Disbursement Of Non Fund-Based Facilities Cannot Be Refused By Lenders When Resolution Plan Contains Clause For Disbursement: NCLAT

Brief Facts

These appeals have been filed by the financial creditors against an order passed by the Adjudicating Authority by which applications filed by the corporate debtor and certain investors were partly allowed.

The corporate debtor was admitted into insolvency on July 4, 2017 and the resolution plan was also approved which included a provision for disbursement of Non-Fund Based (NFB) facilities. The NFB was not disbursed due to procedural delays. Thereafter, applications were filed seeking disbursement of the NFB which were allowed directing the release of the NFB limits.

This order is challenged in the present appeal on the ground that the direction violates the agreed terms of the resolution plan and NFB agreement particularly regarding the roll-over of NFB facilities and their issuance subject to due consideration of the borrower's performance.

The appellant submitted that Adjudicating Authority in paragraph 7.9 of the impugned order has directed the Appellants to release the NFB Limits at the first instance without the due consideration of the borrower, while directing the Respondents to furnish the information/ documents required by lenders for review of financial performance of the borrower, after the first release. Such a direction is wholly contrary and over and above the terms agreed under the Resolution Plan as well as the Master Circular issued by the RBI.

It was also submitted that the lenders have right to evaluate the borrower under the project and based on that evaluation lenders may disburse the NFB limits.

Finally, it was submitted that the Appellants have not denied the release of NFB limits to the borrower and have only sought for certain documents/ information to be provided to check the viability and financial condition of the borrower prior to such release.

On the other hand, the respondents submitted that the submission of the Appellants that they do not have any obligation to issue/ release/ disburse the NFB limits under the approved Resolution Plan is incorrect. The Appellants knowing all facts including the viability of the company have approved the Resolution Plan and approved the plan which provided for rolling over of the NFB facilities on basis of appraisal of the project.

It was also submitted that when the Resolution Plan has been considered and approved by the CoC after considering the feasibility and viability of the company and it was decided to roll-over the NFB limits, there is no occasion to turn round and oppose issuance of NFB facilities.

Finally, it was submitted that at the time of consideration of the project for which bank guarantees have to be submitted, there is no occasion to start examining the viability and feasibility of the company for issuance of the bank guarantees, which issue is already over by approval of the Resolution Plan by the CoC.

Observations:

Th tribunal noted that in State Bank of India vs. MBL Infrastructure Limited and Ors.,2023 this tribunal has held that “The object of the Code especially in a case where Resolution Plan has been approved and which approval also received the confirmation from Hon'ble Supreme Court, it is obligatory on all stake holders to initiate the implementation of the Plan, trying to find excuses for refusal to implement by either of the parties cannot be justified. All stake holders had to act in a manner so as to implement the Resolution Plan. The Lenders cannot absolve themselves from carrying out their obligation in the Resolution Plan by raising one or other pretext.”

“Viability and feasibility of the Plan is required to be considered at the stage when Plan is to be approved by the CoC. After the Plan has been approved, the issue of viability and feasibility cannot be allowed to be raised.”

After perusing the RBI Circular, the tribunal noted that the above clause is for the purposes of averting frauds. Present is not a case that the borrower is asking for issuance of NFB facilities which will lead to perpetuating any fraud on the lenders. Present is a case where Resolution Plan has already been approved by the CoC where decision was consciously taken to roll-over NFB facilities by the existing lenders.

The tribunal also noted that it is also not the case that the borrower has defaulted in any of the bank guarantees or letter of credit so as to give any apprehension in the mind of the lenders that borrower will not be able to honour the service the NFB facilities.

The tribunal observed that “We are not persuaded to accept the submission of the Counsel for the Appellant that the lenders are entitled to review the viability and financial capacity of the company itself before release of any NFB facilities.Stopping the company to not able to work any contract due to non-release of bank guarantee is akin to stopping the company from carrying out normal function which shall lead non-compliance of the repayment obligation of the company which can never be object of approval of the Resolution Plan.”

Finally, the tribunal observed that NFB Agreement clearly stipulated “Recital D of the NFB Agreement: The execution of this Agreement and other financial documents by the borrower has been authorised to give effect to the terms of the approved Resolution Plan. Thus, clauses of the NFB Agreement have to be read in a manner to give effect to the Resolution Plan and not to make any clause of the Resolution Plan otiose and unworkable.

Accordingly, the present appeal was dismissed and the impugned order was upheld.

Case Title: State Bank of India & Ors. Vs. Jyoti Structures Ltd. & Ors.

Case Number: Company Appeal (AT) (Insolvency) No. 1962 & 1963 of 2024 & I.A. No. 7303, 7304 of 2024

Judgment Date: 09/12/2024

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