State Bank Of India vs Doha Bank Q.P.S.C

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI COMPANY APPEAL (AT) (INSOLVENCY) NO. 304 of 2021 (Arising out of the Order dated 02nd March, 2021 passed by National Company Law Tribunal, Mumbai Bench, Court I, in I.A. No. 1960/MB/2019, in C.P. (IB) No. 1385/MB/2017)

IN THE MATTER OF:

State Bank of India Tulsiani Chamber, 1st Floor, Free Press Journal Marg, Nariman Point, Mumbai - 21 ...Appellant

Versus

1. Doha Bank Q.P.S.C Sakhar Bhavan, Ground Floor, Plot No. 230, Block No. III, Nariman Point, Mumbai - 400021. ...Respondent No. 1

2. Mr. Anish Nanavaty Deloitte Touche Tohmatsu India LLP 27th Floor, Tower 3, One International Centre, Elphinstone, Mumbai. ...Respondent No. 2

3. Bank of India Mumbai Large Corporate Branch BoI Building 4th Floor, MG Road, Mumbai - 400001. ...Respondent No. 3

4. UCO Bank Flagship Corporate Branch Mafatlal Centre, 1st Floor, Nariman Point, Mumbai - 400001. ...Respondent No. 4

5. Syndicate Bank SAMB, Maker Tower "F", 2nd Floor, Cuffe Parade, Mumbai - 400005. ...Respondent No. 5

6. Oriental Bank of Commerce Large Corporate Branch F-14, Maker Towers, Cuffe Parade, Mumbai - 400005. ...Respondent No. 6 -2- Comp. App. (AT) (Ins.) No. 304 of 2021

7. Indian Overseas Bank Nariman Point Branch, 229, Ground Floor, Bhatavar Building, Nariman Point, Mumbai - 400021. ...Respondent No. 7

Present

For Appellant: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Jash Shah, Ms. Rajshree Chaudari, Ms. Shruti Pandey, Ms. Megha Dusar & Mr. Ryan D'souza, Advocates.

For Respondent No. 1: Ms. Sharmistha Ghosh, Advocate for R-1.

For Respondent No. 2/ Mr. Sumesh Dhawan, Mr. Rishabh Jaisani & RP: Mr. Shaurya Shyam, Advocates for R-2/RP.

(JUDGEMENT)

[Per; Shreesha Merla, Member (T)]

1. The present Appeal is preferred by M/s. State Bank of India under Section

61 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The

Code') against the Impugned Order dated 02.03.2021 passed by Learned

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench,

Court-I) in IA1960/2019, in C.P. (IB) No. 1385/MB/2017, by which Order, the

Adjudicating Authority has partly allowed the IA filed by 'M/s. Doha Bank

QPSC'/the first Respondent seeking to delete the Appellant and Respondents 3

to 7 as 'Financial Creditors' of Reliance Infratel Limited ('RITL'), hereinafter

referred to as the 'Corporate Debtor'.

2. Facts in brief, are that vide Order dated 15.05.2018, CIRP was initiated

against the 'Corporate Debtor' and Mr. Manish Dhirajlal Kaneria was appointed -3- Comp. App. (AT) (Ins.) No. 304 of 2021

as the IRP on 18.05.2018. Subsequent to the withdrawal of the Appeals before

this Tribunal, a fresh Public Announcement was issued on 07.05.2019, inviting

claims and the CoC was constituted on 24.05.2019, with the following 'Financial

Creditors' as Members:

Sr. No. Name of Amount Amount Amount Voting Creditors Claimed Admitted under share (Provisional) Verification 1. State Bank 3628.68 3516.37 112.31 36% of India 2. Bank of 1064.82 979.17 85.65 10% India 3. UCO Bank 952.81 952.81 - 10% 4. Standard 753.14 753.14 - 8% Chartered Bank 5. Syndicate 1225.18 611.03 614.15 6% Bank 6. Mahima 514.34 514.34 - 5% Mercantile 7. VTB 511.91 511.91 5% Capital 8. Doha Bank 408.81 408.81 - 4% 9. Union Bank 1009.35 353.30 656.05 4% of India 10. Emirates 324.33 324.33 - 3% NBD 11. Industrial 1832.91 278.48 1554.43 3% and Commercial Bank of China 12. Oriental 276.68 276.68 - 3% Bank of Commerce 13. Indian 184.70 184.70 - 2% Overseas Bank Total 12,687.65 9,665.07 3,022.58 100% -4- Comp. App. (AT) (Ins.) No. 304 of 2021

3. The first Respondent M/s. Doha Bank is a part of the Consortium of

Banks/financial institutions which had extended a Foreign Currency Loan of 250

million USD to the 'Corporate Debtor' vide Loan Agreement dated 19.03.2020

and a reinstatement Agreement dated 05.09.2016, extending the repayment date

up to 03.12.2016. It is stated that the 'Corporate Debtor' could not pay the loan

and by another reinstatement Agreement dated 04.12.2016, the repayment date

extended till 05.06.2017.

4. The 'Corporate Debtor' was one of the subsidiaries of Reliance

Communication Limited ('RCOM'), the holding/parent Company. RCOM and

another group entity namely Reliance Telecom Ltd, ('RTL') availed Rupee Loan

Facilities to the tune of Rs.6015,00,00,000/- and Rs.735,00,00,000/- under

Facility Agreement dated 20.02.2015, from a Consortium of Banks of which

Respondents 3 to 7 were Members. It is stated that the 'Corporate Debtor' on

03.03.2017, executed Deeds of Guarantee in favour of the Consortium of Lenders

securing the Rupee Loan Facility granted to RCOM and RTL. The Axis Trustee

Services Ltd. was appointed as the Security Trustee in respect of the Deeds of

Guarantee. Around 2017, RCOM and RTL started committing defaults in making

payments of the Loan Facilities and their accounts were declared as an NPA. On

01.02.2019, the Security Trustee under two separate letters invoked the Corporate

Guarantees and called upon the 'Corporate Debtor' to make the payments in

respect of the RCOM and RTL facilities. By email dated 08.02.2019, the

'Corporate Debtor' informed M/s. Doha Bank of the letters dated 01.02.2019 and

the invocation of the Corporate Guarantee. It is averred that M/s. Doha Bank vide -5- Comp. App. (AT) (Ins.) No. 304 of 2021

letters dated 28.02.2019 and 08.03.2019, objected to the invocation of Guarantees

and intimated the Consortium of Lenders through the Security Trustee that the

Corporate Guarantees were created in breach of the terms of the Facility

Agreement dated 19.03.2010 and despite repeated requests neither the Appellant,

Respondents 3 to 7 nor the 'Corporate Debtor' provided copies of the said

Guarantees to M/s. Doha Bank.

5. M/s. Doha Bank preferred I.A. 1960/2019 under Section 60(5) of the Code,

seeking a direction to the RP to reconstitute the CoC by deleting the Appellant

and Respondents 3 to 7 who were claiming to be the 'Financial Creditors' of the

'Corporate Debtor' on the basis of the Guarantees.

6. Submissions of the Learned Sr. Counsel appearing on behalf of the

Appellant:-

• It is submitted that as per the Code, a Creditor is entitled to make its claim

against the 'Corporate Debtor', only on the basis of Guarantee extended by

such 'Corporate Debtor'. Hence, SBI Consortium is entitled to make its

claim against the 'Corporate Debtor' (RITL) on the basis of the Corporate

Guarantees issued by RITL and which has already been invoked by SBI

Consortium. Even though SBI has not disbursed any money to RITL, it is

entitled to make its claims against the RITL on the basis of the Guarantees

executed. RITL has provided Corporate Guarantees on his own volition

and for any alleged violation of the Doha Bank facility by RITL. The Doha

Bank Consortium can pursue his own remedies under applicable law. -6-

Comp. App. (AT) (Ins.) No. 304 of 2021

• It was only on the basis of the directions received from RBI that SBI has

declared the account of RITL as an NPA on 22.12.2017 with retrospective

effect from 26.08.2016. On 03.03.2017, when RITL executed the

Corporate Guarantees, there was no declaration of RITL's Account as NPA

by SBI Consortium. It is contended that the entire argument of the first

Respondent that there was a fraud perpetuated by the Reliance Group and

SBI Consortium, is erroneous and misplaced.

• It is submitted that this Tribunal in 'Avantha Holdings Ltd. & Anr.' Vs.

'Mr. Abhilash Lal & Ors.'1, has clearly held that the date of declaration of

NPA has to be the date on which it was declared and not the date of which

it is retrospectively deemed to have been declared.

• It is submitted that the Corporate Guarantees have been executed as per the

applicable stamp laws of New Delhi and it was only to avoid payment of

unnecessary stamp duty charges and spending good money, the State Bank

Consortium requested the RP of RITL to verify the Corporate Guarantees

in New Delhi. Thereafter the RP submitted the claims of the SBI

Consortium based on the Corporate Guarantees. The SBI Consortium also

produced a letter dated 06.03.2019 issued by the Security Trustee on behalf

of the SBI Consortium, wherein it was confirmed that the Corporate

Guarantees were duly stamped in New Delhi.

1 Comp. App. (AT) (Ins.) No. 304 of 2022 -7- Comp. App. (AT) (Ins.) No. 304 of 2021

• The letter dated 06.03.2019 was produced before the Adjudicating

Authority, but the same was not considered. It is submitted that the

propriety of submission of Form-'C' by the SBI Consortium was not even

an issue before the Adjudicating Authority and thus there was no occasion

for SBI to produce the same. The Code does not provide that the Resolution

Professional ought to verify the claim related documents only in its offices

in a particular place. The RP is at liberty to verify the Corporate Guarantees

in New Delhi in view of the letter dated 06.03.2019 issued by the Security

Trustee.

• Despite making elaborate submissions regarding the non-stamping of the

Corporate Guarantees, Respondent 1 failed to produce the signed and the

executed version of the Doha Bank Facility which is the basis of its entire

claim against the RITL.

• Section 186 of the Companies Act, 2013 (hereinafter referred to as 'The

Act'), carves out an exception for Companies providing 'Infrastructure

Facilities'. In Schedule VI to the Act 'Infrastructure Facilities' is defined

to include Companies engaged in telecommunications projects and

activities, which are exempted from the provisions of Section 186 of the

Act. As RITL is a Telecommunication Service provider, it is not bound by

the provisions of Section 186 of the Act and therefore the Corporate

Guarantees provided by RITL or not in violation of this Section. Further

RITL has provided a Certificate dated 26.04.2017 to SBI and confirmed

that RITL is in compliance of Sections 185 and 186 of the Act. -8-

Comp. App. (AT) (Ins.) No. 304 of 2021

• It is submitted that the Adjudicating Authority has failed to recognise that

the SBI Consortium have in their favour, a 'Deed of Hypothecation'.

Keeping in view the Order passed in IA3055/2019 and that the 'Deed of

Hypothecation' is similar to the one considered by the Adjudicating

Authority in I.A.3055/2019, the SBI Consortium ought to have been

permitted to continue to be recognised as 'Financial Creditors' of RITL.

• It is vehemently contended by the Learned Sr. Counsel that the

Adjudicating Authority rejected Prayer A but proceeded to grant the

consequential reliefs under Prayer C & D, being declassification of the

Consortium Members which are party to the IA1960/2019 as 'Financial

Creditors' of RITL and reconstitution of the CoC respectively. The natural

consequence of rejection of Prayer A ought to have been the dismissal of

IA 1960/2019. It is an admitted fact that the first Respondent did not press

Prayer A, despite this, the Adjudicating Authority has granted Prayer C &

D in vacuum. Hence, the Impugned Order deserves to be set aside.

• Learned Counsel placed reliance on the following Judgements in support

of his case that consequential relief was granted while rejecting the primary

relief:

o 'Sahu Madan Mohan' Vs. 'Tejram George Coronation Hindu

School Association'2.

o 'V. Rajeshwar Rao' Vs. 'N. Yadagiri Reddym'3.

2 1948 SCC OnLine All 93 3 2000 SCC OnLIne AP 348 -9- Comp. App. (AT) (Ins.) No. 304 of 2021

o 'Babu Puri and Ors.' Vs. 'Kalu & Ors.'4.

• The Learned Counsel also relied on the following Judgements to buttress

his argument that non-compliance of CIRP Regulations was not a question

to be adjudicated and further the Appellant has complied with the necessary

procedure including Regulation 8 of the CIRP Regulations with respect to

submission of its proof of its claim:

o 'Bacchaj Nahar' Vs. 'Nilima Mandal'5.

o Major (Retd.) Inder Singh Rekhi' Vs. 'Delhi Development

Authority'6.

7. Submissions of the Learned Sr. Counsel appearing on behalf of the

first Respondent/Doha Bank:

• It is strenuously submitted that both RCOM and RTL, along with the

'Corporate Debtor', are undergoing CIRP. The Appellant and Respondents

3 to 7 claimed to be the 'Financial Creditors' of the 'Corporate Debtor',

based on two purported Deeds of Guarantee dated 03.03.2017 which were

executed by the 'Corporate Debtor' to secure the repayment of certain

antecedent loans extended by SBI and Respondents 3 to 7 to RCOM, the

parent Company.

• The Guarantees were created in breach of covenants and undertakings

given by the 'Corporate Debtor' to R1 under the terms of the Facility

Agreement. No waiver was sought from the first Respondent prior to the

4 MANU/RH/0389/2004 5 (2008) 17 SCC 491 6 (1988) 2 SCC 338 -10- Comp. App. (AT) (Ins.) No. 304 of 2021

issuance of the purported Guarantees as per the terms of the Facility

Agreement. Clauses 20.2 read with Clause 19.2.6 read with a definition of

'Financial Indebtedness' as defined in the Facility Agreement, creates a bar

on the 'Corporate Debtor' to issue any such purported Guarantees, which

are in contravention with Section 186(2) read with Section 186(3) of the

Act.

• By creating these Guarantees, the 'Corporate Debtor' has sought to create

a preference in favour of the Pre-Existing Lenders of his holding/parent

Companies, eclipsing the bona fide rights and interest of the direct Lenders

of the 'Corporate Debtor'.

• At the time of creation of these purported Guarantees, the 'Corporate

Debtor' was itself in default to repay the outstanding loans to Doha Bank

under the terms of the Facility Agreement entered into between the Doha

Bank and the 'Corporate Debtor'. It is strenuously contended by the

Learned Sr. Counsel that these Guarantees were created when the

'Corporate Debtor' was under severe financial losses. Accounts of RCOM,

RTL and 'Corporate Debtor' were classified as an NPA by RBI on

26.08.2016, which indicates that all the three were in default for 90 days

prior to 26.08.2016. It is only after the intervention of RBI and the

subsequent Audit that SBI declared the account of RCOM, RTL and

'Corporate Debtor' as an NPA with effect from 26.08.2016, and the

consequences of NPA would apply from that date and not from 22.12.2017. -11-

Comp. App. (AT) (Ins.) No. 304 of 2021

• There is no disclosure of the Guarantee in the Financial Statements of the

'Corporate Debtor' for the Financial Year 2016-17 & 2017-18. Even in

the Arbitration Agreement signed between the Lenders of the 'Corporate

Debtor' and its 'related parties', there was no disclosure of these purported

Guarantees.

• It is argued that when these Guarantees were created, the 'Corporate

Debtor' was cognizant of the fragile financial condition of RCOM, and was

also aware of the fact that RCOM was nowhere in the position to repay the

'Corporate Debtor', should the purported Guarantees be invoked and the

'Corporate Debtor' has to pay under these Guarantees. The IRP overlooked

the pertinent facts and mechanically admitted the claims of the Appellant

and Respondents 3 to 7 and included them in the CoC.

• During the hearing of IA1960/2019 despite repeated requests, the

Appellant and Respondents 3 to 7 deliberately neglected to produce the

Guarantees and the claim forms.

• It is submitted that the pleadings regarding the 'verification of the

Guarantees' at New Delhi by the then IRP, is absent in the evidence and in

any other document filed by the Appellant.

Assessment:

8. The Corporate Guarantees dated 03.03.2017 was executed by the

'Corporate Debtor' in favour of the Appellant and Respondents 3 to 7. It is

significant to mention that the accounts of RCOM, RTL and the 'Corporate

Debtor' (RITL) were classified as NPA with effect from 26.08.2016. It is the case -12- Comp. App. (AT) (Ins.) No. 304 of 2021

of the Appellant that it was only on the basis of the directions received from RBI

that SBI had to declare the account of RITL as NPA on 22.12.2017 with

retrospective effect from 26.08.2016 and therefore as on 03.03.2017, when RTIL

executed the Corporate Guarantees, there was no declaration of RITL's account

as NPA. It is apparent from the material on record that the 'Corporate Debtor'

was in default of its obligations and was suffering from severe financial

constraints prior to 03.03.2017. There is no documentary evidence on record in

support of the Appellant that indeed there was disclosure regarding these

Guarantees by the beneficiary Lenders of the 'related party' of the 'Corporate

Debtor' during Restructuring Plan of the debt of the 'Corporate Debtor'. Though

these Guarantees have been filed here at appellate stage, the fact remains, that

these Guarantees were not reflected in the Financial Statements of the 'Corporate

Debtor' for the FY 2016-17 & 2017-18 or produced before the Adjudicating

Authority.

9. The second Respondent/RP Mr. Anish Nanavaty filed Reply Affidavit

stating that the admission of the claims of the Appellant and the other banks

recognising them as Members of the CoC was undertaken by Mr. Manish

Dhirajlal Kaneria, the erstwhile IRP; that the issue regarding the existence and

submission of the two Corporate Guarantees before the Adjudicating Authority

has now become redundant as the same has been produced before this Tribunal.

Apart from this brief Reply, there is no pleading on record to establish that the

Guarantees were verified at New Delhi by the IRP/RP. -13-

Comp. App. (AT) (Ins.) No. 304 of 2021

10. The contention of the Learned Sr. Counsel for the Appellant that

20.12.2017 has to be taken as the date of NPA and not 22.08.2016 is unsustainable

as the Appellant themselves have declared the 'Corporate Debtor' as an NPA,

with effect from 26.08.2016, which indicates that the 'Corporate Debtor' was in

default for at least 90 days prior to 26.08.2016. This Tribunal in 'Avantha

Holdings Ltd.' (Supra) is not applicable to the facts of this case as the observation

relied upon was in terms of the 'related party' transaction and consequence

submission of Resolution Plan by such a 'related party'.

11. This Tribunal is also conscious of the fact that it is obligatory under law to

produce a document duly stamped in accordance with the provisions of

Maharashtra Stamp Act, 1958, for it to be considered as being enforceable in law

and claims were required to be submitted to the IRP i.e., the address in

Maharashtra within the State of Maharashtra and it is only to evade the stamp

duty, that the documents were not shared electronically with the IRP. We also

find force in the contention of the Learned Sr. Counsel appearing for the first

Respondent that pleadings to the effect 'that the Guarantees were stamped and

that Appellant and Respondents 3 to 7 got these documents verified at New Delhi

by the IRP', is conspicuously absent in the Reply Affidavit filed before the

Adjudicating Authority.

12. Be that as it may, it is pertinent to mention that the 'Corporate Debtor' was

declared NPA on 26.08.2016, and the Corporate Guarantees were executed on

03.03.2017. We are of the view that the 'manner' and 'timing' of these Corporate

Guarantees are questionable having regard to the fact that the 'Corporate Debtor' -14- Comp. App. (AT) (Ins.) No. 304 of 2021

and the holding Company were already in default. Even otherwise, there is no

documentary evidence on record to substantiate the argument of the Learned

Counsel for the Appellant, that the Company was in good financial health till 90

days prior to 22.12.2017, and therefore 22.12.2017 only should be concluded as

the date of NPA. Hence, we hold that this argument does not hold any water.

13. Having held so, we are of the view that the compliance or otherwise of

Sections 186 & 187 of the Companies Act, 2013, regarding the Agreements is of

no significance here.

14. This Tribunal in 'Doha Bank & Ors.' Vs. 'Anish Nanavaty & Anr.'7,

preferred by Doha Bank, claiming to be the direct Lender and the 'Secured

Financial Creditor' of the 'Corporate Debtor', has set aside the finding of the

Adjudicating Authority and remanded the matter with a direction to take all

consequential actions, resulting from derecognising the relevant parties as

'Financial Creditors' on the ground that the 'Deed of Hypothecation' cannot be a

basis to declare the parties as 'Financial Creditors' as the Respondents were not

even party to the 'Deed of Hypothecation'. Therefore, the contention of the

Learned Sr. Counsel for the Appellant that having regard to the Order passed by

the Adjudicating Authority in IA3055/2019, the SBI Consortium ought to have

been permitted to continue to be recognised as 'Financial Creditors' of RITL

cannot be sustained, keeping in view the observations made by this Tribunal in

7 Comp. App. (AT) (Ins.) No. 414 of 2021 -15- Comp. App. (AT) (Ins.) No. 304 of 2021

'Doha Bank & Ors.' (Supra) which Appeal challenged the Impugned Order in

IA3055/2019.

15. Keeping in view the foregoing reasons we do not find any of the

Judgements relied upon by the Appellant, applicable to the facts of the attendant

case. It is relevant to mention that an Application under Section 30(6) of the Code

was preferred by the Resolution Professional seeking approval of the Resolution

Plan, in IA920/2020, which was allowed by the Adjudicating Authority, vide

Order dated 03.12.2020. An Appeal challenging the Plan was preferred by the

'Operational Creditors' before this Tribunal in 'Pratap Technocrats (P) Ltd. &

Ors.' Vs. 'Monitoring Committee of Reliance & Anr.'8, which was dismissed by

a Three Member Bench, as devoid of merit, observing that the distribution

mechanism adopted in that case was as per the provisions of Section 53 of the

Code. On an Appeal preferred by 'M/s. Pratap Technocrat Private Limited', the

'Operational Creditor' of the 'Corporate Debtor', the Hon'ble Supreme Court in

'Pratap Technocrats (P) Ltd. & Ors.' Vs. 'Monitoring Committee of Reliance

Infratel Limited & Anr.'9, dismissed the Appeal observing as follows:

"42. In the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with Section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100 per cent voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. As such,

8 Comp. App. (AT) (Ins.) No. 1134 of 2020 9 Civil Appeal No. 676 of 2021 -16- Comp. App. (AT) (Ins.) No. 304 of 2021

once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law."

16. Apart from the fact that we are of the view that this Appeal is devoid of

merit, we also keep in view that the Resolution Plan has been approved all the

way up to Hon'ble Supreme Court as far back as on 10.08.2021.

17. For all the aforenoted reasons, this Appeal fails and is accordingly

dismissed. No Order as to costs.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

Principal Bench, New Delhi 14th October, 2022

himanshu