A. Case Outline:
“The judgment is set aside,” said the National Company Law Appellate Tribunal, beginning the denouement of an acquisition saga that might well result in Hindustan Oil Exploration Company (HOEC) bagging an Arunachal Pradesh oil field it had thought lost.
The Appellate Tribunal, on August 14, set aside an earlier order of the National Company Law Tribunal, which in December last year awarded the Kharsang field to a rival bidder, Atyant Capital, a Chennai-headquartered equity fund.
The Kharsang field produces 800 barrels of oil a day. Four companies own interests in the field — Oil India (40 per cent), Geopetrol (25 per cent), JEKPL Pvt Ltd, part of the Jubilant group of the Bhartias (25 per cent) and a company called GeoEnpro (10 per cent).
The HOEC bought Geopetrol about three months ago and, therefore, already has 25 per cent interest in Kharsang. It also owns half of GeoEnpro, therefore it indirectly has another 5 per cent interest in Kharsang — the other half of GeoEnpro is owned by JEKPL.
The story that unfolds now is about the acquisition of JEKPL, which has self-declared insolvency and initiated resolution process under the Insolvency and Bankruptcy Code, 2016. JEKPL owes banks about ₹1,200 crore.
Whoever acquires JEKPL will get 25 per cent interest in the Kharsang field. HOEC, which not only has a foot in the field but also is present in other fields in the North- East, has been very keen.
However, things did not go well for HOEC. It is learnt that there were only two bidders for JEKPL – HOEC, and a Chennai-based private equity company Atyant Capital (which, incidentally, counts Balaji Telefilms among its investees.)
From documents in the possession of BusinessLine, it transpires that HOEC bid ₹160 crore, while Atyant offered ₹135 crore. But at a meeting of the Committee of Creditors, on November 30, 2017, the Resolution Professional, Mukesh Mohan, suddenly decided to throw open the issue for bidding.
Atyant Capital said it would bid ₹1 crore more than HOEC. The company seems to have objected to the sudden launch of verbal auctioning and walked out of the proceedings, saying that, being a listed company, it could not offer counter-bids without taking its board’s approval first.
The Resolution Professional would have none of it, and declared Atyant Capital the successful bidder, for ₹161 crore. However, noticing that successful bidder had not, as required, submitted his ‘resolution plan’ within two days, HOEC on December 6, gave a revised proposal, raising its bid to ₹175 crore. Even as HOEC approached the Appellate Tribunal for redress, another legal point raised its head. Exim Bank, which had taken a ‘counter corporate guarantee’ from JEKPL for a loan given to another company of the Jubilant group, appealed against being excluded from the group of creditors. The Resolution Professional, Mukesh Mohan, had agreed to the other creditors’ stand that a ‘guarantee’ was not a ‘loan’.
Exim Bank too approached the Appellate Tribunal. In its order of August 14, the Appellate Tribunal set aside the NCLT order, on two grounds. First, Exim Bank had been “wrongly rejected” as a creditor, and, second, HOEC’s claim had been “wrongly not considered”. The NCLAT said that in the “absence of Exim Bank”, the Committee of Creditors was “not competent” to consider any resolution plan.
It has also said that there should not be any “re-bidding”, “the respective Resolution Plans (of both Atyant and HOEC) having already been opened.”
(Source Business Line dt. 04.09.2018).
B. Decision of NCLAT in the matter of Export Import Bank of India Vs. Resolution Professional JEKPL Private Limited[Company Appeal (AT) (Insolvency) No. 304 of 2017 with 16/2018]:
1. EXIM Bank Vs. Resolution Professional, JEKPL Private Limited:
Case of the EXIM Bank is that it disbursed Dollar Loan to the tune of US$ 50 Million to a Netherland based company, namely, Jubilant Energy N.V., (‘JENV’) (Principal Borrower) for which ‘Corporate Guarantee’ was executed by the Jubilant Enpro Private Limited (‘JEPL’) in favour of the EXIM Bank. Contractual obligation of ‘JEPL’ (Corporate Guarantor) was further secured by the execution of ‘Corporate Guarantor Guarantee’ with ‘Counter Corporate Guarantee’ by JEKPL (Corporate Debtor) in favour of the EXIM Bank.
The EXIM Bank invoked its ‘Counter Corporate Guarantee’ which led to the present dispute and its claim to treat it as a ‘Financial Creditor’ has not been accepted by the Resolution Professional.
The EXIM Bank declared the amount of loan advanced to Principal Borrower (JENV, Netherlands) as NPA. Therefore, the EXIM Bank recalled the loan facilities advanced to JENV. Consequently, it had invoked its ‘Corporate Guarantee’ as well as the ‘Counter Corporate Guarantee’ against the JEPL and JEKPL. Thus, according to EXIM Bank Principal Borrower having defaulted and the liability of Corporate Guarantee as ‘Counter Corporate Guarantee’ being joint and co-extensive with Principal Borrower, the EXIM Bank comes within the meaning of ‘Financial Creditor’ of JEKPL (Corporate Debtor), in terms of Section 5(7) r/w Section 5(8)(h) of I&B Code.
Brief about the decision of NCLAT:
From the cross checking of the respective deeds of JEPL and JEKPL, we find that both are liable jointly and severally as ‘Principal Debtor’ for the EXIM Bank. Thus, the ‘Corporate Counter Guarantee’ in question in respect of due performance and discharge of obligations and liabilities of JEPL to EXIM Bank, essentially comes within the ambit of its ‘Supplementary/Additional Guarantee’.
There is admitted default by ‘Principal Borrower’ – JENV, Netherlands and JEHNV in the payment of respective Dollar Loans. The account of JEHNV has been declared NPA since 01.05.2016 and JENV since 07.05.2016. The liability under both the ‘Corporate Guarantee’ has been acknowledged by JEKPL in its Annual Report for the year 2016-17.
Therefore, for all purpose we find that the ‘Counter Corporate Guarantee’ given by Corporate Debtor (JEKPL) amounts to ‘Guarantee’.
2. Axis Bank Limited vs. Edu Smart Services Private Limited & Anr:-
Brief about the decision:
1. Counter-Indemnity Obligation in respect of a guarantee or indemnity or bond or documentary letter of credit is not necessarily to be issued by a bank or ‘financial institution’, but can be issued by any person to whom ‘Financial Debt’ is owed.
2. Maturity of claim or default of claim or invocation of guarantee for claiming the amount has no nexus with filing of claim pursuant to public announcement made under Section 13(1)(b) r/w Section 15(1)(c) or for collating the claim under Section 18(1)(b) or for updating claim under Section 25(2)(e). For the purpose of collating information relating to assets, finances and operations of Corporate Debtor or financial position of the Corporate Debtor, including the liabilities as on the date of initiation of the Resolution Process as per Section 18(1), it is the duty of the Resolution Professional to collate all the claims and to verify the same from the records of assets and liabilities maintained by the Corporate Debtor.
C. IBBI action against IPs: (Mr. Mukesh Mohan, Insolvency Professional)
(order IBBI/DC/07/2018 dt. 23.08.2018):
(a) No single creditor, whether secured or unsecured, irrespective of its voting power or share, can substitute the CoC. A RP must not engage in private communication with a creditor irrespective of his voting power.
(b) The IP must have approval of CoC for laying down the eligibility criteria under section 25(2)(h) of the Code. This cannot be a post facto approval.
(c) The IP is the sole authority for taking a view on irregular transactions and filing applications before the AA seeking appropriate relief. The CoC has no authority to decide the merits of such transactions and whether to file and when to file the application before the AA. It can, however, raise a concern if the RP does not discharge his duties, including his duties in respect of irregular transactions, in accordance with Code.
(d) The work of a forensic auditor and a registered valuer have a substantial bearing on outcome of a CIRP, particularly on maximization of value of the assets of the CD. The IP must ensure that the professionals, including forensic auditors and registered valuers, engaged by him to assist him in CIRP must not have any conflict of interest.
(e) An IP must perform his defined role under the Code and must not usurp other’s role and must not allow others to usurp his role.