BS: L&T Infrastructure Finance Company moves NCLT against Essar Power

5 March 2019: After Essar Steel, now Essar Power (EPL) has been taken to the National Company Law Tribunal (NCLT), Ahmedabad, by one of the lenders L&T Infrastructure Finance Company on Tuesday. 

As a financial creditor of EPL’s subsidiary Essar Power Gujarat (EPGL), L&T Infrastructure Finance Company had been claiming dues worth Rs 45.54 crore in which the latter defaulted. However, being the guarantor for its subsidiary, Essar Power, too, defaulted on its guarantee. 
As a result, L&T Infrastructure Finance Company’s legal counsel Arjun Sheth & Associates has filed an interlocutory application under Section 7 of the Insolvency and Bankruptcy Code with a plea to initiate corporate insolvency resolution process against Essar Power.
The two-member bench, comprising Harihar Prakash Chaturvedi and Manorama Kumari, have issued a notice to EPL to present their arguments before admitting the financial lenders’ plea. The matter will now be heard in early week of April. 

BS: SC hearing on challenge against RBI February 12 circular on Wednesday

5 March 2019: The Supreme Court is scheduled to start hearing in the power, sugar, and shipping companies challenge to the Reserve Bank of India’s (RBI) February 12 circular from Wednesday. With a total exposure of nearly Rs 2 trillion in the power sector alone, companies hoping for a verdict in their favour may have to face some disappointment, experts said.

“Value maximization is the main purpose of the Insolvency and Bankruptcy Code (IBC) and that has been upheld by the Supreme Court time and again via various judgments. If the petitioners limit themselves to this line of argument, there is some hope for them. It is going to be tough otherwise,” Saurav Kumar, Partner at law firm IndusLaw said.
Power companies such as Essar Power, GMR Energy, KSK Energy, and Rattan India Power as well as The Association of Power Producers (APP) and Independent Power Producers Association of India had in August moved the Supreme Court, challenging the constitutional validity of the February 12 circular of the RBI. On February 12, 2018, RBI had asked banks and other lenders to either execute a resolution plan for big stressed accounts or file insolvency petitions against them in the National Company Law Tribunal (NCLT).
While the power companies are hoping that there would be resolutions outside the court, they had also pinned their hopes on a report by cabinet secretary-led High Level Empowered Committee (HLEC). The HLEC had come up with a report suggesting ways to resolve stress in the sector. Though the government claimed that the recommendations made by HLEC were under action through various schemes, APP said that there has been little or no action on the issue.
In their petition before the top court, the association had sought that there should be no coercive action against them until the recommendations of the HLEC were implemented. The APP had also sought that issues that had not been taken up by HLEC should be taken up by and directions be passed by the court. In its petition, the association has also drawn the court’s attention towards the poor state of power distribution companies, payments defaults by states and other issues pertaining to irregular coal supply.
HLEC, the association alleged, had not taken up issues related to regulations governing change in law and subsequent pass through of any cost escalation due to the same. “HLEC has not addressed a crucial term of reference in relation to the changes required in provisioning norms/ IBC to facilitate restructuring of stressed assets in the power sector,” APP had said in its petition.
Legally, experts said, there is little hope for power companies as acts and rules do not favour them, experts said.
“One argument the petitioners could forward for the court’s considerations is that the power sector is heavily regulated and thus they faced problems. This is perhaps the only hard argument they have,” Kumar said.
The apex court is hearing these petitions by dividing them into three categories. There are some companies that have challenged the validity of the Insolvency and Bankruptcy Code.The second group of companies have challenged the constitutional validity of the circular, and the third group, which consists mostly of power companies, have sought temporary relief from the circular only for themselves.
The power companies had initially approached the Allahabad High Court, which had rejected their plea, following which these companies approached the Supreme Court. On September 11, the Supreme Court transferred all the petitions moved by power, sugar and shipping companies in different courts across the country to itself and said that status quo as of that day would be maintained until further orders.
In the sugar sector, petitions moved by Dharani Sugars and Chemicals Limited and The South Indian Sugar Mills Association of Tamil Nadu’s petition were transferred to the top court. The Shipyards Association of India’s plea, which had challenged the RBI’s February 12 circular at Ahmedabad, was also transferred to the apex court.

FE: Insolvency and Bankruptcy Code: Govt says trustees too can approach IBC against corporate debtors

5 March 2019: The government has allowed trustees, estate administrators, persons authorised by a company’s board of directors etc to initiate corporate insolvency resolution process (CIRP) against a corporate debtor before the NCLT, on behalf of financial creditors under the Insolvency and Bankruptcy Code (IBC), 2016.

In a notification, the ministry of corporate affairs (MCA) said “a guardian, an executor or administrator of an estate of a financial creditor, a trustee (including a debenture trustee) and a person duly authorised by board of directors of a company” may file an application for initiating CIRP against a corporate debtor before the adjudicating authority, on behalf of the financial creditor.

Analysts said the MCA notification helps clear the ambiguity regarding who can approach NCLT for CIRP.

Nangia Advisors (Andersen Global) director (Regulatory) Sumit Naib said, “It is important to note that this notification does not intend to amend any provision of the Act or the rules framed thereunder. Given the nature of the notification, it should be considered as a clarification issued by the ministry to address the ambiguity”.

The Financial Express reported

LM: Jet pledges FDs worth ₹1,500 crore with State Bank of India to stay in the air

5 March 2019: Crisis-hit Jet Airways (India) Ltd has pledged its fixed deposits (FDs) with various banks, totalling  1,500 crore, to borrow  225 crore from the State Bank of India (SBI), loan documents reviewed by Mint show.

The airline has the option to borrow more from SBI with the same FDs as security.

The airline decided to borrow against the FDs rather than redeem them because the deposits continue to earn a higher interest than what Jet has to pay to SBI, a person aware of the loan transaction said on condition of anonymity.

Since 8 February, lessors have grounded at least 23 planes because of non-payment of rent. In the past few months, Jet has struggled to pay dues to banks, vendors, lessors and employees, and has seen a series of credit ratings cuts. It has recorded losses of more than  1,000 crore in each of the previous three quarters, and is expected to post a loss in the March quarter too.

“Banks were reluctant to sanction a term loan to Jet Airways without gaining exclusive rights on the airline’s interest-yielding cash deposits or appreciating assets or equity share pledges,” the person cited above said. “Finally, SBI agreed to disburse a term loan after Jet Airways allowed the bank to pledge all its FDs with exclusive rights. Jet Airways may raise more capital from banks and stakeholders as part of the overall resolution plan.”

A negative net worth and several credit rating cuts have forced what was once India’s premier private airline to borrow against FDs, usually the last resort for companies facing liquidation risks or having no creditworthy assets.

Lenders typically demand secured assets with assured returns only when they suspect the borrower’s ability to repay the loan or the company has no other income-yielding asset or has all other assets pledged for other loans.

According to the latest loan documents, Jet Airways has given “first and exclusive” rights on all its FDs to SBI for securing the loan.

SBI has given Jet Airways the term loan at an interest rate of 6.25%, to be repaid by 29 April 2019. According to the loan documents, Jet Airways will have to pay a total of  250 crore to SBI by the time the loan is repaid. The loan was sanctioned after the agreement was signed on 31 January.

Jet had a total debt of  9,610.16 crore as of 31 December. The carrier had a negative net worth of  10,370.24 crore on that date.

Ratings company Icra Ltd has downgraded Jet Airways’ credit ratings in September, October, December 2018 and January 2019.

Emails sent to Jet Airways and SBI remained unanswered.

“The money will be used by the airline primarily to fund its core businesses, which include cost of flying, parking and paying salaries to the staff, and avoid further grounding of aircraft,” said the person cited earlier.

According to the loan agreement, SBI has the right to take all benefits of the FDs and their accrued interest incomes, if the airline fails to repay the loan. SBI, the biggest lender to Jet Airways, said on 17 January that the airline’s lenders were considering a plan to resolve its debt issues.

Mid-February, Jet Airways, after several attempts at finding help to rescue the carrier, approved a bailout plan aimed at making its lenders the largest shareholders and fixing a near  8,500 crore funding gap.

On 23 February, its board approved the conversion of some of the debt into equity, resulting in founder and chairman Naresh Goyal’s holding falling from 51% to below 20%.

On Friday, Goyal agreed to step down from the airline’s board and surrender his directorial powers.

The airline’s defaults and rising expenses on account of higher jet fuel costs and increased competition in the private civil aviation space have forced it to scrap on-board freebies it used to offer to its passengers earlier.

The Livemint reported

BS: Govt likely to tweak IBC for cross-border cases, Bill after elections

5 March 2019: The government is planning to promulgate an Ordinance amending the Insolvency and Bankruptcy Code (IBC) and adding a chapter on cross-border insolvency. This would give comfort to foreign investors in India and vice-versa.
 
A source in the government said, “We plan to get a Cabinet nod for this soon.” The Ordinance will be based on the UNCITRAL model law for cross-border insolvency.
 
Now, only the next government will introduce a Bill for this in Parliament. Lok Sabha elections are supposed to be held within the next two months.
 
A cross-border insolvency law empowers foreign creditors get money lent to Indian corporate entities. Indian companies can also claim their dues from foreign companies.
 
Currently cross-border insolvency provisions are in sections 234 and 235 of the IBC. Since they are not notified yet, they are not enforced.
 
There are other limitations as well. For now, cross-border insolvency can be enforced only if India enters bilateral treaties with foreign governments, said an official at the Ministry of Corporate Affairs, who did not want to be named.
 
Finalising these treaties takes long, and as each treaty is different, there is uncertainty among foreign investors. This also creates ambiguity for Indian courts and the National Company Law Tribunal (NCLT), which has to treat each case separately.
 
Officials in the know said the government wants to create a separate provision for insolvency that would be globally accepted and well organised.
 
They added the government’s aim was to improve the business environment in the country.
 
This would reduce time for exchanging information between the two countries. Officials said this would give a signal to foreign investors and multi-lateral agencies such as the World Bank about the robustness of the country’s financial sector reforms.
 
India was ranked 77 among 190 countries in the Ease of Doing Business ranking by the World Bank in 2018, against 100 in 2017. A panel, headed by Corporate Affairs Secretary Injeti Srinivas, recommended using the UNCITRAL model law.
 
The model law deals with four major principles of cross-border insolvency — direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor, recognition of foreign proceedings and provision of remedies, cooperation between domestic and foreign courts and domestic and foreign insolvency practitioners, and coordination between two or more concurrent insolvency proceedings in different countries.
 
The Model law has been adopted by 44 countries, including the US, the UK and Singapore.
 
In the past, the IBC has been amended to include Section 29(A) that bars errant promoters from bidding for companies undergoing resolution under the code. This ordinance also granted homebuyers the status of as financial creditors.
 
In a second amendment to the Code, the government also allowed the withdrawal of application after a case was admitted in the NCLT if 90 per cent of lenders approved it.

The Business Standard reported