National Company Law Appellate Tribunal
State Bank Of India vs Visa Infrastructure Limited on 18 January, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI
Company Appeal (AT) (Insolvency) No. 179 of 2019
[Arising out of order dated 11th January, 2019 passed by the Adjudicating
Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in C.P. (IB)
No. 23/KB/2018]
IN THE MATTER OF:
State Bank of India,
Corporate Office at:
Madame Cama Road,
Nariman Point,
Mumbai - 400 021.
One of its Branch At:
Stressed Assets Management Branch,
Nagaland House, 8th Floor,
11 and 13, Shakespeare Sarani,
Kolkata - 700 071. ....Appellant.
(Financial Creditor)
Versus
Visa Infrastructure Ltd.,
Registered Office at:
8/10, Alipor Road,
Kolkata - 700 027
West Bengal. ....... Respondent.
(Corporate Debtor)
Present:
For Appellant: Mr. Ramji Srinivasan, Sr. Advocate with Mr. P. B. A
Srinivasan, Mr. Parth Tandon, Ms. Shruti Pandey,
Ms. Megha Dugar and Mr. Sumit Swami, Advocates.
For Respondent:- Mr. Sabyasachi Chaudhary and Mr. Tridib Bose,
Advocates.
2
JUDGMENT
(18th January, 2023) Justice Anant Bijay Singh;
The present Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (for short IBC) has been filed by the Appellant - 'State Bank of India' being aggrieved and dissatisfied by the order dated 11th January, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in C.P. (IB) No. 23/KB/2018 whereby the Application under Section 7 of the IBC filed by the Appellant - 'State Bank of India' (Financial Creditor) for initiation of Corporate Insolvency Resolution Process against the Respondent- 'Visa Infrastructure Ltd' (hereinafter referred to as 'Corporate Debtor') alleging that Corporate Debtor has failed to repay the Principal Amount alongwith the interest to the Financial Creditor, default being alleged to the tune of Rs.726,69, 23,749.79/- as Principal Amount with interest calculated upto 13th December, 2017 thereby aggregating the debt in default to Rs. 982,82,01,341.70/-, was rejected by the Adjudicating Authority on the ground that the Corporate Debtor discharged the obligation as per the terms of the guarantee and therefore there was no debt due from the Corporate Debtor.
2. The facts giving rise to this Appeal are as follows:
i) The Appellant i.e. State Bank of India (Financial Creditor) is a Public Limited Banking Company incorporated under the State Bank of India Act, 1955 having its Corporate Office at madame Cama Road, Nirman Point, Mumbai 400021 and one of its branch named as Stressed Assets Management Branch Company Appeal (AT) (Insolvency) No. 179 of 2019 3 amongst other places at Nagaland House, 8th Floor, 11 and 13, Shakespeare Sarani, Kolkata-700071.
ii) The case is that the Respondent Company (Corporate Debtor) stood as a corporate guarantor to secure the repayment of the credit facilities granted to the one Visa Steel Limited (hereinafter referred to as "Borrower Company"). In the year 1999 from time to time the Borrower Company approached the Appellant and other lenders of the Borrower Company inter alia namely Andhra bank, bank of Baroda, Canara Bank, Central Bank of India, Dena Bank, Export Import Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of Travancore, Syndicate Bank, Union Bank of India, Vijaya Bank, Small Industries Development Bank of India to avail different credit facilities for part financing of its business. The said request was considered by the Appellant as well as aforesaid Lenders and granted different credit facilities to the Borrower Company from to time.
iii) Further case is that due to financial dearth in the Borrower Company, in the year 2012 the Borrower Company was referred to the Corporate Debtor / Restructuring Forum (CDR) for efficient restructuring of corporate debt pursing to the sanction of the CDR Package. The existing financial assistance/debt was restructured and certain additional financial assistance were granted to the Borrower Company as set out in the Letter of Approval dated 27.09.2012 issued by the Corporate Debt Restructuring Cell. In pursuance to the said sanctioned of the CDR Package one of the conditions of the Package was that the promoters of the Borrower Company were to contribute as a Promoter's contribution of Rs.
Company Appeal (AT) (Insolvency) No. 179 of 2019 4 325 Crores and in addition to the said contribution the Promoters were required to bring additional equity of Rs. 125 Crores over and above the contribution of Rs. 325 Crores. The Borrower Company accepted the terms of the CDR Package and executed various loan documents which includes master Restructuring Agreement dated 19.12.2012, Working Capital Consortium Agreement dated 19.12.2012, Security Trustee Agreement dated 19.12.2012, Trust and Retention Account Agreement dated 19.12.2012, Additional Term Loan Agreement dated 19.12.2012, Joint Deed of Hypothecation dated 19.12.2012, Inter Se Agreement dated 19.12.2012, Deed of Personal Guarantee dated 19.12.2012 and Deed of Personal Guarantee dated 19.12.2012.
iv) The Borrower Company also furnished the Corporate Guarantee of the Respondent Company which is actually Promoter Company of the Borrower Company. The Respondent Company passed a Board Resolution dated 29th September, 2012 (Annexure-A/3 Colly at page 101 to 107 of the Appeal) thereby agreeing to execute a corporate guarantee in favour of the lenders and also create negative lien on the Respondent's property situated at "Visa House" Kolkata, 700027 to secure the restructured debts. In pursuance to the Board Resolution dated 29th September, 2012 the Respondent Company has executed Deed of Corporate Guarantee dated 19th December, 2012 in favour of the lenders. As per the said guarantee executed by the Respondent Company, the guarantee shall be a continuing guarantee and shall remain in full force till the Borrower Company repays the full restructuring facilities together with all interests/liquidated damages/commitments, cost, charges and all other monies. Company Appeal (AT) (Insolvency) No. 179 of 2019 5 In terms of the Deed of the Guarantee, the Respondent Company further agreed that the liability of the Respondent Company under the said guarantee shall not be affected by any change in the constitution of the Borrower Company by merger/demerger/reverse merger or amalgamation of the Borrower Company with any other company / corporation or concern. It was further agreed by the said guarantee that the liability of the guarantor is to the tune of Rs. 3053.25 Crores plus interest.
v) In the year 2014, CDREG approval for business reorganisation of the Borrower Company was made in the review meeting held by the CDREG on 30.12.2014. In pursuant to the Letter of Approval (LOA) dated 31.12.2014 read with letter dated 11.02.2015 of CDREG for the business reorganization proposal of Borrower Company under CDR system, the Borrower Company executed and arranged for execution of various financial documents which include the Corporate Guarantee furnished by the Respondent Company. As per letter dated 30.12.2014, the Borrower Company's steel business has to be demerged into a separate company i.e. Visa Special Steel Limited ("VSSL") a through a scheme of arrangement. Thereafter, one of the subsidiaries of the Borrower Company, Visa Bao Limited ("VBL") which is a JV Company, was to be merged with the Borrower Company. The Promotors of the Borrower Company has, as per the CDR Package of 2012, infused Rs. 325 Crores in the form of equity as well as slump sale.
vi) Further case is that the Respondent Company passed a Board Resolution dated 23rd March, 2015 (Annexure A/4 Colly at page 118 to 136 of the Appeal) thereby agreeing to execute a corporate guarantee in favour of the lenders and Company Appeal (AT) (Insolvency) No. 179 of 2019 6 also create negative lien on the Respondent's property situated at "Visa House"
Kolkata-700027 to secure the debts of the Borrower Company emanated from the said approval of the CDR EG with regard to business reorganisation. In pursuance to the Board Resolution dated 23rd March, 2015, the Respondent Company has executed Deed of Corporate Guarantee dated 28th March, 2015 in favour of the lenders. As per the said guarantee executed by the Respondent Company, the guarantee shall be a continuing guarantee and shall remain in full force till the Borrower Company repays the full restructuring facilities together with all interests/liquidated damages/ commitments, costs, charges and all other monies. In terms of the Deed of the Guarantee, the Respondent Company further agreed that the liability of the Respondent Company under the said guarantee shall not be affected by any change in the constitution of the Borrower Company by merger/demerger/reverse merger or amalgamation of the Borrower Company with any other company / corporation or concern. It was further agreed by the said guarantee that the liability of the guarantor is to the tune of Rs. 3403.31 Crores plus interest.
vii) As per the CDR Approval dated 31.12.2014, the Borrower Company's steel business has to be transferred to a separate company i.e. Visa Special Steel Limited ("VSSL") through a scheme of arrangement as per the respective business activities. Thereafter, one of the subsidiaries of the Borrower Company i.e. Visa Bao Limited which is a JV Company, was to be merged with VSL. The Promotors of the Borrower Company has, as per the CDR Package of 2012, Company Appeal (AT) (Insolvency) No. 179 of 2019 7 infused Rs. 325 Crores in the form of equity as well as slump sale. The following are the objectives behind the approval of the CDR EG to the Borrower Company:
a. The Merger of VISA Bao Limited group's JV Company (65% equity participation by VSL and 35% equity participation by Bao Steel Limited, China) with VISA Steel Limited under Section 391-394 of the Companies Act, 1956.
b. Post Merger- transfer of existing loans of VISA Bao Limited to VISA Steel Limited post acquisition of VBL and continuation of the same by the existing lenders of VBL at the same price and tenor.
c. The Borrower Company vide its letter dated 13.09.2013, requested for Transfer of VISA Steel's Special Steel business undertaking to VISA Special Steel Limited and merger of VISA Bao Limited into VISA Steel Limited. Further vide letter dated 23.09.2013, the Borrower Company requested for Transfer of VISA Steel's Special Steel business undertaking to VISA Special Steel Limited.
d. The Borrower Company (VSL) vide its letter dated 19.08.2014, requested for proposed Business Restructuring of company.
e. Transfer of Special Steel business undertaking comprising of Blast Furnace including Boiler DRI Including Boilers, Steel Melting Shop, Rolling Mill & associated Road, Drain, Factory Buildings etc. into a separate SPV (VSSL) through Scheme of arrangement.
f. The objective of Transfer of Special Steel business undertaking comprising of Blast Furnace including Boiler DRI Including Boilers, Steel Melting Shop, Company Appeal (AT) (Insolvency) No. 179 of 2019 8 Rolling Mill & associated Road, Drain, Factory Buildings etc. into a separate SPV (VSSL) through Scheme of arrangement was to create a separate company engaged in Special Steel business which will facilitate in inducting foreign and/or Indian Joint Venture partner/strategic partners/investors as also entitled under MOU with the Govt. of Odisha and bring focus to the operation of Special Steel Business.
g. The objective of approval of merger of the VISA Steel Limited with VISA Bao Limited by CDR EG was to facilitate infusion of funds by Strategic Investor in Ferro Chrome Business, to consolidate the Ferro Chrome business of VISA Steel Limited (VSL) and VISA Bao limited (VBL) by merging VBL into VSL based on the company's request vide letter dated 13.09.2013. The company also requested for merger based on the ground that consequent to this merger, VSL shall become a leading producer of Ferro Chrome with Bao Steel as a shareholder and can explore further fund raising opportunities from Bao steel and other Chinese, Japanese and other Strategic Investors in VSL.
viii) The aforesaid objectives/tasks as agreed upon by the Borrower Company (VSL) was accomplished, nor did they regularise the account of the Borrower Company with the Lenders. The Lenders including the Appellant recalled the entire Loan amount vide letter dated 13th December, 2017. Upon merger of the Borrower Company i.e. VSL with VBL the Respondent Company issued a Letter dated 25.10.2017 to the Appellant that the liability under the Guarantee Agreement has been discharged by stating that upon the merger of assets and liability of VBL with the Borrower Company's assets an amount of above Rs. 575 Company Appeal (AT) (Insolvency) No. 179 of 2019 9 Crores was infused as per the fair value of the assets of the merging Company VBL in terms of the Assets Valuation Report prepared by LSI Financial Services Pvt. Ltd. The contention of the Respondent Company was that the Guarantee Agreement dated 19.12.2012 has been discharged as the additional equity of Rs. 125 Crores was brought by merger in the form of assets valuation.
ix) The Appellant replied by way of Letter dated 30.11.2017 by denying that the merger does not observe any additional infusion and refused to accept the contention of the Respondent Company that the guarantee has been discharged in view of the merger of VBL with VSL. Thus, the Appellant- Financial Creditor had also initiated petition under Section 7 of the IBC against the Borrower Company (VSL) being C.P. (IB) No. 24/KB/2018 before the NCLT, Kolkata. However, the said petition is in pendency for admission, as against the filing of the Petition under IBC the Borrower Company being Corporate Debtor therein, has challenged before the Hon'ble High Court of Orissa by way of writ petition bearing WP(C) No. 2511 of 2018. The injunction granted against initiation of corporate insolvency resolution process under Insolvency and Bankruptcy Code, 2016 against the Borrower Company by the Respondent Bank under an interim order passed in the application filed by the Borrower Company was vacated by the Hon'ble Single Bench of Orissa High Court vide its order dated 02.05.2018. The Borrower Company preferred a writ appeal vide WA No. 237/2018 against such order where in an interim order restraining initiation of CIRP against the Borrower Company was again granted till disposal of the WP(C) No. 2511 of 2018 and WP(C) No. 2511 of 2018 has been reserved for order since 29.06.2018. Company Appeal (AT) (Insolvency) No. 179 of 2019 10
x) A petition under Section 7 of the IBC has also been filed against one of the Corporate Guarantor for the same default of the Borrower Company, other than the Respondent Company, namely Ghotaringa Minerals Ltd. The said petition bearing No. CP (IB) No. 758/KB/2017 against the said Corporate Guarantor had been admitted by same NCLT Kolkata vide order dated 22nd February, 2018. However, as there is no Resolution Plan came forward for the CIRP against the said Corporate Guarantor, it has been ordered to be liquidated vide order dated 31st August, 2018.
xi) Upon failure of the Respondent Company to make the payment as per the Demand Letter dated 13.12.2017, the Appellant preferred a Petition under Section 7 of the IBC against the Respondent Company before the NCLT, Kolkata Bench and after hearing the parties, the Adjudicating Authority dismissed the petition vide order dated 11.01.2019 (Impugned Order) holding that the Respondent Company discharged the obligation as per the terms of the guarantee and therefore there is no debt due as claimed by the Appellant from the Respondent Company. Hence this Appeal.
3. This Appeal bearing Company Appeal (AT) (Insolvency) No. 179 of 2019 was heard by Division Bench of this Tribunal comprising of Hon'ble Justice Bansi Lal Bhat, the then Member (Judicial) and Hon'ble Mr. Balvinder Singh, the then Member (Technical) and there was difference of opinion, thereafter, the matter was directed to be listed before this Bench (Third Judge) on 09.10.2020 for rehearing the matter. The matter was heard on several dates, lastly on 07.11.2022 after hearing both the parties, judgment was reserved. Company Appeal (AT) (Insolvency) No. 179 of 2019 11 Submissions on behalf of the Appellant
4. The Ld. Sr. Counsel for the Appellant during the course of argument and in his memo of Appeal along with written submissions/additional written submissions submitted that the Appellant has filed the present Appeal as there is a default committed by the Respondent (in the capacity of a Corporate Guarantor) with respect to the credit facilities provided to Visa Steel Ltd. (Borrower w.r.t. to the Appellant). The one of the conditions of the Corporate Guarantee as accepted in the CDR package dated 27.09.2012, was "Corporate Guarantee of Visa infrastructure Ltd. with negative lien on "Visa House" situated at Alipore, Koklata to be provided till the company brings in additional equity of Rs. 125.00 crore over and above Rs. 325.00 crore as considered in our proposal". The same has been reiterated in the Deeds of Guarantee dated 19.12.2012 and 28.03.2015 and in the Common Loan Agreement dated 28.03.2015. The Respondent contended that the CDR Approval, in Promoters contribution, the terms used in 'additional equity funds' and in the same Approval in Additional Security the terms used in 'additional equity'. The interpretation of the terms of entire CDR Approval has to be made uniformly, meaning thereby, uniform inference has to be drawn for each and every term of the CDR Approval. The plain interpretation of the CDR Approval states that the additional Equity Funds of Rs. 125.00 crore over and above Rs. 325.00 crore has to be infused in the similar form as Rs. 325.00 crore was infused at the outset.
5. It is further submitted that the initial arrangement of the CDR Package was that the borrower company, i.e. Visa Steel has to be demerged into two Company Appeal (AT) (Insolvency) No. 179 of 2019 12 entities i.e. Visa Steel which deals in Ferro Chrome business while Visa Special Steel dealt in steel business. Accordingly, Visa Steel Ltd. (Borrower Company) in the letter dated 13.09.2013 categorically mentioned that for infusion of funds by inviting Strategic Investor in the Ferro Chrome business, it is necessary to consolidate the Ferro Chrome Business of VISA Steel Limited (VSL) and VISA Bao Limited (VBL) by merging VBL into VSL. The aforesaid merger cannot be carried out without being preceded by a demerger of VSL. Further, vide the same letter the Appellant was requested for obtaining necessary approval from CDR EG for merger of VBL into VSL for the purpose of inviting the Strategic Investors. The letters of undertaking were also executed by the promoters and guarantors of the Visa Steel Ltd. on 23.03.2013 wherein they agreed that "I/We shall infuse further funds in the Borrower in the form of unsecured loan / Preference shares or by issuing fresh shares through QIP/FPO/PE/Strategic Investment etc. or by merging/demerging some business division of the borrower into separate Companies / SPV's through scheme/slump sale and inviting strategic investor for meeting any cash flow shortage to meet the repayment obligations of the Borrower to the Lenders and/or to meet interest payment due by the Borrower to the Lenders, if required by CDR EG". The terms 'equity' and 'funds' have been used interchangeably and therefore, separate interpretation cannot be given to the said terms, nor would it be appropriate to do so.
6. It is further submitted that it is clear that there is a Debt due form the Principal Borrower, which was guaranteed by the Corporate Debtor and the said guarantee continues to subsist and has not been discharged, due to failure to Company Appeal (AT) (Insolvency) No. 179 of 2019 13 bring in additional funds of 125 Crores to meet the shortage of cash flow, to service debts and therefore, there is debt due from the Corporate Debtor (guarantor being-VISA Infrastructure Ltd.) and there is a default. The ingredients of Section 7 of the IBC are satisfied as held in the matter of "Innoventive Industries" by the Hon'ble Supreme Court. As per the scheme of Amalgamation of Visa Bao Ltd. with Visa Steel Ltd. as approved by the NCLT, Kolkata it is clearly mentioned that "All loan raised and used and all liabilities and obligations incurred by Transferor Company after the Appointed Date and prior to the Effective Date, shall be subject to the terms of the Scheme, be deemed to have been raised, used or incurred for or on behalf of the Transferee Company and to the extent they are outstanding on the Effective Date, shall also without any further act or deed be and stand transferred to and be deemed to be transferred to Transferee Company and shall become the debts, liabilities, duties and obligations of Transferee Company which shall meet discharge and satisfy the same".
7. It is further submitted that the valuation method which was used by the Chartered Accountant Sh. Rajesh Choudhary & Associates to value the equity stocks of Visa Bao Ltd. was based on Cost or Asset Based Method wherein it was mentioned that "In case of an entity like VBL which is yet to realised its full potential and suffered continuous loss from its operations in the past three years, the asset based represents the fair value of the business. Therefore, we have used the cost or asset based approach for valuing the shares of VBL". The valuation of the Visa Bao Ltd. by Asset Based Method shows that the Net Assets in Rs. 31.593 Crores on 31.03.2015. The said fact is clearly reflected in the NCLT Kolkata's Company Appeal (AT) (Insolvency) No. 179 of 2019 14 amalgamation order dated 12.08.2017. This clearly shows that merger of Visa Bao Ltd. with Visa Steel Ltd. has led to an infusion of Rs. 31.593 Crores which is far less than Rs. 125 Crores as approved in the CDR Package. Further, assuming without admitting the argument made by the Ld. Counsel for Respondent, the definition of "equity", the said equity, in the instant case was limited only to the sum of Rs. 31.593 Crores. The Annual Financial Statement 2016-17 of Visa Steel Ltd. the Net Asset Value of Visa Bao Ltd. has been highly exaggerated by Visa Steel Ltd. Thus, on the basis of the facts and figures mentioned herein above it is clear that there was no infusion of funds amounting to Rs. 125 Crores by the merger of Visa Steel Ltd. with Visa Bao Ltd. and this was on of the important condition of the CDR approval dated 27.09.2012.
8. It is further submitted that the Appellant relied on Order passed by this Appellate Tribunal in the case of "ICICI Bank Ltd. Vs. Vista Steel Pvt. Ltd., (2018) 145 CLA 26" held as under:
"2. This Appellate Tribunal subsequently by its judgment in 'State Bank of India V/s. D.S. Rajendra Kumar, etc. in Company Appeal (AT) (Insolvency) No. 87-91 of 2018' having noticed the aforesaid decision in 'State Bank of India V/s. V. Ramakrishnan & Ors.' while reiterated the decision by judgment dated 18th April, 2018, further observed and held as follows:
"5. The case of the Appellant and the Respondents being covered by the aforesaid decision, no further order is required to be passed in these appeals. However, it is Company Appeal (AT) (Insolvency) No. 179 of 2019 15 made clear that order of 'Moratorium' will be applicable only to the proceedings against the 'Corporate Debtor' and the 'Personal Guarantor', if pending before any court of law/Tribunal or authority but the order of 'Moratorium' will not be applicable for filing application for triggering 'Corporate Insolvency Resolution Process' under Sections 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code") against the 'Guarantor' or the 'Personal Guarantor' under Section 60(2)."
3. The case of the Appellant - 'ICICI Bank Ltd.' being covered by the decision of this Appellate Tribunal as referred to above, we hold that the order of Moratorium will be applicable to the proceedings against the 'Corporate Debtor' and the 'Guarantor', if pending before any court. However, such order of Moratorium will not be applicable for triggering 'Corporate Insolvency Resolution Process' under Section 7 or 9 of the Insolvency and Bankruptcy Code, 2016 against the 'Guarantor' or the 'Personal Guarantor'."
Further, the Appellant relied on judgment in the case of "Ferro Alloys Corporation Ltd. & Ors. Vs. Rural Electrification Corporation Ltd. & Ors., (2019) II BC 1", wherein this Appellate Tribunal held as under:
Company Appeal (AT) (Insolvency) No. 179 of 2019 16 "39. In view of the aforesaid decision of the Hon'ble Supreme Court, we hold that it is not necessary to initiate 'Corporate Insolvency Resolution Process' against the 'Principal Borrower' before initiating 'Corporate Insolvency Resolution Process' against the 'Corporate Guarantors'. Without initiating any 'Corporate Insolvency Resolution Process' against the 'Principal Borrower', it is always open to the 'Financial Creditor' to initiate 'Corporate Insolvency Resolution Process' under Section 7 against the 'Corporate Guarantors', as the creditor is also the 'Financial Creditor' qua 'Corporate Guarantor'. The first question is thus answered against the Appellant.
40. There is nothing on record to suggest that simultaneously two proceedings of 'Corporate Insolvency Resolution Process' has been initiated one against principal borrower and another against 'Ferro Alloys Corporation Ltd. (Corporate Debtor) in respect of the same claim amount and default. Therefore, we are not deliberating the issue in respect to 'Corporate Insolvency Resolution Process' against 'principal borrower' in the present appeal particularly when no order of initiating the corporate insolvency resolution proceedings against the principal borrower has been brought to our notice nor is under challenge."
Company Appeal (AT) (Insolvency) No. 179 of 2019 17 Further, the Appellant relied on judgment passed by Hon'ble Supreme Court in the case of "State Bank of India Vs. Ramakrishnan & Ors., AIR 2018 SC 3876", when the Apex Court relied that Insolvency Law Committee Report dated 26.03.2018 wherein it was observed as under:
"............
5.10 The Committee further noted that a literal interpretation of Section 14 is prudent, and a broader interpretation may not be necessary in the above context. The assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third parties like sureties. Additionally, enforcement of guarantee may not have a significant impact on the debt of the corporate debtor as the right of the creditor against the principal debtor is merely shifted to the surety, to the extent of payment by the surety. Thus, contractual principles of guarantee require being respected even during a moratorium and an alternate interpretation may not have been the intention of the Code, as is clear from a plain reading of Section 14.
29. The Report of the said Committee makes it clear that the object of the amendment was to clarify and set at rest what the Committee Company Appeal (AT) (Insolvency) No. 179 of 2019 18 thought was an overbroad interpretation of Section 14. That such clarificatory amendment is retrospective in nature."
9. The Ld. Sr. Counsel for the Appellant further submitted that based on above submissions, this Bench may agree with the view of Hon'ble Mr. Balvinder Singh, the then Member (Technical) in the order dated 25.09.2019 where following has been held:
"23. Having considered the submissions and perusing the record and impugned order, I have come to the conclusion that there is debt and default and the Corporate Debtor has not discharged the obligation as per the terms of the Guarantee and, therefore, there is debt due as claimed by the Financial Creditor from the Corporate Debtor. The appellant has succeeded in proving the existence of a default in terms of the guarantee agreements. The NCLT has committed error in rejecting the application filed under Section 7 of I&B Code by the appellant.
24. In view of the aforegoing observations and discussions the following order is passed:-
a) The appeal filed by the appellant deserves to be allowed. It is accordingly allowed.
b) No order as to costs."
Company Appeal (AT) (Insolvency) No. 179 of 2019 19 Submissions on behalf of the Respondent
10. The Ld. Counsel for the Respondent during the course of argument and in his reply affidavit along with written submissions / additional written submissions submitted that the documents relied upon by the Appellant do not support the Appellant's contention that additional equity of Rs. 125 crores had to be by way of cash infusion alone. This is so for the following reasons:
i. Letter issued by CDR Cell to SBI has been referred to by the Appellant, thereof refer to the initial contribution of Rs. 325 crores by the Promoters with expression used in "equity funds" and deals with the additional equity of Rs. 125 crores, does not use the expression "additional equity funds". The additional equity of Rs. 125 crores, it does not restrict itself to infusion in the manner indicated in the second sentence of Clause VIII at page 10 and 11 of the Convenience Compilation and in particular, has no requirement of "inviting Strategic Investor" after the merger/demerger.
ii. Letter of Undertaking 5to infuse further funds for cash flow by Promoters relied upon by the Appellant does not help the Appellant at all. The Letters of Undertaking have been executed by the Promoters and not in the capacity as a corporate guarantor. These letters of undertaking are in terms of clause 5 of additional conditions of CDR letter. This is also borne out by clause 3 of the Letter of Undertaking executed by the Promoters. They provide for a situation when "if required by CDR EG" further funds may need to be infused and do not relate to infusion of additional equity which is already provided for in the CDR document.
Company Appeal (AT) (Insolvency) No. 179 of 2019 20 iii. The Deed of Guarantee dated 19.12.2012 refer to only "additional equity". There is no reference to funds or cash infusion.
iv. Letter dated 13.09.2013 issued by VISA Steel, the principal debtor to SBI for merger of VISA Bao into VISA Steel wherein does not refer to infusion of the additional equity of Rs. 125 crores. It only highlights that the consolidation of Ferro Chrome Business of VISA Bao and VISA Steel will make BAO Steel a shareholder in VISA Steel and offer further fund-raising opportunities from other Strategic Investors. It does not say that inviting Strategic Investor will be the way with which the obligation of the Guarantor will be fulfilled or the additional equity of Rs. 125 crores had to be by way of cash infusion alone. v. Even if it be accepted that additional equity of Rs. 125 crores could only be fulfilled by inviting Strategic Investor pursuant to a merger/demerger, in the instant case Bao Steel (China's largest Government Owned Steel & Stainless Steel manufacture) comes in as a Strategic Investor in VISA Steel consequent to the merger, with proper valuation which valuation when undertaken post- merger on fair value basis shows in excess of Rs. 125 crores infusion in equity of Visa Steel (The Principal Debtor).
11. It is further submitted that the scope of Section 7 of the IBC is very limited and the only consideration that is required to be seen is whether there has been any default. In the instant case there is no debt. The corporate debtor is also entitled to urge that a default has been occurred and also that the debt is not due in law and in fact. A "debt" is not due if it is not payable in law or in fact. Reliance has been placed in "Innoventive Industries Limited V. ICICI Bank, Company Appeal (AT) (Insolvency) No. 179 of 2019 21 AIR 2017 SC 4048 at paragraph 30. There was no liability or obligation as the Guarantee stood discharged prior to 13the December, 2017 when the Demand Notice was issued. The Deed of Guarantee is a separate and independent contract between the Appellant and the Respondent. The Terms of the guarantee have to be interpreted independently. The expression "additional equity" is not defined under the Deed of Guarantee. The Deed of Guarantee being a commercial document the expression "additional equity" has to be seen accordingly. Equity infusion is recognized in the Companies Act, 2013 and in particular Schedule III thereof. The accounts of the Principal Debtor which have been duly audited and filed reflect the position of additional equity post-merger. If one considers Schedule III, Part I which gives Balance Sheet format under the heading "Equity and Liabilities", Shareholders funds include Share Capital, Reserves & Surplus and Monies received against Share Warrants. Reserves & Surplus is also provided for in Schedule III and includes Capital Reserves. The Capital Reserves post-merger has increased by Rs. 460 crores and therefore, the condition of additional equity of Rs. 125 crores have been fulfilled. This is apparent from the Financial Statement of Visa Steel for the Financial Year 2016- 17 (at page 50 to 52 of the reply affidavit) and which was handed over during the course of hearing on 29th August, 2019. The fact that this amounts to infusion of additional equity is admitted where only grievance made is that this infusion has to be by way of cash (at page 212 to 215 of Convenience Compilation).
12. It is further submitted that the Scheme of Amalgamation sanctioned by NCLT by its order dated 12.10.2017 provides as follows:
Company Appeal (AT) (Insolvency) No. 179 of 2019 22 "The business value of VISA Bao Limited as included in the books of account of the Transferee Company shall be treated as infusion by way of additional equity by reason on the merger in terms of the restructuring package approved by the CDREG vide letter dated 27 September 2012".
This Scheme, therefore, by itself provides that merger will amount to fulfilment of the obligation of additional equity of Rs. 125 cores. This is binding on the Appellant as an order sanctioning the Scheme/Scheme sanction by an order of the Court operates as a judgment in rem. In support of this contention, reliance has been placed on the decision passed by the Lahore High Court in Hargopal v. Peopl'es Bank of Northern India Ltd. reported in AIR 1934 LAH 514 at Paragraphs 1 and 2. Further reliance is placed on J.K. (Bombay) Private Ltd. v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd. & Ors. Reported in AIR 1970 SC 1041 paragraph 28. These decisions recognize that a Scheme has statutory force and binds all creditors including the Appellant and as such not only in law but in fact there can be no liability to pay. Further, the Appellant has also informed that the merger of Visa Bao would result in discharge of the obligation of bringing in additional equity of Rs. 125 crores by letter dated 18 April 2017 which is referred in the letter of 8th December 2017 (Annexure- A/12 at page 2247 to 2248 of the Appeal). Even if there was debt payable by the Respondent, the CIRP Process having been admitted against Visa International Ltd. for the same debt another Corporate Guarantor cannot be proceeded with in this regard reliance has been placed on the Judgment of this Appellate Tribunal in the case Company Appeal (AT) (Insolvency) No. 179 of 2019 23 of Dr. Vishnu Kumar Agarwal Vs. Piramal Enterprises Ltd., Company Appeals No. 346 and 347 of 2018 at paragraphs 15, 16, 21, 25, 29 to 36 and also the Order of NCLT, Kolkata Bench in the case of State Bank of India Vs. Visa International Ltd., CP(IB) 759/KB/2017 dated 7th August, 2019.
13. It is further submitted that the view of Hon'ble Justice Bansi Lal Bhat, Member (Judicial) in confirming the order of the Adjudicating Authority (NCLT, Kolkata) is inter-alia, as follows:-
i. The Dispute relates to the terms of CDR package qua infusion of equity. It is the admitted position that the promoters of VSL had infused Rs. 325 crores in equity (paragraph 10 of the order).
ii. The CDR package as approved by the Empowered Group in clause viii provides that promoters will infuse additional equity funds of Rs. 325 crores under the Debt Restructuring Package. "The infusion of equity" includes merging/demerging some business division into separate companies/SPVs (Para 11 of the order).
iii. The Corporate Guarantee of Respondent with negative lien shall be provided as security till the company brings in additional equity of Rs. 125 crores over and above Rs. 325 crores. It is manifestly clear that provision does not talk of "additional equity funds" but only "additional equity" (para 11 of the order). iv. It is amply clear that the Appellant has not been able to establish that additional equity of 125 crores was to be by way of cash infusion only (para 11 of the order) Company Appeal (AT) (Insolvency) No. 179 of 2019 24 v. The Deed of Guarantee has to be interpretated independently and has to be understood in the context of the legislative intent manifested in Schedule III of Companies Act, 2013 wherein the Balance Sheet format under the heading "Equity and Liabilities"- Shareholders Funds include Share Capital, Reserves and Surplus and Monies received against share warrant. Reserves and Surplus includes Capital Reserves.
vi. The Respondent has been able to demonstrate that post-merger, the capital has increased by Rs. 460 crores, thereby satisfying the condition of infusion of additional equity of Rs. 125 crores..
vii. The letter dated 30th November, 2017 of the Appellant in response to letter dated 24th November, 2017 of the Respondent has been referred in which infusion of additional equity is admitted.
viii. The letter dated 30th November 2017 of the Appellant in response to the letter of Respondent dated 24th November 2017 (at page 215 of Convenience Compilation) which admits infusion of additional equity and consequent accounting entry reflected in the Balance Sheet though raising a grievance that such infusion had to be by way of cash only. It would be of great relevance to refer to the Scheme of Amalgamation sanctioned by the Tribunal vide its Order dated 12th October 2017 which is reproduced as under:
"The business value of Visa Bao Limited as included in the books of account of the Transferee Company shall be treated as infusion by way of additional equity by reason of the merger in terms of the restructuring package of the merger in terms of Company Appeal (AT) (Insolvency) No. 179 of 2019 25 the restructuring package approved by the CDR EG vide letter dated 27th September, 2012."
ix. There is no escape from the conclusion that the merger will have the effect of fulfilling the obligation of additional equity of Rs. 125 crores. It is well settled that an approved scheme of amalgamation/merger has the statutory force and is binding on all stakeholders including the creditors, with the order of Tribunal sanctioning such scheme operating as a judgment in rem. x. There being no debt payable in law or in fact, the question of default does not at all arise. The conclusions drawn by the Adjudicating Authority leading to rejection of the Application under Section 7 of the IBC cannot be termed erroneous.
xi. We find no sufficient reasons to adopt a view different than the one taken by the Adjudicating Authority as such view and finding based on appreciation of the relevant material placed before it, is the only probable view warranted in the circumstances of the case.
14. It is further submitted that the view of Hon'ble Mr. Balvinder Singh, Member (Technical) in allowing the Appeal is as follows:
i. Infusion of equity can be taken by both the routes bringing in cash or bringing in the assets, net asset value of which is excess value of the assets over liabilities to be met by the assets (at page 15 of the Order). ii. The Corporate Debtor had given guarantee that the guarantee and the negative lien on their Alipore, Kolkata property shall be valid till the infusion of funds aggregating to Rs. 125 crores over and above Rs. 325 crores either Company Appeal (AT) (Insolvency) No. 179 of 2019 26 in Visa Steel Ltd. or in Visa Special Steel Limited (after transfer of Special Steel Business to Visa Special Steel Limited).
iii. The Borrower Company and Corporate Debtor vide their letters dated 23.03.2013 addressed to the Appellant have agreed and undertook to infuse further funds in the Borrower company in the form of:
a. Unsecured loan
b. Preference Shares or by issuing fresh shares through
QIP/FPO/PE/Strategic Investment etc; or
c. By merging/demerging some business division of borrower into
separate Companies
d. SPV's through scheme/slump sale; and
e. Inviting strategic investor for meeting any cash flow shortage to
meet the repayment obligation.
iv. It is clear that almost all above possible methods that can be adopted for meeting out the obligation for infusion of funds aggregating to Rs. 125 crores.
v. Visa Bao has been merged with the Borrower whose net assets as on 31.03.2015 is Rs. 31.593 crores. Only 35% share of net assets of Visa Bao Limited has been merged in the Borrower company amounting to Rs. 11.052 crores which is less than additional equity of Rs. 125 crores. vi. The Borrower has claimed that in keeping with the Scheme of Amalgamation the Borrower company has accounted for the difference between the fair value of net assets of Visa Bao Limited (so acquired) and face value of equity shares issued being Rs. 4601.46 million as Capital Reserve and reflected under the Company Appeal (AT) (Insolvency) No. 179 of 2019 27 heading "Other Equities" thus meeting out its obligation of bringing Rs. 125 crores as per CDR. This mechanism has not been envisaged in any of the options listed above in the guarantee/undertaking. It seems to be an attempt to creatively show through book entry that the obligation under the CDR has been met without following it in letter and spirit. Therefore, the Corporate Debtor has not met its obligation.
vii. There is debt and default and the Corporate Debtor has not discharged the obligation as per the terms of the Guarantee and, therefore, there is debt due as claimed by the Financial Creditor from the Corporate Debtor. The Appellant has succeeded in proving the existence of a default in terms of the guarantee agreements. The NCLT has committed error in rejecting the application filed under Section 7 of I&B Code by the Appellant. The Appeal filed by the Appellant deserves to be allowed.
15. It is further submitted that the findings of Hon'ble Mr. Balvinder Singh, Member (Technical) in the order dated 25.09.2019 are incorrect, inconsistent and not supported by record, for reason as follows:
i. Notwithstanding the finding that, infusion of equity can be taken by both the routes, either by bringing in cash or by bringing in assets, net asset value of which is to be in excess of the value of assets over liabilities to be met by the assets, the error has been made in computing such value of assets. ii. The expression in the Deed of Guarantee dated 19th December, 2012 refers to only "additional equity". There is no reference to funds or cash infusion. Clause 37 in the Guarantee document is a non obstante clause overriding any Company Appeal (AT) (Insolvency) No. 179 of 2019 28 clauses to the contrary as noted by the Adjudicating Authority in paragraph 54 of the Judgment of NCLT.
iii. The letter dated 23rd March 2013 (at page 50 to 53 of Convenience Compilation) in clause 4(a) envisages the five requirements as noted "if required by CDR EG" (Corporate Debt Restructuring Empowered Group). The CDE EG by its letter of 31st December, 2014 expressly approves business reorganization plan involving merger of Visa Bao Limited with Visa Steel Limited (with 65% and 35% equity participation), therefore, CDR EG approved the merger in terms of the Letter of Undertaking dated 23rd March, 2013.
iv. The CDREG, therefore, approved the merger being one of the five possible ways for infusion of Rs. 125 crores.
v. This finding is completely erroneous as the net asset value of Rs. 31.593 of Visa Bao Limited is not the consideration that is to be taken for the purpose of determining infusion of equity and is contrary to the Scheme itself. The Scheme as sanctioned by NCLT by its Order dated 12th October, 2017 provides that "the business value of Visa Bao Limited in the books of account of the transferee company shall be treated as infusion by way of infusion of additional security by reason of the merger in terms of restructuring package approved by CDREG vide letter dated 27th September, 2012". The same has been noted in the judgment of the Hon'ble Justice Bansi Lal Bhat, Member (Judicial) at page 22 of his order. Furthermore, the letter dated 30th November, 2017 by SBI (the Appellant) admits infusion of additional equity and consequent accounting entry reflected in the Balance Sheet, though restricting their objection that such Company Appeal (AT) (Insolvency) No. 179 of 2019 29 infusion was to be by way of cash only, it is evident at page 215 of Convenience Compilation and also the finding of Hon'ble Member (Judicial). Therefore, the only objection of SBI was regarding "additional cash infusion". Both the Members are, however, ad-idem that additional equity could be infused by cash or by way of demerger as already noted above.
vi. This finding is completely erroneous as once it is accepted that Rs. 125 crores could be brought in by way of equity, the law recognizes "Capital Reserves"
as indicated in form of Balance Sheet in Schedule-III, Part-I to the Companies Act, 2013, as part of "Equity and Liabilities" under the sub-heading "Reserves and Surplus" as a part of "Shareholders' Funds". Under the general instruction for reparation of Balance Sheet (Instruction VI) a company has to disclose in the notes of accounts "Reserves and Surplus" which could include Capital Reserve. Such Capital Reserve post-merger increased by Rs. 460 crores and therefore, the condition of additional equity of Rs. 125 crores have been fulfilled. The net valuation of assets of Visa Bao Limited (prior to the demerger) to ascertain share swap ration is of no consequence in this regard. Moreover, the amalgamation has been accounted in accordance with the Scheme where assets and liabilities of Visa Bao Limited have been recorded at their fair value as noted in Note No. 48 to accounts in the Balance Sheet (at page 217 of Convenience Compilation). Since the Appointed Data of Scheme is 1st April, 2015, Accounting Standard (AS)- 14 was applicable and AS-103 was not applicable as it was required to be complied for the accounting period beginning on or after 1st April, 2016. As per Accounting Standard-14, the assets and liabilities of the transferor company can Company Appeal (AT) (Insolvency) No. 179 of 2019 30 be allocated to individual identifiable assets and liabilities on the basis of their fair value at the date of amalgamation.
vii. In view of failure to appreciate that Accounting Standard -14 was applicable and erroneous interpretation as above, the resultant finding of debt and default is also erroneous. Moreover, the issue before the NCLT was whether equity could be infused by way of cash only or could have been done otherwise. The NCLT being the Adjudicating Authority had interpreted the conditions of Guarantee and the Scheme correctly and have come to a finding that equity of more than Rs. 125 crores have been infused in compliance with the requirement of the conditions of guarantee. Such finding as also been correctly upheld in the order of Hon'ble Member (Judicial) who has taken note of Schedule-III, Part-I of the Companies Act, 2013 as stated above. The finding by the Hon'ble Member (Technical) has failed to consider the scope, effect and purport of the letters dated 24th November, 2017 and 30th November 2017(at page 212 to 214 of Convenience Compilation) where the only grievance raise is that the infusion has to be by way of cash. Based on above submissions, the findings of Hon'ble Member (Technical), therefore, cannot be agreed upon and the finding of Hon'ble Member (Judicial) should be agreed upon and accepted, therefore, the instant Appeal is liable to be dismissed.
16. After hearing the parties and going through the pleadings made on behalf of the parties and perusing the valuable opinions of Hon'ble Justice Bansi Lal Bhat, Member (Judicial) and Hon'ble Mr. Balvinder Singh, Member (Technical) dated 25th September, 2019, I respectfully agree with the reason given by Hon'ble Company Appeal (AT) (Insolvency) No. 179 of 2019 31 Justice Bansi Lal Bhat, Member (Judicial) in his opinion at paragraphs 10, 11 and 12 which are hereunder:
"10. After wading through record, we find that the factum of Appellant - Financial Creditor alongwith other lenders having extended credit facilities to the Borrower Company (VSL) and referring of the VSL to the CDR Forum for efficient restructuring of its corporate debt materializing in a CDR Package in terms of letter of approval dated 27th September, 2012 is not in controversy. It is also not disputed that as one of the conditions of the CDR Package the Promoter of VSL contributed Rs.325 Crores as its contribution besides being required to bring in additional equity of Rs.125 Crores. Board Resolution of the VSL following the debt restructuring and execution of various instruments referred to hereinabove as a sequel to the approved CDR Package too is not questioned. It is also not in controversy that VSL furnished Corporate Guarantee of the Respondent Company, which is also stated to be a Promoter of VSL. It further appears that in terms of Board Resolution dated 29th September, 2012, Respondent Company executed a Corporate Guarantee in favour of lenders and also created a negative lien on its property - 'Visa House' situated at Alipor Road, Kolkata to secure the restructured debts. Deed of Guarantee came to be executed on 19th December, 2012 which, in unambiguous and unequivocal terms, guaranteed repayment of the full restructuring facilities together with interest and costs etc. The Respondent Company accepted the liability Company Appeal (AT) (Insolvency) No. 179 of 2019 32 as Guarantor to the tune of Rs. 3053.25 Crores plus interest. The dispute relates to the terms of CDR Package qua infusion of equity. The condition of bringing of additional equity of Rs.125 Crores over and above the Promoter's contribution of Rs.325 Crores was not fulfilled by the Borrower Company as per the CDR Package of 2012. The CDR EG approval for business reorganization of VSL was subjected to review and in consequence of fresh letter of approval the Borrower Company executed and arranged various instruments including Corporate Guarantee furnished by the Respondent Company. Letter of approval dated 31st December, 2014 envisaged demerger of VSL's steel business into a separate company styled as VSSL through a scheme of arrangement while its subsidiary VBL was to merge with VSL. It is the admitted position in the case that the Promoters of VSL had infused Rs. 325 Crores in the form of equity. Respondent Company, in terms of its Board Resolution dated 23rd March, 2015 executed 'Deed of Corporate Guarantee' dated 28th March, 2015 in favour of the lenders which was to be a continuing guarantee subsisting till the Borrower Company repays the full restructured facilities alongwith interest and costs etc. Respondent - Corporate Guarantor accepted the liability to the tune of Rs. 3405.31 Crores plus interest. Admittedly, demerger of Steel Business Division of the Borrower Company did not take off in terms of the CDR Package though the Borrower Company merged its subsidiary VBL with VSL. The question arising for consideration is whether the liability under Company Appeal (AT) (Insolvency) No. 179 of 2019 33 the 'Deed of Corporate Guarantee' stands discharged in view of the merger of VBL and VSL as according to Respondent upon the merger of assets and liabilities of VBL with VSL's assets an amount of Rs. 5705 Crores was infused as per the fair value of assets of VBL in terms of the Assets Valuation Report prepared by SLI Financial Services Limited thereby satisfying the condition of bringing in of additional equity of Rs.125 Crores in the form of assets valuation.
11. Learned counsel for the Appellant vehemently stressed that the Guarantee did not stand discharged as the additional equity to be infused had to be in the form of 'cash infusion'. We have fathomed through the Convenience Compilation filed by the Appellant to appreciate the arguments advanced on this score. The CDR package as approved by the Empowered Group, in clause (viii), provides that the Promoters will infuse additional equity funds of Rs.325 Crore under the debt restructuring package. It further provides that such infusion of equity may be brought in the form of unsecured loan/ preference shares or by issuing fresh shares or by merging/ demerging some business divisions into separate companies/SPVs thorough scheme/slump sale and inviting strategic investor [page 10 & 11 of the Convenience Compilation (hereinafter referred to as CC)]. It further provides that the Corporate Guarantee of the Respondent with negative lien on Visa House shall be provided as security till the Company brings in additional equity of Rs. 125 Crore over and above Rs. 325 Crore. (page 12 & 13 of CC). It is Company Appeal (AT) (Insolvency) No. 179 of 2019 34 manifestly clear that the provision does not talk of infusion of 'additional equity funds' but only 'additional equity'. It is also amply clear that the additional equity of Rs. 125 Crores does not restrict the infusion of equity to the manner indicated in clause (viii) after merger and demerger. In so far as Letter of Undertaking qua Restructuring Package is concerned, same having been executed by the Promoter and not by the Corporate Debtor, in regard to infusion of further funds for meeting any cash flow shortage does not bind the Corporate Guarantor, in as much as the 'Deed of Guarantee', though linked with the credit facilities advanced by the Financial Creditor to the Borrowing Company is an independent contract in itself so far as the obligations and liabilities of Guarantor are concerned. Clauses 32 and 37 of the CDR Package refer only to additional equity with the expression 'funds' being conspicuously absent (page 33 of CC). As regards letter dated 13th September, 2013 issued by VSL to Appellant (page 58 to 60 of CC), be it noticed that the same only speaks of consolidation of Ferro-chrome business of VBL and VSL, thereby making 'Bao Steel' a shareholder in VSL. It also refers to fund raising by inviting strategic investor in the Ferro-chrome business. It is amply clear that the letter only deals with the proposal of merger of VBL into VSL and inviting of strategic investor. The letter in no manner advances the argument of Appellant that the strategic investor will be the way with which the obligation of the Guarantor will be fulfilled or that the obligation to provide additional equity of Rs. 125 Crores would be only in Company Appeal (AT) (Insolvency) No. 179 of 2019 35 the form of 'cash infusion'. Even otherwise post-merger fair value of the assets of VSL shown to be in excess of Rs. 125 Crore in pursuance of merger/ demerger when 'Bao Steel' came in as a strategic investor, satisfies the condition as regards infusion of additional equity of Rs. 125 Crores. So far as the Appellant's contention as regards infusion of additional equity in the form of valuation of assets from 'Visa Bao' worth only Rs. 31.95 Crores is concerned, such valuation being only determinative of the share exchange ratio has no bearing on infusion of additional equity which depends on financial statements as per the sanctioned scheme which admittedly exceeds Rs.125 Crores (pages 111, 121, 122 & 142 of the CC). It is amply clear that the Appellant has not been able to establish that additional equity of Rs.125 Crore in addition to initial contribution of Rs. 325 Crores by the Promoters was to be by way of cash infusion only and that the Guarantor had failed to discharge its obligation, its liability being co-extensive with that of the Borrower Company.
12. There is force in the contention put forward on behalf of Respondent that the 'Deed of Guarantee' in question has to be interpreted independently and that the expression 'additional equity' not having been defined under the 'Deed of Guarantee' has to be understood in the context of the legislative intent manifested in Schedule III of the Companies Act, 2013 where, in the balance sheet format under the heading 'Equity and Liabilities', shareholders funds include share Company Appeal (AT) (Insolvency) No. 179 of 2019 36 capital, reserves and surplus and moneys received against share warrants. Reserves and surplus includes capital reserves. With reference to pages 50 to 52 of the reply affidavit, the Respondent has been able to demonstrate that post-merger the capital reserves have increased by Rs. 460 Crores, thereby satisfying the condition of infusion of additional equity of Rs. 125 Crores. Learned counsel for Respondent referred to the reply dated 30th November, 2017 emanating from the Appellant in response to the letter of Respondent dated 24th November, 2017 (page 215 of CC) which admits infusion of additional equity and consequent accounting entry reflected in the balance sheet though raising grievance that such infusion had to be by way of Cash only. It would be of great relevance to refer to the scheme of amalgamation sanctioned by the Tribunal vide its order dated 12th October, 2017 which is reproduced as under:
"The business value of Visa Bao Limited as included in the books of account of the Transferee Company shall be treated as infusion by way of additional equity by reason of the merger in terms of the restructuring package approved by the CDR EG vide letter dated 27th September, 2012."
The provision in the approved scheme of amalgamation is loud and clear that the business value of VBL as reflected in the books of account of the Transferee Company shall be treated as infusion by way of additional equity on account of merger as per CDR Package. Thus, there Company Appeal (AT) (Insolvency) No. 179 of 2019 37 is no escape from the conclusion that the merger will have the effect of fulfilling the obligation of additional equity of Rs. 125 Crores. It is well settled that an approved scheme of amalgamation/ merger has the statutory force and is binding on all stakeholders including the creditors, the order of Tribunal sanctioning such scheme operating as a judgment in rem. It is not in dispute that the Respondent had brought to the notice of the Appellant that the merger of VBL would result in discharge of the obligation of bringing in additional equity of Rs.125 Crores as reflected in Letter dated 8th December, 2017 (page No. 2247 of the paper book). Viewed in this background, it can be safely stated that the Respondent - Corporate Guarantor, in the face of provision in the approved scheme of amalgamation and consequent merger, justifiably pleaded that there was no debt payable in law or in fact as the condition of additional equity of Rs. 125 Crores had been fulfilled and the obligation stood discharged. There being no debt payable in law or in fact, question of default does not at all arise. The conclusions drawn by the Adjudicating Authority leading to rejection of the application under Section 7 of the I&B Code cannot be termed erroneous. On consideration of the material on record we find no sufficient reasons to adopt a view different than the one taken by the Adjudicating Authority as such view and finding based on appreciation of the relevant material placed before it is the only probable view warranted in the circumstances of the case. We are accordingly of the view that the impugned order does not warrant interference in this Company Appeal (AT) (Insolvency) No. 179 of 2019 38 appeal. That apart the initiation of Corporate Insolvency Resolution Process against 'Visa International Limited' (another Corporate Guarantor) by the Appellant in regard to the same debt would preclude the Appellant from initiating CIRP against the Respondent herein i.e. 'Visa Infrastructure Limited'."
17. Since, I agree with reason assigned by Hon'ble Justice Bansi Lal Bhat, Member (Judicial) in his opinion dated 25th September, 2019 at paragraphs 10, 11 and 12 which are quoted above, no fresh reason is required to be assigned by me. Taking all the aforenoted, I come to conclusion that the instant Appeal is devoid of merit. Accordingly, the instant Appeal is dismissed. No order as to costs.
18. Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata), forthwith.
[Justice Anant Bijay Singh] Member (Judicial) New Delhi 18th January, 2023 R. Nath.
Company Appeal (AT) (Insolvency) No. 179 of 2019