Telangana High Court
M/S. Nagarjuna Fertilizers And ... vs Icici Bank Ltd And 6 Others on 13 October, 2022
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
WRIT PETITION No.24778 OF 2022
ORDER:
Heard Mr. Akshay Makhija, learned Senior Counsel representing Mr. Vikram Pooserla, learned counsel for the petitioner, Mr. S. Ravi, learned Senior Counsel representing Mr. G. Kalyan Chakravarthy, learned counsel appearing for respondent No.1 and Mr. D.V. Sitharam Murthy, learned Senior Counsel representing Mr. G.P. Yash Vardhan, learned counsel appearing for respondent Nos.2 to 7.
2. This writ petition is filed to declare the action of respondent Lender No.1 in issuing letter dated 17.09.2021 stating that a Corrective Action Plan (CAP) has been implemented "without implementing CAP (i.e., providing funding assessed by respondent Lenders for rectification of account in 2015) and reviving the company" as illegal arbitrary and violative of Reserve Bank of India (RBI) CAP Guidelines of 2014 and 2015 and set aside the same and for a consequential direction to the respondents Lenders to comply with RBI guidelines 2014 and 2015 in letter and spirit in relating to non-adherence of CAP guidelines.
2
KL,J W.P. No.24778 of 2022
3. CASE OF THE PETITIONER:
i) Vide letter dated 17.09.2021, respondent No.1 demanded the petitioner company to pay the outstanding principal amount together with interest, compound interest, liquidated damages and other charges payable under the Agreements aggregating Rs.3,148.62 Million as on 30.06.2021. It was also informed to the petitioner that in case the petitioner fails to make the said payments, respondent No.1 shall be constrained to take such steps as may be advised, for enforcing the securities and realizing their dues.
ii) The petitioner herein is a Public Limited Company, engaged in the business of Agricultural Inputs i.e., primarily Urea. It has a Unit at Kakinada in Andhra Pradesh State. It had invested and established Ammonia Urea Plant in Kakinada in the year 1992 and continued expanding capacity till 2007.
iii) There was an explosion in the Gas Supply Pipeline leading to disruption of supply of natural gas to the Plants of the petitioner.
The supply of gas was disrupted for two (02) years causing a severe and crippling blow to the production and financial health of the petitioner. Gas Authority of India Limited (GAIL) declared the said 3 KL,J W.P. No.24778 of 2022 incident as a force-majeure event. Due to the said accident and consequential shutdown of production and resulting losses, the account of the petitioner was classified as SMA-2 by the respondents.
iv) The petitioner sought rectification of account with funding on account of the GAIL pipeline accident as per Corrective Action Plan (CAP) Guidelines 2014 and 2015 issued by the RBI from its Consortium Lenders i.e., respondent Nos.1 to 7. Respondent Nos.1 to 7 herein have formed a Joint Lenders Forum (JLF) to speed up revival of stressed assets. They had deliberated various options to revitalize the stressed account and decided to pursue rectification with additional funding support from the respondent lenders as soguht by the petitioner company.
v) Respondent Nos.2 and 3 have assessed Rs.800 Crores of Working Capital Term Loan and Rs.3050 Crores as Working Capital limits for rectifying the account of the petitioner company in 2015-16. Respondents instead of funding Rs.800 Crores of working capital term loan in 2015-16, released only Rs.650 Crores over a period of few years. It has decreased the working capital limits from Rs.2850 Crores to Rs.2058.04 Crores instead of increasing from the existing limit of Rs.2058.04 Crores to Rs.3050 Crores. The respondent lenders 4 KL,J W.P. No.24778 of 2022 failed to account or acknowledge the non-implementation of CAP/failure to revive the company is in gross violation of RBI Guidelines. On the other hand, respondent No.1 bank has issued the impugned letter dated 17.09.2021 by recalling the loan facilities that were extended by it to the petitioner, alleging defaults committed by the Company.
vi) The respondent lenders have also filed a petition under Section - 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal (NCLT), Hyderabad, for initiation of Corporate Insolvency Resolution Proceedings against the petitioner vide C.P. No.2787/7/HDB/2021. The same is pending. Therefore, according to the petitioner, the impugned letter dated 17.09.2021 is arbitrary and against the directives given by this Court in the earlier writ petitions and also contrary to the Circulars of 2014-15 of RBI.
4. CONTENTIONS OF THE RESPONDENTS:
i) Respondent No.1 herein had filed counter contending that the present writ petition is not maintainable since it is a private bank and it is not a 'State' or its Instrumentality as defined under Article - 226 of the Constitution of India. Therefore, the same is not in amenable to 5 KL,J W.P. No.24778 of 2022 writ jurisdiction. The lis involved in the present writ petition is hit by doctrine of res judicata.
ii) Respondent No.1 had not violated any directives issued by this Court in the earlier writ petitions. There is no violation of any provision or Circulars of 2014-15 of RBI. Considering several aspects and after due deliberations only, respondent no.1 had issued the impugned letter dated 17.09.2021 demanding the petitioner to pay the aforesaid amounts. There is no error in it. Even then, the petitioner herein had filed the present writ petition with an intention to stall the proceedings.
iii) Respondent Nos.2 to 7 have also filed separate counter almost with the very same contentions. Thus, both of them, sought to dismiss the present writ petition.
5. ANALYSIS AND FINDING OF THE COURT:
i) The petitioner herein and another had filed a writ petition vide W.P. No.37000 of 2018 against the respondents to declare the action of the respondent banks in not a) providing the approved working capital as agreed in the minutes dated 16.04.2018 and 08.06.2018, considering the resolution plan of the petitioner company 6 KL,J W.P. No.24778 of 2022 dated 07.08.2018 in a timely manner; b) providing funds under the CAP including the term loans and sanctioned working capital limits;
and c) opening escrow account in timely manner, as illegal. This Court vide order dated 10.07.2019 dismissed the said writ petition.
ii) The petitioner herein had also filed a writ petition vide W.P No.8509 of 2020 against the respondent banks to declare the letter dated 04.06.2020 which imposed unilateral conditions for implementing the Resolution Plan agreed vide JLM dated 19.03.2020 and 27.03.2020, as illegal, and to direct the respondent banks to implement the said Resolution Plan vide JLMs dated 19th/27th March, 2020 with full funding as agreed in the said JLMs and detailed in the TEV Report, Information Memorandum and Credit Rating within six (06) months. The said writ petition was dismissed by this Court vide order dated 30.04.2021. Feeling aggrieved by the said order, the petitioner had preferred an appeal vide W.A. No.168 of 2021, and this Court vide order dated 30.05.2021 granted interim order not to take any coercive steps. Thereafter, the petitioner herein withdrew the said writ appeal.
7
KL,J W.P. No.24778 of 2022
iii) In the order dated 10.07.2019 in W.P. No.37000 of 2018, this Court categorically held as follows:
"....the approval of working capital by the respondent- banks as detailed in the minutes dated 16-04-2018 and 08- 06-2018 considering the resolution plan of the petitioner- company dated 07-08-2018 and not providing funds under the approved corrective action plan (CAP) on the part of the respondent-banks is covered by the RBI circular dated 07-06-2019 where under a mechanism is provided for resolution of stressed assets. This Court cannot sit in appeal over the said circular issued by the RBI in that behalf and suggest a different strategy. The RBI circular dated 07-06- 9 2019 is not in challenge. In the circumstances, respondent banks cannot be restrained from protecting its interest and in proceeding in accordance with law. In view of the same, I do not see any merit in the writ petition and it is accordingly dismissed."
It is relevant to note that there is no challenge to the said order by filing writ appeal by the petitioner and it has attained finality.
iv) Paragraph No.18 of the order dated 30.04.2021 in W.P. No.8509 of 2020 is relevant and the same is extracted as under:
"18. This Court, having considered the rival submissions made by learned counsel for respective parties, is of the considered view that the conclusions arrived in the Joint Lenders Meeting held on 19th and 27th of March, 2020, 8 KL,J W.P. No.24778 of 2022 have not been taken to the logical end by the respondent Banks either in the form of an agreement/contract and it would mean that there is no contractual obligation between the petitioner and the respondents for enforcement of the conclusions arrived in the Joint Lenders Meeting held on 19th and 27th of March, 2020. If those conclusions are to be acted upon, more money has to be pumped in pursuant to the conclusions and this Court cannot give any mandamus to pump in money to revive the petitioner Company, more so when there is no agreement or contract entered in pursuance of the conclusions which were arrived in the Joint Lenders Meeting held on 19th and 27th of March, 2020. It is for the respondent Banks to take a decision as to whether the petitioner Company should be revived and whether additional money has to be pumped in by them, but this Court cannot give a direction to take forward the conclusions arrived in the Joint Lenders Meeting held on 19th and 27th of March, 2020, to the logical end. It is left open to the respondent Banks to take a decision as to whether to take the conclusions arrived on 19th and 27th of March, 2020 to the logical end or not, but there cannot be a direction to the respondent Banks to revive the petitioner Company in terms of the conclusions arrived in the Joint Lenders Meeting held on 19th and 27th of March, 2020. The grounds which are being urged by the petitioner in the present writ petition can be urged before the NCLT in the petition filed by the respondent Banks and the NCLT can revive the petitioner Company if there is any possibility of reviving the Company. Thus, this Court is not 9 KL,J W.P. No.24778 of 2022 inclined to interfere with the impugned letter and the writ petition is liable to be dismissed. The Delhi High Court has also rightly declined to interfere and dismissed the case i.e., Amira Pure Foods Pvt. Ltd., v. Canara Bank & others, reported in Manu/DE/3176/2018 (w.p.(c) 8814/2018 and CM.No. 33880/2018 decided on 24.08.2018)."
v) In the impugned letter dated 17.09.2021, respondent No.1 bank has stated that at the request of the petitioner, it has granted reliefs by way of CAP vide Common Loan Agreement on 31.03.2017 subject to the terms and conditions mentioned therein. Despite granting the reliefs as mentioned therein, the petitioner committed defaults in complying with the terms and conditions therein. Thus, the petitioner failed and neglected to make payment /repayment of principal, interest and other charges due in respect of the aforesaid facilities. The petitioner has also committed various breaches of the other terms and conditions of the said agreements. With the said reasons, respondent No.1 had demanded the aforesaid amounts from the petitioner.
vi) In the present writ petition, the petitioner's grievance is that the respondents have not released the amounts assessed/required for rectification/implementation of CAP in terms of the guidelines issued 10 KL,J W.P. No.24778 of 2022 by the RBI 2014 and 2015. Up-gradation of the account from SMA-2 in 2015-16 without implementing CAP and reviving the Company is indirect violation of RBI guidelines and, therefore, invalid.
vii) Respondent No.1 claim of implementing CAP vide letter dated 17.09.2021 upgrading the account in 2015-16 and classifying it as Non-Performing Asset (NPA) in 2018 is contrary to the facts and violative of the aforesaid Circulars of the RBI i.e., CAP framework 2014 and 2015. According to the petitioner, the respondent lenders knowing very well that they did not adhere to RBI guidelines in implementing CAP, have misrepresented that the CAP was implemented in 2015-16 to overcome limitation, suppressed the CAP debt disputes disclosed to them and the stock exchanges and more importantly the directions of this Court. The action of respondent No.1 in recalling the loans, demanding acknowledgment of debt, seeking CIRP while the appeal is pending before this Court would cause irreparable damage to the petitioner and the Government of India and adversely affects its interest. The arbitrary actions against statutory guidelines in commercial aspects do not take away the writ jurisdiction of this Court and, therefore, the present writ petition is maintainable.
11
KL,J W.P. No.24778 of 2022
viii) Perusal of the record would reveal that the RBI has issued a Circular dated 07.06.2019 in relation to dealing with the stressed assets. Under the Circular, an agreement was entered within thirty (30) days after issuance of guidelines, and as per the guidelines, within 180 days inter-creditor agreements need to implement the resolution plan as per the Circular. Such resolution plan includes initiation of recovery proceedings under the Insolvency and Bankruptcy Code, 2016. The Circular determines time bound manner in which decisions are to be taken by the Committee of Creditors. According to the respondents, they have followed the said guidelines strictly.
ix) In the Circular, dated 30.01.2014 issued by the RBI, the basis for classification as SMA-0, SMA-1 and SMA-2 was mentioned. With regard to the classification as SMA-2, the basis is Principal or interest payment overdue between 61-90 days.
x) Referring to Clause 2.1.4 of the said Circular, learned counsel for the petitioner would submit that the Bank will be required to report, among others, the SMA status of the borrower to the CRILC. Individual banks will have to closely monitor the accounts reported as SMA-1 or SMA-0 as these are the early warning signs of 12 KL,J W.P. No.24778 of 2022 weaknesses in the account. They should take up the issue with the borrower with a view to rectifying the deficiencies at the earliest. However, to start with, reporting of an account as SMA-2 by one or more lending banks/notified NBFCs will trigger the mandatory formation of a Joint Lenders' Forum and formulation of CAP as envisioned in the subsequent paragraphs. Lenders covered in this framework must put in place a proper Management Information and Reporting System so that any account having principal or interest overdue for more than 60 days gets reported as SMA-2 on the 61st day itself.
xi) Learned counsel for the petitioner also would submit that the respondent lenders have not followed the said procedure laid down in Clause 2.3 of the very same Circular i.e., CAP by JLF and 'rectification'. Clause 2.3.1 of the said Circular dated 30.01.2014 of the RBI mainly says that JLF have to explore various options to resolve the stress in the account including rectification and restructuring. Once the first two options are seen as not feasible, due to recovery process may be resorted to. The JLF may decide the best recovery process to be followed among the various legal and other recovery options available with a view to optimizing the efforts and 13 KL,J W.P. No.24778 of 2022 results. If the JLF decides the aforesaid two options, but the account fails to perform as per the agreed terms under the said options, JLF should initiate recovery under the option '(c) recovery'. Clause - 3.3.1 of the very same Circular says that JLF should carry out the detailed Techno-Economic Viability (TEV) study and, if found viable, finalize the restructuring package within the next 30 days. According to the petitioner, the respondents have not followed the said procedure, whereas, according to the respondents, they have followed the same.
xii) Perusal of the record would reveal that the petitioner company had approached the respondent banks requesting CAP. Respondent No.1 bank, a lead bank, has convened a meeting with other respondent banks in order to form JLF and to formulate CAP. Thereafter, they have entered into Master Joint Lenders Forum Agreement dated 18.05.2015 in accordance with applicable guidelines of the RBI with an oblique intention to revive the petitioner's company. Over a period of time, the respondent banks have assessed fund-based limits of Rs.850 Crores and non-fund based limits of Rs.2200 Crores for achieving the estimates given under CAP. Out of which, fund based limits of Rs.811 Crores and non-fund based limits of Rs.1247.04 Crores were documented. In addition, IDBI Bank as 14 KL,J W.P. No.24778 of 2022 JLF Lead, assessed CAP loan of Rs.800 Crores out of which Rs.621 Crores was released. Therefore, the CAP has been duly implemented by the respondent banks.
xiii) Approval of the CAP Loan was subject to conditions, all of which were intimated prior to disbursal to the petitioner company and the same were accepted by them. It has failed to adhere and abide by the terms and conditions of the loan agreements viz., non-creation of Pledge on Rs.14.52 Crore shares of company by June, 2018. The petitioner company which availed the CAP term loan, is in default of the terms of the loan, having defaulted both in repayment as well as in compliance of the said terms of sanction of the CAP term loan. Despite lapse of considerable time, the petitioner company has still not complied with creation of complete security as per the terms of sanction of CAP term loan. As long as the conditions and terms of sanction of assistance are un-complied, release of limits cannot be demanded. These are matters of fiscal implication best left to the respondent banks. It was agreed that the Key terms for term loan limit is Rs.800 Crores and the purpose was long term working capital and the availability period was till 31.12.2015. According to the petitioner, it has adhered to the said conditions, whereas according to 15 KL,J W.P. No.24778 of 2022 the respondent banks, the petitioner failed to adhere the said conditions.
xiv) Referring to Clauses 5.1 and 5.2 of the Circular, dated 24.09.2015 of RBI, learned counsel for the petitioner would submit that the respondent banks have not followed the said Circular. It is relevant to note that the petitioner company and the respondents have entered into working capital consortium agreement dated 21.05.2016 on the specific terms and conditions agreed thereon. The petitioner herein had also entered into common loan agreement dated 31.03.2017 with respondent No.1 bank and the other persons listed in Schedule I of the agreement i.e., IDBI Bank Limited, ICICI Bank Limited, State Bank of India and UCO Bank. According to the petitioner, the respondents have not followed the said terms and conditions of the agreement, whereas the respondents would contend that they have followed the said terms and conditions.
xv) Mr. D.V. Sitharam Murthy, learned senior counsel, referring to the clause 'D' of common loan agreement, dated 31.03.2017, would submit that the IDBI Bank has complied with the said conditions. Even then, there is no improvement in the repayment 16 KL,J W.P. No.24778 of 2022 status of the petitioner. Referring to Clause - 2.2 of the said agreement, he would submit that the term loan was subject to and conditions precedent i.e., the JLF Lenders shall not be obliged to disburse their respective shares of the undisbursed term loan, unless and until the borrower fulfils, completes and performs the pre- commitment conditions (before the Financial Closure) and conditions precedent, and produces evidence and documentation to the satisfaction of the JLF lenders of the due compliance of each of the pre-commitment condition and conditions precedent. Clause - 9.1 (iii) of the said agreement says that pledge of the Pledge Shares of the borrower company on a pari passu basis between the JLF Lenders, with the consent of ICICI Bank Limited and IDBI Bank Limited accorded vide their letters provided to the JLF lenders, respectively ceding pari passu charge in favour of the JLF lenders. According to Mr. D.V. Sitharam Murthy, learned senior counsel, the petitioner did not comply with the said conditions.
xvi) As discussed above, with regard to the delay in sanction of loans and undertaking CAP, this Court has already considered and dismissed W.P. No.37000 of 2018 vide order dated 10.07.2019. The said order attained finality.
17
KL,J W.P. No.24778 of 2022 xvii) In the order dated 30.04.2021 in W.P. No.8509 of 2020, this Court gave a categorical finding that the conclusions arrived in the Joint Lenders Meeting held on 19th and 27th of March, 2020, have not been taken to the logical end by the respondent Banks. But, there cannot be any direction to the banks to revive the petitioner company in terms of the conclusions arrived at in the said meetings.
xviii) As discussed above, the respondent banks have already filed a petition under Section - 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal (NCLT), Hyderabad, for initiation of Corporate Insolvency Resolution Proceedings against the petitioner vide C.P. No.2787/7/HDB/2021. It is relevant to note that the guarantors of the aforesaid loans have filed a suit vide O.S. No.320 of 2021 against the respondent banks seeking a declaration and mandatory injunction in relation to the deeds of personal guarantees. An interim order was granted.
xix) In the impugned letter dated 17.09.2021, respondent No.1 has specifically mentioned that despite granting reliefs as requested by the petitioner by way of CAP vide Common Loan Agreement, dated 31.03.2017, subject to the terms and conditions mentioned therein, the petitioner failed to make the payments. The petitioner committed 18 KL,J W.P. No.24778 of 2022 defaults in complying with the terms and conditions thereof. It has failed and neglected to make payment/repayment of principal, interest and other charges due. Considering all the said aspects only, respondent No.1 had issued the aforesaid impugned letter demanding the aforesaid amounts. This Court is of the considered view that there is no error in the said impugned letter.
xx) Respondent No.1 has issued the impugned letter to protect its interest. The petitioner did not comply with the requirements under the resolution plan, the proposal was refused and rejected and all the lenders decided to proceed ahead against the petitioner with 'recovery process' under the provisions of law by initiating legal measures under by such process. The respondents have classified the account of the petitioner as NPA from the effective date of default and not from the date of refusal of revival plan. Thus, the respondents have classified the petitioner's account as NPA retrospectively.
xxi) As on 30.04.2021, the petitioner is due a huge amount of Rs.305,93,62,059.29ps. to respondent No.3 for the facility availed towards working capital and term loan facility. Like-wise, the petitioner has not made any decisive steps to safeguard the interest of the stakeholders and the respondent banks who have committed to an 19 KL,J W.P. No.24778 of 2022 amount of Rs.2717 Crores (working capital of Rs.2058 Crores plus RTL of Rs.659 Crores) of public money. Considering the said aspects, respondent No.1 had issued the aforesaid impugned letter. There is no error in it. It has to recovery the aforesaid money, which is public money, from the petitioner.
xxii) The relief sought in the aforesaid two writ petitions is different from the relief sought in the present writ petition. In the present writ petition, the impugned letter dated 17.09.2021 issued by respondent No.1 demanding the aforesaid amount from the petitioner is under challenge. The impugned letter was not decided in the earlier writ petitions. Therefore, the contention of the learned senior counsel appearing on behalf of the respondents that the lis involved in the present writ petition is hit by doctrine of res judicate is untenable.
xxiii) It is the specific contention of the petitioner that respondent No.1 has issued the impugned letter dated 17.09.2021 contrary to the procedure laid down under RBI Circulars 2014 and 2015 and in violation of the directives issued by this Court in the aforesaid writ petitions. Thus, according to the petitioner, respondent No.1 has violated the statutory obligation cast upon it by issuing impugned letter. In view of the specific relief sought by the petitioner, 20 KL,J W.P. No.24778 of 2022 this Court is of the opinion that though respondent No.1 is a private entity, not amenable to writ jurisdiction, the present writ petition is maintainable since according to the petitioner, respondent No.1 failed to comply with the statutory obligation cast upon it as per RBI Circulars 2014 and 2015. Thus, the said contention of the learned counsel appearing on behalf of the respondents is also untenable.
6. CONCLUSION:
i) In view of the aforesaid discussion, the petitioner failed to make out any ground to grant relief sought in the present writ petition.
Further, the writ petition is devoid of merits and the same is liable to be dismissed.
ii) The present Writ Petition is accordingly dismissed. However, in the circumstances of the case, there shall be no order as to costs.
As a sequel, the miscellaneous petitions, if any, pending in the writ petition shall stand closed.
_________________ K. LAKSHMAN, J 13th October, 2022 Mgr