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2018 Supreme(Del) 2739
IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, J.
M/S Lakshmi Energy And Foods Ltd. - Petitioner
Versus
Reserve Bank of India and Ors. - Respondents
W.P.(C) 5555 of 2018 and C.M. Nos. 21660 of 2018, 27625-27626 of 2018, 28418 of 2018, 32776-32778 of 2018 & 32780 of 2018
Decided On : 24-09-2018
For the Petitioner: Mr. Kapil Sibal, Sr. Adv with Mr. Vivek Chib, Mr. Vikramaditya and Mr. Asif Ahmed, Mr. Amrendra Mehta and Mr. Himesh Thakur and Ms Pracheta Kar.
For the Respondents:Mr. H.S. Parihar and Mr. Kuldeep S. Parihar RBI. Mr. Rajesh Kumar Gautam and Mr. Aakash Sehrawat PNB. Mr. Ramji Srinivasan, Senior Advocate with Mr. Diwakar Maheshwar, Mr. Aditya Vikram Singh, Mr. Naveen Hegde and Mr. Bunmeet Singh ICICI Bank. Mr. R.S. Raju, Mr. M. Chandra Sekhar and Ms. Megha Syndicate Bank., Mr. Sumit Nagpal for Axis Bank.
The obligation of the corporate debtor was, therefore, unconditional and did not depend upon infusing of funds by the creditors into the appellant Company.
Headnote:
Petitioner challenged the proceedings of the Joint Lenders Forum (JLF) and sought directions to RBI to ensure implementation of its Circulars dated 30.01.2014, 26.02.2014 and 05.05.2017 vis-a-vis Joint Lenders Restructuring Agreement (JLRA) entered into between the parties. The petitioner claimed that the respondent banks failed to perform their obligations under the JLRA by not disbursing additional working capital as required. The respondent banks disputed the petitioner's claims and contended that they were not obliged to provide additional working capital. The Court held that the Circulars issued by the RBI are binding on banks and the respondent banks were required to explore various options to resolve the stress in the accounts and adopt a Corrective Action Plan (CAP). However, the Court found that the additional funding was always to be at the discretion of the respondent banks and the petitioner could not establish that the respondent banks were obliged to provide additional working capital in terms of the JLRA. The Court also held that the petitioner's obligation for repayment is unconditional and the fact that the petitioner's claim for additional assistance was denied does not absolve the petitioner from its liability to repay the amounts borrowed along with interest.
Fact of the Case:
The petitioner, a company incorporated under the Companies Act, 1956, had availed of certain financial assistance from respondent banks. The petitioner faced difficulties in servicing its debts and the respondent banks formed a JLF in terms of the Circular dated 26.02.2014 issued by the RBI. The JLF agreed on a restructuring scheme, which was translated into an Inter-Credit Agreement and Debtor-Credit Agreement (JLRA) that was exempted on 27.06.2015. The petitioner claimed that the respondent banks failed to disburse additional Working Capital Limits, which the petitioner claimed was an integral part of the restructuring scheme referred to as the “approved JLF package” in the JLRA. The petitioner further contended that the action of ICICI Bank in instituting proceedings under the IBC is contrary to the Circular dated 05.05.2017 issued by the RBI, which mandates that the majority decision would be binding on all the members of the JLF.
Finding of the Court:
The Court found that the additional funding was always to be at the discretion of the respondent banks and the petitioner could not establish that the respondent banks were obliged to provide additional working capital in terms of the JLRA. The Court also held that the petitioner's obligation for repayment is unconditional and the fact that the petitioner's claim for additional assistance was denied does not absolve the petitioner from its liability to repay the amounts borrowed along with interest.
Issues: 1. Whether the respondent banks were obliged to provide additional working capital in terms of the JLRA? 2. Whether the petitioner's obligation for repayment is unconditional?
Ratio Decidendi: 1. The Court held that the additional funding was always to be at the discretion of the respondent banks and the petitioner could not establish that the respondent banks were obliged to provide additional working capital in terms of the JLRA. 2. The Court held that the petitioner's obligation for repayment is unconditional and the fact that the petitioner's claim for additional assistance was denied does not absolve the petitioner from its liability to repay the amounts borrowed along with interest.
Final Decision: The Court dismissed the petition and held that the petitioner's obligation for repayment is unconditional and the fact that the petitioner's claim for additional assistance was denied does not absolve the petitioner from its liability to repay the amounts borrowed along with interest.
VIBHU BAKHRU, J.
1. 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 30.01.2014, 26.02.2014 and 05.05.2017 vis-a-vis Joint Lenders Restructuring Agreement dated 27.06.2015 invoked and implemented qua the Petitioner Company herein.”
2. The petitioner also impugns the proceedings of the Joint Lenders Forum (hereafter ‘JLF’) dated 09.02.2018 wherein the minutes of the JLF’s meeting held earlier on 23.01.2018 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 th
