BS: NCLAT reserves order on admission of contempt plea filed against Anil Ambani, other officials

3 July 2019: The National Company Law Appellate Tribunal (NCLAT) on Wednesday reserved its order over admission of contempt petition filed against Reliance Group Chairman Anil Ambani and its other officials by minority shareholders alleging non-payment of dues by Reliance Infratel.

A two-member bench, headed by NCLAT Chairman Justice S J Mukhopadhaya, said it will decide whether the contempt petition filed by HSBC Daisy Investments (Mauritius) and others should be admitted as Reliance Communications (RCom) is a now going through insolvency proceedings.

Reliance Infratel, against which also the contempt petition has been filed, is part of RCom.

The counsel appearing for resolution professional said that as RCom was going through insolvency proceedings and was under the moratorium period under the IBC, it cannot pay money.

In May this year, the Mumbai bench of the National Company Law Tribunal (NCLT) started the corporate insolvency resolution process of RCom, which has a total bank debt of over Rs 50,000 crore.

HSBC Daisy had moved the appellate tribunal over alleged default of payment of Rs 230 crore by Reliance Infratel and stated that the company has not fulfilled an undertaking given by it.

As per the consent terms of the agreement among Reliance Infratel, HSBC Daisy and others, recorded by the NCLAT in its order dated June 26, 2018, the Anil Ambani-owned firm was to pay the amount in the following six months.

After the six-month period ended, HSBC Daisy and nine other minority shareholders holding 4.26 per cent stake in Reliance Infratel filed the contempt plea.

The Business Standard reported

RT: RBI to regulate housing finance firms, review assets: sources

3 July 2019: India will soon give Reserve Bank of India (RBI) power to regulate housing finance companies (HFCs), which will almost certainly lead to the lenders facing stringent asset quality reviews, two sources with direct knowledge of the matter said.

That could have major repercussions for about 80 HFCs, the largest of which include Indiabulls Housing Finance Ltd, Housing Development Finance Corporation and Dewan Housing Finance Corporation, leading to them facing unprecedented scrutiny and the potential for major financial penalties and restriction on their activities if improper practices are discovered.

In late 2015, the RBI started a similar review of bank assets amid allegations that lenders were hiding the extent of the bad debts on their books.

During multiple asset quality reviews of banks, the RBI revealed a plethora of areas where lenders were under reporting their bad loans. It initially led to financial penalties for some lenders and eventually fed into decisions to impose tougher restrictions on their loan books while their bad debts remained high.

The housing finance companies, which are part of the broader shadow banking sector known as non-banking finance companies (NBFCs), are currently regulated by the National Housing Board, and the central bank has no direct authority over them.

The other NBFCs are very loosely regulated, with various regulators including the RBI having some role but no one being fully accountable.

The RBI’s oversight of HFCs will be a step towards the Indian authorities getting a firmer grip on the risky shadow banking sector that will help to contain any systemic problems.

A series of debt defaults last year by major infrastructure financing group, Infrastructure Leasing and Financial Services (IL&FS), showed that much of the sector was highly leveraged.

“There will be substantial improvement in regulation and supervision of all entities including NBFCs and HFCs once RBI has direct control over the housing finance firms,” one of the sources said.

On Monday, Finance Minister Nirmala Sitharaman said the government was considering giving more powers to the central bank to regulate the struggling shadow banking sector, though she was not specific.

A government official, who did not wish to be named, was more explicit in comments on Wednesday. “The government is planning to give more regulatory powers to the RBI to regulate housing finance companies. Right now they do not have that.”

One of the sources said the central bank sought more regulatory powers so that it could be more effective in handling liquidity crunches in the sector, which have hit lending and the overall economy.

The Reserve Bank of India declined to comment on the development.

As credit rating firms have downgraded the ratings of some of the housing finance companies it has stoked credit-risk fears and hurt their ability to raise funds for more lending. That in turn has made it difficult for consumers and small businesses to get loans and hurt car and motorbike sales, among other things.

The failure of a large Indian non-banking financial company could cause as much damage as the collapse of a big commercial lender, the RBI said last week, stressing the need for greater surveillance of these firms.

Both the government and RBI have declined to provide direct financial support to financially troubled NBFCs so far. But having regulatory powers over the HFCs might make it easier for the RBI to open credit lines for these firms if necessary, two of the three sources said.

The National Housing Board was controlled by the RBI before the government took over the housing finance regulator on April 29. Shifting the regulatory powers to the RBI will, however, take place later in the year as it will require a change to the RBI Act, the government official said.

Reuters reported

ET: DRT seeks assets details from ABG shipyard promoter

3 July 2019: The Ahmadabad bench of the Debt Recovery Tribunal (DRT) has directed Rishi Agarwal, the promoter of ABG Shipyard, to disclose details of his personal assets and foreign travel. The tribunal has also asked ABG Shipyard to give details of any interest-free loans it has given to the promoter and the status of the loan recovery.

IDBI Bank, to which the company owes about Rs 3,316 crore, had approached the DRT to direct the promoter to disclose these details. The bank had lent money under a master restructuring agreement approved under the corporate debt restructuring scheme.

“The bank has filed this case on the bases of apprehension that the respondent No 2 (Rishi Agarwal) would leave the country,” Vinay Goel, the presiding officer of Ahmadabad DRT-2, said in his order of June 22. “The bank may file an appropriate application before the passport authorities in accordance with laws.”

Gujarat-based ABG Shipyard was part of the so-called first list of 12 large debtors that the Reserve Bank of India had sent to banks, seeking their debt resolution under the Insolvency and Bankruptcy Code. The company currently owes more than Rs 16,000 crore to its lenders. In April, the National Company Law Tribunal had ordered the liquidation of the company in the absence of any viable revival plan. The DRT has directed Agarwal to disclose details of all his properties situated in India and abroad, and of business abroad where he owns a more than 20% stake.

The tribunal will hear the matter next on August 1, 2019, by when these details must be submitted.

Nishit Dhruva, the managing partner of law firm MDP & Partners who is appearing for IDBI Bank in the case, confirmed the development but refused to divulge details since the matter is in court. Sundaresh Bhat, a partner and the leader of resolution process advisory at consultancy BDO, who is the liquidator of the company, declined to comment.

The Economic Times reported

BS: Supreme Court green light to end Adani-Gujarat power purchase agreement

2 July 2019: The Supreme Court decided Adani Power Mundra was right in terminating the power purchase agreement (PPA) it had signed with Gujarat Urja Vikas Nigam (GUVNL), as it could not get coal supply on time from the Naini block of Gujarat Mineral Development Corporation (GMDC).

This could set a precedent for power companies that become unable to commission their capacity or suffer losses due to insufficient coal supply. 

The apex court has also allowed Adani to seek a compensatory rate for the electricity it had alternatively supplied to Gujarat from its Korba power project in Chhattisgarh. Adani Power’s share price jumped 7.6 per cent on Tuesday, following the three-judge Bench’s decision.

The compensatory rate for Adani Power will have to be decided by the Central Electricity Regulatory Commission (CERC) within three months from the date the company approaches it. GUVNL will then have to make the payment to Adani within three months from the date the CERC decides. The case dates back to 2010, when Gujarat Electricity Regulatory Commission (GERC) decided Adani Power Mundra had illegally terminated the PPA the latter had signed with GUVNL. This decision of GERC was later upheld by the Appellate Tribunal for Electricity.

Adani’s contention was that GMDC, again a state government entity, did not develop the Naini coal block. The block was allocated to the state agency by the ministry of coal but was de-allocated in 2014. GMDC was supposed to construct a power plant near the coal mine but decided to transport coal to Gujarat for two power units, of Adani Power and Torrent Power. Adani Power signed the PPA in 2007 with GUVNL for supply of 1,000 Mw at Rs 2.35/unit from its power project at Korba, Chhattisgarh, based on coal supply from Naini. GMDC had agreed to supply 4 million tonnes of coal a year to Adani.

Later in 2007, Adani told GUVNL it would supply power from its Mundra power project in Kutch, Gujarat, instead of from Chhattisgarh, since GMDC was lagging in coal production. However, despite repeated reminders to the Gujarat government, GUVNL and GMDC, the coal supply did not start. Due to which, the PPA Adani had signed was terminated. Adani argued the agreement for supply of power was based on the assurance given by GMDC. GUVNL held the company should have supplied power, irrespective of whether it got the coal or not.   

The Supreme Court has said: “In order to do economic justice, on the principle of business efficacy, the appellant would be entitled for adjustment of cost of the project and would also be entitled to the interest on the expenditure incurred by it for completion of the project. The expenditure towards running of the project after obtaining the coal from the open market would also be required to be taken into consideration.” Adani Power Mundra would also be entitled to interest on any delay in payment upon determination of the rate by CERC.

The Business Standard reported

TI: Adani role in Jaypee under fire

3 July 2019: The National Company Law Appellate Tribunal (NCLAT) on Tuesday came down hard on banks for their “backdoor” talks with the Adani group to acquire Jaypee Infratech Limited (JIL) even as they rejected state-owned NBCC’s bid for the realtor, which went bankrupt without giving possession to as many as 23,000 home buyers.

A three-member bench led by chairperson Justice S.J. Mukhopadhaya said only NBCC’s plan should be considered at this stage as it was “a government company and one could rely on it”.

The observation by the NCLAT came after the banks requested the appellate tribunal to allow them to call for and consider other bids, including the one by the Adani group as it was offering more money and had promised to complete the pending projects of Jaypee in nine months.

The NCLAT, however, slammed the banks for their “backdoor” negotiations with the Adanis. If the group had a good proposal to finish the project, it should file an intervention application and appear before the appellate tribunal, the three-member bench said.

The Adani group, the appellate tribunal observed, does not have the relevant experience in the infrastructure space and hence should not be considered.

The Adani offer, and other proposals, should be considered only if the resolution plan submitted by NBCC failed to make any headway despite the NCLAT’s intervention, Justice Mukhopadhaya said.

He reiterated that in the interest of home buyers, the resolution of Jaypee Infratech would not be allowed to fail.

The tribunal was informed that in the voting that took place on NBCC’s bid, 34.75 per cent of the home buyers voted in its favour, 1.44 per cent voted against it, whereas 23.8 per cent did not vote.

All the 13 banks, which constitute 40.75 per cent of Committee of Creditors (CoC), voted against the bid by the state-run firm to acquire Jaypee Infratech.

The voting started on May 31 and concluded on June 10. Home buyers have nearly 60 per cent voting rights in the committee of creditors.

Justice Mukhopadhyaya directed the representatives of banks, allottees and other stakeholders to appear before it on July 17 to consider how the bid could be tweaked for the benefit of the home buyers.

It asked the banks to nominate a high-ranking officer who will negotiate, while asking them to produce a gist of the resolution plan submitted by NBCC and the objections they have with regard to the plan.

In its revised offer, NBCC has proposed an infusion of Rs 200 crore equity capital, transfer of 950 acres of land worth Rs 5,000 crore to banks and completing the construction of the flats by July 2023, to settle an outstanding claim of Rs 23,723 crore of the financial creditors.

Apex court hearing

The Supreme Court will hear next week a plea seeking that Jaypee Infratech Ltd not be sent into liquidation. The apex court had on August 9 last year ordered the re-commencement of the resolution process against JIL .

A fresh application in the matter came up for hearing on Tuesday . The plea, filed by one of the home buyers , sought direction that an “independent and thorough forensic audit” of JIL should be conducted from the date of its incorporation.

As many as 13 banks and over 23,000 home buyers have voting rights in the CoC of Jaypee Infratech. Home buyers represent nearly 60 per cent of voting rights, while banks have the rest. For approval of any resolution plan, at least 66 per cent votes should be in favour.

NBCC, while bidding for JIL, had asked to be exempted from income tax liability as well as from taking consent of development authorities for transfer of businesses. It had also not agreed to change its proposal that lenders take unsold flats in case the state-owned firm fails to sell them in the market.

JIL was taken to the National Company Law Tribunal (NCLT) by an IDBI Bank-led consortium for failing to repay debt worth nearly Rs 24,000 crore.

In most bankruptcy proceedings, lenders have the right to vote for or against a resolution plan for a debt-laden firm. In the case of realty firms, home buyers also have voting rights at par with lenders.

Meanwhile, the Supreme Court will hear next week a plea seeking that Jaypee Infratech Ltd not be sent into liquidation although the deadline for the corporate insolvency resolution process is over, as it would cause “irreparable loss” to thousands of home buyers.

The apex court had on August 9 last year ordered re-commencement of the resolution process against JIL and barred the firm, its holding company and promoters from participating in the fresh bidding process.

It had also allowed the Reserve Bank of India to direct banks to initiate corporate insolvency resolution proceedings (CIRP) against Jaiprakash Associates Ltd (JAL), the holding company of JIL, under the Insolvency and Bankruptcy Code (IBC).

The Telegraph India reported