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DELHI HIGH COURT
C.J. and V. Kameswar Rao, J.
M/s Lakshmi Energy & Food Ltd. —Appellant
versus
Reserve Bank of India and Ors. —Respondents
LPA 579 of 2018
Decided on 6.2.2019
For the Appellant:Mr. Kapil Sibal, Sr. Advocate and Mr. Vivek K. Tankha, Sr. Advocate with Mr. Amitabh Chaturvedi, Mr. Vivek Chib, Mr. Prashant Sivarajan, Mr. Himesh Thakur and Mr. Kaushal Sharma, Advocates
For the Respondent No.1:Mr. H.S. Parihar with Mr. K.S. Parihar, Advocates for RBI
For the Respondent No.2:Mr. Rajesh Kr. Gautam with Mr. Aakash Sehrawat, Advocates for PNB
For the Respondent No.3:Mr. Ramji Srinivasan, Sr. Advocate with Mr. Diwakar Maheshwari, Mr. Aditya Vikram Singh and Ms. Syloma Mohapatra, Advocates for ICICI Bank
For the Respondent No.4:Mr. Sumit Nagpal, Advocate for Axis Bank
For the Respondent No.5:Mr. Rama Subba Raju, Advocate for Syndicate Bank
IMPORTANT POINT
Merely because amendments incorporated in Banking Regulations Act, 1949 empower Central Government and RBI to issue directions for resolution of stressed assets, same does not create any entitlement or right in hands of borrower who is admittedly a defaulter.
Headnote:Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(2) – Recovery of debt – Joint Lenders Restructuring Agreement (JLRA) – Withdrawal of schemes issued for the purpose of re-vitalizing distressed assets – It is appellant’s case that respondent Banks have acted in direct contravention of their obligations under JLRA as well as Circulars issued by RBI by failing to disburse funds to appellant company – Appellant’s case that duties and obligations of respondent banks under restructuring package / JLRA are not merely contractual in nature but are instead statutory in character – JLRA, having been executed under aegis of extant RBI Circulars, raised certain legitimate expectations on part of appellant company that respondent banks would comply with the same – In terms of Paragraph 2.6.1 of JLRA, respondent banks were required to reassess working capital limits – However, that does not mean that they were obliged to provide additional funding – Decision whether to provide additional funding would depend on various factors including confidence in business and management – Funding an ongoing business is a dynamic process and requires to be re-evaluated and reassessed – Whilst respondent banks had agreed to reassess the same, they had also made it expressly clear that additional funding would be at their discretion – No directions are required to be issued to RBI for implementing Circulars to enforce JLRA – Had appellant really wanted implementation and enforcement of obligations arising out of JLRA, it should have taken appropriate steps at relevant time, before having requested for implementation of S4A Scheme, or even consenting to the same – Present action is highly belated – Merely because amendments incorporated in Banking Regulations Act, 1949 empower Central Government and RBI to issue directions for resolution of stressed assets, same does not create any entitlement or right in hands of borrower who is admittedly a defaulter – Moreover, proceedings having been initiated by ICICI Bank, which are in the nature of judicially monitored resolution of stressed assets, nothing precludes appellant from seeking resolution before NCLT in those proceedings – Appeal rejected. (Paras 34, 43, 73, 74, 75, 90, 91 and 94)
Result: Appeal dismissed.
V. Kameswar Rao, J.—Present appeal has been filed challenging the judgment dated 24th September, 2018 passed by the learned Single Judge dismissing the petition being W.P.(C) 5555/2018 filed by the appellant herein (Lakshmi Energy).
2. The case of the appellant in the writ petition was primarily for appropriate writ / order / direction directing the Reserve Bank of India to ensure compliance / implementation of its Guidelines / Circulars dated 30th January, 2014, 26th February, 2014 and 5th May, 2017, vis-à-vis the Joint Lenders Restructuring Agreement (JLRA) dated 27th June, 2015.
Facts
3. The facts as averred in the appeal are that the appellant Lakshmi Energy, a Company incorporated under Companies Act, 1956 is involved in the business of processing paddy and exporting rice. In the year 2010, it had availed of certain financial assistance from a Consortium of Banks comprising of respondent nos. 2 to 5 herein with respondent no.2 (Punjab National Bank, hereinafter referred to as PNB) being the lead banker. Sometime in 2014 on account of non-conducive market conditions in the paddy / rice industry which adversely affected the appellant’s business, the drawing power of the appellant suffered heavily and the appellant company informed the consortium of banks accordingly. However, the account was not an NPA at that point of time.
4. Meanwhile, the Reserve Bank of India in exercise of its powers under the Banking Regulations Act, 1949 (“Act of 1949” in short) issued Guidelines on 30th January, 2014 by way of which it introduced the framework of identifying stressed assets and prescribed detailed steps that had to be taken by banks in order to re-vitalize such stressed assets. These Guidelines were further supplemented by another set of Guidelines issued on 26th February, 2014. The rationale behind the said Guidelines was to arrive at an early and feasible solution in order to “preserve the economic value of the underlying assets as well as the lenders loans”. According to the appellant on a conjoint reading of the said circulars, the following salient features are noted:—
1. Banks are to mandatorily constitute a Joint Lender’s Forum, i.e., JLF as soon as a loan account of any borrower is classified as SMA-2 or on the request of a borrower to that effect.
2. As soon as the aforesaid is done, JLF is to arrive at a suitable Corrective Action Plan, i.e., CAP in a time bound manner, which as per the said Guidelines can be either “rectification”, “restructuring” or “recovery”.
3. If the JLF chooses to opt for “restructuring” then a detailed Techno-Economic Viability (TEV) study has to be carried out in a time bound manner and if “restructuring” is thereafter found viable then a “restructuring package” has to be finalized in a time bound manner.
4. However, in accounts with exposure of more than Rs.5000 million, the said Guidelines further stipulate that the TEV Study will be subject to evaluation by an Independent Evaluation Committee, i.e., IEC (Constituted by RBI & IBA) before restructuring package is finalized by the JLF.
5. Once a Restructuring Agreement is executed, the same shall be complied with by both the lender as well as the borrower.”
5. It was the case of the appellant that in the light of the prevalent market conditions and its consequent impact on the appellant’s business the appellant approached the Consortium of banks with a request to constitute a Joint Lenders Forum (JLF) in terms of the aforesaid circulars and accordingly restructure the financial assistance it had availed from the banks. On 19th March, 2015 the JLF in its meeting considered the appellant’s request and formally adopted “restructuring” as the Corrective Action Plan (CAP). It was further decided that a Techno Economic Viability (TEV) study had to be conducted in terms of the extent RBI Regulations and M/s. Dunn and Bradstreet (D&B) was appoi
