NCLAT upheld the Adjudicating Authority's direction to release NFB limits, affirming its alignment with the approved Resolution Plan and the commercial judgment of the Committee of Creditors (CoC).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed two appeals on Monday and observed that the Adjudicating Authority’s direction to release the Non-Fund Based (NFB) limits, in accordance with the terms of the approved Resolution Plan and NFB Agreement, was consistent with the CoC’s binding assessment of the company’s feasibility. The Tribunal concluded that no further evaluation by lenders was necessary, as the direction was intended to ensure the company’s operational continuity and facilitate debt repayment.
In this case, two Appeals were filed by the Financial Creditors challenging the common order dated 20.08.2024, passed by the Adjudicating Authority (NCLT, Mumbai Bench-1) in relation to two applications. The first application (IA No. 4959 of 2023) was filed by the Corporate Debtor, Jyoti Structure Limited, and the second (IA No. 5023 of 2023) by a group of investors in the company. The NCLT had partially allowed both applications, which led to the present Appeals. The core issue involved the release of Non-Fund Based (NFB) limits, particularly the continuation of these facilities under the approved Resolution Plan.
The underlying facts include the admission of Jyoti Structure Limited to the Insolvency Resolution Process in 2017, followed by the approval of a Resolution Plan in 2019. This plan included provisions for the rollover of existing NFB facilities. Despite efforts to issue bank guarantees/letters of credit (BGs/LCs) under these facilities, delays occurred due to procedural hurdles, leading the company to seek the exclusion of time for the period of delay. This was allowed by the Tribunal in an earlier order. The company and the investors subsequently filed applications seeking the release of the NFB limits, leading to the impugned order, which was challenged in the Appeals.
The Appellants argued that the Adjudicating Authority's directions to release the NFB limits were contrary to the terms of the Resolution Plan and the NFB Agreement. They contended that lenders should be entitled to assess the borrower’s financial condition before releasing the limits, referencing regulatory provisions like the RBI Circular. The Respondents, however, emphasized that the Resolution Plan had already addressed the company’s feasibility and viability, making further evaluation unnecessary. They argued that withholding the release of the NFB limits was inconsistent with the approved Resolution Plan.
The NCLAT analyzed various provisions of the Final Resolution Plan and NFB Agreement, noting that the plan included clauses regarding the roll-over of existing BG/LC limits based on the project’s feasibility and lenders' discretion. It referenced the Supreme Court’s judgment in Committee of Creditors of Essar Steel v. Satish Chandra Gupta and Others, REEDLAW 2019 SC 11505, to underscore the binding nature of the CoC’s decision regarding the plan's feasibility. The Tribunal also observed that while the NFB lenders’ obligations were triggered after the closing date, no lender had rejected the project or failed to issue BGs/LCs on the grounds of project evaluation.
In addressing the dispute, the Tribunal emphasized that the legal framework under Section 30(4) of the Insolvency and Bankruptcy Code required the CoC to evaluate the plan’s feasibility, a judgment which was binding. The NCLAT noted that the company had infused equity and secured contracts worth INR 1162 crores, which were dependent on the issuance of NFB facilities. The refusal of lenders to operationalize the NFB clauses, despite the company’s progress, was found to be a failure in fulfilling obligations under the approved plan.
The Tribunal ultimately upheld the directions of the Adjudicating Authority, concluding that the decision to release the NFB limits without requiring further evaluation was consistent with the terms of the Resolution Plan. The decision protected the interests of both parties, allowing the company to continue operations and generate revenue necessary for repayment. Therefore, the Appeals were dismissed, and the Adjudicating Authority’s order was maintained.
Mr. Animesh Bisht, Mr. Aniruddh Gambhir, Mr. Raunak Dhillon and Mr. Anchit Jasuja, Advocates represented the Appellant.
Mr. Arun Kathpalia, Mr. Abhijeet Sinha, Sr. Advocates with Mr. Malak Bhatt, Ms. Neeha Nagpal and Ms. Samridhi, Advocates appeared for Respondent No. 1.
Mr. Gopal Jain, Sr. Advocate with Mr. Anuj Tiwari, Ms. Aroshi Pal and Ms. Bandita, Advocates appeared for Respondent No. 2 to 12.
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