Vidharbha Industries Power Ltd vs Axis Bank Ltd

Company Appeal (AT) (Insolvency) No. 117 of 2021 (Arising out of Order dated 29.01.2021passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, in I.A. No.570/2020 in CP(IB) No.264/MB/2020)

IN THE MATTER OF: Vidharbha Industries Power Limited H-Block, 1st Floor, Dhirubhai Ambani Knowledge City, Navi Mumbai -400 710. ...Appellant

Versus Axis Bank Limited Office at : "Trishul", 3rd Floor, Opp. Smartheshwar Temple, Near Law Garden, Ahmedabad, Gujarat - 380006.

and its Corporate office at: "Axis House", C-2, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai - 400 025. ...Respondent

Present: For Appellant: Mr. Himanshu Satija, Mr. Divyang Chandiramani, and Ms. Aashna Agarwal, Advocates

For Respondent: Mr. Chetan Kapadia, Mr. Nitesh Jain and Ms. Manini Bharati, Advocates.

JUDGMENT

BANSI LAL BHAT, J.

Respondent Axis Bank Limited (Financial Creditor) initiated Corporate

Insolvency Resolution Process (for short 'CIRP') against Vidharbha Industries

Company Appeal (AT) (Insolvency) No. 117 of 2021 1 Power Limited (Corporate Debtor) by filing Application under Section 7 of

Insolvency and Bankruptcy Code, 2016 (for short 'I&B Code'). It happened

sometime in January 2020. The Corporate Debtor filed IA No.570 of 2020 in

the aforesaid Company Petition being CP(IB) No.264/MB/2020 seeking stay of

further proceedings in the Company Petition by projecting its inability in

servicing the debts in respect whereof default was alleged by the Financial

Creditor by projecting disputes between the Corporate Debtor and the

recipient of energy as well as change in supply chain management of the

recipient of energy hindering it from carrying on its business, in respect

whereof disputes were pending determination before the Hon'ble Apex Court

and other Authorities. On consideration of the Application of Corporate

Debtor the Adjudicating Authority, National Company Law Tribunal, Mumbai

Bench, Court No.II (Special Bench) passed order dated 29th of January, 2021

rejecting the Application of Corporate Debtor with observation that the

dispute of the Corporate Debtor with the Regulator or the recipient of energy

would be extraneous to the matters involved in the Company Petition and the

decision in matters pending before Hon'ble Apex Court and other Authorities

would hardly have any impact on the issues involved in Company Petition

under Section 7 of the I&B Code. Thus, the Adjudicating Authority declined

to stay its hands from considering the Company Petition. It is this order of

the Adjudicating Authority which has been impugned in the instant Appeal

preferred by the Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 117 of 2021 2

2. The Corporate Debtor is a power generating Company claiming to be

operating a 600 MW Coal-fired Thermal Power Plant in Maharashtra with two

units having capacity of 300 MW each. It claims to be supplying power to

Reliance Infrastructure Limited (RIL) with effect from 1st April, 2014 as per

Power Purchase Agreements (PPA) duly approved by Maharashtra Electricity

Regulatory Commission (MERC). According to the Appellant/Corporate

Debtor it has been reeling under massive financial stress due to problems

confronting the power sector and its claims relating to the recovery of dues

before Hon'ble Apex Court and MERC are substantial in nature and sufficient

to repay the dues of the Respondent/Financial Creditor. According to

Appellant/ Corporate Debtor there has been delay in adjudication of the legal

matters for which it could not be penalized by way of admission of CIRP

initiated at the instance of Respondent. According to Appellant the dues of

Respondent/ Financial Creditor payable by the Appellant/ Corporate Debtor

are approximately Rs.553 crores.

3. It is submitted on behalf of Appellant that Appellant's petition before

MERC for revision of tariff was disallowed by MERC vide order dated 20th

June, 2016 and the Appellant had filed Appeal No.192 of 2016 before APTEL

against MERC's order dated 20th June, 2016. APTEL vide order dated 3rd

November, 2016 directed MERC to allow the Appellant's actual cost of coal

purchased from unit 1, capped to the coal cost of unit 2 till the Fuel Supply

Agreement (FSA) of unit 1 was executed by Coal India Limited with the

Appellant. However, MERC filed Civil Appeal No.372 of 2017 before the

Company Appeal (AT) (Insolvency) No. 117 of 2021 3 Hon'ble Apex Court challenging the aforesaid APTEL order dated 3rd

November, 2016 which is pending adjudication at the final hearing stage.

Appellant's recovery of fuel costs including carrying costs aggregating to

Rs.2100 crores stands impacted. It is submitted that implementation of the

APTEL judgment would aid in settling the claims of Respondent and obviate

any need for the initiation of CIRP against the Appellant. It is submitted that

the admission of Application of Respondent under Section 7 of the I&B Code

would adversely impact the outcome of the litigation as regards revision tariff

in order to recover its actual costs. It is further submitted that the Coal India

Limited, did not execute an FSA for unit 1 with the Appellant as this unit did

not figure in its list of Power Plants having capacity of 78000 MW. Coal India

Limited even did not execute FSA for unit 1 of Appellant for allocating coal

linkages under the notified SHAKTI Policy. This is said to have compelled the

Appellant to file Writ Petition No.10614 of 2017 before the Hon'ble High Court

of Delhi which is still pending adjudication. It is further submitted on behalf

of the Appellant that MERC delayed its verdict for over two years causing

unprecedented financial stress to Appellant. It is further submitted that the

Respondent is pursuing substitution under PPA before Hon'ble Apex Court

while simultaneously pursuing the CIRP in I&B proceedings initiated against

the Appellant. The Appellant intends to settle the dues of Respondent by way

of its recovery from the pending Hon'ble Supreme Court Appeal and this

Appeal is not intended to stall or delay the CIRP proceedings initiated under

Section 7 of I&B Code. It is submitted that the admission and continuation of

Company Appeal (AT) (Insolvency) No. 117 of 2021 4 Section 7 proceedings would be prejudicial to all stake holders of Corporate

Debtor including the Respondent-Financial Creditor and five other Public

Sector Banks who are lenders to the Appellant.

4. Per contra Respondent-Axis Bank Limited (Financial Creditor) would

submit that while the Respondent sought initiation of CIRP against Corporate

Debtor by filing Application under Section 7 of I&B Code on 15th January,

2020, proceedings remained pending till 29th January, 2021 i.e. the date of

impugned order. The Respondent would further submit that the Appellant

has not disputed the existence of debt owed to the Respondent nor did it

dispute the occurrence an event of default. Respondent would further submit

that the Adjudicating Authority only needs to ascertain the existence of debt

and default in the payment of such debt. The Appellant has challenged

neither legal nor the factual basis of the conclusion in regard to debt and

default and the issues raised have no relevance to the Company Petition.

Corporate Debtors alleged liquidity issues or its pending litigation proceedings

are immaterial for adjudication of Application filed under Section 7 of I&B

Code. No proceedings pending before any other Forum can be used to stall a

petition under Section 7 of the I&B Code as the admissibility of Application

under Section 7 of I&B Code is solely governed by the provisions of the Code.

5. Heard learned Counsel for the parties and perused the record.

6. Admittedly, Petition under Section 7 of I&B Code filed by the

Respondent Bank is still at the pre-admission stage and the Appellant-

Corporate Debtor has, by raising the issue of problems confronted by the

Company Appeal (AT) (Insolvency) No. 117 of 2021 5 Power Sector resulting in inflicting of heavy financial loss to the power

generating Companies like the Appellant, been able to stall the CIRP

proceedings initiated by the Respondent (Financial Creditor) against it by

filing Application under Section 7 of I&B Code. It is flabbergasting to find that

by raising the liquidity issue and pending litigation proceedings the Corporate

Debtor put a spoke in the wheel of Corporate Insolvency Resolution Process

stalling its commencement at the hands of Adjudicating Authority who was

required, in terms of mandate of Section 7(4) & (5) of I&B Code to pass an

order of admission or rejection of such Application within fourteen days of the

receipt of the Application. The relevant provisions are reproduced herein

below: -

Section 7(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub- section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).

(5) Where the Adjudicating Authority is satisfied that--

(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or

(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against

Company Appeal (AT) (Insolvency) No. 117 of 2021 6 the proposed resolution professional, it may, by order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority,"

7. The commencement of CIRP takes effect from the date of admission of

Application as specifically laid down under sub-section (6) of Section 7 of the

I&B Code. All that the Adjudicating Authority is required to do is to ascertain

the existence of default and on being satisfied that a default has occurred and

the Application is complete, the Adjudicating Authority is required to admit

the Application. The existence of default in respect of financial debt would be

ascertainable from the records of an Information Utility or on the basis of

other evidence furnished by the Financial Creditor. Where the Adjudicating

Authority is satisfied that there is no financial debt payable in law or infact or

that default has not occurred, it may reject such Application but if the

Application is incomplete, the Financial Creditor has to be provided an

opportunity of rectifying the defect in the Application within seven days of

notice received from the Adjudicating Authority. All that should be present to

the mind of Adjudicating Authority is that there is an obligation on the part of

Corporate Debtor to pay the financial debt and that the Corporate Debtor has

failed in such obligation. The Adjudicating Authority, upon determination of

Company Appeal (AT) (Insolvency) No. 117 of 2021 7 default, is bound to admit the Application and commence CIRP initiated by

the Financial Creditor by filing Application under Section 7 of I&B Code. The

issues raised by the Appellant are anterior to the considerations governing

admission of Application under Section 7 of I&B Code and commencement of

CIRP upon its admission. The liquidity issues raised by the Appellant

(Corporate Debtor), who may or may not succeed in the litigations pending

before Hon'ble Apex Court and other Fora in regard to revision of tariff have

no bearing and should not impact the admission of Application under Section

7 of I&B Code when the existence of financial debt which the Corporate

Debtor is obliged to pay and default in discharging of such obligation is

admitted. The fortunes of Corporate Debtor may wax or wane depending

upon the outcome of litigation but same cannot be permitted to impede the

course of insolvency resolution proceedings contemplated under the I&B

Code, object whereof, inter alia, is maximisation of value of assets of corporate

person by reorganization and insolvency resolution in a time bound manner.

The dictum of law laid down by the Hon'ble Apex Court in "Innoventive

Industries Ltd. Vs. ICICI Bank and Anr. - (2018) 1 SCC 407" on this

proposition of law is loud and clear and same has been reiterated in host of

judgments thereafter, which is now the settled and established position of

law.

8. It is significant to notice that the Application filed by the Corporate

Debtor seeking stay of proceedings before the Adjudicating Authority did

neither dispute the existence of debt owed to the Respondent Bank nor did it

Company Appeal (AT) (Insolvency) No. 117 of 2021 8 raise any issue in regard to the event of default as alleged by the Respondent

Bank. Its therefore, clear that debt and default are not disputed. The

financial woes of the Appellant and the liquidity problems faced by it, whether

forced upon it or of its own making, have no bearing on commencement of

insolvency resolution and cannot be permitted to be a stumbling block in

triggering of CIRP at the instance of Financial Creditor. The commencement

of CIRP proceedings has already been delayed by one year much to the

chagrin of Respondent (Financial Creditor) who has been virtually compelled

to be a spectator helplessly watching the assets of Corporate Debtor getting

depleted in value. It is relevant to notice that besides the Respondent

(Financial Creditor) there are five Public Sector Banks who are lenders to the

Appellant and with delay in admission of the Application, their fate is hanging

in balance.

9. On consideration of the issues raised in this Appeal we are of the

considered opinion that the Appellant has no justification in stalling the

process and seeking stay of CIRP, which in essence has manifested in

blocking the passing of order of admission of Application of Respondent under

Section 7 of I&B Code. There is no merit in Appeal as we find no legal

infirmity in the impugned order. The Adjudicating Authority is conscious of

the mandate of law and the course it has to take as per I&B provisions, which

practically stands stalled. This is impermissible. The flow of legal process

cannot be permitted to be thwarted on considerations which are anterior to

Company Appeal (AT) (Insolvency) No. 117 of 2021 9 the mandate of Section 7(4) & (5) of I&B Code. The Appeal being devoid of

merit is dismissed. However, we do not propose to impose any costs.

[Justice Bansi Lal Bhat] Acting Chairperson

[Dr. Ashok Kumar Mishra] Member (Technical)

New Delhi

2nd March, 2021

Ash

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