Union Of India vs Infrastructure Leasing And Financial ...

IN THE MATTER OF: Union of India ... Appellant Versus Infrastructure Leasing and Financial Services Ltd. & Ors. ... Respondents

Interlocutory Application No.5815 of 2023

IN THE MATTER OF:

State Bank of India ... Applicants

Versus

Baleshwar Kharagpur Expressway Limited & Anr. ...Respondents

Present: Mr. Arun Kathpalia, Sr. Advocate with Mr. Sanjay Kapur, Mr. Devesh Dubey and Mr. Arjun Bhatia, Advocates for SBI in IA- 5815 of 2023. Mr. Ramji Srinivasan Sr. Advocate with Mr. Raunak Dhillon, Ms. Isha Malik, Mr. Nihaad Dewan, Mr. Namrata Sarogi and Mr. Rakesh Chatterjee, Advocates for Respondents/IL&FS

JUDGMENT

ASHOK BHUSHAN, J.

This Application has been filed by State Bank of India ("SBI") praying

for following reliefs:

"a) This Hon'ble Tribunal may be pleased to modify its interim order dated 15.10.2018 thereby the permitting the applicant to recover/enforce its dues;

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 1

b) In the meanwhile, as an interim measure, this Hon'ble Court may be please to direct/permit the interim distribution of Rs. 175 Crore to the lenders out of funds lying in the Escrow Account of BKEL; and

c) Pass such other orders as this Tribunal may deem fit in this case."

2. The Appellant has been permitted to amend the prayers in IA

No.5815 of 2023 and amended prayers of the Application as permitted are

as follows:

"a) This Hon'ble Tribunal may be pleased to direct/permit the interim distribution, from the entire sum lying in the escrow account of the company/BKEL, in favour of the secured lenders excluding the amount to be kept towards O&M expenses; and

b) Pass such other orders as this Tribunal may deem fit in this case."

3. A reply has been filed by the learned Counsel for Respondents to the

Application filed by State Bank of India, to which a rejoinder has also been

filed.

4. Brief facts giving rise to the Application are as follows:

(i) Baleshwar Kharagpur Expressway Limited ("BKEL") is a

special purpose vehicle promoted by IL&FS Transportation

Networks Limited ("ITNL") for development of road project in

Baleshwar-Kharagpur section of NH-60 located in the State of

Orissa and West Bengal. A Concession Agreement dated

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 2 24.04.2012 was executed between NHAI and BKEL. BKEL

availed financial facilities from State Bank of Patiala and two

other Banks namely - Allahabad Bank and IL&FS Financial

Services Limited. A Common Loan Agreement as well as

Escrow Agreement was entered between the parties. The State

Bank of Patiala being merged with the SBI, the SBI is now the

lead Bank under the Common Loan Agreement. Over the

period, BKEL has been sanctioned term loan of Rs.396 crores,

out of which Rs.146 crores approximately was sanctioned by

the SBI.

(ii) Under an order passed under Section 241 and 242 of the

Companies Act, 2013 by the Adjudicating Authority, the NCLT

superseded the Board of IL&FS. In Appeal against the order

passed by NCLT, an order of moratorium was passed on

15.10.2018 by this Tribunal in Company Appeal (AT) No.346

of 2018.

(iii) In Company Appeal (AT) No.346 of 2018 a Resolution

Framework was approved, under which initially new Board

decided to setup the Infrastructure Investment Trust for

transfer of shareholding and receivable of ITNL in another

IL&FS group company, however, the said order was given up

by the IL&FS Board itself.

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 3

(iv) Tribunal on an Application filed by Union of India, by an order

dated 31.05.2022, approved the interim distribution proposal

with respect to various IL&FS group companies, including

ITNL.

(v) The BKEL did not service its loan after 31.01.2020 and as on

14.09.2023, an amount of Rs.236.82 crores was lying in the

company account with the SBI (Escrow Account). In the

Consortium Meeting, the lead Bank as well as other Banks has

made requests for interim distribution of cash available with

the company, as the Banks are suffering immensely.

(vi) BKEL wrote a letter dated 04.12.2023 to the SBI on the subject

of interim distribution to secured lenders of BKEL and release

of unpaid O&M payments and NHAI premium. By the said

letter BKEL proposed interim distribution to SBI and other

lenders to the extent of Rs.102.02 crores and proposed a

payment of Rs.102.02 crores to NHAI premium. The proposal

sent by Respondent No.1 was not accepted by the SBI. The

SBI wrote to Respondent No.1 that NHAI premium cannot be

paid in preference to servicing the debt of the lenders.

(vii) The SBI filed an IA No.985 of 2023 seeking direction that NHAI

payment are not going concern payment and for withdrawal

provided under Clause 31.3 of the Concession Agreement and

Clause 4.1 of the Escrow Agreement, payment of NHAI falls

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 4 below to the payment to lenders. IA No.985 of 2023 was

allowed by this Tribunal vide its order dated 02.04.2024.

(viii) While IA No.985 of 2023 was pending, the present IA No.5815

of 2023 was filed by the SBI, praying for interim distribution

as noted above. At the time of filing of the Application, the

amount in the escrow account was reported to be Rs.236.82

crores, hence in the Application, it was prayed that interim

distribution of Rs.175 crores be made as the amount in the

escrow account from time to time increases. The Application

- IA No.4363 of 2024, subsequently filed by the Appellant, it is

now stated that amount has increased to Rs.303 crores, hence

the interim distribution payment to secured creditors be made

to Rs.275 crores.

(ix) The Application - IA 5815 of 2023 was opposed by

Respondents. It is submitted that in the Application, it was

stated that interim distribution earlier proposed as Rs.102.02

crores to the SBI and other lenders was not accepted by the

SBI. The SBI again claimed contractual dues to be paid in

priority to NHAI premium. It is pleaded that Board's approval

is required for interim distribution. It is submitted that

payment to NHAI of premium is a going concern payment and

earlier the SBI has made the said payment. It is pleaded that

new Board on 08.11.2023 took a decision, not to continue with

the InvIT as a model resolution of BKEL. The preferential

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 5 treatment to SBI cannot be given in violation of the revised

distribution mechanism.

5. We have heard Shri Arun Kathpalia, learned Senior counsel

appearing for the Applicant and Shri Ramji Srinivasan, learned Senior

Counsel appearing for Respondents.

6. The learned Senior Counsel for the Applicant in his submission has

only pressed prayer (b) in the Application, i.e., direction for interim

distribution of amount lying in the Escrow Account. It is submitted that

BKEL having availed credit facility from Consortium of Bank and BKEL is

not servicing its debt, the amount accumulated in the Escrow Account has

now reached to more than Rs.348 crores, which need to be distributed to

the lenders. This Tribunal has already vide its order dated 02.04.2024 held

that NHAI premium cannot be paid in preference to the servicing of the

debt of the lenders, which is at the higher priority, which issue having

finally decided by this Tribunal, the amount which was being proposed to

be paid by Respondent No.1 to NHAI, also needs to be included in the

interim distribution. It is submitted that interim distribution having

already accepted by Respondent No.1, when an offer was given by

Respondent No.1 itself by letter dated 04.12.2023, it cannot oppose the

interim distribution now. The lenders are suffering due to non-servicing of

debt after January 2020. Huge amount has accumulated and lying idle in

the Escrow Account and despite several opportunities to the Board and

Respondent No.1, no action has been taken, permitting distribution. The

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 6 Board has itself taken a decision, not to resolve by InvIT infrastructure. It

is submitted that the amount, which has increased and as on date is

Rs.300 crores needs to be distributed to the lenders.

7. Shri Ramji Srinivasan, learned Senior Counsel appearing for

Respondents submits that Board has not yet taken a decision for interim

distribution to the lenders. It is submitted that Respondent No.1 is also

obliged to make payment to the NHAI towards concession premium and it

is for Board to take a decision for interim distribution as per order of this

Tribunal dated 31.05.2023 passed in IA No.276 of 2023. The Board having

not yet approved the interim distribution, the Applicant has no right to

claim.

8. We have considered the submissions of learned Counsel for the

parties and haver perused the records.

9. We have already noted the facts giving rise to the IA No.985 of 2023

as well as present IA No.5815 of 2023. The Concession Agreement between

Respondent No.1 and NHAI as well as Escrow Agreement entered between

Respondent No.1 and the lenders have been perused. Respondent No.1

itself wrote a letter dated 04.12.2023 to the SBI, proposing for interim

distribution of Rs.102.02 crores to the lenders and Rs.102.02 crores to

NHAI towards premium. Letter dated 04.12.2023 has been brought on

record by the Respondent in its reply as Annexure R-9, which is as follows:

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 7 "Date: December 04, 2023

To, General Manager State Bank of India Stressed Asset Resolution Group Corporate Centre 21 Floor, Maker Tower E Cuffe Parade Mumbai 400 005

Sub.: Interim distribution to secured lenders of BKEL and release of unpaid O&M payments and NHAI Premium.

Ref.: 1. NCLAT order dated 31 May 2022 and 19 Jan. 2023 for interim distribution.

2. Your email dated 30 Sept. 2023 informing assignment of RP6 rating

3. Our request letter dated 22 Feb. 2023 for release of NHAI Premium.

Dear Sir,

We refer to the subject mentioned and further update on BKEL resolution process. You may please note that, given the delay in receipt of requisite approvals and material changes in the viability of the project. the IL&FS Board has decided not to pursue the option on transferring the BKEL to the InvIT i.e. Roadstar Infra. Investment Trust. The IL&FS is expected to come out with EOI for sale of BKEL, shortly to resolve the entity through sale to third parties.

As you are aware, that the BKEL is a Red category entity and is under moratorium since 15th October 2018. However, the entity is generating income through toll collections rights derived through Concession Agreement executed with NHAI and the collection is being accumulated into escrow account maintained with your bank. We wish to inform you that the in line with NCLAT order dated 31 May 2022 and 19th January 2023, a interim distribution to the secured lenders of BKEL to the tune of around Rs. 102.02 crore is being proposed. In this regard, we request lenders to approve the release of pending dues such as NHAI Premium of Rs. 102.02 Crores and other O&M bills.

The proposed interim distribution to secured lenders is in line with NCLAT order dated 31 May 2022 and 19th January 2023. The

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 8 NCLAT orders are enclosed herewith for your reference. We are also enclosing the draft of claw-back undertaking to be executed by lenders which is pre-requisite condition for release of money under the interim distribution framework. Some of the consortium lenders of BKEL have already executed and submitted similar claw-back undertaking in case of interim distribution of Chenani Nashri Tunnelway Limited (CNTL) & IL&FS Transportation Networks Limited (ITNL).

Below is table of interim distribution amounts that may be distributed to the secured lenders of BKEL subject to requisite approvals;

Sr.No. Name of Lender/ Bank/ FI Amount in Rs. Crore 1 State Bank of India 37.48 2 Indian Bank 19.32 3 Punjab National Bank 19.39 4 Punjab and Sindh Bank 25.83 Total: 102.02

We request you to approve the release of O&M payments and release of unpaid premium to NHAI for us to take up the internal approvals including approval of BKEL Board, ITNL, Board, IL&FS Board etc. for processing of interim distribution.

Looking forward to your favorable necessary action.

Thanking you,

Yours sincerely,

For, Baleshwar Kharagpur Expressway Limited

Sd/-

Authorized Signatory."

10. The SBI immediately on 1st January 2024 objected to the letter dated

04.12.2023 and pleaded that premium payment to NHAI is not a going

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 9 concern expenses and further the said payment cannot be made in

preference to the payment to the lenders. An IA No.985 of 2023 was filed

by the SBI praying for various reliefs, which Application ultimately came to

be decided by this Tribunal by order dated 02.04.2024. Copy of which

order has been brought on record as Annexure A-3 to the rejoinder filed by

the Applicant. This Tribunal after hearing the Applicant - SBI as well as

learned Counsel for NHAI, held that as per the Concession Agreement and

the Escrow Agreement, the payment of monthly proportionate provisions

of debt service due in an accounting year is in priority to the premium due

and payable to the Authority. This Tribunal after hearing the parties, held

following in paragraphs 12, 13, 14 and 15:

"12. When we look into Clause 31.3.1 and Clause 4.1.1, it is clear that both the provisions provide same priority and Clauses (e), (f) and (g) are the same. The bone of contention between the parties are that since Clause (e) uses word 'Concession Fee due and payable to the Authority', it is higher in priority from Clause (f), which deals with 'monthly proportionate provision of Debt Service due in an Accounting year' and concession fee includes the premium, hence, the premium has to be paid priority to the payment under Clause

(f). We have already noticed the relevant Clauses of Concession Agreement, i.e., 25.4, 26.1 and 26.2, where Concessionaire has agreed to make payment of premium. Under the Agreement Clause 26.2, premium payable was treated to be part of Concession Fee for the purposes of the Agreement. When Clauses 25.4, 26.1 and 26.2 are read together, it is clear that 'premium' is treated to be part of Concession Fee, however, 'premium' and 'Concession Fee' are defined separately. The parties entering in the contract were well aware with both 'concession fee' as well as 'premium'. Hence, Clauses (e) and (g) are used separately for 'concession fee' and

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 10 'premium'. In event the payment of 'premium' was to be made under Clause (e), there was no occasion for using 'premium' separately in Clause (g). It is well settled rule of construction of contract that when contract between the parties is clear, it has to be given effect to and further no part of the contract can be treated to be OTIOSE. Parties having categorized 'premium' in different Clause, which is below the monthly proportionate provisions of Debt Service due in an Accounting year, it cannot be said that the same was done without any meaning and 'premium' payment is in lower priority to monthly proportionate provision of Debt Service due in an Accounting Year.

We, thus, find substance in the submission of learned Counsel for the Applicant that with regard to withdrawal from Escrow Account, the priority as given in Clause 4.1.1 of Escrow Agreement has to be followed.

13. We, however, notice that in the present case, the 'resolution' of Respondent No.2 as per the Resolution Framework approved by this Tribunal on 12.03.2020 is in final stages. The order dated 15.09.2021 passed by the NCLT has been brought on the record, which notices the approval by Justice D.K. Jain also. When an entity is to be resolved as per Resolution Framework, payments to all creditors/ claimants including the Lenders have to be as per the Resolution of the Entity.

14. It is also relevant to notice that when Resolution of Respondent No.2 is at the final stages, there is no occasion for Respondent No.1 to proceed to terminate the Concession Agreement to further complicate the Resolution of an Entity. Order of this Tribunal dated 12.03.2020, already has set out the Resolution Framework for Entities including the 'Red Entities' and it is in the interest of justice for all the parties that final Resolution of Respondent No.2 be achieved at an early date.

15. In view of the foregoing discussions, we are of the view that IA No.985 of 2023 filed by the State Bank of India deserves to be allowed in terms of prayers (a), (b), (c) and (d). We further direct that

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 11 the Applicant as well as Respondents to take appropriate measures for final Resolution of the Entity, i.e. Respondent No.2. IA No.985 of 2023 is disposed of accordingly."

11. In view of the order of this Tribunal dated 02.04.2024, it is clear that

the proposal submitted by Respondent No.1 for payment of Rs.102.02

crores as interim distribution along with Rs.102.02 crores to the SBI, did

not find approval by this Tribunal. Sufficient opportunities have been given

to the Board to take a decision with regard to interim distribution. Even

in the order dated 08.08.2024, reserving the order on this Application,

following was observed.

"I.A. No. 5818 of 2023 (*should be 5815 of 2023)

Heard Shri Arun Kathpalia, Ld. Sr. Counsel for the applicant and Shri Ramji Srinivasan, Ld. Sr. Counsel for ILFS.

'Order is reserved'

Ld. Counsel for the parties are at liberty to file short 'notes of submission' of not more than three pages within a week.

We make it clear the fact that the order is reserved in this application shall not preclude the board to consider on the interim distribution as prayed by the applicant.

List for the pronouncement of order on 19.09.2024."

12. When the amounts to which lenders are entitled, which is

accumulated in the Escrow Account and distribution of amount, which has

accumulated with the various IL&FS entities has already been directed to

be distributed on an Application filed by the Union of India, we fail to see

any reasonable ground for not taking any decision by the Board for interim

distribution, as per the Concession Agreement and the Escrow Agreement

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 12 as noticed above. Respondent No.1 having itself proposed interim

distribution of the amount accumulated in the Escrow Account by letter

dated 04.12.2023, it is not open for Respondent No.1 to now oppose the

interim distribution, which is to be paid to the lenders. We noticed that in

the Application - IA No.5815 of 2023, a prayer made was for distribution

of Rs.175 crores out of Rs.236.82 crores, which was lying in the Escrow

Account as on 14.09.2023. The interim distribution as prayed by the SBI

is little more than 75% of the amount lying in the Escrow Account. We,

thus, are of the view that ends of justice will be served in directing for

interim distribution to the lenders of 75% of the amount, lying in the

Escrow Account as on the date of distribution. The distribution to the

lenders, shall be with an undertaking that in event, in pursuance of any

order passed by the NCLT or this Tribunal holding that the lenders are not

entitled to the amount, which has been permitted by interim distribution,

the said lenders shall undertake to refund the said amount, which is a

condition, which was imposed by this Tribunal with respect to all interim

distributions, which were permitted.

13. In view of the foregoing discussions, we allow IA No.5815 of 2023

with following directions:

(i) Interim distribution shall be made to the lenders of 75% of the

amount lying in the Escrow Account as per the Escrow

Agreement. The balance amount is to be used for O&M

payments and other payments.

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 13

(ii) Lenders shall also give an undertaking for refund of the

amount received, in event ultimately, it is found that they were

not entitled to the extent of the amount received by them.

(iii) The above distribution shall be subject to any further orders

passed by the NCLT and NCLAT.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

19th September, 2024

Ashwani

Interlocutory Application No.5815 of 2023 in Company Appeal (AT) No.346 of 2018 14