Termination of Concession Agreement does not Discharge Corporate Debtor's Obligation to Repay: NCLAT [Read Order]

In a recent case, the New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has held that termination of a Concession Agreement does not discharge the Corporate Debtor's liability to repay when such termination has no relation to the default committed by the Corporate Debtor.

The suspended director of the Corporate Debtor (CD) filed appeal to challenge the order of NCLT which allowed the application filed by the Financial Creditor (Union Bank of India) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) for initiation of the Corporate Insolvency Resolution Process against Supreme Manor Wada Bhiwandi Infrastructure Pvt. Ltd. (CD) and Sudip Bhattacharya was appointed as the Interim Resolution Professional (IRP).

The FC has filed the petition under Section 7 of the Code on 23.08.2018 for the resolution of an amount of Rs. 168,83,00,000/- alleging the date of default as 31.07.2018. The CD is a special purpose vehicle (SPV) promoted by Supreme Infrastructure India Ltd.

The Govt. of Maharashtra (GoM) through its public works department granted a concession to the CD for a period of 22 years and 10 months by way of exclusive right, license and authority for construction, operation, maintenance and handing over of four laning of Manor Wada SH No. 34 KM, 29.55 to 53.18 in Taluka Wada/Bhiwani/Palghar, District Thane ('Project') on build, operate and transfer (BOT) basis. The GoM and CD executed a concession agreement (CA) for implementing the project.

The CD, in order to fund its project, availed a rupee term loan facility of Rs. 322,50,00,000/- from the Financial Creditor and other lenders forming part of the consortium which was led by the Financial Creditor (Union Bank Of India). This facility may be referred to as Term Lona I.

The CD executed a common loan agreement dated 30.08.2010 with Allahabad Bank, Bank of India, Indian Overseas Bank, L&T Infrastructure Finance Company Ltd., Oriental Bank of Commerce, State Bank of India, State Bank of Patiala and Union Bank of India (FC). In this common loan agreement, the share of the present financial creditor was Rs. 60,00,00,000/- and in order to secure term loan I, various documents were executed.

Since the CD missed the original commercial operation date qua the project, therefore, scope of the project was changed by the GoM vide its order dated 20.07.2013. The CD was to undertake construction and development of the bypass state Highway at Vishwabharti Phata Bhinnar Vdpa Junction from 0.000 KMs to 7.900 KMS District Thane, State of Maharashtra on BOT basis (Bypass Project).

The CD executed another common loan agreement on 30.07.2013 with financial creditor (new Lenders), the lender's agent and the security trustee for availing the additional facility of Rs. 83,66,00,000/-. This is called term loan II for which various documents were executed for securing it, namely, (a) Security Trustee Agreement dated 20.07.2013 (b) Lender's Agent Agreement dated 30.07.2013 (c) Indenture of Mortgage dated 05.09.2013 (d) Deed of Personal Guarantee dated 30.07.2013, executed by Vikram Sharma (e) Deed of Personal Guarantee dated 30.07.2013, executed by Vikas Sharma and (f) Escrow Agreement dated 30.07.2013.

Since the CD faced various difficulties in meeting its debt obligation in prescribed time, therefore, consortium lenders approved a restructuring package on 18.02.2015 by which it was agreed upon to restructure the debt of the CD and to provide loan for an aggregate principal amount not exceeding Rs. 414,18,00,000/-. This arrangement is called JLF Restructuring Package (Package).

The Financial Creditor issued sanction letter dated 23.03.2015 to approve the terms of the Package in pursuance to which a master restructuring agreement was executed on 27.03.2017 between the CD, FC, other Consortium Lenders, SBICAP Trustee Company Ltd. (acting as the project security trustee, by pass security trustee and debenture trustee, bypass debenture trustee and debenture trustee. These trustees are called as 'Security Trustee'. A Debenture Trust Deed was also secured between the CD and SBICaP Trustee Company Ltd. on 27.03.2015.

As per the master restructuring agreement, the CD was required to issue to the FC secured, unlisted, redeemable, non-convertible debentures in consideration of the package, therefore, CD allotted to the FC NCDs of an aggregate nominal value of Rs. 12,45,00,000/- on 06.03.2015.

The CD failed to pay the debt mentioned herein above, therefore, it was declared as Non-Performing Asset (NPA) on 24.11.2016. The CD also acknowledged its debt which was due and payable by executing and signing a revival letter on 22.01.2018 to the FC and the other consortium lenders. Since, CD failed to discharge its debt, therefore, the FC issued recall notice on 01.06.2018, recalling the entire facilities and demanding the payment of Rs. 160,80,69,112/- on 30.04.2018.

It was alleged by the CD that as per the SA, the debt stand assigned to GoM and was to be paid by it to the lenders. It is also the case of the CD that as per clauses of Article 16 of Concession Agreement (CA) in which events of default and termination was provided, GoM was liable to pay the FC by way of termination payment. The CD also referred to clauses of SA but it emphasised that upon the termination of CA the debt would stand taken over by the GoM and nothing was due from the CD to the FC.

It is further the case of the CD that CA was terminated by the GoM on 11.10.2019. The CD invoked arbitral proceedings in which huge amount was recoverable from the GoM, therefore, the case was covered by the decision of the Hon'ble Supreme Court in the case of Vidarbha Industries Power Limited vs. Axis Bank Limited, Civil

Appeal No. 4633 of 2021.

The Tribunal concluded that CD has not disputed the disbursal of the amount and the default in repayment. The CD had tried to shift its liability on the basis of provisions of CA and SA to GoM and came to a firm conclusion that once the debt and default has been proved and also admitted by the CD in its revival letter, the petition under Section 7 has to be admitted in terms of the decision of the Supreme Court in the case of Innoventive Industries Ltd. Vs. ICICI Bank & Ors., 2018 1 SCC 407.

The appellant submitted that with the termination of the CA and as per the terms of the CA the debt stand transferred to the GoM and nothing was payable by the CD. It is submitted that as per the terms of CA, event of default provides that an event of default can be either a concessionaire event of default or a GoM event of default. Termination Payment and Mode of payment makes it clear that irrespective of the concessionaire event of default or GoM event of default, the GoM was liable to pay termination payment directly to the lenders.

It is further submitted that in the arbitration proceedings the CD has made a claim of Rs. 456.71 Cr. and the GoM, during the pendency of the arbitration proceeding, made an offer of Rs. 174 Cr. which according to him the CD is at least entitled to an amount of Rs. 174 Cr. which is sufficient to pay the debt of the FC. He has further submitted that the decision in the case of Vidarbha Industries (Supra) is squarely applicable because

A division bench of Justice Rakesh Kumar Jain and Mr. Naresh Salecha (Technical Member) observed that the argument of the Appellant that the termination of CA has resulted into shifting of liability upon the GoM, the same cannot be made the basis for dismissing the application because the liability was enjoined upon the CD to make the payment to the FC.

Even if, it is presumed, for the sake of argument, that offer was made of Rs. 174 Cr. yet it will not discharge the entire debt of the CD which is more than 824 Cr. and even the debt of the FC is more than 200 Cr. whereas the application under Section 7 can be admitted if the debt crosses the threshold of Rs. 1 Cr. as provided under Section 4 of the Code.

The tribunal found the appeal without any merit and the same is hereby dismissed.

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