Lakshmi Energy & Foods Ltd. v. Reserve Bank of India

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The Tax Publishers 2019 TaxPub(CL) 0069 (Del-HC) Lakshmi Energy & Foods Ltd. v. Reserve Bank of India CONSTITUTION OF INDIA, 1950, --Power of High Court to issue certain writs --Petition against restraining banks from taking action under SARFAESI Act or IBCNon-disburse of additional working capital--Agreement not obliged banks to disburse additional working capital to borrower--Though there was neither obligation on part of banks to infuse additional working capital in terms of JLRA nor the JLRA obliged the banks to disburse additional working capital to borrower, therefore, the banks should not be restrained from initiation of proceeding under the SARFAESI Act or the IBC.--Borrower failed to repay financial assistance to banks. The banks had initiated proceedings as per section 13 of SARFAESI Act and section 7 of IBC against the borrower. The borrower filed petition for seeking direction to RBI to ensure compliance of its circular, as consortium of banks had formed a Joint Lenders Forum (JLF) in terms of circulars issued by RBI. The JLF had agreed to provide restructuring loans and financial assistance granted to the borrower, but they had failed to disburse additional working capitals in violation of Joint Lender Restructuring Agreement (JLRA).Therefore, the borrower sought that the banks be restrained from pursuing their remedies to recover their dues. *Held:* There was no obligation on the part of the banks to infuse additional working capital in terms of the JLRA. The banks had not issued any letter sanctioning additional working capital as discussed earlier. The JLRA also did not oblige the banks to disburse additional working capital. The borrower had defaulted its obligations as per the JFRA, i.e., to route all transactions through Trust Retention Account, to pay interest and repayments and promoters' contribution upfront. The contention that since the banks had not disbursed additional working capital, they should be restrained from proceeding under the SARFAESI Act or the IBC, was not merited. There was no dispute that the borrower owed substantial amount to the banks and as financial creditors they were entitled to seek remedies under the IBC. Thus, the petition was dismissed. Constitution of India, 1950, Article 226, Insolvency and Bankruptcy Code, 2016, Section 7, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13 *REFERRED :* Chitra Sharma v. Union of India (2018) 96 Taxmann.com 216 (SC) : (2018) 148 SCL 833 (SC) : 2017 TaxPub(CL) 0600 (SC); Innoventive Industries Ltd. v. ICICI Bank (2017) 84 Taxmann.com 320 (SC) : (2017)143 SCL 625 (SC) : 2017 TaxPub(CL) 0600 (SC); Central Bank of India v. Ravindra (2002) 36 SCL 1 (SC); Gujarat State Financial Corpn v. Lotus Hotels (P.) Ltd. (1983) 3 SCC 379 FAVOUR : Against the petitioner A.Y. : IN THE DELHI HIGH COURT VIBHU BAKHRU, J. Lakshmi Energy & Foods Ltd. v. Reserve Bank of India W. P. (C) No. 5555 of 2018, CM Nos. 21660, 27625, 27626, 28418, 32776-32778 & 32780 of 2018 24 September, 2018 *Cases referred to :* Innoventive Industries Ltd. v. ICICI Bank (2017) 84 Taxmann.com 320 (SC) : (2017)143 SCL 625 (SC) : 2017 TaxPub(CL) 0600 (SC), Chitra Sharma v. Union of India (2018) 96 Taxmann.com 216 (SC) : (2018) 148 SCL 833 (SC) : 2017 TaxPub(CL) 0600 (SC), Central Bank of India v. Ravindra (2002) 36 SCL 1 (SC) and Gujarat State Financial Corpn v. Lotus Hotels (P.) Ltd. (1983) 3 SCC 379. Petitionerby : Kapil Sibal, Sr. Adv., Vivek Chib, Vikramaditya, Asif Ahmed, Amrendra Mehta, Himesh Thakur and Ms. Pracheta Kar Respondent by : H.S. Parihar, Kuldeep S. Parihar, Rajesh Kumar Gautam , Aakash Sehrawat, Ramji Srinivasan, Sr. Adv. Diwakar Maheshwar, Aditya Vikram Singh, Naveen Hegde, Bunmeet Singh, R.S. Raju, M. Chandra Sekhara, Ms. Megha and Sumit Nagpal JUDGMENT The petitioner has filed the present petition, inter alia, praying as under: 'I. Issue an appropriate writ/order/direction thereby directing Reserve Bank of India/Respondent No. 1 herein to ensure implementation/compliance of RBI Guidelines/Circulars dated 30-1-2014, 26-2-2014 and 5-5-2017 vis-a-vis Joint Lenders Restructuring Agreement dated 27-6-2015 invoked and implemented qua the Petitioner Company herein.' 2. The petitioner also impugns the proceedings of the Joint Lenders Forum (hereafter 'JLF') dated 9-2-2018 wherein the minutes of the JLF's meeting held earlier on 23-1-2018 were confirmed. 3. The petitioner is a company incorporated under the Companies Act, 1956 and is engaged, inter alia, in the business of processing paddy and exporting rice. The petitioner had availed of certain financial assistance from respondent nos. 2 to 5 (hereafter collectively referred to as 'the respondent banks'). Respondent No. 2 (Punjab National Bank - hereafter 'PNB') is the lead banker in respect of the said assistance. The petitioner has failed to repay its dues as demanded by the respondent banks and the same has led some of the respondent banks to institute proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereafter 'SARFAESI Act'). Respondent No. 3 (hereafter 'ICICI Bank') had issued a demand notice under section 13(2) of the SARFAESI Act. But it has filed proceedings under the Insolvency and Bankruptcy Code, 2016 (hereafter 'IBC') before the National Company Law Tribunal, Chandigarh (NCLT, Chandigarh). Prior to the said proceedings, the consortium of the respondent banks had formed a Joint Lenders Forum (JLF) in terms of the Circulars issued by respondent no.1 (hereafter 'RBI'). The JLF had agreed on a Corrective Action Plan (CAP) entailing restructuring the loans and financial assistance granted to the petitioner. The petitioner claims that the respondent banks have failed to perform their obligations in terms of the agreed CAP. Thus, leading to further slippage in the performance of the petitioner and disabling the petitioner from repaying its dues as per the CAP. In this view, the petitioner seeks that RBI be directed to ensure compliance of its Circulars, thereby ensuring implementation of the CAP. As a necessary corollary to the same, the petitioner seeks that the respondent banks be restrained from pursuing their remedies to recover their dues and be compelled to consider an appropriate re-structuring scheme. Factual Context 4. In the year 2010, the petitioner entered into an agreement with the respondent banks in terms of which they extended financial assistance to the petitioner. The said financial assistance was in the form of fund based facilities (term loan and working capital limits) as well as non-fund based facilities. The petitioner's performance was not as per projections and it was finding it difficult to service of facilities availed from the consortium of the respondent banks. 5. The petitioner also reported that there was a steep fall in the price of paddy and this had eroded its ability to draw further credit from the respondent banks. Thus, in effect, it also denuded the value of the collateral security against which the working capital was provided to the petitioner. It was reported that the shortfall in the drawing power was to the extent of Rs. 436 crores. 6. In addition, the petitioner submitted that there were other reasons for drop in performance as well including decline in the import of Basmati rice by Gulf Countries. 7. The petitioner had submitted its stock statement indicating the value of the stocks available at Rs. 354.36 crores. The Stock Auditor appointed by the consortium of the respondent banks submitted a report on the value of the stocks and the respondent banks accepted his view that the drawing power on the basis of the stocks be fixed at Rs. 439.91 crores. In the aforesaid backdrop, the petitioner approached the consortium of the respondent banks for re-structuring of the financial assistance granted to it. 8. As noticed above, the drawing power available to the petitioner had dropped significantly (to Rs. 439.91 crores against an outstanding of approximately Rs. 863 crores). In view of the above and in conformity with the Circular dated 26-2-2014 issued by the RBI, the respondent banks formed a JLF. The JLF, in its meeting held on 19-3-2015, considered the petitioner's request for implementing and adopting a CAP (Corrective Action Plan) involving financial re-structuring of the loans and assistance. At the meeting held on 19-3-2015, the JLF decided to proceed with the petitioner's request for implementing the CAP and decided to get a Techno Economic Viability (TEV) Study done by an independent consultant - M/s. Dunn and Bradstreet. 9. M/s. Dunn and Bradstreet submitted its report dated 27-3-2015 (hereafter 'D&B TEV Report'), which included a re-structuring proposal. In terms of the said proposal, the cut of date was fixed as 1-10-2014. The term loan outstanding as on the cut of date was Rs. 32 crores and the cash credit outstanding was Rs. 860.88 crores. The re-structuring involved converting the drawing power shortfall of Rs. 436 crores into a working capital term loan bearing an interest at the rate of 10.75% p.a. The repayment of the term loan was to be deferred for a period of twenty-four months from the cut of date and the repayment was to be made in 32 quarterly installments. The interest on the said loan was to be converted into a term loan (Funded Interest Term Loan - 'FITL'), the repayment of which would start after a moratorium of twenty-four months. The interest of the term loan would be reduced to 10.75%. Similarly, the said proposal also included another working capital term loan (WICTL-II) with the moratorium of twenty-four months. The interest on cash credit facility was also proposed to be converted into a term loan. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers 2019 TaxPub(CL) 0069 (Del-HC)

Lakshmi Energy & Foods Ltd. v. Reserve Bank of India

CONSTITUTION OF INDIA, 1950,

--Power of High Court to issue certain writs --Petition against restraining banks from taking action under SARFAESI Act or IBCNon-disburse of additional working capital--Agreement not obliged banks to disburse additional working capital to borrower--Though there was neither obligation on part of banks to infuse additional working capital in terms of JLRA nor the JLRA obliged the banks to disburse additional working capital to borrower, therefore, the banks should not be restrained from initiation of proceeding under the SARFAESI Act or the IBC.--Borrower failed to repay financial assistance to banks. The banks had initiated proceedings as per section 13 of SARFAESI Act and section 7 of IBC against the borrower. The borrower filed petition for seeking direction to RBI to ensure compliance of its circular, as consortium of banks had formed a Joint Lenders Forum (JLF) in terms of circulars issued by RBI. The JLF had agreed to provide restructuring loans and financial assistance granted to the borrower, but they had failed to disburse additional working capitals in violation of Joint Lender Restructuring Agreement (JLRA).Therefore, the borrower sought that the banks be restrained from pursuing their remedies to recover their dues. Held: There was no obligation on the part of the banks to infuse additional working capital in terms of the JLRA. The banks had not issued any letter sanctioning additional working capital as discussed earlier. The JLRA also did not oblige the banks to disburse additional working capital. The borrower had defaulted its obligations as per the JFRA, i.e., to route all transactions through Trust Retention Account, to pay interest and repayments and promoters' contribution upfront. The contention that since the banks had not disbursed additional working capital, they should be restrained from proceeding under the SARFAESI Act or the IBC, was not merited. There was no dispute that the borrower owed substantial amount to the banks and as financial creditors they were entitled to seek remedies under the IBC. Thus, the petition was dismissed.

Constitution of India, 1950, Article 226,

Insolvency and Bankruptcy Code, 2016, Section 7,

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13

REFERRED : Chitra Sharma v. Union of India (2018) 96 Taxmann.com 216 (SC) : (2018) 148 SCL 833 (SC) : 2017 TaxPub(CL) 0600 (SC); Innoventive Industries Ltd. v. ICICI Bank (2017) 84 Taxmann.com 320 (SC) : (2017)143 SCL 625 (SC) : 2017 TaxPub(CL) 0600 (SC); Central Bank of India v. Ravindra (2002) 36 SCL 1 (SC); Gujarat State Financial Corpn v. Lotus Hotels (P.) Ltd. (1983) 3 SCC 379

FAVOUR : Against the petitioner

A.Y. :

IN THE DELHI HIGH COURT

VIBHU BAKHRU, J.

Lakshmi Energy & Foods Ltd. v. Reserve Bank of India

W. P. (C) No. 5555 of 2018, CM Nos. 21660, 27625, 27626, 28418, 32776-32778 & 32780 of 2018

24 September, 2018

Cases referred to :

Innoventive Industries Ltd. v. ICICI Bank (2017) 84 Taxmann.com 320 (SC) : (2017)143 SCL 625 (SC) : 2017 TaxPub(CL) 0600 (SC),

Chitra Sharma v. Union of India (2018) 96 Taxmann.com 216 (SC) : (2018) 148 SCL 833 (SC) : 2017 TaxPub(CL) 0600 (SC),

Central Bank of India v. Ravindra (2002) 36 SCL 1 (SC) and

Gujarat State Financial Corpn v. Lotus Hotels (P.) Ltd. (1983) 3 SCC 379.

Petitionerby : Kapil Sibal, Sr. Adv., Vivek Chib, Vikramaditya, Asif Ahmed, Amrendra Mehta, Himesh Thakur and Ms. Pracheta Kar

Respondent by : H.S. Parihar, Kuldeep S. Parihar, Rajesh Kumar Gautam , Aakash Sehrawat, Ramji Srinivasan, Sr. Adv. Diwakar Maheshwar, Aditya Vikram Singh, Naveen Hegde, Bunmeet Singh, R.S. Raju, M. Chandra Sekhara, Ms. Megha and Sumit Nagpal

JUDGMENT

The petitioner has filed the present petition, inter alia, praying as under:

'I. Issue an appropriate writ/order/direction thereby directing Reserve Bank of India/Respondent No. 1 herein to ensure implementation/compliance of RBI Guidelines/Circulars dated 30-1-2014, 26-2-2014 and 5-5-2017 vis-a-vis Joint Lenders Restructuring Agreement dated 27-6-2015 invoked and implemented qua the Petitioner Company herein.'

2. The petitioner also impugns the proceedings of the Joint Lenders Forum (hereafter 'JLF') dated 9-2-2018 wherein the minutes of the JLF's meeting held earlier on 23-1-2018 were confirmed.

3. The petitioner is a company incorporated under the Companies Act, 1956 and is engaged, inter alia, in the business of processing paddy and exporting rice. The petitioner had availed of certain financial assistance from respondent nos. 2 to 5 (hereafter collectively referred to as 'the respondent banks'). Respondent No. 2 (Punjab National Bank - hereafter 'PNB') is the lead banker in respect of the said assistance. The petitioner has failed to repay its dues as demanded by the respondent banks and the same has led some of the respondent banks to institute proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereafter 'SARFAESI Act'). Respondent No. 3 (hereafter 'ICICI Bank') had issued a demand notice under section 13(2) of the SARFAESI Act. But it has filed proceedings under the Insolvency and Bankruptcy Code, 2016 (hereafter 'IBC') before the National Company Law Tribunal, Chandigarh (NCLT, Chandigarh). Prior to the said proceedings, the consortium of the respondent banks had formed a Joint Lenders Forum (JLF) in terms of the Circulars issued by respondent no.1 (hereafter 'RBI'). The JLF had agreed on a Corrective Action Plan (CAP) entailing restructuring the loans and financial assistance granted to the petitioner. The petitioner claims that the respondent banks have failed to perform their obligations in terms of the agreed CAP. Thus, leading to further slippage in the performance of the petitioner and disabling the petitioner from repaying its dues as per the CAP. In this view, the petitioner seeks that RBI be directed to ensure compliance of its Circulars, thereby ensuring implementation of the CAP. As a necessary corollary to the same, the petitioner seeks that the respondent banks be restrained from pursuing their remedies to recover their dues and be compelled to consider an appropriate re-structuring scheme.

Factual Context

4. In the year 2010, the petitioner entered into an agreement with the respondent banks in terms of which they extended financial assistance to the petitioner. The said financial assistance was in the form of fund based facilities (term loan and working capital limits) as well as non-fund based facilities. The petitioner's performance was not as per projections and it was finding it difficult to service of facilities availed from the consortium of the respondent banks.

5. The petitioner also reported that there was a steep fall in the price of paddy and this had eroded its ability to draw further credit from the respondent banks. Thus, in effect, it also denuded the value of the collateral security against which the working capital was provided to the petitioner. It was reported that the shortfall in the drawing power was to the extent of Rs. 436 crores.

6. In addition, the petitioner submitted that there were other reasons for drop in performance as well including decline in the import of Basmati rice by Gulf Countries.

7. The petitioner had submitted its stock statement indicating the value of the stocks available at Rs. 354.36 crores. The Stock Auditor appointed by the consortium of the respondent banks submitted a report on the value of the stocks and the respondent banks accepted his view that the drawing power on the basis of the stocks be fixed at Rs. 439.91 crores. In the aforesaid backdrop, the petitioner approached the consortium of the respondent banks for re-structuring of the financial assistance granted to it.

8. As noticed above, the drawing power available to the petitioner had dropped significantly (to Rs. 439.91 crores against an outstanding of approximately Rs. 863 crores). In view of the above and in conformity with the Circular dated 26-2-2014 issued by the RBI, the respondent banks formed a JLF. The JLF, in its meeting held on 19-3-2015, considered the petitioner's request for implementing and adopting a CAP (Corrective Action Plan) involving financial re-structuring of the loans and assistance. At the meeting held on 19-3-2015, the JLF decided to proceed with the petitioner's request for implementing the CAP and decided to get a Techno Economic Viability (TEV) Study done by an independent consultant - M/s. Dunn and Bradstreet.

9. M/s. Dunn and Bradstreet submitted its report dated 27-3-2015 (hereafter 'D&B TEV Report'), which included a re-structuring proposal. In terms of the said proposal, the cut of date was fixed as 1-10-2014. The term loan outstanding as on the cut of date was Rs. 32 crores and the cash credit outstanding was Rs. 860.88 crores. The re-structuring involved converting the drawing power shortfall of Rs. 436 crores into a working capital term loan bearing an interest at the rate of 10.75% p.a. The repayment of the term loan was to be deferred for a period of twenty-four months from the cut of date and the repayment was to be made in 32 quarterly installments. The interest on the said loan was to be converted into a term loan (Funded Interest Term Loan - 'FITL'), the repayment of which would start after a moratorium of twenty-four months. The interest of the term loan would be reduced to 10.75%. Similarly, the said proposal also included another working capital term loan (WICTL-II) with the moratorium of twenty-four months. The interest on cash credit facility was also proposed to be converted into a term loan.