The National Company Law Appellate Tribunal on Monday asked the board of IL&FS to consider a further restructuring plan for its subsidiary ITCPL dealing with the claims of its operational creditors, which include two Chinese companies facing PMLA investigations.
A three-judge bench of NCLAT said settlement of the claims of two Chinese companies, which were capex creditors and operational creditors of ITCPL, was not acceptable and should be “appropriately dealt with in a fair and reasonable restructuring plan.
“To deal with admitted debts of operating creditors/capex creditors, a suitable plan for resolution of claims should be prepared,” NCLAT said.
Chinese construction and engineering company SEPCO III Electric Power Construction and Shandong Tiejun Electric Power Engineering Co are among its operational creditors.
The judicial audit of ITCPL conducted by the new IL&FS board on the deals entered into by ITPCL has found irregularities in the selection process and award of the contract.
In addition, the Enforcement Directorate also launched investigations and ITPCL was ordered not to lend money to SEPCO or Shandong.
IL&FS then, in the restructuring proposal filed before the NCLAT to resolve the debts of about Rs 9,800 crore owed by ITCPL, sought settlement of claims of the Chinese companies.
The NCLAT on December 1, 2021 allowed all four clauses of the restructuring proposals, including settlement of claims, but later on January 31, 2022, the appellate tribunal gave time to the Chinese companies to respond to it.
The operational creditors had opposed such a move before the NCLAT and said that Grant Thornton, which had carried out a forensic audit, had already admitted all the outstanding debts of SEPCO and Shandong that they were entitled to receive from ITPCL.
Also, the project of unit-1 and unit-2 is now completed and both units are generating power and ITPCL is getting commercial benefits from the power generation, but SEPCO and Shandong, who have fulfilled their part of the contract, have not been paid their dues.
Agreeing with this, the NCLAT said: “The production of PMLA cannot be a ground for depriving SEPCO and Shandong of the dues.”
“When the claims of the capital creditors/operating creditors have been admitted by the Claims Management Counsel, which is also an admitted fact, the prayer of ILFS to set off the claim of the capital creditors and the operational creditors is not tenable,” said a bench headed by the Chairman NCLAT Justice Ashok Bhushan.
ITPCL, which was bound to consider the admitted claim of the Operating Creditors/Capex Creditors, should consider the claims appropriately and arrive at a fair and reasonable settlement of the claims.
“The claims of capital creditors/operating creditors are trying to deal with a tailwind without properly valuing their claim. There are adverse observations in the Transaction Review Report and the Forensic Audit Report against ITPCL,” NCLAT said.
It is further said that the borrower who is accused of collusion and unfair dealing in awarding the contracts and doing other things cannot be allowed to reject the claim of the operational/capex creditors by citing its own shortcomings and abuses.
The NCLAT said that proceedings under the PMLA cannot be a ground for depriving SEPCO and Shandong of the dues.
“There are adverse observations in the Transaction Review Report and the Forensic Audit Report against ITPCL. The borrower who is accused of collusion and unfair dealing in awarding the contracts and doing other things cannot be allowed to reject the claim of the Operational Lenders/Capex Lenders are citing their own shortcomings and malpractices,” NCLAT said.
ITPCL, which was formed to set up a 3,840 MW coal-fired power plant project at Cuddalore in Tamil Nadu state, is among the largest assets in IL&FS’s portfolio with nearly Rs 9,800 crore of total debt.
IL&FS along with IEDCL hold 92.4% equity in ITPCL.
In Phase I of the project, a thermal power plant consisting of two units of 600 MW each was to be constructed. It has received financial benefits from the consortium of banks and has also awarded EPC contracts for the construction of the power plant.
However, in February, as per the road map for the IL&FS group, a public process was launched to sell the stake of the indebted ITPCL group, but no binding bids were received in the sale process.
The creditors of ITPCL then took up the task of formulating a restructuring proposal in accordance with a circular dated June 7, 2019 issued by the RBI under the ‘prudential framework for restructuring of stressed assets’.
ITPCL’s approval will help it recategorize from ‘amber to green’, discharging its debts.