Update from NCLT/IBC Cases by INSOLVENCY PROFESSIONAL RAJNISH BANSAL

The National Company Law Tribunal, Hyderabad has approved the resolution plan for debt-strapped Sai Lilagar Power Generation Limited 86 MW (2x43), part of the KSK Group

A Bench of Ratakonda Murali, Member Judicial and Veera Brahma Rao Arekapudi, Member Technical, have approved the resolution plan of Indermani Mineral India Private Limited for ?85 crore on a case initiated by the debtor Axis Bank against the power company for defaulting on payments.

While the power company was due ?387.88 crore, the bid of the Resolution Plan proponent of ?85 crore was approved. Significantly, while ?2 crore is upfront payment, the rest of the funds will be repaid over 15 years at 9 per cent interest rate.

To recover the dues from the power company, Axis Bank moved the NCLT under the Insolvency and Bankruptcy Code, 2016 and the tribunal directed resolution proceedings.

The Hyderabad-based KSK Energy is a power generation company, which is with debt ridden due to difficulties in securing coal linkages leading to mounting debt and delays in project completion.

While the first unit of the Sai Lilaghar was set up in 2006, the second one was commissioned in 2011. However, due to mounting debt and fuel linkage issues, its functioning was affected leading to payment default.

The power project and the company are due ?387.88 crore to secured creditors and additional funds to unsecured creditors. Along with various dues and interest, the total payment is estimated at ?1,167 crore.

An independent valuer appointed to asses the value of the project has estimated the fair value of the power plant at ?255.62 crore and liquidation value of ?94.14 crore. The Committee of Creditors approved the bid of Indermani of ?87.80 crore, which was approved by the Tribunal. During the resolution process, Edelweiss Resolution Advisors and Kakode Associates were engaged. About six firms had evinced interest in the project.

?? The National Company Law Appellate Tribunal, Delhi (NCLAT) in the case of Sh. Sushil Ansal Vs Ashok Tripathi and Ors, has reiterated that a decree-holder though covered under the definition of creditor under Section 3(10) of the Insolvency and Bankruptcy Code (IBC) would not fall within the class of financial creditors and therefore, a decree holder cannot initiate a corporate insolvency resolution process (CIRP) against a corporate debtor with an object to execute a decree.

In the facts of the case, Respondent Nos 1 and 2 (Respondents), as allottees of a home in a housing project in Lucknow, approached the Uttar Pradesh Real Estate Regulatory Authority (UP RERA) for recovery of their dues against the developer, Ansal Properties and Infrastructure Limited (Corporate Debtor), who had failed to honour the timelines under the built up agreement/ builder buyer agreement. What followed was the grant of orders and a recovery certificate issued by UP RERA in favour of the Respondents against the Corporate Debtor for recovery of the amount as arrears of land revenue.

Instead of filing for execution before a civil court, the Respondents approached the NCLT, Delhi for initiation of a CIRP against the Corporate Debtor under Section 7 of the IBC, in their capacity as decree holders. The NCLT, Delhi, relying upon the decision of the NCLAT in Ugro Capital Limited v. Bangalore Dehydration and Drying Equipment Co Pvt Ltd. admitted the application of the Respondents and appointed an interim resolution professional.

Thereafter, the Appellant, former director and shareholder of the Corporate Debtor, filed an appeal before the NCLAT challenging NCLT’s order. During the pendency of the Appeal before NCLAT, the parties arrived at a settlement and the Appeal was not contested by the Respondents on the issue of the maintainability of the Section 7 application.

While examining the maintainability of the Section 7 application filed by the Respondents, the NCLAT analyzed the definition of financial creditor and financial debt under Sections 5(7) and 5(8) of the IBC respectively. It observed that sub-clause (f) of sub-section (8) of Section 5 of the IBC provides that any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing would fall within the ambit of a financial debt and that the explanation added to the sub-section provides that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing. Thus, to determine a financial debt, one would need to see whether the debt was disbursed against the consideration for the time value of money which may include an amount raised from an allottee under a real estate project, and whether such transaction has the commercial effect of a borrowing.

?? You may send me any queries related to: [email protected].

IP CA. RAJNISH BANSAL

B.Com, FCA, DISA, CISA, I.P.

INSOLVENCY PROFESSIONAL

FORENSIC AUDITOR &

SYSTEM AUDITOR

M. 9999925301, 9899400108

E: [email protected]

Add: B-4/281-282, 

Sector-7, Rohini

New Delhi- 110085

Date – 05/09/2020