Union Of India vs Infrastructure Leasing And Financial ...

Housing Development Finance Corporation Ltd. (HDFC LTD.) ....Appellant

Vs.

Infrastructure Leasing & Financial Services Ltd. & Anr. ....Respondents

Present: For Appellant: Mr. Arun Kathpalia, Sr. Advocate with Mr. Sandeep Singhi, Mr. R. Sudhinder, Mr. Gaurav Mathur, Mr. Udit Mendiratta, Ms. Ekta Bhasin, Ms. Aastha Trivedi, Advocates.

For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Kuber Dewan, Ms. Neeharika Aggrawal, Ms. Trisha Ray Choudhuri, Ms. Shruti Pandey and Mr. Kaustubh Srivastava, Advocates Mr. Aditya Sikka, Ms. Vasudha Vijaysheel, Advocates for Union of India.

ORDER

ASHOK BHUSHAN, J.

Company Appeal (AT) No. 177 of 2022 as well as I.A No. 2966 of 2020

in Company Appeal (AT) No. 346 of 2018 has been filed by the Housing

Development Finance Corporation Ltd. Both having been heard together

Cont'd.../ -2-

are being decided by this common judgment. We need to notice the facts

and sequence of events giving rise to I.A. No. 2966 of 2020 as well as

Company Appeal (AT) No. 177 of 2022:

(i) Housing Development Finance Corporation Ltd. (hereinafter

referred to as 'HDFC Ltd.') made an offer to sanction a loan of

Rs.400 crores to IL&FS as a lease rental discounting

transaction. The repayment of the said facility was to be from

the cash flows generated from the use of the TIFC property

being let out by the Respondent No.1 which cash flows were to

be and are assigned in favour of the Appellant.

(ii) In pursuance of the said offer, Master Facility Agreement was

executed on 25.06.2018 extending facility of Rs.400 crores to

the IL&FS by the Appellant. Assignment and Administration

Agreement dated 25.06.2018, Escrow Account Agreement

dated 25.06.2018 and Power of Attorney dated 25.06.2018

were executed.

(iii) This Tribunal in Company Appeal (AT) No. 346 of 2018 passed

an order on 15.10.2018 staying 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. The order further stays foreclosure, recovery or

enforcement of any security interest created over the assets of

'IL&FS' and its 348 group companies.

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -3-

(iv) After order dated 15.10.2018, the borrower informed the

Escrow Bank about the order dated 15.10.2018. The Borrower

called upon the lender to reverse the debit of amount of

Rs.6.24 Crores and credit the amount back into the account

of the Borrower.

(v) Similar letters were sent by the Borrower to the Lender to

reverse the amount which was debited in alleged breach of the

interim order dated 15.10.2018.

(vi) Borrower sent letter to Hon'ble Justice (Retd.) D. K. Jain to

pass appropriate orders regarding reversing amount by the

lenders.

(vii) Hon'ble Justice (Retd.) D. K. Jain issued an order on

12.05.2020 recommending the Escrow Bank to maintain

status quo until a final view is taken in the same. On

03.07.2020, Hon'ble Justice (Retd.) D. K. Jain passed an order

holding that the Escrow Bank and the Lenders in debiting the

amount from escrow account has violated orders passed by

this Tribunal. Lenders and Escrow Bank were directed to

purge themselves within two weeks.

(viii) I.A. No. 2262-2263/2020 was filed by the Lender (HDFC Bank)

praying for setting aside the order of Hon'ble Justice (Retd.) D.

K. Jain dated 12.05.2020. Another I.A. No. 2264-2266/2020

was filed by the HDFC Bank praying for setting aside order

dated 03.07.2020.

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -4-

(ix) IL&FS filed I.A. No. 2196/2020 seeking direction to Escrow

Bank and Lenders to reverse the amount debited till date i.e.

Rs.112,79,18,348/-.

(x) On 14.10.2020, IL&FS issued an advertisement and notice

inviting Expression of Interest for sale of TIFC property.

(xi) On 17.12.2020, HDFC Ltd. filed an I.A. No. 2966/2020, where

following prayers were made:

"PRAYER

In view of the facts and circumstances of the case, the Applicants humbly prays that:

(i) This Hon'ble Tribunal be pleased to hold, declare and direct that Infrastructure Leasing and Financial Services Limited is not entitled to effect sale of the rights, title and interest of the Applicant over the property being The IL&FS Financial Center, situated at Plot No 22, G Block, Bandra Kurla Complex, Bandra East, Mumbai-400 051 to any person; and

(ii) This Hon'ble Tribunal be pleased to direct Infrastructure Leasing and Financial Services Limited to make necessary disclosures to the intending purchasers of the property, being The IL&FS Financial Center, situated at Plot No 22, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400 051, in respect of the rights,

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -5-

title and interest of the Applicant over the aforesaid property;

(iii) Pending the hearing of the present Application including Interlocutory Application Nos. 2262 of 2020 and 2264 of 2020, by way of interim and / or ad - interim relief, this Hon'ble Tribunal be pleased to stay the operation and implementation of the advertisement, notice inviting expression of interest along with the expression of interest issued by Infrastructure Leasing and Financial Services Limited in so far as it seeks to sell the right, title and interest of the Applicant in the property being The IL&FS Financial Center, situated at Plot No 22, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400 051 and annexed as Annexure-O- Colly hereto;

(iv) This Hon'ble Tribunal be pleased to grant ex-

parte interim and/or ad-interim relief in terms of Prayer (iii); and

Pass such further or other Order (s) as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the case."

(xii) In I.A. No. 2966/2020, this Tribunal did not pass any interim

order and the application remained pending.

(xiii) 5th Meeting of Creditors Committee of IL&FS was convened on

17.12.2021 where resolution to accept the highest bid of

Rs.1080 Crore of Project Holding Seven (DIFC) Ltd. was

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -6-

resolved to put to vote. The representative of the HDFC Ltd.

objected the aforesaid meeting and prayed that the agenda

item by not considered since the matter is pending before this

Tribunal.

(xiv) The resolution was put to vote and by vote of 73.57% was

approved accepting the bid proposal of Rs.1080 Crore. Board

of Directors of the IL&FS also passed resolution on 27.01.2022

approving proposal of H-1 bidder and it was decided to seek

approval of Hon'ble Justice (Retd.) D. K. Jain alongwith

proposal regarding sale/assignment of commercial premises in

pursuance of the resolution passed in the meeting of Board of

Directors dated 29.01.2022.

(xv) The proposal was placed before Hon'ble Justice (Retd.) D. K.

Jain, who by letter dated 08.03.2022 granted approval for sale

of TIFC property subject to the final decision of this Triunal in

I.A. No. 2966 of 2020.

(xvi) On 13.05.2022, this Tribunal disposed of the applications

2196/2020, 2262-2263/2020, 2264-2266/2020, 2330-

2331/2020 and 2332-2333/2020. This Tribunal disposed of

the applications with following direction:

"46. In view of the foregoing discussions, we dispose of all the above Applications with following directions:-

(i) The prayer of Applicant- IL&FS seeking direction to lender to reverse the amount of

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -7-

Rs.112,79,18,348/- from the accounts of the IL&FS towards debt service payments, is refused subject to following

(i) The part of receivables in excess of payment of interest and principal payable which was assigned to the lender after adjusting any shortfall in the amount payable need to be reversed to the borrower.

(ii) The Escrow Bank shall re-visit all its debits after 15.10.2018 to find out as to whether any amount in excess to the amount payable to cover principal and interest subject to adjustment any shortfall in earlier payment have been debited, and in event, any excess amount has been debited, the same shall be reversed to borrower which exercise shall be completed within the period of one month from today with due intimation in writing to the IL&FS.

(iii) All Applications being I.A No. 2196 of 2020; 1.A No. 2262- 2263, 2264-2266 of 2020 and I.A No. 2330-2331, 2332-2333 of 2020 are disposed of accordingly.

(xvii) In pursuance of the order dated 08.03.2022 of Hon'ble Justice

(Retd.) D. K. Jain, the application was filed before the

Adjudicating Authority being CA No. 248/MB/C-I/2022

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -8-

seeking approval of the asset sale of TIFC property as approved

by Hon'ble Justice (Retd.) D. K. Jain on 08.03.2022.

(xviii) The order passed by this Tribunal dated 23.09.2022 in the

application, as noticed above, was challenged by IL&FS in Civil

Appeal No. 4708/2022, in which appeal the Hon'ble Supreme

Court passed an order on 29.07.2022 staying the judgment

and order of this Tribunal dated 13.05.2022.

(xix) An application CA No. 248/MB/C-1/2022 filed for the

approval of the Tribunal as per Revised Resolution Framework

approved by this Tribunal by judgment dated 12.03.2020

came to be heard by the Adjudicating Authority and on

25.08.2022, order was reserved. The HDFC had filed an

application being Intervention Application No.02/2022 in CA

No. 248/MB/C-1/2022 on which the Adjudicating Authority

issued notice on 26.08.2022. The order in CA No. 248/MB/C-

1/2022 was delivered by the Adjudicating Authority on

23.09.2022 approving the proposed transaction. The

Adjudicating Authority In Para 10 to 14 passed following order:

"10. We have considered the matter in hand in the background of facts and circumstances stated above; the sale process of the Commercial Premises has also been approved by Justice D.K. Jain former judge of the Hon'ble Supreme Court appointed by the Hon'ble NCLAT to oversee the resolution process of the Applicant Group and to enable

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -9-

a resolution of the Applicant Group in line with the Resolution Framework; and the mandate given by this Tribunal to the New Board. Thus, we approve the Proposed Transaction in the interest of justice.

11. It is directed that the amounts received by the Applicant pursuant to the Proposed Transaction be paid into a designated bank account and the same be intimated by the Applicant.

12. It is also directed that the Resolution Process Costs and goods and service tax incurred /to be incurred be permitted to be paid in the manner set out in the Application. Whereas, the remaining amount of consideration be remitted into the designated escrow account as intimated by the Applicant and the same be held in trust for the relevant stakeholders of the Applicant.

13. Further, the distribution of the consideration received by the Applicant from the Proposed Transaction or withdrawal of any other amounts from the designated bank account be subject to further orders of this Tribunal.

14. With the aforesaid observation present CA No. 248 of 2021 In C.P (IB) No. 3638/MB/C- I/2018 stands disposed of as allowed in above terms."

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -10-

(xx) The HDFC Ltd. aggrieved by the order dated 23.09.2022 has

filed Company Appeal (AT) No. 177 of 2022.

(xxi) I.A. No. 2966 of 2020, where the HDFC Ltd. has made a prayer

for restraining the IL&FS from effecting the sale rights and

titles and interest of the HDFC Ltd. in the property in question

remained pending. During pendency of the application I.A. No.

2966 of 2020 subsequent events as noticed above culminating

into the sale transaction happened.

2. Shri Arun Kathpalia, learned senior counsel appearing for the

Appellant challenging the order of the Adjudicating Authority dated

23.09.2022 submits that the Adjudicating Authority has passed the order

dated 23.09.2022 in violation of principles of natural justice. The Appellant

to whom the IL&FS has already assigned the future rent receivables from

the asset in question to secure the facility of Rs.400 Crores could not have

sold the asset without impleading the Appellant, who was a necessary

party. It was duty of the IL&FS to ensure that the HDFC is impleaded in

the application. The order passed in the application without hearing the

necessary party is liable to be set aside. Application was filed by the IL&FS

seeking the approval of sale of TIFC property before the NCLT, in which

rights of HDFC were duly recognized by NCLAT's order dated 13.05.2022.

It is further submitted that mere stay of order dated 13.05.2022 passed by

this Tribunal by the Hon'ble Supreme Court on 29.07.2022 does not wipe

out the order of this Tribunal and the interim order only makes the order

inoperative. The NCLT ought to have considered the effect of order dated

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -11-

29.07.2022 as well as order dated 13.05.2022 by this Tribunal while

adjudicating the CA. It is submitted that the Appellant filed an application

for intervention in CA No. 248/MB/C-1/2022 in which notices were issued

on 26.08.2022 but before adjudication of intervention application, the

impugned order has been passed.

3. Shri Ramji Srinivasan, learned senior counsel appearing for the

IL&FS refuting the submissions of the Appellant submits that present is

not a case where there is any violation of principles of natural justice. The

Appellant herein is a member of the Creditors Committee with 1.89% voting

share and the Appellant has objected the sale of TIFC property in the

meeting of the Creditors Committee but inspite of objection and dissent by

the Appellant the Creditors Committee by majority vote share of 73.57%

has approved the sale of TIFC, as per the Revised Resolution Framework.

Hence, present cannot be said to be any case of violation of principles of

natural justice. The Appellant being member of the Creditors Committee

was well aware of all proceedings including highest bid received, approval

of the highest bid by Creditors Committee and committee appointed by the

Hon'ble Supreme Court of Hon'ble Justice (Retd.) D. K. Jain, who has also

approved the sale by his order dated 08.03.2022. In view of the order dated

15.10.2018 passed in Company Appeal (AT) No. 346 of 2018, the Appellant

could not have enforced its security given for securing repayment of the

financial facility of Rs.400 Crores. The said issue is already engaging

attention of Hon'ble Supreme Court which have vide its order dated

29.07.2022 has stayed the judgment of this Tribunal dated 13.05.2022.

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -12-

Hence, the Appellant could not place any reliance on judgment of this

Tribunal dated 13.05.2022. The assignment of rent receivables does not

create any right in favour of the Appellant over any physical part of TIFC

property. The HDFC has already appropriated an amount of

Rs.232,28,80,530.09/-, legality of which is already pending consideration

before the Hon'ble Supreme Court. The eventual recovery for HDFC will

happen in terms of the Revised Resolution Framework approved by this

Tribunal by order dated 12.03.2020, from resolution amounts to be

collected by IL&FS from the sale/assignment of the TIFC property. The

approval order dated 08.03.2022 passed by Hon'ble Justice (Retd.) D. K.

Jain makes note of all the issues and claim of the Appellant. HDFC did not

even press I.A. No. 2966/2020 pending before this Tribunal during the

pendency of CA No. 248/MB/C-1/2022 before the Adjudicating Authority.

The order of the Adjudicating Authority dated 23.09.2022 is in line with

the direction of this Tribunal to complete the resolution process

expeditiously. The IL&FS initiated the process of sale of the TIFC property

in October, 2020, in terms of the Resolution Framework approved by this

Tribunal for resolution of debt of the IL&FS group vide order dated

12.03.2020. This Tribunal having not granted any interim order in I.A. No.

2966 of 2020, the process was continued and received approval of Hon'ble

Justice (Retd.) D. K. Jain on 08.03.2022 and also been subsequently

approved by the Adjudicating Authority on 23.09.2022. The Appellant has

already filed its claim before the Claims Management Consultant for a sum

of Rs.393,65,98,221/- which shall be dealt with as per the Revised

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -13-

Resolution Framework approved by this Tribunal. Both the Appeal and I.A.

No. 2966 of 2020 deserve to be dismissed.

4. We have heard learned counsels for the parties and perused the

record.

5. From the facts noticed above, it is clear that IL&FS has assigned

receivables form TIFC property (property in question) vide Facility

Agreement dated 25.06.2018. This Tribunal vide judgment dated

12.03.2020, has approved the Revised Resolution Framework and the

steps were taken in pursuance of the Revised Resolution Framework. The

IL&FS published an advertisement in Economic Times and Maharashtra

Times on 14.10.2020 inviting Expression of Interest from interested parties

for potential acquisition of the TIFC property. After which advertisement,

Appellant filed I.A. No. 2966 of 2020 seeking stay of sale of the TIFC

property and operation and implementation of the advertisement.

Application remained pending and no interim order was passed. Pursuant

to the advertisement, although Expression of Interest was received from 16

applicants, only one bid was received which after negotiation was treated

to be final bid of Rs.1080 Crores. In the Creditors Committee meeting held

on 17.01.2021, final bid was approved. In the said meeting, the Appellant

being the member of the Creditors Committee objected to very holding of

the meeting to consider the proposal of sale but Appellant being only having

voting share of 1.89% the resolution was passed with majority of 73.57%,

the final approved bid after approval of the Board of Directors of the IL&FS

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -14-

was placed before the Hon'ble Justice (Retd.) D. K. Jain, who after hearing

both the parties, on 08.03.2022 approved the sale/assignment of TIFC

property with the rider that sale shall be subject to decision in application

I.A. No. 2966 of 2020.

6. The submission of learned counsel for the Appellant which is much

emphasized is that the order dated 23.09.2022 passed by the Adjudicating

Authority approving the final bid is in violation of principles of natural

justice. Learned counsel for the Appellant in support of his submission

has relied on judgment of Hon'ble Supreme Court in "AIR 1963 SC 786,

Udit Narain Singh Malpaharia vs. Additional Member Board of

Revenue, Bihar and Another".

7. The Hon'ble Supreme Court had occasion to consider in the above

case the question as to who are the necessary and proper parties in a Writ

Petition filed under Article 226 of the Constitution. In the above context,

the Hon'ble Supreme Court held that without making necessary parties to

the writ proceeding, the Writ Petition would be incompetent. In Para 9 to

12 following has been laid down:

"9. The next question is whether the parties whose rights are directly affected are the necessary parties to a writ petition to quash the order of a tribunal. As we have seen, a tribunal or authority performs a judicial or quasi- judicial act after hearing parties. Its order affects the right or rights of one or the other of the parties before- it. In a writ of certiorari the defeated party seeks for the

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -15-

quashing of the order issued by the tribunal in favour of the successful party. How can the High Court vacate the said order without the successful party being before it. Without the presence of the successful party the High Court cannot issue a substantial order affecting his right. Any order that may be issued behind the back of such a party can be ignored by the said party, with the result that the tribunal's order would be quashed but the right vested in that party by the wrong order of the tribunal would continue to be effective. Such a party, therefore, is a necessary party and a petition filed for the issue of a writ of certiorari without making him a party or without impleading him subsequently, if allowed by the court, would certainly be incompetent. A party whose interests are directly affected is, therefore, a necessary party.

10. In addition, there may be parties who may be described as proper parties, that is parties whose presence is not necessary for making an effective order but whose presence may facilitate the settling of all the questions that may- be involved in the controversy. The question of making such a person as a party to a writ proceeding depends upon the judicial discretion of the High Court in the circumstances of each case. Either one of the parties to the proceeding may apply for the impleading of such a party or such a party may suo motu approach the court for being impleaded therein.

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -16-

11. The long established English practice, which the High Courts in our country have adopted all along, accepts the said distinction between the necessary and the proper party in a writ of certiorari. The English practice is recorded in Halsbury's Laws of England, Vol. 11, 3rd Edn. (Lord Simonds') thus in paragraph 136 :

"The notice of motion or summons must be served on all persons directly affected, and where it relates to any proceedings in or before a court, and the object is either to compel the court or an officer thereof to do any act in relation to the proceedings or to quash them or any order made therein, the notice of motion or summons must be served on the clerk or registrar of the court, the other parties to the proceedings, and (where any objection to the conduct of the judge is to be made) on the judge.....".

In paragraph 140 it is stated :

"On the hearing of the summons or motion for an order of mandamus, prohibition or certiorari, counsel in support begins and has a right of reply. Any person who desires to be heard in opposition, and appears to the Court or judge to be a proper per-son to be heard, is to be heard not withstanding that he has not been served with the notice or summons, and will be liable to costs in the discretion of the Court or judge if the order should be made......".

So too, the Rules made by the Patna High Court require that a party against whom relief is sought should be named in the petition. The relevant Rules read thus:

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -17-

Rule 3. Application under Article 226 of the Constitution shall be registered as Miscellaneous judicial Cases or Criminal Miscellaneous Cases as the case may be.

Rule 4. Application shall, soon after it is registered, be posted for orders before a Division Bench as to issue of notice to the respondents. The Court may either direct notice to issue and pass such interim order as it may deem necessary or reject the application.

Rule 5. The notice of the application shall be served on all persons directly affected and on such other persons as the Court may direct.

Both the English rules and the rules framed by the Patna High Court lay down that persons who are directly affected or against whom relief is sought should be named in the petition, that is all necessary parties should be impleaded in the petition and notice served on them. In "The law of Extraordinary Legal Remedies" by Ferris, the procedure in the matter of impleading parties is clearly described at p.201 thus:

"Those parties whose action is to be reviewed and who are interested therein and affected thereby, and in whose possession the record of Such action remains, are not only proper, but necessary parties. It is to such parties that notice to show cause against the issuance of the writ must be given, and they are the only parties who may make return, or who may demur. The omission to make parties those officers whose proceedings it is sought to direct and control, goes to the very right of the relief sought. But in order that the court may do ample and complete justice, and render judgment which will be binding on

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -18-

all persons concerned, all persons who are parties to the record, or who are interested in maintaining the regularity of the proceedings of which a review is sought, should be made parties respondent."

This passage indicates that both the authority whose order is sought to be quashed and the persons who are interested in maintaining the regularity of the proceeding of which a review is sought should be added as parties in a writ proceeding. A division Bench of the Bombay High Court in Ahmedalli v. M. D. Lalkaka3 laid down the procedure thus :

"I think we should lay down the rule of prac- tice that whenever a writ is sought challenging the order of a Tribunal, the Tribunal must always be a necessary party to the petition. It is difficult to understand how under any circumstances the Tribunal would not be a necessary party when the petitioner wants the order of the Tribunal to be quashed or to be called in question. It is equally clear that all parties affected by that order should also be necessary parties to the petition."

A Full Bench of the Nagpur High Court in Kanglu Baula v. Chief Executive Officer4 held that though the elections to various electoral divisions were void the petition would have to be dismissed on the short ground that per-sons who were declared elected from the various constituencies were not joined as parties to the petition arid had not been given an opportunity to be heard before the order adverse to them was passed. The said decisions also support the view we have expressed.

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -19-

12. To summarize: in a writ of certiorari not only the tribunal or authority whose order is sought to be quashed but also parties in whose favour the said order is issued are necessary parties. But it is in the discretion of the court to add or implead proper parties for completely settling all the questions that may be involved in the controversy either suo motu or on the application of a party to the writ or an application filed at the instance of such proper party."

8. There can be no dispute to the proposition laid down by the Hon'ble

Supreme Court in the aforesaid judgment. It is, however, relevant to notice

that above was a case where the Hon'ble Supreme Court was considering

the question of necessary and proper party in a Writ Petition under Article

226. The present is a case where the question to be considered is as to

whether for obtaining the approval of the Adjudicating Authority for sale of

asset as per the Revised Resolution Framework, whether the Appellant

ought to have been impleaded as necessary party to the application CA No.

248/MB/C-1/2022.

9. Present is a case where in the Creditors Committee, the Appellant is

already a member with voting share of 1.89%. After inviting application for

Expression for Interest, when bids were received meeting of the Creditors

Committee took place on 17.12.2021. Minutes of the 5th meeting of the

Creditors Committee of IL&FS has been brought on record as Annexure 4

to the Reply filed by Respondent No.1 in I.A. No. 2966 of 2020. Para 27 of

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -20-

the minutes clearly notices the objection of the representative of the

Appellant. Para 2 of the minutes is as follows:

"2. At this juncture, the representative of HDFC Limited ("HDFC Representative") mentioned that HDFC Limited has sent a letter to IL&FS and the COC Members, requesting them to postpone the discussion on approval of the Proposed Transaction as the said matter is sub-judice before the Hon'ble National Company Law Appellate Tribunal (NCLAT"). The Resolution Advisor acknowledged the receipt of the said letter and assured that appropriate response will be provided by the legal team of ILFS and stated that any questions that HDFC Limited may have on the agenda item will be taken up at the end of the presentation. While the HDFC Representative re- iterated the request for postponement of the meeting of the COC, Mr. Rakesh Chatterjee (IL&FS, Group General Counsel) explained that the IL&FS group is following the process for asset monetization as approved by the NCLAT vide the order dated March 12, 2020. Further, he explained that even though the aforesaid order has been challenged in Hon'ble Supreme Court, no stay has been granted against the said order by the Hon'ble Supreme Court. He highlighted that the issue that is being raised by HDFC Limited does not impact the process that is being followed by IL&FS, given that there are already multiple challenges against the said order of the NCLAT as well. Hence, he requested the representative of HDFC Limited to

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -21-

allow the meeting of the COC to proceed and suggested that HDFC Limited may abstain from the proceedings/ voting if it so desires. There were no objections raised by any other COC Members."

10. The minutes further indicate that in the meeting of the Creditors

Committee the representatives of the Appellant were present. As per the

minutes of the Creditors Committee meeting dated 17.12.2021 following

resolution was placed for voting:

"RESOLVED THAT the bid price/consideration of INR 1080,00,00,000 offered by Project Holding Seven (DIFC) Limited (which is an affiliate of Brookfield Private Capital (DIFC) Limited) for the proposed acquisition of all rights, title and interest of Infrastructure Leasing & Financial Services Limited in the land admeasuring 12,651.95 square meters or thereabouts situated at Plot No. C-22, in the "G" Block of Bandra Kurla Complex, Mumbai Suburban District together with the building structure standing thereon known as "The IL&FS Financial Centre" (along with certain assets located therein, as specified in the draft Letter of Intent, but excluding commercial/office space admeasuring 21.644 square feet FSI built-up area in Quadrants "C" and "D" on the 5th Floor of the said building) which shall be paid in the manner stipulated in the agreed form of the Letter of Intent (a copy of each of which has been shared with the members of the Committee of Creditors of IL&FS) be approved by the Committee of Creditors of IL&FS, in accordance with the provisions of the

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -22-

Third Progress Report dated December 17, 2018, the Addendum to the Third Progress Report dated January 15, 2019 and the Second Addendum to the Third Progress Report dated December 5, 2019"

11. The above resolution was put to e-voting and by the e-voting as

commenced on 28.01.2022, the resolution was passed with 73.57% votes.

And only 4.24% voted rejecting the resolution. After Resolution was

approved by the Creditors Committee, meeting of Board of Directors of

IL&FS also passed the resolution on 29.01.2022, which is to the following

effect:

"TIFC

"RESOLVED THAT in accordance with resolution framework for IL&FS Group as approved by Honourable National Company Law Appellate Tribunal ("NCLAT") in its order dated March 12, 2020 (Resolution Framework") and pursuant to the recommendations of the Asset Sale Committee of the Board ("ASC"), approvals of the Board of Directors of IL&FS accorded from time to time and pursuant to the approval dated January 28, 2022 of Committee of Creditors of the Company comprising of its financial creditors (as understood in the context of the Insolvency and Bankruptcy Code, 2016), the Board hereby approves the financial proposal submitted by Project Holdings (DIFC) Limited (an affiliate of the applicant, Brookfield Private Capital (DIFC)

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -23-

Limited) of INR 1080 Cr being the highest bid amount ("H1 Bid"), received pursuant to the process initiated for sale/assignment of the unsold office space/commercial premises in the building known as "The IL&FS Financial Centre", Bandra Kurla Complex, Mumbai, along with certain assets situated therein (together "Commercial Premises") subject to satisfaction/obtainment of any and all compliances and approvals required under applicable laws.

"RESOLVED FURTHER THAT the Board hereby authorizes and approves the submission of the H1 Bid, to Hon'ble Justice D.K. Jain (Retd.) along with proposal regarding the sale/assignment of the Commercial Premises, as may be required for his consideration and evaluation."

"RESOLVED FURTHER THAT, without affecting the generality of and in addition to the authorities given by the Board to the Asset Sale Committee previously, the Asset Sale Committee of the Company be and are hereby authorized, jointly and/or severally, on behalf of the Company, to do all acts, deeds and things as may be necessary to give effect to the foregoing resolution, including but not limited to, undertake requisite disclosures or related compliances to inform the relevant regulators, stock exchanges, stakeholders as may be required, engage with the respective board of directors of relevant group companies, as may be required, to seek requisite authority and other

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -24-

relevant approvals, including approval from the National Company Law Tribunal, and all other documentation and undertake all actions and deeds as may be required to give effect to the foregoing resolutions"

"RESOLVED FURTHER THAT, the consent of the Board be and is hereby accorded to the Asset Sale Committee of IL&FS, to delegate to, depute and authorise, suitable executives of the Company or group companies of the Company and/or other persons engaged as advisors/ consultants, to do all such acts, deeds, things to give effect to the foregoing resolutions.""

12. After the aforesaid, an application was filed by the IL&FS before the

Committee appointed by this Tribunal of Hon'ble Justice (Retd.) D. K. Jain

for approval. Hon'ble Justice (Retd.) D. K. Jain on 08.03.2022 approved

the proposal for the sale/assignment of commercial premises situated at

Plot No. C-22, in the "G" Block of Bandra Kurla Complex, Mumbai. In the

order dated 08.03.2022 all details pertaining to the entire process including

the meeting of the Creditors Committee dated 17.12.2021 and approval of

resolution with 73.57% was noticed. It was also noticed that the voting

share of the Appellant was 1.89% only. It is useful to extract Paras 16 to

20 of the letter dated 08.03.2022, which is to the following effect:

"16. Referring to the Orders passed by the Hon'ble NCLAT from time to time, ultimately culminating in the final Order dated 12 March 2020, delineating the powers and remit of the CoC,

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -25-

it is pointed out that the role of the IL&FS CoC (of which, HDFC is a Member with a voting percentage of 1.89%) is restricted/limited to only consider and vote on the highest bid and not to determine the distribution of the bid amount. These limitations/restrictions, in effect, enable the IL&FS Resolution in a more structured and orderly manner, without being left to the vagaries of competing interests of the Creditors, and in particular, dissonant attempts at upstaging/impeding the entire Resolution process, being attempted by HDFC.

17. Though it is candidly pointed out that generally the bids, relating to the real estate transactions, which are below 90% of the Average Fair Market Value are not accepted by the ASC and the Board but in the instant case, considering the fact that eventually only one bid had been received for the Commercial Premises, the multiple rounds of negotiations had been held with the sole bidder and the minor gap of four percent from the general standards, the ASC decided to submit the bid of 1080 Crores, which is approximately 86% of the Average Fair Market Value, to the Board for its approval. It is also highlighted that while recommending the acceptance of the Bid, the real estate deals in the vicinity in the recent past were also taken into account.

18. I have examined the Proposal in the light of the afore-stated facts and clarifications. Bearing in mind the factors, which have weighed with the

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -26-

ASC and the Board, for coming to the conclusion that the proposed transaction shall be in the interest of the stakeholders of the IL&FS, coupled with the time constraints for achieving the overall resolution of the IL&PS Group, I am inclined to agree with the decision of the Board that the Bid deserves to be accepted.

19. Nevertheless, without commenting on the merits of the Application filed by HDFC before the Hon'ble NCLAT, in which notice has been accepted on behalf of IL&FS, and time has been sought to file Reply thereto, I am of the view that notwithstanding the fact that the Hon'ble NCLAT has not passed any interim order relating to the sale of the Commercial Premises, in order to allay any kind of impression that the Board is trying to overreach the NCLAT, it would be proper and prudent to await the final decision of the Hon'ble NCLAT on the said Application, before issuing the letter to the H1 Bidder, accepting its Bid. In the meanwhile, the process for obtaining other approvals, including filing of the Application before the Hon'ble NCLT, can be initiated. However, the final decision in this regard is left to the wisdom of the Board.

20. Consequently, the Proposal is approved, subject to its approval by the Hon'ble NCLT."

13. The Appellant being member of the Creditors Committee and having

participated in the meeting held on 17.02.2021, it cannot be said that in

passing resolution for approving the highest bid any principles of natural

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -27-

justice have been violated. The Appellant is a dissenting Financial Creditor

who has only 1.89% vote share. When resolution is passed by the Creditors

Committee and approval is sought from the Adjudicating Authority, as per

the Revised Resolution Framework approved by this Tribunal on

12.03.2020, it is not necessary that all dissenting Financial Creditors

should be impleaded to the application. Present is not a case where it can

be said that any principles of natural justice have been violated since the

Appellant has raised its objection in the meeting of the Creditors Committee

and also voted against the resolution. The filing of the application for

approval before the Adjudicating Authority was as per the steps provided

in the Revised Resolution Framework. We, thus, are of the view that the

order of the Adjudicating Authority dated 23.09.2022 cannot be set aside

on the ground of violation of any principles of natural justice.

14. Now we come to the second submission of learned counsel for the

Appellant that the order of Hon'ble Supreme Court passed on 29.07.2022

staying judgment of this Tribunal dated 13.05.2022 does not wipe out the

order of this Tribunal. In support of his submission Shri Kathpalia has

relied on judgment of Hon'ble Supreme Court in "(1992) 3 SCC 1, Shree

Chamundi Mopeds Ltd. vs. Church of South India Trust Association

CSI Cinod Secretariat, Madras".

15. Hon'ble Supreme Court in the above case had occasion to consider

the effect of interim order staying the operation of an order under challenge.

In Para 10 of the judgment following has been laid down:

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -28-

"......While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence."

16. The law has been clearly laid down in the above judgment that

distinction has to be made in stay of operation of an order and quashing of

an order. The stay of an order means that the order which has been stayed

would not be operative from the date of the passing of the stay order but it

does not mean that the said order has been wiped out from existence.

There can be no quarrel to the preposition laid down by the Hon'ble

Supreme Court in the above judgment. The above preposition is well

settled.

17. We have noticed that this Tribunal vide order dated 13.05.2022

issued following directions in Para 46:-

"46. In view of the foregoing discussions, we dispose of all the above Applications with following directions:-

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -29-

(i) The prayer of Applicant- IL&FS seeking direction to lender to reverse the amount of Rs.112,79,18,348/- from the accounts of the IL&FS towards debt service payments, is refused subject to following:-

(i) The part of receivables in excess of payment of interest and principal payable which was assigned to the lender after adjusting any shortfall in the amount payable need to be reversed to the borrower.

(ii) The Escrow Bank shall re-visit all its debits after 15.10.2018 to find out as to whether any amount in excess to the amount payable to cover principal and interest subject to adjustment any shortfall in earlier payment have been debited; and in event, any excess amount has been debited, the same shall be reversed to borrower which exercise shall be completed within the period of one month from today with due intimation in writing to the IL&FS.

(iii) All Applications being I.A No. 2196 of 2020; I.A No. 2262- 2263, 2264-2266 of 2020 and I.A No. 2330-2331, 2332-2333 of 2020 are disposed of accordingly."

18. Against judgment dated 13.05.2022 passed by this Tribunal, Civil

Appeal No. 4708/2022 was filed before Hon'ble Supreme Court in which

appeal following order was passed on 29.07.2022:

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -30-

"ORDER

Issue notice.

Mr. Pranaya Goyal and Mr. Ashok Mathur, learned Advocates-on-Record, who have entered caveat on behalf of some of the respondents, accept notice.

List the matter for disposal on 02.09.2022.

In the meantime, the respondents shall file their responses within two weeks.

The responses shall indicate the status of the amounts withdrawn from the Escrow Account, if any, pursuant to the judgment and order which is presently under challenge.

Pending further consideration, there shall be ad-interim stay of the judgment and order presently under challenge."

19. Judgment of this Tribunal has been stayed by the Hon'ble Supreme

Court. The applications which were decided by this Tribunal by judgment

dated 13.05.2022 were essentially on the question as to whether the

amount of Rs.112,79,18,348/- which was debited by the Appellant was

required to be reversed to the borrower. The adjudication of the above issue

is pending before Hon'ble Supreme Court. We are of the view that outcome

of the appeal before the Hon'ble Supreme Court has to be implemented by

all concerned. The adjudication of the said issue cannot operate as any

fetter to the Adjudicating Authority to proceed with the approval of proposal

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -31-

submitted for sale of the TIFC property as per the Revised Resolution

Framework approved by this Tribunal on 12.03.2020. The approval has

been granted by the Adjudicating Authority for sale of assets in question.

It is noted that although the facility agreement dated 25.06.2018

contemplated creation of mortgage of property in favour of the Appellant

but in fact no mortgage was ever created. The adjudication which is

pending before the Hon'ble Supreme Court in the Civil Appeal No.

4708/2022 has to be implemented and approval of the sale of the assets

for which highest bid of Rs.1080 Crores has been received cannot be

faulted on the ground that adjudication is pending on the issue as to

whether lender are required to reverse the amount debited or not, which

according to the borrow were debited in violation of interim order dated

15.10.2018.

20. We may further notice that in view of the fact that judgment of this

Tribunal dated 13.05.2022 has been stayed by the Hon'ble Supreme Court,

Appellant as on date cannot rely on the said judgment for objecting

approval of the sale of assets which had received approval by the Creditors

Committee with 73.57% vote share. We, thus, are of the view that no

grounds have been made out to interfere with the order passed by the

Adjudicating Authority dated 23.09.2022. We may also notice that even in

the order dated 23.09.2022 of the Adjudicating Authority in Para 13

following has been directed:

"13. Further, the distribution of the consideration received by the Applicant from the Proposed

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018 -32-

Transaction or withdrawal of any other amounts from the designated bank account be subject to further orders of this Tribunal."

21. The distribution of the consideration received by the applicant

(IL&FS) from the transaction which have been proposed or withdrawal of

any other amounts from the designated bank account shall be subject to

further orders of the Adjudicating Authority. In event, order is passed by

Hon'ble Supreme Court in the pending Appeal, the same is also to be given

effect in the proceedings before the Adjudicating Authority. With the above

observation, we dismiss the Company Appeal (AT) No. 177 of 2022. No

relief can also be granted in I.A No. 2966 of 2020 in Company Appeal (AT)

No. 346 of 2018 as on date, the same stands rejected.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical) NEW DELHI

28th February, 2023

Archana

Company Appeal (AT) No. 177 of 2022 & I.A. No. 2966 of 2020 in Company Appeal (AT) No. 346 of 2018