NCLAT directs IL&FS to pay Rs. 1925 Crores to its Financial Creditors

NCLAT directs IL&FS to pay Rs. 1925 Crores to its Financial Creditors

The National Company Law Appellate Tribunal (NCLAT) in its recent order had directed IL&FS to distribute Rs. 1925 crore to its financial creditors from the payments it has received in connection with the Gurgaon metro project. It has been clarified by the NCLAT that the distribution will be subject to the final resolution of the IL&FS companies.

The said amount is part of the termination compensation received from two IL&FS subsidiaries and Special Purpose Vehicles (SPVs) -- Rapid Metro Rail Gurgaon Limited (RMGL) and Rapid Metro Rail Gurgaon South Limited (RMGSL) -- from Haryana Shehari Vikas Pradhikaran (HSVP).

The three entities and Harayana Mass Rapid Transport Corporation Ltd entered into a concession agreement for the said Gurgaon Metro Project, however, it was later terminated on account of differences between IL&FS subsidiaries and the two Haryana Government entities.

Following an order of the Supreme Court, as an interim termination payment, Rapid Metro Rail Gurgaon Limited (RMGL) and Rapid Metro Rail Gurgaon South Limited received ₹ 638.01 crores and ₹ 1,287.90 crores, respectively. These amounts were deposited in their escrow accounts from HSVP. The total amount was ₹ 2,407.40 crore.

The present order was passed on pleases by Canara Bank and Union Bank of India filed on behalf of IL&FS' consortium of lenders, pursuant to which NCLAT directed IL&FS to pay ₹ 1,925 crore, which is 80 percent of the amount received from HSVP as interim termination payments to the financial creditors according to the interim distribution framework.

"The distribution of 80 percent debt due deposited in the escrow accounts of RMGL and RMGSL shall take place in accordance with the 'Revised Resolution Framework' approved by this tribunal vide order dated March 12, 2020," NCLAT said.

"In distribution, an undertaking shall be taken from the financial creditors to refund any amount received by them in excess of their entitlement as found in the final resolution of the IL&FS companies," NCLAT said.

The present issue arose when upon the termination of the concession agreement between the parties, Justice D K Jain was appointed to supervise the resolution process of the debt-ridden IL&FS and he directed both the companies to hand over the project to HSVP in September 2019.

However, the termination was challenged by HSVP before the Punjab and Haryana High Court on September 6, 2019. The high court asked the Comptroller and Auditor General of India to arrange a team of auditors for the financial audit of the debt due and also for examining the scope of the audit of debt due. Subsequently, a debt due of ₹ 797.52 crores was determined by CAG for RMGL and ₹ 1,609.88 crores for RMGSL.

However, HMRTC (Haryana Mass Rapid Transport Corporation Ltd) objected to the audit report. Aggrieved by this RMGL and RMGSL approached the Supreme Court in 2021 and HSVP/HMRTC was thereby directed to deposit ₹ 638.01 crores in the escrow account of RMGL and ₹ 1,287.90 crores for RMGSL.

On August 18, 2021, RMGL and RMGSL issued notices invoking arbitration as per the concession agreement. Following this, on September 15, 2021, HSVP and HMRTC also gave notice invoking the arbitration as per the concession agreement.

Regarding the arbitration, NCLAT said, "Parties i.e. RMGL and RMGSL on one side and HSVP and HMRTC on other side are free to agitate all their issues regarding audit report and all other issues regarding the respective claims against each other in the arbitration proceeding."