24 July 2019: The Chennai bench of the National Company Law Tribunal (NCLT) has initiated a corporate insolvency resolution process (CIRP) against L&T Halol-Shamlaji Tollway, a special purpose vehicle (SPV) of L&T Infrastructure Development Projects, admitting an application by Oriental Bank of Commerce (OBC) as financial creditor of the beleaguered company.
OBC had disbursed Rs 155 crore in 2009 under a common loan agreement by a consortium of banks and institutions which included Allahabad Bank (as lenders’ representative and escrow bank) and Gujarat State Road Development Corporation (GSRDCL).
The loan account turned NPA in 2016 and the financial creditor, along with other lenders, entered into a master restructuring agreement in 2017 with L&T Halol-Shamlaji Tollway for conversion of debt of Rs 406 crore into equity, out of total debt of Rs 1,000 crore payable to the consortium of banks.
Apart from this, Allahabad Bank wrote a letter to the MD of GSRDCL stating that the revival package will be based on implementation of measures proposed by banks and GSRDCL. The measures include conversion of debt to the tune of Rs 410 crore into equity and GSRDCL, taking share of Rs 210 crore out of the proposed equity, reduction of interest to 10% and extension of repayment based on proposed cash flow, among others.
When the company failed to service the loans taken from various scheduled banks for laying roads, GSRDCL was asked to take equity share of Rs 210 crore. L&T Halol-Shamlaji Tollway had used this ‘move’ to impress upon the banks to go for a master restructuring agreement.
As the company reportedly failed to comply with the concessions mentioned in the master restructuring agreement, OBC had given a recall notice on September 12, 2018, demanding repayment of part-B debt of Rs 78.27 crore within seven days. Since L&T Halol-Shamlaji Tollway failed to repay the loan, OBC moved the NCLT with a plea to initiate CIRP.
Countering this, the counsel for the company submitted that there was no default in making payment in respect of part-B debt, as there cannot be any occasion to OBC to recall the debt on the ground that GSRDCL has not come forward to take equity out of part-A debt.
Further, it stated that OBC decided to file an application with the NCLT as part of their recovery measures, which will act as indirect pressure on the ultimate parent. The counsel argued that Allahabad Bank has already recorded that the company’s account was regular and hence it has to be construed that no default was in existence as against part-B debt payable to OBC.
According to the counsel, even in the event of occurrence of default, OBC on its own cannot initiate proceedings against the company due to clauses in the master restructuring agreement.
Ordering the CIRP, the NCLT bench said it has not been said anywhere in the master restructuring agreement the lenders cannot independently proceed against company.
The bench pointed out that it was an admitted fact the fund of Rs 210 crore had not come from GSRDCL within 90 days of the effective date. As per Clause 7.1 of the restructuring agreement, it has become an additional event of default, entitling the lenders to proceed against the debtor based on the original loan documents.
There being no dispute with regard to availing of loan amount of Rs 155 crore and this account having become NPA in 2016 itself, it could be solely concluded that debt and default are in existence, the bench observed.
The NCLT further said with the company’s failure to bring in equity through GSRDCL as promised, the classification of debt and equity has to be construed as vanished because once any default has occurred, then the entire amount (both part- A and part- B debts) will become one debt by the corporate debtor. Therefore, GSRDCL not infusing into the company will amount to default and it was pertinent to mention that the additional right given to lenders’ agent to proceed against the company on behalf of the banks, cannot be considered as a restriction upon OBC to independently proceed against the corporate debtor, the bench added.