BS: SC seeks Centre’s view on bringing all tribunals under one umbrella

27 March 2019: To ensure “efficient functioning” and “streamlining the working” of tribunals, the Supreme Court Wednesday sought to know from the Centre within two weeks its view on bringing all the quasi-judicial bodies under one central umbrella body.

The top court said it would not like to be bogged down with what is right or wrong and all it wants is that “the tribunals work efficiently and independently”.

A five-judge Constitution bench headed by Chief Justice Ranjan Gogoi said it is tentatively of the view that directions given by the apex court in its two verdicts of 1997 and 2010 for bringing all the tribunals of the country under one nodal agency should have been “implemented long back”.

“There cannot be any manner of doubt that to ensure the efficient functioning and to streamline the working of tribunals, they should be brought under one agency, as already felt and observed by this Court…

“The Court would like to have benefit of the view of the government of India as on today by means of an affidavit of the competent authority to be filed within two weeks from today,” the court said.

The bench, also comprising Justices N V Ramana, D Y Chandrachud, Deepak Gupta and Sanjiv Khanna, which dealt with vacancies in tribunals, said recommendation of the search-cum-selection committee for the appointment of members in NCLT and NCLAT should be immediately implemented within two weeks. It listed the matter for further hearing after two weeks.

It said: “While every endeavour would be made by the nominee of the Chief Justice who heads the Selection Committee before whom the issue of recommendations may have been pending to expedite the same, such of the recommendations which have already been made by the Search-cum-Selection Committee as is in the case of National Company Law Tribunal and National Company Law Appellate Tribunal, should be immediately implemented by making appointments within the aforesaid period of two weeks and the result thereof be placed before the Court vide affidavit of the competent authority, as ordered to be filed by the present order.” 

The bench said that once all the information with regard to appointments of members of tribunal and the Centre’s view is made available, it would pass appropriate orders which may include remitting the matter to smaller bench for monitoring on a continuous basis and “for ensuring due and proper functioning of the tribunals”.

The bench was hearing a petition filed by Madras Bar Association in 2012, which sought orders to the Centre for implementing the directions given in its two verdicts in 1997 and 2010. They had ordered the Union Ministry of Law and Justice to take over the administration of all tribunals created by Parliament and streamline their functioning.

During the hearing, Attorney General K K Venugopal, appearing for Centre, pointed out to the bench that certain difficulties in implementing the orders, including the need for an amendment of the Government of India (Allocation of Business) Rules, 1961.

He said the Ministry of Law and Justice was already overburdened with lot of works and may not be able to act and function as the nodal agency, which the Court had in mind while issuing directions way back in the year 1997.

Venugopal said that if the ministry is to act as a nodal agency for all the tribunals then it would have to deal with various issues, including over thousands of appointments of members of the tribunals and infrastructure, which would not be feasible.

He cited the example of under-staffed central law agency situated in the apex court that an affidavit was filed months back by the government but none of the law officers had any clue about it.

Venugopal suggested that for efficient and independent working of the tribunal a central body called National Tribunal Commission should be created, which could also look about all aspects including infrastructure and appointments.

Senior advocate Arvind Datar, who led the arguments for the petitioner, said that for effective and smooth functioning of tribunals, one umbrella body is needed as directed by the top court way back in 1997 and 2010.

The bench then commenced with the hearing on a batch of pleas which challenged the Constitutional validity of the Finance Act of 2017.

“If we hold that it was not a money bill, then the matter rests there but if it is being held by the court that it was a money bill then subsequent issues which pertains to affairs of tribunal will be dealt,” the bench said.

It clarified that the court is not going to hear 20 lawyers on the same point repeatedly saying, “this anarchy has to stop in the Supreme Court. Lawyers are arguing and arguing for 20 days on the same point”.

It asked the petitioners to discuss among themselves and sort it out as who will advance the arguments and if needed someone else can supplement on a particular point.

The Business Standard reported

BS: SC Bench examines validity of NCLT & NCLAT

27 March 2019: The Supreme Court Constitution Bench is examining a petition filed by the Madras Bar Association challenging the creation of National Company Law Tribunal and National Company Law Appellate Tribunal under the Companies Act 2013.

The constitutional validity of Chapter XXVII comprising Sections 407 – 434 of the Companies Act 2013 which constitute NCLT and NCLAT is the issue before the five judges’ bench comprising CJI Ranjan Gogoi, and Justices N V Ramana, D.Y. Chandrachud, Deepak Gupta and Sanjiv Khanna.

The petitioner has alleged that the creation of NCLT and NCLAT impinges on the basic structure of Constitution by affecting judicial independence. It argues that the members of these tribunals, which are to exercise powers otherwise enjoyed by the High Courts, can be easily removed by the central executive and therefore judicial independence is heavily compromised.

The National Company Law Tribunal (NCLT) is a quasi-judicial body in India that adjudicates issues relating to Indian companies. Decisions of the NCLT may be appealed at the National Company Law Appellate Tribunal (NCLAT). The NCLAT decisions can be challenged at the Supreme Court on a point of law. The Supreme Court of India has upheld the Insolvency and Bankruptcy Code in its entirety.

Tasked with a key job of helping recover corporate loans, the NCLT has helped resolve insolvency and bankruptcy proceedings involving more than Rs 80,000 crore in 2018 and the kitty is expected to swell beyond Rs 1 trillion in 2019 with several big-ticket default cases pending. So far NCLT has cleared resolutions in Bhushan Steel which is now owned by Tata Steel.Similar resolutions include those of Electrosteel, which is now with Vedanta, Monnet Ispat & Energy (JSW Steel) & AION Capital. The Essar Steel resolution has already paved the way for ArcelorMittal.

The NCLT was established under the Companies Act 2013 and was constituted on 1 June 2016 by the government of India. It is based on the recommendation of the justice Eradi Committee on law relating to insolvency and winding up of companies. All proceedings under the Companies Act, including proceedings relating to Arbitration, Compromise, arrangements and reconstruction and winding up of companies shall be disposed of by the NCLT.

The National Company Law Tribunal is the Adjudicating Authority for Insolvency resolution process of Companies and Limited Liability Partnerships under the Insolvency and Bankruptcy Code, 2016.

The Business Standard reported

LM: HCC raises ₹1,750 crore in litigation funding deal

27 March 2019: Ajit Gulabchand-led Hindustan Construction Co. Ltd (HCC) has completed the first litigation funding deal in the engineering procurement construction (EPC) sector in India, with a consortium of investors led by BlackRock Inc.

Under the deal, HCC will monetize a pool of arbitration awards and claims in exchange for an upfront cash payment, which will allow the company to repay debt and meet its working capital needs.

The deal is expected to boost litigation funding in India, and could provide the much needed relief to the country’s debt-laden EPC sector, wherein companies do not have significant hard assets to monetize, which in turn makes resolution under the Insolvency and Bankruptcy Code (IBC) difficult. EPC companies generally have significant amounts of arbitration claims pending from various counterparties and monetizing them through this route will help companies create liquidity and manage balance sheet stress.

“We have found an alternative solution through the capital markets to the long litigation cycle that plagues the industry,” said Arjun Dhawan, director and group chief executive officer, HCC, over the phone. “HCC will stand substantially deleveraged as a result, which will bring us towards the end of our financial turnaround process.” The construction company will get  1,750 crore for the arbitration claims that the BlackRock-led consortium is buying, according to an exchange filing by HCC.

HCC will transfer its beneficial interest and rights in these claims—largely under litigation with National Highways Authority of India (NHAI), NHPC Ltd and NTPC Ltd, besides other state and central government agencies—to a special purpose vehicle (SPV) controlled by a consortium of investors, including BlackRock, under the terms of the transaction.

HCC will use the  1,750 crore to prepay debt of  1,250 crore, including its entire term loan of  942 crore that is due in the next three years, and  308 crore of optionally convertible debentures. The remaining  500 crore will be used to fund working capital and business growth.

Dhawan said that while the claims amounted to  2,000 crore on the books of HCC, the potential value could be as high as  4,000-4,500 crore.

“The total cover that the investors have is around 2.5x. While on our books we are reporting the claims as  2,000 crore conservatively. I would say that you are looking at  4,000-4,500 crore of total receivables on which the investors do believe that there is considerable recovery to be made,” said Dhawan.

The agreement also envisions a claw back of value to HCC from the SPV in the event that the recovery of awards and claims transferred to the SPV exceeds certain thresholds.

“The claims and awards that we are transferring to the SPV are in various stages, some are in the Supreme Court, some in the high courts. So it’s a mix of claims with varying vintages, all of which we expect to get adjudicated, disposed and finally received in a span of five years,” he added. “We are disposing off roughly half of the claims on our books.”

As a result of this transaction, HCC’s balance sheet will stand substantially deleveraged, with debt servicing over the next four years being limited to its working capital facilities.

“HCC will have  3,200 crore of debt after the transaction is completed, of which, the serviceable part of the debt will only be  1,100 crore, which is effectively our working capital facility. The balance of approximately  2,100 crore comprises an OCD, which was done in the time of our S4A, and in addition to that, there are debts that we have assumed relating to Lavasa of around  750 crore,” said Dhawan.

The overseeing committee of the lenders, formed under the aegis of the inter-creditor agreement framework executed among lenders, has reviewed the proposal and requested consortium members to accord their respective approvals, HCC told the exchanges in its filing.

An engineering and construction firm, HCC operates in transportation, power and water assets. It has built more than 3,800 lane kilometers (km) of expressways and highways, over 335km of complex tunnelling and over 365 bridges.

The Live Mint reported

ET: Kwality posts Rs 1,500-crore loss in Q3 on debt provisioning

27 March 2019: Dairy major Kwality posted Rs 1,500 crore losses for the quarter ended December, paced by provisions for doubtful debt and advances.

Such provisions of Rs 1,415 crore in the quarter reflected the company’s struggles with managing its receivables, as sales declined to Rs 1,976 crore for the nine months ended December 2018 from Rs 5,016 crore.

Net losses for the nine months were Rs 2,450 crore against a profit of Rs 69.82 crore during the same period in FY18. The company is unable to meet its financial obligations, including repayment of various loans and unpaid interest, said the auditor in its review report.

Shares of the KKR-backed company declined 93 per cent in the last one year from Rs 82 to Rs 6.46. Currently, promoter Sanjay Dhingra owns 24 per cent of Kwality.

KKR has filed an insolvency plea against the company. The private equity major invested Rs 520 crore in 2016 to finance Kwality’s expansion plans and help it enter the consumer segment.

The Economic Times reported

ET: NCLT admits Bank of India’s insolvency plea against Shrenuj & Co

27 March 2019: Shrenuj & Co, the century-old diamond house that had the late Maharani Gayatri Devi of Jaipur as its brand ambassador during its heydays, has been admitted into bankruptcy court. 

The National Company Law Tribunal (NCLT) admitted an insolvency petition filed by Bank of India against the company for defaulting on Rs 226 crore of loans. The state-owned lender represented a consortium of 17 banks and financial institutions. 

NCLT also directed a probe into claims by the company that the bank had misappropriated or lost its diamonds kept as security due to fraud or gross negligence. 

“The financial creditor, along with other members of the consortium, is jointly and severally liable to pay an amount of Rs 1,561.87 crore to the corporate debtor, against the value of the company’s stock,” Shrenuj told the NCLT. “The corporate debtor claims Rs 5,000 crore as damages for loss of business, profit and goodwill.” 

The Mumbai bench of NCLT, while passing an order admitting Shrenuj, appointed Hiten Mukundbhai Parikh as interim resolution professional and asked him to inform the Enforcement Directorate, the Economic Offences Wing, the Income Tax Department and the Serious Fraud Investigation Office to look into the matter. 

The lenders denied any misappropriation, tampering with or replacement of the diamonds. 

“There has been a default in repayment and the same has been admitted to some extent,” the lenders informed the court. 

“I am of the conscientious view that the counterclaim – that too in the nature of damages – to the amount claimed by the financial creditor cannot, in fact or in law, be the basis to dispute the amounts owed to the financial creditor,” observed MK Shrawat, a judicial member of the NCLT, while admitting the plea. 

Shrawat said the corporate debtor should be put under insolvency proceedings and simultaneously an investigation be carried out so that the interests of all stakeholders can be watched and protected. 

The order was pronounced on March 12 and uploaded on the NCLT’s website on March 25. 

Shrenuj’s solitaire jewellery brand ‘Arisia’ had Gayatri Devi as its brand ambassador between 2007 and 2009. The company, founded in 1906, was among the first diamond houses to be listed on the stock exchanges in 1989. It was delisted in August 2018.

The Economic Times reported

FE: Ericsson case: Supreme Court to hear RCom plea

27 March 2019: The Supreme Court will hear on Thursday Reliance Communications’ plea seeking permission to withdraw its appeal against initiation of insolvency proceedings by Ericsson India last year. A Bench led by Justice RF Nariman will also hear on Thursday another application by Ericsson which also wants to end the insolvency proceedings it had initiated against RCom and its two group firms – Reliance Infratel and Reliance Telecom – last year as the beleaguered telecom company had paid Rs 550 crore to Ericsson as per the apex court’s orders.

Ericsson, in its application, stated that it has received the settled payment of Rs 579.74 crore “with up to date interest for the same (excluding TDS Certificates under Income Tax Act, 1961 for an amount of Rs 2.9744 crore).”

RCom’s dues to Ericsson arose out of a settlement reached on May 30, 2018 when the beleaguered telecom company had agreed to repay dues of Rs 550 crore to the Swedish equipment supplier by September 30, 2018. However, RCom failed to pay the money, saying that its sale of spectrum to Reliance Jio Infocomm had not gone through.

RCom had failed to pay for its supplies procured from Ericsson in 2014, the latter initiated insolvency proceedings against it before NCLT to recover Rs 1,500 crore. Subsequently, the two parties arrived at a settlement on May 30 before NCLAT by which RCom was required to pay Rs 550 crore.

The NCLAT had also on May 30, 2018 halted insolvency proceedings against RCom after the case was admitted by the Mumbai bench of National Company Law Tribunal on May, 16, 2018. This appellate tribunal had also then allowed the Joint Lender Forum with whom the assets of the Reliance companies are mortgaged, and also the three companies to sell the assets of the beleaguered companies and to deposit the sale proceeds with SBI.

The Financial Express reported