ET: Cannot reject insolvency plea over claims disputed after demand notice: NCLAT

28 July 2019: The National Company Law Appellate Tribunal (NCLAT) has asked the NCLT to decide over an insolvency plea filed against leading real estate firm Raheja Developers by one of its operational creditors.

Setting aside the earlier order passed by the National Company Law Tribunal (NCLT), the NCLAT said existence of any “disputed claim” cannot be a ground to reject an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) to initiate insolvency proceedings, if it is not raised before issuance of a demand notice.

A three-member Bench, headed by Chairman S J Mukhopadhaya, observed that “existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice”.

Allowing the appeal of Ahluwalia Contracts (India) Ltd, an operational creditor of Raheja Developers, NCLAT said no arbitration proceeding was initiated or pending before demand notice under Section 8(1) of IBC and has remitted the matter back to the NCLT for fresh hearing.

“We set aside the impugned judgment dated September 19, 2018, and remit the case to the Adjudicating Authority (NCLT) for admitting the application under Section 9 after notice to the ‘Corporate Debtor’ (Raheja) to enable the ‘Corporate Debtor’ to settle the matter prior to the admission,” said NCLAT in its order passed on Tuesday.

The Delhi bench of the NCLT had on September 19 dismissed an application filed by Ahluwalia Contracts (India) Ltd under Section 9 on grounds that the claim was disputed and arbitration proceedings has already been initiated over it.

Section 9 of IBC gives power to the operational creditors of a company to initiate corporate insolvency resolution process after default.

Before that, he has to send a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default under Section 8(1) of IBC.

This was challenged by Ahluwalia Contracts before the appellate tribunal NCLAT.

NCLT had observed that claims of Ahluwalia Contracts falls within the ambit of ‘disputed claim’ and arbitration in the matter has already been initiated.

However, Ahluwalia Contracts, which was represented by his counsel Shashank Garg contended that when the demand notice was issued by it under Section 8(1) of the IBC, no arbitration proceeding was initiated or pending and it was initiated after that.

Consenting to it, NCLAT said “existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice”.

It further observed that the arbitration proceeding was initiated by Raheja Developer on May 24, 2018, which is after about one month from the date of issuance of demand notice under Section 8(1) issued on April 28, 2018.

Ahluwalia Contracts had received work order for plumbing and civil work from Raheja Developers and had claimed dues of Rs 5.50 crore.

The Economic Times reported

ET: NCLAT grants three weeks’ time to Dighi Port promoters to settle claims with lenders

28 July 2019: The National Company Law Appellate Tribunal (NCLAT) has granted three weeks’ time to the promoters of debt-ridden Dighi Port Ltd to negotiate with the company’s financial creditors to settle their claims.

A three-member NCLAT bench headed by Chairman Justice S J Mukhopadhaya has allowed Dighi Port Director Vishal Vijay Kalantri and other promoters to negotiate with the Committee of Creditors (CoC) and operational creditors to bring the company out of insolvency proceedings.

“We allow the Appellant – Director Vishal Vijay Kalantri and other promoters of Dighi Port Ltd (Corporate Debtor) three weeks time to state as to whether the financial creditors have agreed to settle the claim,” the appellate tribunal said in its order passed on July 24.

It further said: “If such proposal is made, financial creditors and operational creditors, if any, may consider the same.”

The appellate tribunal has directed to list the matter for next hearing on August 21.

During the proceedings of the NCLAT, counsel representing the promoters had submitted that they “may reach one-time settlement with the financial creditors” of Dighi Port.

Dighi Port is being developed by Balaji Infra Projects in the Raigad district of Maharashtra for which — Adani Ports and Special Economic Zone Ltd (APSEZ) and Jawaharlal Nehru Port Trust (JNPT) had submitted their bids.

Earlier, the lenders had rejected the resolution plan filed by APSEZ and approved JNPT bid. However, later APSEZ moved to NCLAT by filing an appeal against it.

Earlier, on July 10, NCLAT had said that until its further orders, NCLT will not pass any order of liquidation.

Dighi Port is facing insolvency proceedings after the Mumbai bench of the National Company Law Tribunal (NCLT) allowed recovery plea by DBM Geotechnics and Constructions Pvt Ltd, one of its operational creditor for non-payment of construction of multi-purpose berth on March 25, 2018.

CoC has informed NCLAT that claims filed by the financial creditors of the company is more than Rs 3,000 crore.

The promoters also informed the appellate tribunal that the Resolution Professional of Dighi Port has not admitted any claims of DBM Geotechnics & Construction so far.

This was also accepted by the counsel appearing on behalf of DBM Geotechnics & Construction before NCLAT.

Resolution Professional has submitted before NCLAT that in view of the pendency of the appeal, order of liquidation has not been passed.

The Economic Times reported

FE: DHFL exposure: MFs refuse to take out of turn haircut

28 July 2019: Asset management companies that have an exposure to debt instruments of Dewan Housing Finance Corporation (DHFL) have not been involved in the working of the resolution plans nor have they received the resolution plan. Funds had indicated that during the informal conversations held a couple of weeks ago, they had been asked to take a haircut. However, mutual funds want the resolution plan to follow the law. In case of insolvency proceedings, losses are apportioned between equity shareholders, preference shareholders, perpetual-Tier II bond holders and unsecured lenders. After these four categories have apportioned the losses, then the secured lenders also end up taking a similar proportion of haircut.

In this case, lenders do not wish to give a haircut to the Employees’ Provident Fund Organisation, PF Trust and retail investors. Mutual funds are protesting against this formula. A CEO from the leading fund house who has investments in DHFL says, “This waterfall mechanism is standing the test of time for past many centuries.”

The CEO added: “But here banks are saying that Employees’ Provident Fund Organisation (EPFO) and PF trust should not take any haircut, as they cater to retail investors. They are saying that unsecured FD holders will be protected. We only have retail investors in the mutual fund schemes that has exposure to debt papers of DHFL. We need same protection that will be granted to retail lenders.” If the resolution plan persists with this formula, then the fund houses may litigate.

Fund houses have been talking to lenders that they have asked for a fair resolution plan and equal treatment with other retail investors. One of the fund houses has even suggested that one of the ways to create a level playing field without any haircut to PF lenders could be to achieved via extending the tenure of the paper, while lowering the coupon. Mutual funds have exposure of over Rs 2400 crore in paper issued by DHFL.

What has made matters worse is the the mutual fund industry is yet to get any resolution plan from either the DHFL or intermediary like SBI Caps, said another fund manager. “We are hopeful to get the resolution plan in next few days and final decision will be taken once we read the plan. Right now there is no uniform view among the fund houses on what are the next steps should be taken in this matter. But we are very clear that, we will support the resolution plan if it benefits us and our investors. If we are not satisfied with the resolution plan, we have to look at other options like litigation.”

Another head of fixed income at a fund house said that they would like to work with banks to arrive at a quick resolution. “We have to work together with banks and find a solution. In the days to come we will get in touch with the senior officials of State Bank of India (SBI) as they have highest exposure to DHFL and put forward our views on this matter,” he said.

The Financial Express reported