Case: Gtl Infrastructure Limited Vs. Canara Bank and 6 Others

of the petitioner is enormous and computed to the extent of Rs.1758,41,96,635/-. There is another debt of the associated company and that is also enormous. When such is the magnitude of the debt, then, a cautious approach by respondent Nos.1 to 6 cannot be ipso facto termed as arbitrary, unfair and unreasonable. The petitioner will have to establish and prove that the IRAC guidelines styled as such contain a mandate. That mandate has not been adhered to by respondent Nos.1 to 6 though all conditions in relation thereto are fulfilled by the petitioner is another facet, which will have to be established and proved by the petitioner. That the decisions are taken unanimously by all lenders and, therefore, respondent Nos.1 to 6 cannot back out of the same must be proved by leading evidence. That legally admissible evidence ought to take care of all the alternate versions and placed by the petitioner itself before us. Firstly, it is said that these decisions are unanimous and thereafter it is said that the decisions are the product of collective commercial wisdom of the superior majority of the creditors of the petitioner and they have to be implemented.79. We do not think that the grounds raised in this petition, consistent with which Mr.Kamdar raised the arguments, enable us to issue the writ as prayed for. 80. The grounds in the writ petition project a version of the petitioner based on which a relief in the nature of specific performance of contractual obligations is sought in this writ petition. If we make a reference to grounds (N), (O) and (P), then, it is evident that the petitioner say that it has fulfilled its part of promise or obligation and respondent Nos.1 to 6 have refused to comply with the guidelines despite the same. Now, what the reciprocal or corresponding obligations qua the dues of the lenders are and whether they are contractual or statutory in character would have to be established and proved. If these are contractual obligations, then, whether there is absolute refusal to perform the obligations or discharge the duties or that the duties and obligations allegedly attributed to the lenders have been performed only in part and not in full are matters, which would have to be established and proved by the petitioner either in substantive legal proceedings or in defence to the proceedings instituted against it by respondent No.7. To our mind, it would be highly risky and unsafe to rely on the version of the petitioner and issue the writ of mandamus as prayed.81. All the more, when the seventh respondent has, in a communication addressed to the petitioner, copy of which is at Exhibit ‘BB to the petition, clarified its position. It has referred to all the facts in details and then said in the recall notice that pursuant to the terms of the SDR package, the debt amounting to Rs. 35.60 Crores and Rs.271.11 Crores were converted into equity in the share capital of the petitioner and Chennai Network Infrastructure Limited (CNIL). The consortium lenders, alongwith Canara Bank, post conversion of debt into equity, are presently holding 51% shareholding. They were required to be transferred to new investor within a period of 18 months from the date of reference to the change of present management. This is an essential condition of the SDR package. That has not been fulfilled. The standstill clause available under the SDR expired on 19th March, 2018. Therefore, by the Reserve Bank of India guidelines, the petitioners accounts were classified as non-performing assets by the statutory auditors with retrospective effect from 1st July, 2011. This is on account of failure or non-compliance with the CDR and SDR packages. The company has failed to meet its repayment obligations towards the Canara Bank and committed breaches and defaults under financial documents. That is why the Canara Bank called upon the petitioner to pay the dues by its reminder dated 27th June, 2018. There is no response to the same. That is how the bank was seeking to recover a sum of Rs.540.35 Crores under the Rupees Facility as on 23rd August, 2018.82. We are clear in our mind after we have perused this letter that it is the first respondent, which is accusing the petitioner of breach and violation of the packages and the conditions thereof. The bank accuses the petitioner of not fulfilling its commitment or the essential conditions under the packages. This may be or may not be correct, but it is definitely a version contrary to that of the petitioner. In such circumstances, how arbitrariness, much less, mala fides, can be attributed to a public financial institution without resolution of the factual disputes, is unclear to us. In other words, this is not an undisputed factual position, but a highly disputed one. It is in these circumstances that we are disinclined to grant any relief.83. It may be that the seventh respondent has addressed a letter to the petitioner, copy of which is at page 322 of the paperbook, and it claims that it is entitled to recover from the borrowers or guarantors the total dues of the banks alongwith the interest at contractual rate. It makes reference to certain banks mentioned in Schedule-1. This may not be inclusive of all the debts and dues to even Canara Bank. Therefore, this communication may say that the assignment agreements are with Union Bank of India, Andhra Bank, ICICI Bank Limited, Axis Bank, Bank of Baroda, Bank of India, Dena Bank, Indian Overseas Bank, Punjab National Bank, State Bank of India, Oriental Bank of Commerce and Central Bank of India, still, the petitioner has impleaded Canara Bank, Corporation Bank, Indian Bank, Vijaya Bank, IDBI Bank and Life Insurance Corporation of India Limited, all of which are not a party to this agreement. In these circumstances, marking of the documents in favour of these entities would not suffice. All the more when we have made detailed reference to the affidavit-inreply of respondent No.1 as well.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]71. To appreciate the arguments of Mr.Kamdar and Mr.Seervai, we must first refer to the settled principles, which enable us to issue a writ of mandamus. In both matters, a writ of mandamus is claimed. That writ cannot be issued as a matter of course. It cannot be issued on the mere asking of it. It cannot be issued merely because the petitioners feel that it should be issued. The petitioner will have to prove that there is a pre-existing and pre-established legal right and a corresponding duty, which alone would enable us to issue thisthis part of the Circular would require a closer look. The said aspect is found in Part A, 3, 4 and 5. That says, an asset can be termed as Non Performing Asset, if it satisfies the criteria laid down in the definition of this expression. Firstly, this part says that in line with the international practices and as per the recommendations made by the Committee on the Financial System, the Reserve Bank of India has introduced, in a phased manner, the norms styled as prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks. Pertinently, Mr.Kamdar does not point out that it is to move towards greater consistency and transparency in the published accounts that the policy has been brought into effect. It is clarified that this policy should be objective and based on record of recovery rather than on any subjective considerations. Likewise, the classification of assets of banks has to be done on the basis of objective criteria, which would ensure a uniform and consistent application of the norms. Importantly, the provisioning should be made on the basis of the classification of assets based on the period for which the asset has remained non-performing and the availability of security and the realisable value thereof. The banks are urged to ensure that while granting loans and advances, the repayment schedules fixed should be realistic. It should promote prompt repayment by the borrowers and thus improve the recovery of advances. Mr.Kamdar does not say that the policy of income recognition is any way faulty or defective. He relies upon this policy, but ultimately, there is a discretion vesting in the financial institutions. The asset classification has to be based by determining the assets as Substandard Assets, Doubtful Assets and Loss Assets. What could be termed as Substandard Assets, Doubtful Assets and Loss Assets is set out in Part 4.1. The guidelines for classification of assets are laid down in Part 4.2 onwards. The further paras of this part are with regard to provisioning norms and they are set out in Part 5 onwards. The provisioning norms are aimed at fixing primary responsibility. The primary responsibility for making adequate provisions for any diminution in the value of loan assets, investment or other assets is that of the bank managements and its statutory auditors. There has to be a inspecting officer of the Reserve Bank of India whose assessment furnished to the bank will assist it and statutory auditors in taking a decision with regard to making adequate and necessary provisions in terms of prudential guidelines. The prudential norms, the classification of assets would then enable theclauses would reveal that the financial institutions and banks can acquire financial assets. This can be done by taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act). This provides for sale of financial assets on ‘without recourse basis. This means the credit risk associated with the financial assets being transferred to the creditors. This is subject to unrealised part of the asset reverting to the seller bank/financial institution. The banks are directed to ensure that the effect of the sale of the financial assets should be such that the asset is taken off the books of the bank/financial institution and after the sale, there should not be any known liability devolving on the bank/financial institution. Thereafter, how the sale is to be conducted in a prudent manner, in accordance with the policy approved by the Board and what policy and guidelines the Board should lay down is set out in clause (b) of para 6.4. Further, clause (c) says that the banks and financial institutions should ensure that subsequent to sale of the financial assets to Securitisation Company and Reconstruction Company, they do not assume any operational, legal or any other type of risks relating to the financial assets, which are sold.The entire set of guidelines denote that this is an advise, caution and guidance provided on sale of financial assets to Securitisation Company (SC) and Reconstruction Company (RC). As provided in para 6.3, the financial assets which can be sold to the Securitisation Company and Reconstruction Company by any bank or financial institution are non-performing assets, including a non-performing bond/debenture, a Standard Asset where the asset is under consortium/multiple banking arrangements and atleast 75% by value of the asset is classified as non-performing asset in the books of other banks/financial institutions and atleast 75% by value of the banks/financial institutions who are under the consortium/multiple banking arrangements agree to the sale of the asset. Secondly, a procedure has to be followed and in the case of consortium/multiple banking arrangements, if 75% (by value) of the banks/financial institutions decide to accept the offer, the remaining banks/financial institutions will be obligated to accept the offer. However, this is preceded by an assessment of each bank/ financial institution of the value offered by the Securitisation Company/Reconstruction Company for the financial asset and decide whether to accept or reject the offer. Further, there cannot be a transfer to this Securitisation Company/ Reconstruction Company at a contingent price, whereby, in the event of shortfall in the realization by the Securitisation Company/Reconstruction Company, the banks/financial institutions would have to bear a part of the shortfall. Finally, if the auction process is used for sale of non-performing assets to Securitisation Companies/ Reconstruction Companies, that should be more transparent and complying with what is laid down in para 6.4 clause (d)(iv).Mr.Kamdar, therefore, is not correct in arguing that this circular ought to be followed and must be directed to be followed by respondent Nos.1 to 6, even if that is containing a caution, advise and guidance. It is common ground that the petitioner says that these guidelines/norms should be applied and there is no choice not to abide by it. The argument is that since more than 75% (by value) of the lenders of the petitioner have assigned all their rights, title and interest in the financial facilities granted by them to the petitioner in favour of respondent No.7 by executing assignment agreements, by virtue of the IRAC guidelines, all other lenders of the petitioner are obligated to accept the offer of respondent No.7 for assignment of their respective rights, title and interest in the financial facilities granted to the petitioner. To our mind, this understanding of the senior counsel is flawed and erroneous simply because there is an obligation only when the guidance is adhered to and all precautions are taken before the assignment arrangement for sale. Once these are guidelines and they cannot be elevated or placed at the level of a binding rule, regulation and statute, then, we cannot accept the arguments of Mr. Kamdar. Assuming that these are fulfilled, as projected by the petitioner, still the decision to be taken requires balancing and weighing of several factors. There is a risk which has to be taken and ultimately the policy must be applied on case-to-case basis. We cannot direct respondent Nos.1 to 6, who are financial institutions/banks, to agree to the demand of the petitioner. If these are policy matters and dealing with fiscal and financial issues, then, the discretion of the banks/financial institutions cannot be taken away by issuing a command or writ contrary to the expressed terms and conditions of the policy. The policy document must be read as a whole and nothing should be read, as is attempted, in isolation or out of context. In these circumstances, we do not think that the petitioner can claim the writ. In fact, in the grounds of this petition, respondent No.1 is targeted and it is stated that its actions are mala fide and arbitrary. It is seeking to recover monies from the petitioner under the original financial documents after a part of the respondent No.1s debt has been converted into equity under the SDR Scheme. Now, we cannot attribute mala fides and arbitrariness so easily and casually in financial matters to a public sector bank. That bank is the custodian of public funds. It holds them in trust for the public. It is not expected to surrender and sacrifice its interests, particularly legal rights merely because the petitioner desires that it should join in total restructuring of the debt of the petitioner or total waiver. We must bear in mind that before us is a debtor who owes thousands of crores to these financial institutions and banks and it is dictating to them to accept the proposal of settlement or restructuring of its debt. The proposal has to be evaluated and considered in the backdrop of its long term implications and consequences. If the bank adopts such a course, then, we cannot direct the bank to act contrary to the same. That would mean calling upon the bank not to act for public good and in publicsuch an accusation or allegation is easy to level, but when the nationalised bank has to also consider all pros and cons and its decision should be rational, reasonable, fair, just and in public interest, then, merely because its interpretation of the clauses of a scheme is allegedly erroneous, the writ cannot be issued as claimed. In fact, in grounds (E), (F) and (G), precise allegations made by respondent No.1 are summarised. The petitioner seeks to challenge these allegations. However, all the matters pertaining to these allegations are factual issues. The remarks of the first respondent are termed as allegations by the petitioner,but what we find is that it is an evaluation by the first respondent. Its evaluation and financial commitments may not be acceptable to the petitioner, but surely, on the version of the petitioner, we cannot issue the writ as prayed. These are seriously disputed factual issues. Therefore based on all these grounds, the petitioner cannot insist on respondent Nos.1 to 6 to agree with it. It is apparent from a reading of ground (K) that respondent Nos.1 to 6 are public sector undertakings and custodian of public funds. However, before accusing these respondents of acting unfairly, arbitrarily, the petitioner knows that the guidelines of the Reserve Bank of India on all and every possible aspects of financial management, grant of loans and advances, do not have a binding character. Ultimately, the banks have been given a free play in the joint. The decisions are discretionary in nature. The discretion cannot be directed to be exercised in a particular manner when several options and courses are open to the decision making body. It is not obliged to take only one particular decision, much less in favour of the petitioner. It is in these circumstances that we do not agree with Mr.Kamdar that everything that is placed before us is mandatory in character. In fact, we have reproduced the paragraphs of the petition which are based on the IRAC guidelines contained in circular dated July 1, 2015. There is no case outside this circular, which is pressed before us. Merely because several meetings were held and some tentative decisions were taken does not mean that there is a mandate flowing from the same. The decisions are termed as unanimous by the petitioner, but it is conceded before us that 13 lenders have assigned their respective debts to respondent No.7. However, respondent Nos.1 to 6 are not agreeable to the decisions taken at the consortium meeting by the other lenders of the petitioner. There is no question of backing out, but if the petitioner says that there is a commercial merit in assigning the debt of the petitioner in favour of respondent No.7, then, that commercial wisdom is not collective, but of the majority of the creditors. Particularly even after scaling down and granting a concession, the debt of the petitioner is enormous and computed to the extent of Rs.1758,41,96,635/-. There is another debt of the associated company and that is also enormous. When such is the magnitude of the debt, then, a cautious approach by respondent Nos.1 to 6 cannot be ipso facto termed as arbitrary, unfair and unreasonable. The petitioner will have to establish and prove that the IRAC guidelines styled as such contain a mandate. That mandate has not been adhered to by respondent Nos.1 to 6 though all conditions in relation thereto are fulfilled by the petitioner is another facet, which will have to be established and proved by the petitioner. That the decisions are taken unanimously by all lenders and, therefore, respondent Nos.1 to 6 cannot back out of the same must be proved by leading evidence. That legally admissible evidence ought to take care of all the alternate versions and placed by the petitioner itself before us. Firstly, it is said that these decisions are unanimous and thereafter it is said that the decisions are the product of collective commercial wisdom of the superior majority of the creditors of the petitioner and they have to be implemented.We do not think that the grounds raised in this petition, consistent with which Mr.Kamdar raised the arguments, enable us to issue the writ as prayed for.The grounds in the writ petition project a version of the petitioner based on which a relief in the nature of specific performance of contractual obligations is sought in this writ petition. If we make a reference to grounds (N), (O) and (P), then, it is evident that the petitioner say that it has fulfilled its part of promise or obligation and respondent Nos.1 to 6 have refused to comply with the guidelines despite the same. Now, what the reciprocal or corresponding obligations qua the dues of the lenders are and whether they are contractual or statutory in character would have to be established and proved. If these are contractual obligations, then, whether there is absolute refusal to perform the obligations or discharge the duties or that the duties and obligations allegedly attributed to the lenders have been performed only in part and not in full are matters, which would have to be established and proved by the petitioner either in substantive legal proceedings or in defence to the proceedings instituted against it by respondent No.7. To our mind, it would be highly risky and unsafe to rely on the version of the petitioner and issue the writ of mandamus as prayed.All the more, when the seventh respondent has, in a communication addressed to the petitioner, copy of which is at Exhibit ‘BB to the petition, clarified its position. It has referred to all the facts in details and then said in the recall notice that pursuant to the terms of the SDR package, the debt amounting to Rs. 35.60 Crores and Rs.271.11 Crores were converted into equity in the share capital of the petitioner and Chennai Network Infrastructure Limited (CNIL). The consortium lenders, alongwith Canara Bank, post conversion of debt into equity, are presently holding 51% shareholding. They were required to be transferred to new investor within a period of 18 months from the date of reference to the change of present management. This is an essential condition of the SDR package. That has not been fulfilled. The standstill clause available under the SDR expired on 19th March, 2018. Therefore, by the Reserve Bank of India guidelines, the petitioners accounts were classified as non-performing assets by the statutory auditors with retrospective effect from 1st July, 2011. This is on account of failure or non-compliance with the CDR and SDR packages. The company has failed to meet its repayment obligations towards the Canara Bank and committed breaches and defaults under financial documents. That is why the Canara Bank called upon the petitioner to pay the dues by its reminder dated 27th June, 2018. There is no response to the same. That is how the bank was seeking to recover a sum of Rs.540.35 Crores under the Rupees Facility as on 23rd August, 2018.We are clear in our mind after we have perused this letter that it is the first respondent, which is accusing the petitioner of breach and violation of the packages and the conditions thereof. The bank accuses the petitioner of not fulfilling its commitment or the essential conditions under the packages. This may be or may not be correct, but it is definitely a version contrary to that of the petitioner. In such circumstances, how arbitrariness, much less, mala fides, can be attributed to a public financial institution without resolution of the factual disputes, is unclear to us. In other words, this is not an undisputed factual position, but a highly disputed one. It is in these circumstances that we are disinclined to grant any relief.It may be that the seventh respondent has addressed a letter to the petitioner, copy of which is at page 322 of the paperbook, and it claims that it is entitled to recover from the borrowers or guarantors the total dues of the banks alongwith the interest at contractual rate. It makes reference to certain banks mentioned in Schedule-1. This may not be inclusive of all the debts and dues to even Canara Bank. Therefore, this communication may say that the assignment agreements are with Union Bank of India, Andhra Bank, ICICI Bank Limited, Axis Bank, Bank of Baroda, Bank of India, Dena Bank, Indian Overseas Bank, Punjab National Bank, State Bank of India, Oriental Bank of Commerce and Central Bank of India, still, the petitioner has impleaded Canara Bank, Corporation Bank, Indian Bank, Vijaya Bank, IDBI Bank and Life Insurance Corporation of India Limited, all of which are not a party to this agreement. In these circumstances, marking of the documents in favour of these entities would not suffice. All the more when we have made detailed reference to the affidavit-inreply of respondent No.1 as well.We do not think that the judgments relied upon by Mr.Kamdar have any bearing on the issue.In Dharani Sugars and Chemicals Limited Vs.Union of India and Ors.(2019) 5 SCC 480   , the issue was different. There, the Banking Regulation Act and Sections referred to in Ravindras case (supra) have been referred to and thereafter, the argument that these circulars of the Reserve Bank of India are not traceable to any statutory provisions was dealt with. In these circumstances, the arguments on constitutional validity of Section 35-AA and 35-AB have been rejected. Once again these are in the context of the challenge to these provisions after the Insolvency and Bankruptcy Code, 2016 was enacted. The Honble Supreme Court concluded its judgment on the issues by holding the circulars ultra vires. Now, these circulars, in the backdrop of which the challenge was raised, were not identical nor was the factual issue. Therefore, this judgment has no bearing on the issue before us.Similarly, the judgment delivered in the case of Innoventive Industries Limited Vs. ICICI Bank and Anr. (2018) 1 SCC 407  would also have no application as a distinct controversy was dealt with by the same.As far as the writ petition argued by Mr.Seervai is concerned, there, we find that the prayer is to direct respondent No.7 to enter into a inter-creditor agreement. That is already entered into between the petitioner and remaining domestic lenders (respondent Nos.3 to 6 and 8 to 18).Now, the mandamus that is claimed is once again on the basis of the petitioners version. Thepetitioner says, in the grounds of challenge itself, that the prudential framework issued by the second respondent (Reserve Bank of India) provides lenders with a wide array of options to implement a resolution plan for the resolution of the debts owed by the borrowers.Ultimately, it is a resolution plan. Now, whether the word shall appearing therein would denote that it is mandatory to enter into the intercreditor agreement or otherwise or that is not decisive would depend upon this framework and reading of the same in its entirety. Similarly, the disputes and which are purely factual in nature, founded on contractual obligations necessitates consideration of a contra version. That is how ground (A) of the petition is drafted. The intent of the framework is to facilitate decision on the basis of prescribed thresholds. Whether this prudential framework is better in comparison to given one and contains an absolute mandate as directed, will have to be considered in the backdrop of the case of the Canara Bank. We have referred to that case and the debt of Canara Bank owed by the petitioner. The Canara Bank may have allegedly, contrary to this framework and the alleged mandate therein, approached the NCLT, but the proceedings before the said Tribunal are pending. Now, whether that proceeding is maintainable or not and must be disposed of in the light of the petitioners assertions, is a matter entirely left for decision by the NCLT. If the NCLT has to determine and decide the matter within the time framework, then, it is not as if the NCLTs decision, if adverse to the petitioner, is unassailable. It can be assailed and challenged in the scheme of the IBC itself by filing appeals. Now, the petitioner says very clearly in ground (B) that respondent No.7 has not per se refused to implement a resolution plan, but its stand is that the petitioner has not submitted a resolution plan that is acceptable to respondent No.7. Respondent No.7 is not averse to considering the so called better plan. Now, which plan completely and totally resolves the disputes and fulfills the obligations of parties and settles the dues of respondent No.7, is not a matter which can be decided in writ jurisdiction. We cannot, by a unilateral version of the petitioner, issue the writ. Ultimately nobody and much less a public sector financial institution/bank can be compelled to accept a settlement or resolution plan of the debtor. The bank has its own limitations, restrictions and desires to abide by the norms which it terms as more prudent. In the circumstances, we do not think that the petitioners version can be accepted as sacrosanct. The petitioner here also relies upon the minutes of the joint lenders meeting. If only the Canara Bank is not joining the resolution plan, then, it cannot be compelled to join it by entering into the intercreditor agreement, all the more when it has approached the NCLT. The allegations made against the Canara Bank by the petitioner can be substantiated in the appropriate proceedings or while defending the proceedings before the NCLT or other Forums.