvalued,

since it is erroneously based on the quantum of total claims

admitted by the Claim Management Consultant rather than being

in accordance with the procedure set out in the MoRTH

Guidelines, and neither the Concession Agreement nor the

Resolution Framework approved by the NCLAT give any right to

the Appellants to insist and force KNCEL and NHAI to accept Company Appeal (AT) No. 120 of 2021

Page 17 of 37 payment of full claim amount to form the basis of computation of

the 'Debt Due'.

22. The Learned Counsel for R-3 NHAI, while adopting the

arguments of R-1 and R-2, has argued that a settlement was

arrived at between the NHAI and KNCEL keeping in view the

interest of all the stakeholders, including KNCEL's financial

creditors, in the light of the MoRTH Guidelines and with the view

to arriving at an amicable settlement expeditiously rather than

engage in protracted litigation. She has further submitted that

the settlement was arrived at under the guidance of the

Conciliation Committee of Independent Experts-II and approved by

this Conciliation Committee in its meeting dated 21.8.2020. She

has also submitted that the settlement between KNCEL and NHAI

was entered into in accordance with the Resolution Framework for

IL&FS and its group companies as approved by NCLT and further

the approval given by CCIE-II of the Settlement Agreement was

approved by Hon'ble Justice D.K Jain (Retired), who is appointed

to look into such resolutions including resolution by settlement of

IL&FS and its Group Companies. It is only after the approval of

CCIE-II and Hon'ble Justice D.K Jain Committee that the said

settlement including the settlement amount was placed for

Company Appeal (AT) No. 120 of 2021

Page 18 of 37 approval before the NCLT, which has approved it by the Impugned

Order.

23. The issues that arise in the adjudication of this appeal are

as follows:-

(i) Whether NCLT was empowered to approve the

"Settlement Agreement' between KNCEL and NHAI and

whether the senior creditors were required to be heard

before according such approval, and

(ii) Whether the calculation of "Debt Due" and the "Full

and Final Settlement amount" has been done correctly

and whether any estoppel would operate in view of the

fact that the creditors/Appellants had accepted the

distributed share of the settlement amount?

24. The first issue raised by the Learned Counsel for Appellants

is that the Impugned Order passed by the Hon'ble NCLT was not

legally tenable, which was done without giving an opportunity of

hearing to the Appellants who by virtue of being financial creditors

of KNCEL were interested parties in the said settlement between

KNCEL and NHAI. The Learned Counsel for Appellants has also

raised the issue that the Respondents have not followed procedure

Company Appeal (AT) No. 120 of 2021

Page 19 of 37 and modality given in the the Resolution Framework as approved

by this Tribunal.

25. In this connection, we note that Hon'ble NCLAT, in its order

dated 15.10.2018 in CA (AT) No. 346/2018, has held the NCLT has

much wider powers under sections 241-242 of the Companies Act

than the powers vested under provisions of IBC and therefore, it is

fully empowered to pass orders for resolution under sections 241-

242 of the Companies Act. On the same premise NCLAT decided

to impose a 'stay' regarding various actions which are akin to

'moratorium' under section 14 of the IBC and hear cases relating

to resolution of IL&FS and its group companies. The relevant part

of NCLAT's order is reproduced below:-

"3. The questions that arise for consideration in these appeals are:

(i) Whether the Tribunal can pass appropriate order under Section 241 read with Section 242 of the Companies Act, 2013 for resolution of the problems faced by the Company in a time-bound manner for maximisation of value of assets of the Company, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders, and in case of failure of resolution pass appropriate order of liquidation; and

(ii) Whether the Tribunal in exercise of powers conferred Under Section 242 (1) (b) read with Section 242 (2)(m) and Section 242(4) of the Companies Act, 2013 read with Rule 11 of the National Company Law Tribunal Rules, 2016, can pass appropriate interim order similar to order under Section 14 of the Insolvency and Bankruptcy Code, 2016. Company Appeal (AT) No. 120 of 2021

Page 20 of 37 XX XX XX XX

6. Issue notice on Respondents, including newly impleaded Respondents by speed post. Requisite along with process fee, if not filed, be filed in course of the day. If the Appellant(s) provides the e-mail address of Respondents, let notice be also issued through e-mail. Dasti service is permitted particularly in the newly impleaded Respondents.

Post these appeals 'for admission' on 13th November, 2018 on the top of the list.

Taking into consideration the nature of the case, larger public interest and economy of the nation and interest of the Company and 348 group companies, there shall be stay of

(i) The institution or continuation of suits or any other proceedings by any party or person or Bank or Company, etc. against 'IL&FS' and its 348 group companies in any Court of Law/Tribunal/Arbitration Panel or Arbitration Authority; and (ii) Any action by any party or person or Bank or Company, etc. to foreclose, recover or enforce any security interest created over the assets of 'IL&FS' and its 348 group companies including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(iii) The acceleration, premature withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations vailed by 'IL&FS' and its 348 group companies whether in respect of the principal or interest or hedge liability or any other amount contained therein.

(iv) Suspension of temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits and any other financial facility by the 'IL&FS' and its 348 group companies by any party or person or Bank or Company, etc. as of the date of first default.

Company Appeal (AT) No. 120 of 2021

Page 21 of 37 (v) Any and all banks, financial institutions from exercising the right to set off or lien against any amounts lying with any creditor against any dues whether principal or interest or otherwise against the balance lying in any bank accounts and deposits, whether current or savings or otherwise of the 'IL&FS' and its 348 group companies."

26. On the issue whether the settlement agreement between

KNCEL and NHAI is in accordance with the proposed Resolution

Framework for IL&FS and its group companies, we note that the

procedure suggested by Union of India through its Affidavit dated

17.2.2020, which has been approved by NCLT and NCLAT dated

17.2.2020, gives various options for final resolution. These

options include modalities for Group Level Resolution, Vertical

Level Resolution and Asset Level Resolution. The Resolution

Framework considers Asset Level Resolution as the most feasible

option and includes sale of entity as Asset Level Resolution. This

sale of entity can take place wherever feasible. The Resolution

Framework also stipulates that Asset Level Resolution is to be

undertaken in a fair and transparent manner to determine the best

possible price to effect a change in the ownership and the relevant

company in accordance with process supervised by the New Board

and approved under section 242 of the Companies Act.

Company Appeal (AT) No. 120 of 2021

Page 22 of 37 27. In the present case, it is seen that the resolution of KNCEL is

proposed under the Guidelines of MoRTH for resolution of "stuck

projects". These Guidelines provide for settlement between the

Concessionaire KNCEL and Concessioning Party NHAI and

execution of a Supplementary Settlement Agreement to finalise and

concretise the settlement between the two parties. Further, the

settlement between the parties is worked out under the guidance

of the Conciliation Committee of Independent Experts-II, which

comprises of a Retired Hon'ble Judge of High Court and two

Learned Technical Experts as conciliators. The Conciliation

Committee looks at all the factors such as facts and circumstances

of the case, provisions of the Concession Agreement, prevailing

practice and past precedents and above all the intent of the parties

to resolve the disputes quickly and amicably in a spirit of mutual

understanding instead of getting involved in protracted and long-

drawn litigation. It then considers the settlement terms for its

fairness, transparency and reasonability and after the parties

submit their free consent to settle the dispute it puts its stamp on

the Settlement Agreement. .

28. In this regard, clauses (K) and (P) of the Settlement

Agreement dated 30.3.2021 is worth reproducing, which inter alia

records the process undergone in arriving at the settlement:- Company Appeal (AT) No. 120 of 2021

Page 23 of 37 "K. As agreed by Executive Committee of NHAI in its meeting held non 08.01.2020 during Conciliation Committee meeting held on 14.01.2020, NHAI appraised CCIE-2 about debt due amount as Rs.787.11 Crore, 90% of debt due as Rs.708.40 crore and full and final settlement amount for foreclosure of Concession Agreement as Rs. 672.62 Crore after recovery of Rs.35.78 crore subject to submission of UDIN based Certification of statutory Auditor w.r.t. the outstanding amount of principal and interest of the Sr. lenders, Subordinate Debt, Equity, and grant released. Further the certification of Sr. Lenders w.r.t. the outstanding amount of principal and interest is also required.

xx xx xx xx

P. Concessionaire vide letter dated January 14, 2020 submitted its consent to settle the issues/disputes on payment of Rs.672.62 crore net of recoveries amounting to Rs.35.78 crore along with request to add accrued interest on the senior debt and sub debt as part of debt due as defined in the Concession Agreement. Concessionaire vide said letter also requested to pay interest on amount arrived as above for delay in release of payment from date of termination of the Project till date of actual transfer."

29. Admittedly, the Concessionaire and Concessioning Party had

signed the original Concession Agreement. Therefore, in our view

they are the necessary parties to enter into a settlement

agreement. We have noted earlier in this judgment that the

settlement agreement has been worked out under the supervision

of CCIE-II, which in para 2.1 notes the gross settlement amount of

Rs.708.40 crores and the net due amount, after taking into

account Rs.35.78 crores towards recoveries, is Rs. 672.42 crores.

Company Appeal (AT) No. 120 of 2021

Page 24 of 37 This amount is cleared by CCIE-II as being fair, reasonable and

arrived at in a transparent manner with regard to the facts and

circumstances of the case and the intention of the two parties to

arrive at an early settlement. On this basis we are of the view that

the Settlement Agreement and amount of 'full and final' settlement

included therein does not suffer from any flaw or legal infirmity.

30. We are, therefore, of the considered view that the Settlement

between KNCEL and NHAI was in consonance with the provisions

of the Resolution Framework for IL&FS and its group entities and

approved by NCLAT, which was further approved by CCIE-II and

Hon'ble Shri Justice D.K. Jain.

31. We now consider the contention of the Appellants that the

"Debt Due" should have been calculated in terms of the definition

of "Debt Due" provided in the Concession Agreement. In this

connection we note that in the reply of IL&FS it is stated that the

settlement has been worked out keeping in view the "Guiding

Principles of Stuck Highways Projects" (MoRTH Guidelines),

wherein the settlement amount was mutually agreed between

KNCEL and NHAI. We also note the argument of the IL&FS that

the amount of "Debt Due" is worked out keeping in view a formula

that has been used in similar cases which takes into account the Company Appeal (AT) No. 120 of 2021

Page 25 of 37 interest of all stakeholders and approved by the CCIE-II after being

worked out in a fair and transparent manner.

32. The Learned Counsels for IL&FS and NHAI have both stated

that the amount of full and final settlement has been decided and

agreed upon through mutual consultation between KNCEL and

NHAI with regard to facts and circumstances of the case, and the

interest of both the parties for an early and amicable settlement.

33. We also examine whether the Termination Payment in

accordance with Article 37.3.1 of the Concession Agreement as

claimed by the Appellant will be applicable in the present case.

34. We note that article 37.3.1 of the Concession Agreement

provides for payment of termination amount on account

'concessionaire default' during the 'operation period'. Quite

clearly, and as admitted by the Appellants, the work on the

proposed project was only about 60% complete and work had

stalled and the project which could not, therefore, come into

'operation period'. We, therefore, see no reason why the

Termination Payment should be made in accordance with article

37.3 of the Concession Agreement to the concessionaire when the

project had not come into "operation period". Company Appeal (AT) No. 120 of 2021

Page 26 of 37 35. In this connection, it is also noted that there was dispute

between KNCEL and NHAI as to who was responsible for the

default and both the parties had given their own dates of

termination through separate termination notices. In such a

situation, and since both the parties were keen for foreclosure of

the Concession Agreement, a settlement was worked out based on

MoRTH Guidelines under the guidance of CCIE-II, and further the

amount of full and final settlement was worked out again as

mutually agreed between the two parties. Therefore, Termination

Payment in accordance with Concession Agreement is not

applicable in the present case.

36. The procedure set out in the MoRTH Guidelines stipulates

that Concession Agreement may be foreclosed vide a

Supplementary Agreement, mutually agreed and executed between

the parties. Annexure I of these guidelines refers to 90% of 'Debt

Due" amount, which is calculated in accordance with the formula

which is discussed and then accepted by both the parties. Since

the two original parties in the Concession Agreement were entering

into a Supplementary Settlement Agreement, there does not

appear to be any requirement to consult all stakeholders including

financial creditors at the stage when the two parties to the Company Appeal (AT) No. 120 of 2021

Page 27 of 37 Concession Agreement are settling their dispute. The amount of

"Debt Due" which has been calculated by the Appellants based on

the claims admitted by the Claim Management Consultant cannot

be the amount of settlement.

37. We also note that after CCIE-II has given its approval for the

settlement agreement, the Hon'ble Shri Justice D.K. Jain has also

considered the proposal submitted by IL&FS through a

supplementary memorandum dated 25.12.2020 and earlier

memorandum dated 24.11.2020 (attached at pp.258-314 of reply

of R-1, vol. II), which was duly considered and approved by Hon'ble

Shri Justice D.K. Jain by order dated 29.12.2020 (attached at

pp.290-314 of reply of R-1, vol. II). This adjudication takes note of

the fact that KNCEL settlement amount is less than the total

admitted debt of KNCEL as on 15.10.2018, which is aggregating to

Rs.1862.07 crores. The creditors of KNCEL will be required to

forego certain outstanding in respect of the admitted claims. The

relevant para 47 of the order is reproduced below:-

"47. Given that the KNCEL Settlement amount agreed to with NHAI is less than the total admitted debt of KNCEL (as of 15th October, 2018), aggregating to Rs1862,07,37,830, the creditors of KNCEL will be required to forego certain outstanding in respect of the admitted claims."

Company Appeal (AT) No. 120 of 2021

Page 28 of 37 38. The calculation of the settlement amount, which includes

the calculation of "Debt Due" through a specific formula, which

has been used in similar cases, where foreclosure of concession

agreements have been done through a mutually agreed settlement

between the concessionaire and concessioning party is found

reasonable and taking into account the interests of all the

stakeholders.

39. In para 48 of the order of Hon'ble Shri Justice D.K. Jain,

there is mention of two valuers, namely RNC Valuecon LLP and

Adroit Valuation Services Private Limited who have assessed the

liquidation value of KNCEL which are Rs.658.08 crore and Rs.

501.13 crore respectively and average liquidation value as of

15.10.2018 is Rs.574.61 crore. The said order also note that the

settlement is in line with the approved Resolution Framework,

which is recorded in para 54 of the said order. Para 54 of the said

order is reproduced herein below:-

"54. As regards the compliance with the guidelines for submitting Resolution Proposals for approval of the undersigned, it nis stated that the same are not entirely applicable in the present proposal. Nevertheless, it is pointed out that A&M, vide email dated 21st November 2020, has recommended that the settlement is in line with the Approved resolution Framework; the distribution of the KNCEL Settlement Amount to the creditors of KNCEL is in accordance with the Revised Distribution Framework, and will be subject to the orders of the Hon'ble NCLT, and that there are no

Company Appeal (AT) No. 120 of 2021

Page 29 of 37 complaints/representations filed by any party in relation to the Proposal."

40. Finally in para 57, approval is accorded by Hon'ble Justice

D.K. Jain, which is reproduced below:-

"57. I have examined the proposal, which is stated to be in syne with the Resolution Framework placed before the Hon'ble NCLT by the MCA. Further, it is also asserted that the distribution of the KNCEL Settlement Amount along with the additional amounts lying in the KNCEL Escrow account is in accordance with the Revised Distribution Framework approved by the Hon'ble NCLAT. This, coupled with the assertion in the Memorandum that the Project being incomplete and yet to achieve commercial operations/ final operations, settlement of foreclosure of claims is the only solution mechanism possible for KNCEL, and failure to recover an amount of 3672.62 crores from NHAl will result in almost negligible recovery to the Creditors of KNCEL, I am inclined to agree with the decision of the Board in according its approval to the Proposal notwithstanding the fact that under the stated Revised Distribution Framework, the Creditors of KNCEL. will get a preferential treatment in comparison to their counter parts in respect of the other IL&FS/ITNL entities."

41. We thus note that after the approval of CCIE-II, Hon'ble Shri

Justice D.K. Jain has also accorded approval of the said

Supplementary Agreement regarding Settlement.

42. The Learned Counsel for Appellants has cited the judgment

in the matter of Jetpur Somnath Tollways Limited & Ors.

(supra) passed by Hon'ble Delhi High Court claiming that the

amount of "Debt Due" has been held to be calculated by the Company Appeal (AT) No. 120 of 2021

Page 30 of 37 definition of "Debt Due" as given in the Concession Agreement and

that the same principle should be applied in the present case.

This issue has been dealt with in paragraphs 57 to 60 of the above

mentioned judgment, which is reproduced below for ready

reference:-

"57. Clause 37.3 of the Concession Agreement makes it clear that upon Termination on account of JETPUR'S Default during the Operation Period, NHAI has to pay to JETPUR by way of Termination Payment, an amount equal to 90% (ninety per cent) of the Debt Due less Insurance Cover and upon Termination on account of NHAI's default, NHAI has to pay to JETPUR, by way of Termination Payment, an amount equal to the Debt Due plus 150% of the Adjusted Equity.

58. "Termination Payment" has been defined by the Concession Agreement to mean the amount payable by the Authority to the Concessionaire upon Termination and may consist of payments on account of and restricted to the Debt Due and Adjusted Equity, as the case may be, which form part of the Total Project Cost in accordance with the provisions of this Agreement; provided that the amount payable in respect of any Debt Due expressed in foreign currency shall be computed at the Reference Exchange Rate for conversion into the relevant foreign currency as on the date of Termination Payment. For the avoidance of doubt, it is agreed that within a period of 60 (sixty) days from COD, the Concessionaire shall notify to the Authority, the Total Project Cost as on COD and its disaggregation between Debt Due and Equity, and only the amounts so conveyed shall form the basis of computing Termination Payment, and it is further agreed that in the event such disaggregation is not notified to the Authority, Equity shall be deemed to be the amount arrived at by subtracting Debt Due from Total Project Cost.

59. "Debt Due" has been defined to mean the aggregate of inter alia the sum expressed in Indian Rupees outstanding, on the Transfer Date, of the principal amount of the debt provided by the Senior Lenders under the Financing Agreements for financing the Total Project Cost but excluding any part of the Company Appeal (AT) No. 120 of 2021

Page 31 of 37 principal that had fallen due for repayment two years prior to the Transfer Date;

60. The "Total Project Cost" has been defined to mean the lowest of:

(a) the capital cost of the Project, less Equity Support as set forth in the Financial Package; (b) the actual capital cost of the Project upon completion of Four-Laning of the Project Highway less Equity Support; and (c) a sum of Rs. 828.00 crore (Rupees Eight Hundred and Twenty Eight crore), less Equity Support;

provided that in the event of Termination, the Total Project Cost shall be deemed to be modified to the extent of variation in WPI or Reference Exchange Rate occurring in respect of Adjusted Equity and Debt Due, as the case may be, in accordance with the provisions of this Agreement; provided further that in the event WI increases, on an average, by more than 6% (six per cent) per annum for the period between the date hereof and COD, the Parties shall meet, as soon as reasonably practicable, and agree upon revision of the amount hereinbefore specified such that the effect of increase in WI, in excess of such 6% (six per cent), is reflected in the Total Project Cost."

43. As earlier noted in this judgment, we note that the

Concession Agreement formed the sole valuable asset of KNCEL

and after termination of the said Concession Agreement and

distribution of settlement amounts to the creditors, KNCEL

possesses negligible assets, which is also borne out by the fact that

the average liquidation value (as of 15.10.2018) is Rs. 589.61

crore.

Company Appeal (AT) No. 120 of 2021

Page 32 of 37 44. In accordance with the Resolution Framework, IL&FS filed

an application before NCLT, Mumbai Bench (CA No. 290 of 2021)

for initiation of proceedings under Section 27(a) of the Companies

Act, 2013 for winding up of KNCEL and this application was

approved by the Hon'ble NCLT vide order dated 14.10.2022,

wherein it is recorded that in the event any subsequent recoveries

is made by KNCEL in the form of tax refund etc., the same will be

distributed to the remaining creditors of KNCEL in accordance

with the Revised Distribution Framework. The relevant portion of

the NCLT order in CA No. 290/2021 in CP (IB) No. 3638/MB/2018

dated 14.10.2022 is reproduced below:-

"52. Accordingly, the Applicant is before us praying for reliefs as follows:

Xx xx xx

(iii) To direct that the Applicant be permitted to utilize and/or pay from residual FSEL Settlement Amount:

Xx xx xx

h. To direct the liquidator appointed pursuant to the initiation of winding up of Kiratpur Ner Chowk Expressway Limited in terms of prayer D above, shall distribute any subsequent recoveries made on behalf of Kiratpur Ner Chowk Expressway Limited to the Residual Creditors of Kiratpur Ner Chowk Expressway Limited in the same proportion that the Net KNCEL Settlement amount was distributed to such creditors as per the revised distribution Framework pursuant to the orders of this Tribunal dated February 4, 2021 in Company Application No. 3 of 2021.

Xx xx xx ORDER

Company Appeal (AT) No. 120 of 2021

Page 33 of 37 xx xx xx

57. In the interest of justice, accordingly, application is allowed in terms of the reliefs A to H of the Application without prejudice of course to any proceedings that any investigative or any other authorities may take against the erstwhile directors of the companies that are subject matter of this application."

45. We consider the contention of the Appellant that the

principle for calculation of "Debt Due" should be the same as

accepted in the judgment in Jetpur Somnath Tollways Limited &

Ors.(supra). We note that this case was filed under section 9 of

Arbitration and Conciliation Act, 1996, which has been mentioned

in para 1 of the said judgment. Therefore, the Jetpur Somnath

Tollways Limited & Ors. case relates to arbitration proceedings

under the Concession Agreement. It is in this light that clause

37.3 of the Concession Agreement has been considered in para 15

of the judgment for calculation of "Debt Due" and "Termination

Payment". As against this, we note that in the present case, a

settlement has been entered into between KNCEL and NHAI and a

Supplementary Agreement was signed non mutually agreed terms

between the two parties. Therefore, any reference to the clauses of

the Concession Agreement for calculation of 'Termination Payment'

is not justified and the full and final settlement amount in the

present case is as per the settlement agreement. Thus the Jetpur

Somnath Tollways Limited & Ors.(supra) judgment can be Company Appeal (AT) No. 120 of 2021

Page 34 of 37 distinguished from the facts and circumstances of the present

case.

46. The Learned Counsel for R-1 and R-2 has cited the judgment

of NCLT, Mumbai Bench in CA No. 290/2021 in CP (IB) No.

3638/MB/2018 in the matter of Infrastructure Leasing &

Financial Services Limited versus Union of India, MCA

(through the RD), wherein using the same principle for

calculation of resolution amount has been done. He has cited this

judgment in support of his contention that since the

Concessionaire is insolvent and would not be able to pay its

liabilities since most of its investments, loans and advances would

yield little return and may have to be written off. In particular,

para 23 of the said judgment is worth reproducing in this regard,

which is in support of the R-1 contention. Para 23 of the judgment

is as under:-

"23. Moreover, we note that, (i) The offshore entities in which IIPL had stake, have been resolved by being disposed of fully or substantially either through divestment, closure or liquidation; (ii) Further, recovery of loans provided to subsidiaries is doubtful as most of the subsidiaries are under insolvency or have been closed; (iv) the monies available with IIPL is sufficient to meet all external borrowings but it is not sufficient to meet all liabilities including the related party payables and loans. Thus, IIPL would not be able to meet all its liabilities and would accordingly be considered insolvent under Singapore Laws; and (iv) Given the considerable Company Appeal (AT) No. 120 of 2021

Page 35 of 37 amount of liabilities on the books of IIPL, it is evident that IIPL is insolvent and would not be able to repay its liabilities since most of its investments and loans/ advances have yielded little returns and may have to be written off. Therefore, the resolution of IIPL by the aforesaid modes will directly result in reduction of liabilities, which would enable an effective resolution of the larger Applicant Group. Thus, we take on record and approve the proposed closure in the interest of justice."

47. The Learned Counsel for R-1 and R-2 has cited the judgment

of Hon'ble High Court of Delhi in the case of Navayuga

Bengalooru Tollway Pvt. Ltd. v. NHAI, OMP (I) (CPMM) 152 of

2021, in which in a petition filed under Section 9 of the Arbitration

and Conciliation Act, 1996, a prayer was made for directing the

Respondent (NHAI) to release the amount of at least the 90% of the

total "Debt Due" and to pay the said amount to the lenders of the

Concessionaire. In this matter, Hon'ble High Court held that it

would serve the requirement of justice if the money that is

available as assets of the Concessionaire is distributed in terms of

the Revised Distribution Framework approved by the NCLT vide

order dated 12.3.2022. On this ground and since the proposal for

settlement and payment to creditors was approved by Hon'ble Shri

Justice D.K. Jain (Retired) to oversee the resolution process, the

proposal to wind up the Concessionaire was allowed and no extra

amount was ordered to be paid to the creditors as was prayed in

the said OMP. This judgment is also distinguishable since it

Company Appeal (AT) No. 120 of 2021

Page 36 of 37 relates to winding up of the concessionaire after settlement

between the parties.

48. In view of the detailed foregoing discussion, we are of the

clear view that the settlement entered into by KNCEL and NHAI for

foreclosure of the Concession Agreement relating to Kiratpur - Ner

Chowk Project under the MoRTH Guidelines is in accordance with

the approved Resolution Framework in relation to the ILF&S and

its group entities which are correctly approved by the NCLT by the

Impugned Order. The Appeal is, therefore, devoid of merit and is

accordingly dismissed.

49. There is no order as to costs.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

New Delhi 1st August, 2023

/aks/

Company Appeal (AT) No. 120 of 2021

Page 37 of 37