Power Trust Promoter Of Hiranmaye ... vs Mr. Bhuvan Madan Interim Resolution ...

(Arising out of the Order dated 02.01.2024 passed by the National Company Law Tribunal, Kolkata Bench in I.A. (IB) No. 1020/KB/2022 and IA (IB) No. 828/KB/2023 and CP (IB) No. 138/KB/2021)

IN THE MATTER OF:

Power Trust, Promoter of Hiranmaye Energy Ltd. Having its registered office at: Plot X1, 2 & 3, 2nd Floor, Block- EP, Sector-V, Salt Lake, Kolkata- 700091 ...Appellant

Versus

1. Mr. Bhuvan Madan (Interim Resolution Professional of Hiranmaye Energy Ltd.) Having his address at: A-103 Ashok Vihar Phase-3, New Delhi-110052 Email id: madan.bhuvan@gmail.com ...Respondent No. 1

2. REC Ltd. (formerly, Rural Electrification Corporation Ltd.) Having its registered office at: Core-4, CGO Complex, 7, Lodhi Road, Pragati Vihar, New Delhi 110003 Email id: siddharthasingh@recl.nic.in ...Respondent No. 2

Present

For Appellant: Mr. Joy Saha, Sr. Advocate, Mr. Krishnendu Datta, Sr. Advocate along with Mr. Pranjit Bhattacharya, Ms. Muskan Bangani, Ms. Raj Sarit Khare & Mr. Ashish Choudhary.

For Respondents: Mr. Abhinav Vasisht, Mr. Saurav Panda, -2- Comp. App. (AT) (Ins.) No. 81 of 2024

Ms. Mohan Nighawan and Ms. Priya, Advocates for REC Ltd. Mr. Shashank Agarwal, Advocate for IRP.

JUDGEMENT

(25 .01.2024 )

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present Appeal i.e., Company Appeal (AT) (Insolvency) No. 81 of

2024 has been filed by Power Trust, Promoter of Hiranmaye Energy Ltd (in

short 'the Corporate Debtor') under Section 61 of the Insolvency & Bankruptcy

Code, 2016 (in short 'Code') being aggrieved by the Impugned Order dated

02.01.2024 passed by the National Company Law Tribunal, Kolkata Bench (in

short 'Adjudicating Authority') in C.P. (IB) No. 138/(KB)/ 2021 where the

Adjudicating Authority has admitted application filed under Section 7 of the

Code, by REC Ltd., Respondent No. 2 herein and who is the Financial Creditor

of the Corporate Debtor.

2. Mr. Bhuvan Madan is the Respondent No. 1 herein is the Resolution

Professional of the Corporate Debtor.

3. Heard the Counsel for the Parties and perused the records made available

including the cited judgements.

-3-

Comp. App. (AT) (Ins.) No. 81 of 2024

4. It is the case of the Appellant that he is one of the main promoters of the

Corporate Debtor holding about 74% of the issued and paid-up capital of the

Corporate Debtor.

5. It has been brought out that the Corporate Debtor had taken the term loan

of Rs. 1,859 Crores from the Respondent No. 2 and a common loan agreement

was entered between the Corporate Debtor and Respondent No. 2 on 19.06.2013

for setting of a project to provide thermal power plant at Haldia consisting of

three units of 150 MW each (total 450 MW). The Appellant further submitted

that due to cost over runs, on 30.10.2015, the Corporate Debtor and the

Respondent No. 2 entered into amendment No. 1 for an additional term loan

facility of Rs. 446.97 Crores.

6. The Appellant submitted that the Corporate Debtor entered into power

purchase agreement on 28.12.2010, 06.04.2018 and 03.07.2020 with West

Bengal State Electricity Distribution Company Ltd. (in short 'WBSEDCL').

7. The Appellant brought out that on 30.06.2018, the Respondent No. 2

classified the Account of the Corporate Debtor as Non-Performing Assets

('NPA') due to alleged default committed by the Corporate Debtor in making

due payments. The Appellant stated that the Corporate Debtor conducted several

meetings with Respondent No. 2 for restructuring of loans in terms of RBI

circular dated 07.06.2019 and accordingly on 21.02.2020, the Respondent No. 2

issued its approval for Resolution Plan ( restructuring without change in -4- Comp. App. (AT) (Ins.) No. 81 of 2024

ownership) and the repayment obligation of the Corporate Debtor was to

commence from 31.12.2020 and interest was to be paid on monthly basis

commencing from 30.06.2020, which falls within the period stipulated under

Section 10A of the Code.

8. The Appellant assailed the conduct of the Respondent No. 2, who despite

restructuring of the credit facilities, filed an application under Section 7 of the

Code for alleged default in payment of Rs. 2,183.19 Crores which was finally

admitted wrongly by the Adjudicating Authority and the Corporate Debtor was

put under Corporate Insolvency Resolution Process (in short 'CIRP').

9. The Appellant brought out that he moved a Writ Petition before Hon'ble

Calcutta High Court vide W.P.A no. 10679 of 2021 which was dismissed by an

order dated 02.07.2021 and which was further challenged by the Corporate

Debtor before the Division Bench vide W.P.A no. 10679 of 2021 which was

also disposed vide order dated 06.07.2021.

10. The Appellant emphasised that the Corporate Debtor is in public service

of supplying electricity to common consumers hence action taken by the

Adjudicating Authority was incorrect. It is the case of the Appellants that

alleged default period was squarely covered under Section 10 A of the Code,

hence the impugned order is illegal and perverse.

11. It is the case of the Appellant that during pendency of Section 7

application, the Respondent No. 2 issued a letter dated 16.12.2021 to the -5- Comp. App. (AT) (Ins.) No. 81 of 2024

Corporate Debtor demanding Rs. 29.47 Crores as part of repayment obligation,

which was paid by the Corporate Debtor on 26.12.2021.

12. The Appellant submitted that date of default mentioned in Part IV of

Section 7 application is 31.03.2018 and also stated is the date of classification of

the account of Corporate Debtor as NPA being 31.06.2018 and even after this

date the Respondent no. 2 as well as Power Finance Corporation Ltd. (in short

'PFC'), another Financial Creditor of the Corporate Debtor, restructured the

credit facilities of the corporate debtor vide letter dated 29.09.2020, therefore,

the date of default could not continue to be 30.06.2018.

13. It is further the case of the Appellant that Respondent No. 2 along with

PFC were fully involved in the management and control of the Corporate

Debtor by way of their nominee Directors appointed on the Board of Corporate

Debtor.

14. The Appellant submitted that entire proceed of the sale of electricity of

the Corporate Debtor was routed through a Trust and Retention Account (in

short 'TRA'), which has been operational since September, 2013 under control

of Respondent No. 2 and PFC and therefore, the initiation of Section 7

application by the Respondent No. 2 was mischievous and was done only with

intentions to harm the Corporate Debtor.

-6-

Comp. App. (AT) (Ins.) No. 81 of 2024

15. The Appellant pleaded that the Corporate Debtor is financially viable

since it has PPA agreement with WBSEDCL and there were continuous inflow

of money which was under control of TRA.

16. The Appellant also stated that the Corporate Debtor has made a payment

of Rs. 50 Crore to the Respondent No. 2 and PFC on 24.12.2021 with clear

caveat written by the Corporate Debtor stating that 'your receipt of the payment

of the said sum of Rs. 50 Crore will be deemed and constructed by us to be an

acceptance by you of the proposal contained herein'. In this context, the

Appellant stated that since the payment was received and accepted by

Respondent No. 2 and PFC, the restructuring agreement was automatically

extended and therefore, there was no debt and default.

17. The Appellant reiterated that Respondent No. 2 has been playing hide and

seek by way of accepting payments from the Corporate Debtor from time-to-

time and simultaneously pursuing application under Section 7 of the Code

before the Adjudicating Authority. The Appellant submitted that under such

circumstances, the Corporate Debtor filed an IA (IB) no. 1020 of 2022 before

the Adjudicating Authority on 13.09.2020 with request for injunction and stay in

CP (IB) No. 138/2021 and to declare restructuring agreements dated 24.09.2020

and 14.01.2021 to be valid. The Appellant also pleaded that even during the

pendency of IA No. 1020 of 2022, the Respondent No. 2 kept on writing and

demanding payments in terms of the demand letters. It is the case of the -7- Comp. App. (AT) (Ins.) No. 81 of 2024

Appellant that although IA No. 1020 of 2022 was being heard, the Adjudicating

Authority reserved the order and passed the order dated 21.03.2023 in both on

CP (IB) No. 138 of 2021 and also on IA No. 1020 of 2022. The Appellant

submitted that the Corporate Debtor also filed IA (IB) No. 828 of 2023 with

request to dismiss CP (IB) no. 138/KB/2021 and after hearing the matter was

reserved for orders on 17.07.2023. The Appellant brought out that ultimately

vide impugned order dated 02.01.2024, the said CP (IB) no. 138/2021, IA (IB)

no. 1020 of 2022 and IA (IB) no. 828 of 2023 were dismissed by the

Adjudicating Authority and passed the order for CIRP of the Corporate Debtor.

18. The Appellant once again emphasised that the Corporate Debtor is

financially viable as between 01.11.2021 to 01.11.2022, the Corporate Debtor

has raised the bills of Rs. 916.95 Crores upon the WBSEDCL and during the

Financial Year 2021-22 the Corporate Debtor earned EBITDA of Rs. 259.94

Crores and the EBITDA of the Corporate Debtor for the FY 2022-23 was

Rs. 308 Crores and therefore, the Corporate Debtor with such outstanding

earnings cannot be deemed to be insolvent.

19. The Appellant submitted that the impugned order is illegal and arbitrary

since the Resolution Plan (restructuring without change in ownership) has been

approved by Respondent No. 2 dated 21.02.2020 and the first payment was to

be made on 31.12.2020 and therefore the first default could have been

committed by the Corporate Debtor only on 31.12.2020 which was within the -8- Comp. App. (AT) (Ins.) No. 81 of 2024

period covered under Section 10A of the Code. The Appellant assailed the

impugned order which completely ignored this vital fact and did not dealt and

discussed restructuring approval dated 21.02.2020 in the impugned order and

the Adjudicating Authority therefore committed fatal error. It is the case of the

Appellant that an I.A. No.828 of 2023 was filed specifically contending that the

default occurred on 30.06.2020 and 31.12.2020 within a Section 10A period,

however, the Impugned Order records the existence of the First Restructuring

proposal but there was no discussion or adjudication in respect of the First

Restructuring proposal. The Appellant pleaded that the Impugned Order is non-

speaking and unreasoned and suffers from the vice of non-consideration of

argued issues making the same unsustainable. The Appellant cited judgment

rendered in the case of Gandhar Oil Refinery (India) Ltd. Vs. City Oil Pvt.

Ltd., 2022 SCC OnLine NCLAT 4145]

20. The Appellant submitted that in fact there were two restructuring plans

approved by the Respondent No. 2 i.e. first restructuring approval dated

21.02.2020 and second restructuring approval dated 29.09.2020. In this

connection he further submitted that second restructuring approval dated

29.09.2020 specifically provided that the same was revision of first restructuring

approval dated 21.02.2020 therefore the first restructuring approval dated

21.02.2020 was valid and remained in existence and the default could have been

committed only on or from 31.03.2020 falling within the period specified under -9- Comp. App. (AT) (Ins.) No. 81 of 2024

Section 10A of the Code. The Appellant submitted that the continued Second

Restructuring approval cannot be construed to be an independent document,

inasmuch as, the First Restructuring approval was never terminated and

therefore, the date of default under the Second Restructuring approval being

31.03.2021, cannot be deemed to be the date of default, which must be held to

be 30.06.2020 followed by 31.12.2020.

21. The Appellant countered the arguments of the Respondent No. 2 with

reference to 'pre implementation conditions' since, the restructuring approval

were never terminated by the Respondent No. 2 and as such this remained valid.

The Appellant further contended that the Impugned Order is vitiated by an error

apparent on the face of the record, as it failed to consider or deal with the

approved resolution plan dated 21.02.2020. Additionally, despite the Corporate

Debtor's argument that the novation of the second restructuring approval dated

29.09.2020 constituted a new and independent agreement superseding the

original cause of action, this argument was not addressed in the Impugned

Order.

22. The Appellant asserted that the Corporate Debtor honoured each demand

for payment made by the Financial Creditor, and therefore, it should not be

deemed to have defaulted in payment of its debts and therefore the Section 7

application should not have been admitted by the Adjudicating Authority. The

Appellant stated that there has been no termination or recall of the Common -10- Comp. App. (AT) (Ins.) No. 81 of 2024

Loan Agreement, the First Restructuring approval continued on 29.09.2020 and

in the absence of specific termination and/or recalling of the loan, the right to

demand repayment has not arisen. The Appellant pleaded that the claim arises

only when the loan has been recalled and the restructuring approval have been

terminated and as such the Company Petition itself was not maintainable.

23. The Appellant elaborated that between 16.12.2021 to 01.12.2023 (i.e.,

after the institution of the Company Petition), the Respondent No. 2 on various

dates demanded payment of a sum of Rs. 198.84 Crores and received and

accepted payment of Rs. 187.28 Crores and an additional sum of Rs. 129.74

Crores having been paid to PFC Ltd. The Appellant argued that payment of a

sum of Rs. 317.02 Crores during the pendency of the Company Petition clearly

demonstrate that the Corporate Debtor is not insolvent.

24. It is the submission of the Appellant that by demanding and receiving

payments after filing of the Company Petition, Respondent No. 2 has waived

and abjured and/or given a go-bye to its prayer for resolution within the

mechanism of the Code and therefore, the Company Petition was liable to be

dismissed by the Adjudicating Authority.

25. It is the case of the Appellant that any adjudication as to whether or not

the First Restructuring approval as continued on 29.09.2020 was given effect to

and/or acted upon and/or was being performed as on the date of the Impugned -11- Comp. App. (AT) (Ins.) No. 81 of 2024

Order, is completely out of jurisdiction of the Adjudicating Authority and the

Adjudicating Authority should not have dealt with this aspect at all.

26. The Appellant pleaded that the crux of the dispute revolves around the

issue as to whether or not the First Restructuring approval as continued on

29.09.2020 was given effect to and was being performed with additional facts of

payment of Rs. 317.02 Crores made to the Respondent No. 2 and PFC during

the pendency of the Company Petition establishes that the Corporate Debtor

could not have been disregarded by the Adjudicating Authority to arrive at a

finding that the Corporate Debtor is insolvent.

27. The Appellant emphasised that the present alleged dues under the

restructuring approval according to the Respondent No. 2 should be calculated

and an opportunity should be granted to the Corporate Debtor to repay the same

within a specified timeframe and the Corporate Debtor is ready and willing to

forthwith make payment of a sum of Rs. 103 Crores which is lying to the credit

of its TRA account.

28. Concluding his arguments, the Appellant summarised that the

Adjudicating Authority failed to consider his pleadings made before the

Adjudicating Authority in respect of validity of the both restructuring approvals,

alleged default falling within the period specified under Section 10A of the

Code and complete viability of the Corporate Debtor and therefore, the

impugned order need to be set aside.

-12-

Comp. App. (AT) (Ins.) No. 81 of 2024

29. Per contra, the Respondent No. 2 denied all the averments of the

Appellant, treating such averments as misleading, mischievous and without any

substance.

30. The Respondent No. 2 submitted that the Adjudicating Authority has

gone through entire facts and the law in details and passed well-reasoned

speaking order contained in the impugned order dated 02.01.2024. The

Respondent No. 2 gave the background of the case and circumstances which led

to passage of impugned order.

31. The Respondent no. 2 submitted that he was compelled to file Section 7

application to protect his financial rights since the corporate debtor was not

repaying his obligation. The Respondent no. 2 submitted that he gave all the

opportunities to the Corporate Debtor and in fact approval the restructuring plan

of the Corporate Debtor vide dated 21.02.2020 which could not be complied by

the Corporate Debtor. The Respondent No. 2 also submitted that in order to

further facilitate the corporate debtor for its revival, the second restructuring

approval was given to the corporate debtor on 29.09.2020, however the

corporate debtor miserably failed to meet pre implementation conditions and

therefore there was no restructuring agreement in existence. The Respondent

No. 2 filed the application under Section 7 of the Code for default of

Rs. 2183.19 Crores and date of default was mentioned as 31.03.2018 and date of

NPA was 30.06.2018, enclosing several documents including, common loan -13- Comp. App. (AT) (Ins.) No. 81 of 2024

agreement dated 19.06.2013, Mortgage details, Deeds of hypothecation, pledge

deed, cost overrun facility etc.

32. It is the case of the Respondent No. 2 that the Corporate Debtor never

denied its liability of payments and in fact acknowledged the debts in Annual

Financial Statements of the Corporate Debtor. The Respondent No. 2 submitted

that in terms of the provisions contained in the Code, the Adjudicating Authority

is only required to ascertain whether there was debt and default took place in

excess of Rs. 1 Crore and the application was complete and in such eventuality

of meeting these conditions, the Adjudicating Authority is required to admit the

application filed under Section 7 of the Code. The Respondent no. 2 cited the

Judgment passed by Hon'ble Supreme Court of India in case of 'Innoventive

Industries ltd. vs. ICICI Bank [2 (2018) 1 SCC 407]' where Hon'ble Supreme

Court held that the Adjudicating Authority mainly only has to determine debt

and default.

33. The Respondent No. 2 submitted that the Lender's meeting was held on

17.02.2021 wherein it was noted that the Corporate Debtor had failed to satisfy

most of the pre-implementation conditions and they were cautioned to ensure

due satisfaction without further delay by 28.02.2021, failing which the

Restructuring Proposal would fail. The Corporate Debtor acknowledged its

failure to fulfil the pre-implementation conditions and wrote to the Respondent

No. 2 seeking an "extension of six months for implementation of the Resolution -14- Comp. App. (AT) (Ins.) No. 81 of 2024

Plan and extending the date for initial DRA creation from 28th February to 31st

August 2021 and shifting of date of payment of interest/principal from

31.03.2021 to 30.09.2021". The Respondent No. 2 stated that the Corporate

Debtor failed to fulfil the pre-implementation conditions of the Restructuring

Proposal, and therefore, the Restructuring Proposal did not fructify into a

restructuring agreement and hence were of no consequence.

34. The Respondent No. 2 strongly denied that the account of the Corporate

Debtor was restructured by the Respondent No. 2 and PFC and submitted that

during the meeting held on 11.11.2021, the lenders including the Respondent

No. 2, discussed the compliance of the pre-implementation conditions

mentioned in the Restructuring Proposal dated 29.09.2020 ("Ist Restructuring

Proposal") and the failure of the Corporate Debtor to fulfil the same by

28.02.2021. It is also highlighted that the minutes of the meeting had on

11.11.2021 recorded such discussions including the communication regarding

rejection of the Restructuring Proposal were also made available to the

Corporate Debtor, therefore, the submissions of the Appellant that the account

has been restructured or that the timelines were extended are false.

35. The Respondent No. 2 stated that averment of the Appellant regarding the

date of default being incorrect are also false and submitted that since the

Respondent No. 2 had rejected the 'Restructuring Proposal', the date 30.03.2018

was given as date of default as it was date when the Corporate Debtor defaulted -15- Comp. App. (AT) (Ins.) No. 81 of 2024

and date of 30.06.2018 was indicated on the date when the account of the

Corporate Debtor was declared as NPA.

36. The Respondent No. 2 also denied the averments made by the Appellant

that he was part of the management of the Corporate Debtor by virtue of

nominating his nominee Director on the Board of Director of the Corporate

Debtor and stated that it has no relevance to his application under Section 7 of

the Code.

37. The Respondent No. 2 also denied the assumptions and presumptions

about the financial viability of the corporate debtor as claimed by the Appellant.

The Respondent No. 2 further submitted that the repayment of the credit

facilities would be dependent on the operation of the Plant and fixation of the

tariff by the regulatory authorities and the Appellant was well aware that one of

the pre-implementation conditions for the Restructuring Proposal was approval

from the West Bengal Electricity Regulatory Commission fixing the tariff

charges by February 28, 2021, failing which the said Restructuring Proposal

would stand rejected. The Respondent No. 2 submitted that since the

Respondent failed to achieve the same, the restructuring proposal was not in

existence legally.

38. The Respondent No. 2 denied that the account of the Corporate Debtor

was restructured and reiterated that the Restructuring Proposal was approval

subject to condition that the Corporate Debtor would comply with stipulated -16- Comp. App. (AT) (Ins.) No. 81 of 2024

pre-implementation conditions, as contained in its approval letter, however since

the said pre- implementation conditions were not achieved by the Corporate

Debtor, the Restructuring Proposal failed and the same was duly communicated

to the Corporate Debtor. The Respondent No. 2 stated that Appellant indeed

requested for extension of time under the Restructuring Proposal, which was

never accepted by the Respondent No. 2.

39. The Respondent No. 2 mentioned that the Appellant is attempting to

mislead this Appellate Tribunal by submitting that the Respondent No. 2 and

PFC accepted the sum of Rs. 50 Crores under the said Restructuring Proposal

and reiterated that the Restructuring Proposal was categorically rejected by the

lenders on the grounds of failure on the part of the Respondent to meet the pre-

implementation conditions. The Respondent No. 2 also denied that the

Restructuring Proposal is binding or subsisting, as on date, as the same has long

been rejected by the Respondent No. 2 on account of failure to meet the pre-

implementation conditions until the expiry of the validity period of the

Restructuring Proposal. Further, the Appellant has contended that pursuant to

the demand of Respondent No. 2 to remit an amount of Rs. 50 Crores to the

Respondent No. 2 and PFC vide letter dated 16.12.2021, the Corporate Debtor

had issued a letter dated 24.12.2021 stating that payment of Rs. 50 Crores would

be deemed to be an acceptance of revival of the Restructuring Proposal and

hence, the Restructuring Proposal stood revived. The Respondent No. 2 -17- Comp. App. (AT) (Ins.) No. 81 of 2024

submitted that a defaulting borrower has no right in law to seek a unilateral

revival of a Restructuring Proposal. The Respondent No. 2 stated that on issue

of part payment of huge overdues, the Appellant also failed to reveal that the

Respondent No. 2 repeatedly in its communications, inter alia, dated 05.01.2022

and 20.01.2022 highlighted that the default continued and there was no deemed

revival of the Restructuring Proposal.

40. It is the case of the Respondent No. 2 that the Appellant is misleading this

Appellate Tribunal by incorrectly stating that the Corporate Debtor is not in

default as it has already paid all the amounts demanded by REC to be paid out

of the TRA of the Corporate Debtor during the pendency of the Section 7

Application. It has been submitted that the Respondent No. 2 had demanded

certain amounts lying in the TRA out of the revenue generated, in terms of the

Trust and Retention Account Agreement dated 18.07.2013, to recover in part, a

small portion of the huge overdues. Demand made for payouts out of the TRA

based on the revenue available in the account of the Corporate Debtor cannot be

construed to alter the repayment schedule already contractually entered into in

terms of the Original Loan Agreement and the argument of the Appellant in this

regard is absolutely baseless. It is the case of the Respondent No. 2 that filing

of the Section 7 Application does not create any moratorium on the financial

creditor to keep recovering its dues from the borrower, and the Respondent -18- Comp. App. (AT) (Ins.) No. 81 of 2024

No. 2 was under no legal restriction from seeking recovery of its dues during the

pendency of the Section 7 Application.

41. The Respondent No. 2 strongly objected to the averments of the

Appellant that the default period was covered under Section 10 A of the Code

and stated that since there was no restructuring proposal agreement validly

existed due to failure on the part of the Corporate Debtor, the default date was

correctly indicated in the application filed under Section 7 in part IV i.e.

30.03.2018, along with the date of 30.06.2018 when the account of the

Corporate Debtor was declared as NPA.

42. The Respondent No. 2 stated that in the Impugned Order, the

Adjudicating Authority assumed that the Second Restructuring Proposal had

been given effect to and noting the occurrence of default to even meet the

repayments under the Second Restructuring Proposal, the Adjudicating

Authority has held the Appellant to be in default and the default occurred on

31.03.2021; (i.e., outside the Section 10A period) and admitted the Section 7

Application. The Respondent No 2 reiterated that the Restructuring Proposal

had never fructified into an agreement and was never implemented and

therefore, the Appellant's argument that the date of default should be construed

on the basis of the date of interest payment set out under the First Restructuring

Proposal is absolutely misleading and baseless. The Respondent No. 2 further

explained that the Second Restructuring Proposal specifically stated that it was a -19- Comp. App. (AT) (Ins.) No. 81 of 2024

revised restructuring proposal having its own detailed terms and conditions,

which is effectively a novation of the terms under the First Restructuring

Proposal. Further, there was no provision in the Second Restructuring Proposal

saving any provision of the First Restructuring Proposal, including interest

payment obligations thereunder and in fact, Second Restructuring Approval has

its own separate table for the repayment schedule of principal and provisions for

interest payments.

43. The Respondent No. 2 also explained that the Second Restructuring

Proposal specifically deals with all the interest overdue of the Appellant upto

30.09.2020 (including interest obligations arising for quarter ending on

30.06.2020 which is claimed by the Appellant to have been defaulted upon

under First Restructuring Proposal), to be converted into optionally convertible

debentures, thereby proving wrong the theory of the Appellant of the non-

payment of interest in quarter ending 30.06.2020 being a default under First

Restructuring Proposal, which has continued even in the Second Restructuring

Proposal.

44. The Respondent No. 2 explained that there is no requirement under the

Code to recall the entire loan facilities before initiating of the CIRP under

Section 7. The Respondent No. 2 stated that non-payment of loan instalments,

both principal and interest, reflect an amount of default far in excess of Rs. 1

Crore and further gave the present status of overdues as on 02.01.2024 to be -20- Comp. App. (AT) (Ins.) No. 81 of 2024

Rs. 2588.23 Crores, including principal amount of Rs. 832.04 Crores, interest

amount of Rs. 1754.76 Crores and accrued interest of Rs. 1.43 Crores. Thus,

total outstanding amount of the Facilities as on 02.01.2024 is Rs. 3103.31

Crores.

45. Concluding his arguments, the Respondent No. 2 requested this Appellate

Tribunal to dismiss the appeal with exemplary cost.

Findings

46. In view of foregoing detailed discussion and after perusal of the record

made available, we find that following issues are pertinent to be decided in

order to take a conscious decision on the appeal:

(i) Whether the restructuring proposals dated 21.02.2020 and 29.09.2020,

were in existence and were binding.

(ii) Whether pre-implementation conditions as stipulated in the

restructuring proposals were mandatory and whether failure in its

compliance tantamounted to non-execution of the restructuring

approvals automatically.

(iii) Whether the date of default was covered under Period stipulated under

Section 10A of the Code.

(iv) Whether the payments of Rs. 50 Crores made by the Corporate Debtor

to the financial creditors i.e., the Respondent No. 2 and PFC resulted

in automatic extension of restructuring approvals.

-21- Comp. App. (AT) (Ins.) No. 81 of 2024

(v) Whether the financial viability of the Corporate Debtor as claimed by

the Appellant would have impacted the impugned order in deciding

the application filed under Section 7 of the code by the Respondent

No. 2.

47. Since all above issues are inter-related, inter-connected and depends upon

each other, we shall deal and decide all above issues and other issues raised in

the appeal in conjoint manner in subsequent discussions.

At the outset, it would be imperative to go through the provision of Section

"[10A. Suspension of initiation of corporate insolvency resolution process. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:

Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period. Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.]"

(Emphasis Supplied) -22- Comp. App. (AT) (Ins.) No. 81 of 2024

48. Thus, the period from the date 25.03.2020 to 24.03.2021, is the period

which is required to be excluded for the purpose of initiation of CIRP under

Section 7, 9 and 10. Section 10A of the Code also clearly mandates that no

application shall ever be filed for initiation of CIRP of a Corporate Debtor for

the said default occurring during the said period. It is significant to note that the

explanation provided under Section 10A of the Code stipulate that provision of

Section 10A shall not apply to any default committed under the said Sections

before 25.03.2020. Hence, date of default become critical.

49. We note that original common loan agreement was entered between the

Corporate Debtor and Respondent no. 2 and PFC on 19.06.2013. Due to failure

on part of the Corporate Debtor, first restructuring proposal was approved by

lenders on 21.02.2020. We have observed from the averments of all the parties

that even this first restructuring proposal could not proceed further due to non-

compliance of terms and conditions by the Corporate Debtor. In order to salvage

the Corporate Debtor, the lenders i.e. Respondent No. 2 and PFC approved

second restructuring proposal on 29.09.2020. Although the Appellant has

termed these proposals as agreements but the Respondent No. 2 has emphasised

that these were only restructuring proposals which were merely sanctioned by

the Respondent No. 2. We note that 2nd restructuring approval dated 29.09.2020

was subject to fulfilling pre-implementation conditions by the Corporate Debtor -23- Comp. App. (AT) (Ins.) No. 81 of 2024

by 28.02.2021 which never got fructified and therefore restructuring proposals

failed to take off.

50. Here we would like to refer to salient features of the original loan

agreement as well as salient features of two subsequent restructuring proposals

agreed by the Respondent No. 2.

51. We note that in the original sanction letter dated 22.12.2011 issued by the

Respondent No. 2 the detailed terms and conditions were elaborated including

(a) regarding repayment of loan, moratorium period and appropriation of receipt

and mode of payment, (b) Event of default, (c) TRA, (d) pre commitment

conditions which reads as under:

-24-

Comp. App. (AT) (Ins.) No. 81 of 2024 -25- Comp. App. (AT) (Ins.) No. 81 of 2024 -26- Comp. App. (AT) (Ins.) No. 81 of 2024

52. The original common loan agreement was signed on 19.06.2023 amongst

the Corporate Debtor, REC, the Respondent No. 2 herein (as 'REC', 'as

lenders agent', 'as Security agent') and PFC as another Financial Creditor.

The agreement mentioned amount of Rs. 1859 Crores as RTL facility and laid

down the drawdown schedule along with procedures for requesting drawdown,

Interest, Repayments, Conditions precedent for effectiveness of the agreement

and pre-disbursement of the conditions.

We note that due to several reasons, the Corporate Debtor could not repay

the outstanding dues to the Respondent No. 2 and thereafter Respondent No. 2 -27- Comp. App. (AT) (Ins.) No. 81 of 2024

communicated its approval to the restructuring proposal dated 21.02.2020 with

reference to Corporate Debtor Resolution Proposal letter dated 25.11.2019. As

per the Respondent No. 2 letter dated 21.02.2020, the restructuring proposal was

approved consisting of sustainable debt of Rs. 1460.30 Crores with fixed

interest rate of 11% with REC share in the RTL of Rs. 853.09 Crores, and

further details of balance outstanding along with restructuring were also

mentioned in the same letter. In clause 9 of the said letter dated 21.02.2020, the

REC recorded 'the detailed terms and conditions w.r.t approval of

restructuring proposal are placed at Annexure -1 shall also apply'.

We observe that the restructuring proposal approved by the Respondent

No. 2 dated 21.02.2020 could not succeed and second restructuring proposal

was approved by Respondent No. 2 on 29.09.2020 stating total outstanding

debts to be Rs. 3,427.21 Crores on cut off date of 30.09.2020. This second

restructuring approval letter contained details about various payments and

interest to be paid by the Corporate Debtor and further mentioned in clause 8

that 'detailed terms and conditions w.r.t. a proposed restructuring proposal as

mentioned above (considering the above-mentioned modifications/

amendments in the proposed structure and terms of restructuring proposal)

placed that annexure -1shall also apply'.

We also note that the Annexure-1 of 2nd Restructuring approval states first

clause as 'pre-conditions to effective implementation of the Resolution Plan' -28- Comp. App. (AT) (Ins.) No. 81 of 2024

and mentioned several such pre-conditions including tariff order for plant

approving, creation of initial DSRA for the project and so on. We observe from

the averments of the Respondent No. 2 that these vital pre-implementation

conditions were not complied by the Corporate Debtor and no approval of tariff

order by stipulated date was obtained by the Corporate Debtor and the

Corporate Debtor further failed to create initial DSRA.

53. It goes without saying that pre-implementation conditions are akin to

conditions precedent which are meant to be complied with before the agreement

is fructified. The Appellant has not refuted that the Corporate Debtor could not

meet such conditions precedent. The argument of the Appellant is that the first

restructuring proposal dated 21.02.2020 continued to be valid since in the

second restructuring proposals approval letter dated 29.02.2019, specifically

referred to first restructuring proposal. It is further the argument of the

Appellant that unless such letters are cancelled and recall letters are issued by

the lenders, the restructuring approval letters continued to be valid and result

into deemed agreements.

In this connection we observe that on the failure of the Corporate Debtor

to fulfil its obligation to the original common loan agreement and subsequently,

further failure to comply with the first restructuring proposal dated 21.02.2020

and further failure to comply with the second restructuring approval dated

29.09.2020, the Appellant, at this stage, cannot take the plea of continuation of -29- Comp. App. (AT) (Ins.) No. 81 of 2024

all agreements/proposals. Normally, when the restructuring proposal is agreed

upon, the same is in supersession to the previous loan agreement/restructuring

proposal. Here, it is critical to understand that pre-implementation condition are

conditions precedent, which are meant to be followed and it cannot be the case

of the borrower that despite his failure to fulfil the conditions precedent, the

restructuring proposal should be deemed to be valid, continuing and further

deemed to be converted into agreement. It may be gathered that if the conditions

precedent of any restructuring proposal is not met with, this would

automatically result into non-fructification of restructuring proposal and original

loan agreement will get restored and will continues to survive. In the present

case, undisputedly the Corporate Debtor could not make the required payments

to the lenders i.e. the Respondent No. 2 as well as PFC and also could not meet

with pre-implementation conditions and therefore, the restructuring approval

ceased to remain alive and the only valid agreement which survived was the

common loan agreement dated 19.06.2013. We answer the issue no. 1 & 2

accordingly.

54. Here we would also note details of order of Hon'ble Calcutta High Court

which were referred by the Appellant during pleadings seeking inter alia a writ

of mandamus against the Respondent No. 2 to extend time for implementing the

Restructuring Proposal until March 2022, passed an order holding that : -30-

Comp. App. (AT) (Ins.) No. 81 of 2024

"there was therefore no arbitrary or unfair action on the part of the respondent nos.3 and 4 in cancelling the restructuring offer" and that "the institution of proceedings by PFC and REC under the provisions of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal cannot be faulted."

The Division Bench of the Hon'ble Calcutta High Court in the appeal

filed by the Corporate Debtor, being MAT No. 626 of 2021 made a limited

modification to the order dated 02.07.2021 and directed the lenders to address

the tariff order dated 31.05.2021 received by the Corporate Debtor along with

the extent of fulfilment of pre-implementation conditions, while inter alia

holding that :

"The settlement of the tariff or, the Tariff Order, being a pre-condition towards the restructuring arrangement arrived at in the meeting dated 17th February, 2021, with the pronunciation of the Tariff Order by the Commission on the 31st day of May 2021, such pre-condition stood answered. It is not within the domain of R3 and R4 acting as lenders to wait any further beyond the Tariff Order pronounced by the Commission. It is evident that the restructuring exercise arrived at the said consortium meeting dated 17th February, 2021 has not worked out."

-31- Comp. App. (AT) (Ins.) No. 81 of 2024

It has been brought to our notice that on 11.11.2021 Lenders' meeting

was held pursuant to the order of the Hon'ble Calcutta High Court dated

07.10.2021, wherein lenders after considering the tariff order, noted the failure

of the Corporate Debtor in meeting several pre-implementation conditions of the

Restructuring Proposal, and again notified the failure of the Restructuring

Proposal.

Thus, we find that orders of the Hon'ble Calcutta High Court does not

help the cause of the Appellant and therefore, has no impact on this appeal

before us.

55. Now, we will deal the issue regarding default period falling within period

specified under Section 10A of the Code or otherwise. At this juncture, we

would like to take into account part IV of the application made by the

Respondent No. 2 while filing the Section 7 application which reads as under: -32-

Comp. App. (AT) (Ins.) No. 81 of 2024

56. Thus, it is evident that the Respondent No. 2 clearly indicated date of

default to be 31.03.2018, which is not covered under Section 10A of the Code. -33-

Comp. App. (AT) (Ins.) No. 81 of 2024

Incidentally, the Respondent No. 2 also gave date of NPA of Corporate Debtor

i.e., 30.06.2018, which is also out of purview of Section 10A of the Code.

57. It will also be pertinent to note the finding of the Adjudicating Authority

on this issue which can be seen as under:

"The terms and conditions as well as the sanction letter does not provide that in case of the failure of the repayment plan, the date of default shall be reckoned from a date prior to the sanction of the plan. It does not have a pre-empting or a remedial clause to that effect. Thus, the date of default cannot now be assumed to be outside this restructured plan.

Date Principal Interest 31st March, 20221 28.37 Crores 77.81 Crores 30th June, 2021 7.09 Crores 38.09 Crores 30th September, 2021 7.09 Crores 38.32 Crores 31st December, 2021 7.09 Crores 38.12 Crores 31st March, 2022 7.09 Crores 37.10 Crores 30th June, 2022 7.09 Crores 37.32 Crores 30th September, 2022 7.09 Crores 37.53 Crores Total 70.91 Crores 304.29 Crores

In the supplementary affidavit filed by the Corporate Debtor it has been affirmed that against the requirement of repayment above, the following payment have been made in the manner shown herein:

Date Amount 24th December, 2021 50 Crores 12th July, 2022 50 Crores 13th September, 2022 50 Crores 22nd September, 20 Crores -34- Comp. App. (AT) (Ins.) No. 81 of 2024

2022 Total 170 Crores

From the above two tables it is evident that the Corporate Debtor has made a payment of 170 Crore till 22 September 2022 as against the total requirement of Rs 375.2 Crore. The important part however is that the first payment of Rs.50 Crore was made on 24" of December 2021, whereas it was supposed to be made by 31" March 2021 as per the revised sanctioned letter (supra). The default can thus be seen to have taken place on 31s March 2021 itself, which is outside the 10A period, though by a whisker..."

(Emphasis Supplied)

58. We observe that although the Respondent No. 2 has given date of default

as 31.03.2018 the date on which the Corporate Debtor failed to meet its first

obligation as 'per original common loan agreement dated 19.06.2013 as

amended on 30.10.2015 in part IV of the Section 7 application, but the

Adjudicating Authority has treated as 31.03.2021 as date of default as per

Second Restructuring Approval letter according to which, the first payment was

to be made by 31.03.2021 whereas the first payment of Rs. 25 Crores was made

on 21.12.2021, hence the Adjudicating Authority held that the date of default

which was not covered under period stipulated under Section 10 A of the Code

since last date covered under Section 10A was 24.03.2021. -35-

Comp. App. (AT) (Ins.) No. 81 of 2024

Thus, the date of default as indicated in Part IV by the Appellant is

31.03.2018 based on first default as per original common loan agreement. The

Adjudicating Authority has considered 31.03.2021 as a date of default based on

the second restructuring approval dated 29.09.2020. We have already noted that

as per Section 10A of the Code, the period is specified is from 25.03.2020 to

24.03.2021. Thus, either of the dates i.e., 31.03.2018 or 31.03.2021 are clearly

out of purview of Section 10A of the Code. Thus, issue No. 3 answered

accordingly.

59. As regard, the pleading of the Appellant that it's the First Restructuring

Proposal dated 21.02.2020 which is valid and in existence since the statutory

restructuring proposal dated 29.09.2020 gave its reference in its approval letter

issued by the Respondent No. 2. In this connection, we note that the original

common loan agreement was entered into between the Corporate Debtor and the

Respondent No. 2 along with PFC on 19.06.2013 which was amended on

30.10.2015. Since, there were financial issues to meet its obligations by the

Corporate Debtor, first restructuring approval was issued on 21.02.2020, which

also failed and therefore the Respondent No. 2 along with PFC issued Second

Restructuring Approval on 29.09.2020. we have already discussed that the

Second Restructuring Approval letter contained specific pre-implementation

conditions and failure in fulfilling these stipulations by the Corporate Debtor

would automatically make such approval letter to be non existent. -36-

Comp. App. (AT) (Ins.) No. 81 of 2024

We are of the opinion that in such eventuality, the original common loan

agreement gets revived. In any case the plea of the Appellant that the original

common loan agreement as well as restructuring approval letter should not be

taken into account and only the first restructuring approval letter should be

taken into account and therefore a date of default according to first restructuring

approval letter should be the date which falls within the specific period of

Section 10A of the Code, is not convincing.

We could not find any sound reasoning as to why only the alleged default

under First Restructuring Proposal should be construed as the original date of

default, ignoring default under the novated Second Restructuring Approval or

the defaults under the Original Loan Agreement and therefore, we do not find

any merit in the pleadings of the Appellant about alleged default to fall within

the period specified under Section 10 A of the Code.

60. Another plea of the Appellant is that the payment made by the Corporate

Debtor to the Respondent No. 2 and PFC of Rs. 50 Crores in December, 2021

should be deemed revival of restructuring approval and also that the Appellant

had issued the letter dated 24.12.2021 in response to the Respondent No. 2 and

PFC letter dated 16.12.2021 which explicitly mentioned 'your receipt of the

payment of the said sum of Rs. 50 Crore will be deemed and constructed by us

to be an acceptance by you of the proposal contained herein'. -37-

Comp. App. (AT) (Ins.) No. 81 of 2024

We wonder whether such type of unilateral conditions by one party can

result into automatic binding force on other party and become agreement. We

have noted that there has been huge outstanding dues which have been flagged

by the Respondent No. 2 and PFC from time to time and the Respondent No. 2

and PFC have been issuing the demand letters to the Corporate Debtor. The

money remitted in pursuant to said demand letters cannot be deemed renewal of

restructuring approval, which could not survive due to failure on the part of the

Corporate Debtor in fulfilling its obligations regarding pre implementation

conditions.

61. It is worth emphasising that the Restructuring proposal is always offered

by the borrowers and accepted by the lenders on certain predetermined and pre-

specified terms and conditions including repayment, interest, tenure, haircut, if

any, etc., It cannot be the case of the Appellant that merely indicating self

imposed caveat while remitting the money in response to demand letter by the

lenders, such restructuring proposal should be treated as automatic

novation/renewal.

62. Significantly, we have noted from the submissions of the Respondent No.

2 that such plea of the Appellant regarding existence and continuation of default

under first restructuring proposal is wrong as the Corporate Debtor itself has

submitted in I.A. No. 1020/KB/2020 filed by the them before the Adjudicating

Authority in which the Corporate Debtor sought reliance solely on the Second -38- Comp. App. (AT) (Ins.) No. 81 of 2024

Restructuring Proposal submitting that the Corporate debtor was required to

make payment from 31.03.2021, without contending that there was any payment

obligations or default continuing from first restructuring proposal.

63. In view of preceding discussions, we do not find any force in the pleading

of the Appellant on this issue and therefore we answer issue No. 4 accordingly.

64. As regard, the pleading of the Appellant that since the loan was not

recalled by the Respondent No. 2 he is not entitled to initiate CIRP proceeding

under Section 7 of the Code. However, the Appellant has not given any legal

basis for the same with reference to the Code and therefore, do not merit

consideration. In fact, there is no such requirement under the Code to recall the

entire loan facilities before seeking initiation of corporate insolvency resolution

process under Section 7.

65. Now, we take up last issue raised by the Appellant regarding financial

viability of the Corporate Debtor based on which Section 7 application of the

Respondent No. 2 should have been rejected. We would like to recapture from

pleadings of the appellant that the Corporate Debtor has raised bills of

Rs. 916.95 Crores from WBSEDCL and during Financial Year 2022-23, the

Corporate Debtor earned EBITDA of Rs. 308 Crores and therefore, the

company was solvent. During averments, the Appellant also agreed to pay

outstanding amounts as per restructuring approvals around Rs. 103 Crores lying

in the credit of TRA account.

-39-

Comp. App. (AT) (Ins.) No. 81 of 2024

In contrast, we have noted that the total outstanding dues of Respondent

No. 2 and PFC as on 02.01.2024 was Rs. 3103.31 Crores. We also observe that

there has been continuous and repeated failure on the part of the Corporate

Debtor to meet its obligation in making payment of principals and interest as per

original common loan agreement and also failure to meet obligations as per first

and second revised Restructuring Approvals. In backdrop of all these

information, we do not find that so-called claim made by the Appellant about

viability of the Corporate Debtor has any legal or factual force to impact the

outcome of Section 7 application as contained in the Impugned Order.

We therefore, answer the Issue No. 5 accordingly.

66. Incidentally, we observe that the Appellant has taken the plea that the

Adjudicating Authority should not have gone in the details regarding the

execution part of the first restructuring approval by way of payment or default

since this was out of jurisdiction of the Adjudicating Authority and should have

been dealt by Civil Court. On the other hand, interestingly, we find the pleading

of the Appellant that the Adjudicating Authority although mentioned about the

First Restructuring Approval, however, did not discuss or adjudicated on the

same. We find this to be contrary.

Here, we will clarify that the Adjudicating Authority has all the rights and

authority to examine all such documents which has direct or indirect bearing on

the application filed under Section 7 of the Code.

-40-

Comp. App. (AT) (Ins.) No. 81 of 2024

In any case, such arguments of the Appellant has no impact on the

validity of the Impugned Order.

67. Thus, we do not find any substance in the Appeal and we further do not

find any error in the Impugned Order on any ground raised in the Appeal by the

Appellant.

68. In fine, the appeal fails and stand dismissed. No Costs. Interlocutory

Application(s), if any are Closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim/sr