NCLAT advises IL&FS to consider claims of ITCPL's operational creditors

NCLAT advises IL&FS to consider claims of ITCPL's operational creditors

The Tribunal directed it to consider the demand appropriately and arrive at a reasonable resolution

The National Company Law Appellate Tribunal has asked the Infrastructure Leasing & Financial Services (IL&FS) board to consider a supplementary Resolution Plan (RP) for its subsidiary Indian Testing Centre Pvt Ltd (ITCPL), dealing with the claims of its operational creditors. These include two Chinese companies facing inquiries under the Prevention of Money Laundering Act (PMLA).

A three-member bench of the NCLAT said that extinguishing the claims of the Chinese companies, which were ITCPL's Capex creditors and operational creditors, was not acceptable.

It stated, "For dealing with admitted debts of operational creditors/capex creditors, an appropriate RP has to be made."

The Chinese construction and engineering companies SEPCO III Electric Power Construction and Shandong Tiejun Electric Power Engineering Co are among their operational creditors.

A forensic audit of ITCPL conducted by the new board of IL&FS on the transactions entered into by ITCPL found irregularities in the selection process and in the award of the contract. As the Enforcement Directorate (ED) began investigations, ITCPL was directed not to release any money to SEPCO or Shandong.

But, the restructuring proposal filed before the NCLAT to resolve the debts of around Rs.9,800 crores owed by ITCPL, was requested by IL&FS to extinguish the Chinese companies' claims.

In December 2021, NCLAT allowed all four clauses of restructuring proposals, including the extinguishment of claims. However, early this year, the tribunal granted time to the Chinese companies to provide their response.

The move was opposed before the NCLAT by the operational creditors. They claimed that Grant Thornton, which conducted a forensic audit, had already admitted to the outstanding dues of SEPCO and Shandong, which they were entitled to receive from ITCPL.

The project of Unit-1 and Unit-2 had been completed and both units were generating power. Also, ITCPL was receiving commercial benefits out of the generation of power. But SEPCO and Shandong, who completed their part of the contract, were not paid their dues.

Agreeing with this, the NCLAT bench headed by Chairperson Justice Ashok Bhushan stated, "The PMLA proceedings cannot be a ground for depriving the payments of the dues of SEPCO and Shandong. When the claims of Capex Creditors/Operational Creditors have been admitted by the Claim Management Advisor, the prayer of the ILFS for extinguishing the claim of the Capex Creditors and the Operational Creditors is not acceptable,."

The bench said that ITCPL had to consider the claims appropriately and arrive at a fair and reasonable resolution of the claims.

"The claims of Capex Creditors/Operational Creditors are being tried to deal with a side wind without properly appreciating their claim. There are adverse observations in the Transaction Review Report and the Forensic Audit Report against ITCPL," Justice Bhushan added.

He further said that ITCPL, who had been charged with collusive and unfair dealings in awarding the contracts and conducting other affairs, could not be allowed to defeat the claim of the Operational Creditors/Capex Creditors citing its own shortcomings and misdeeds. Therefore, PMLA's proceedings could not be a ground for depriving the payments of the dues of SEPCO and Shandong.

ITCPL, which was formed for setting up a 3,840 MW coal-based power project at Cuddalore in the state of Tamil Nadu, is amongst the largest asset under the IL&FS portfolio with nearly Rs.9,800 crores of aggregate debt. Together with Energy Development Company Limited, it holds 92.4 percent of the shareholding in the ITPCL.

In Phase-I of the project, a thermal power plant consisting of two units of 600 MW each was to be established. It had obtained financial benefits from the consortium of banks and granted EPC contracts.

However, as per the road map for the IL&FS group, a public process was launched for the sale of the debt-ridden group's stake in ITCPL. But no binding bids were received in the sale process.

Thereafter, the lenders of ITCPL undertook the task of formulating a restructuring proposal in accordance with a June 2019 circular issued by the Reserve Bank of India (RBI) under the 'prudential framework for resolution of stressed assets.' The approval of ITCPL would help it to re-categorize from 'amber to green' discharging its debts.