Infrastructure Leasing & Financial Services Limited v. Union Of India

Janab Mohammed Ajmal, Member (Judicial):— This Application is filed to present before this Tribunal the process for filing an Application(s) for dissolution of IIPL USA LLC (IIPL USA), an ‘Offshore IL & FS Entity’ in the Applicant Group in accordance with laws of the United States of America (USA).

2. The factual backdrop that led to the present Application may briefly be stated. The Union of India (UoI) filed CP No. 3638 of 2018 against Infrastructure Leasing and Financial Services Ltd. (IL & FS) under Sections 241 and 242 of the Companies Act, 2013 (the Act) inter alia alleging mismanagement in the Company.

3. This Tribunal by an order dated 01/10/2018 superseded the Board of Directors of IL & FS and constituted a new Board with six Directors to take over the affairs of the Company. In addition to the six Directors appointed on 01/10/2018, this Tribunal appointed three more Directors vide order dated 03/10/2018 (pursuant to which one more director was appointed) and order dated 21/12/2018 (pursuant to which two more directors were appointed). The new Board was directed to furnish a roadmap for consideration of the Tribunal. This Tribunal by an order dated 12/10/2018 in MA No. 1173 of 2018 declined to order a moratorium in respect of IL & FS group. The UoI and IL & FS carried the matter in Appeal before the Hon'ble National Company Law Appellate Tribunal (NCLAT) respectively in Company Appeal No. 346 of 2018 and Company Appeal No. 347 of 2018. The Hon'ble NCLAT by an order dated 15/10/2018 granted interim stay against any coercive action by the creditors against IL & FS and its group entities.

4. The New Board prepared periodical progress reports in terms of the order dt. 01/10/2018 and submitted them to the UoI in the Ministry of Corporate Affairs. In the process the Board of Directors submitted the 3 Progress Report dated 17/12/2018 and in terms of the order dated 01/10/2018 proposed the Resolution Framework. It made certain recommendations for various Resolution Processes of the IL & FS and its group Companies and requested the Government of India in the Ministry of Corporate Affairs to approach the relevant forum for approval of the Resolution Process.

5. The said Resolution Framework sets forth that given the position of and challenges in the IL & FS Group, an ‘Asset Level Resolution’ i.e., an asset-by-asset solution explored through various methods (as set out in the Resolution Framework) and in some cases, the sale of a business vertical comprising of a basket of Companies and other entities is the most feasible option for Resolution of the IL & FS Group. It is pertinent to note that the Resolution Framework inter alia sets forth that with regard to companies/entities of the IL & FS Group where: i) there are no operations or the cashflows are insufficient to meet the current operating liabilities and statutory liabilities; and/or ii) No bids/EoIs are received from any bidder, the New Board may take steps for these companies to be wound up.

6. The Hon'ble NCLAT by an order dated 11/01/2019 observed that the process required to be followed was similar to that of ‘Corporate Insolvency Resolution Process’ for the purpose of proper Resolution of IL & FS and its group companies. The Hon'ble Appellate Authority further observed that in such cases the Committee of Creditors (CoC) may be required to be constituted for determining the viability, feasibility and financial matrix of the plan or offer, if any, given by one or other party for acquisition of one or other group companies or its assets and in the absence of any other knowledgeable person such as the ‘Resolution Professional’, (if) such Committee of Creditors cannot be constituted, in the meantime the IL & FS and its board may be allowed to proceed with the matter.

7. The Hon'ble NCLAT by an order dated 04/02/2019 permitted the UoI and IL & FS to engage Hon'ble Justice Mr. D.K. Jain (Retd.) to supervise the operation of the Resolution Process. Vide same order the Hon'ble NCLAT directed the UoI and IL & FS to file an affidavit inter alia setting out the names of entities in the IL & FS Group which are incorporated within the territorial jurisdiction of India (Indian IL&FS Entities) and entities that are incorporated in other countries (Offshore IL&FS Entities). In compliance the UoI filed an affidavit dated February 11, 2019 placing on record before the Hon'ble NCLAT, the list of 169 Indian IL&FS Entities and 133 Offshore IL & FS Entities. Hon'ble NCLAT by order dated 11/02/2019 inter alia excluded the Offshore IL & FS Entities from the purview of the October 15 Order (15/10/2018) and directed that the resolution of the Offshore IL & FS Entities may be taken up by the New Board under the supervision of Hon'ble Justice D.K. Jain (Retd.). NCLAT also directed that the actions taken for the resolution of the Offshore IL & FS Entities be presented to this Tribunal.

8. Thus, basing on the recommendations of Hon'ble Justice Jain, the resolution was then to be placed before the NCLT (this Tribunal) for approval. The approval by this Tribunal would formalize and finalize the resolution of the individual or collective group entities.

9. By their order dated 12/03/2020 the Hon'ble Appellate Tribunal accepted 15/10/2018 as the cut-off date for distribution of assets and termed it as the date of initiation of Resolution Process of the IL & FS and its group companies. In the 12/03/2020 Order the Hon'ble NCLAT has reiterated the 11/02/2019 Order. The Hon'ble Appellate Tribunal further directed that the Union of India, the Board of Directors of IL & FS and the ‘Committee of Creditors’ already constituted or which may be constituted were to conclude resolution of all the entities preferably within 90 days. The developments thereof were to be brought to the notice of Hon'ble Appellate Tribunal every month. That is how the resolution of IL & FS and its group entities came to be worked out.

10. In the present Application, the Applicant submits that IIPL USA is one of the entities that had been set out in the list of 133 Offshore IL & FS Entities placed on record vide February 11 Affidavit and the process of dissolution of IIPL USA is proposed to be undertaken to facilitate closure of the said entity.

11. IL & FS Transportation Networks Limited (ITNL) is an Indian subsidiary of the Applicant (IL & FS holds 73.2% shareholding of ITNL) and a key holding company in the roads and transportation vertical of the Applicant Group. ITNL International Pte Limited (IIPL) is a wholly owned subsidiary of ITNL, incorporated under the laws of Singapore. IIPL was incorporated to carry out the overseas operations of ITNL. IIPL USA, an entity incorporated under the laws of USA is a wholly owned subsidiary of IIPL.

12. IIPL USA was incorporated on November 12, 2013 with an objective to provide bid support services to offices of ITNL located globally and was engaged in the business of engineering, construction, financing and maintenance services for highway and roads, transportation facilities and toll plazas in North America.

13. As part of the overall monetization efforts of the New Board for the resolution of IL & FS and its group companies, a publicly solicited bid process for sale of IIPL's 100% stake in IIPL USA was initiated in January, 2019. Two non-binding bids were received in March, 2019 from: (i) E Smith Legacy LLC; and (ii) Fluor Enterprises (Bidders). These bids were conditional in nature and therefore, not in accordance with the asset divestment process being undertaken by the Applicant. IIPL engaged in negotiations with these bidders due to lack of a viable alternative option for resolution of IIPL USA, but, despite such efforts, even after several rounds of negotiations held by the USA FTA (investment banker), IIPL was unsuccessful in obtaining a binding bid for the sale of its equity stake in IIPL USA. As no bids were submitted for purchasing IIPL's shareholding in IIPL USA, it was proposed that steps be taken for the closure of IIPL USA's business activities and proceed towards closure/completion of on-going contracts, termination of employees, sale of non-core assets, and finally, file for its dissolution.

14. The proposal to sell IIPL USA's non-core assets was approved by the New Board and Justice D.K. Jain (Retd.). The Applicant then filed an affidavit before this Tribunal bringing on record the details of the proposed sale of the non-core assets of IIPL USA and the approval of Justice D.K. Jain (Retd.) in respect of the same. This Tribunal by an order dated 25/11/2019, took on record the said affidavit in respect of the sale of the non-core assets of IIPL USA. Accordingly, IIPL USA conducted a sale of its non-core assets such as office furniture, cars, plant & machinery, employee assets etc. The order dt. 25/11/2019 is annexed to the Application as ‘Annexure 6’.

15. IIPL USA also vacated its office premises by terminating the lease on 31/03/2020. IIPL USA paid a total compensation of USD 35,511.88 as termination fees to 1700 Diagonal Road LLC, a Limited Liability Company from whom the office premises were taken on lease. The security deposit of USD 8,283 was forfeited.

16. It is submitted that all contracts of and involving IIPL USA have been completed, assigned or closed and accounts are settled with the respective clients/authorities. All employee contracts have been terminated and all employee dues have been settled by IIPL USA and IIPL USA has no ongoing contracts.

17. It is further submitted that IIPL USA had a receivable of USD 5,00,000 from the Guarantee Company of North America USA (Guarantee Company). The receivable related to a collateral placed by IIPL USA with the Guarantee Company, in respect of a surety facility availed under an Agreement Dated June 5, 2018 (Guarantee Agreement). Under the Guarantee Agreement, the Guarantee Company had issued surety bonds (in the nature of performance bonds) in respect of contracts awarded by various clients to IIPL USA and IIPL USA had placed cash collateral of USD 2 million with the Guarantee Company as a margin for the said surety bonds. Based on completion of contracts for which surety bonds were issued, the Guarantee Company had released the cash collateral to IIPL USA over a period of time, with USD 5,00,000 remaining outstanding as on 31/03/2020. As of 31/03/2020, IIPL USA has no remaining backlog on bonded contracts and all contracts associated with surety bonds were either completed, closed or the bonds have been transferred along with the projects. Thus, the Guarantee Company has released an amount of USD 250,000 to IIPL USA on April 1, 2020, and an amount of USD 250,000 on September 8, 2020.

18. IIPL USA held cash balance of USD 162,644 as of 31/03/2020. A sum of approx. USD 10,000 is utilized to meet the monthly expenses for IT software, payments towards service charges, ADP Tax, payroll costs and fees. IIPL USA has also deposited USD 50,000 in an escrow account with its attorneys in the USA, Gray Robinson, Advocates (Attorney), to meet costs of liquidation. Thus, including USD 500,000 of collateral refund and assuming the amount deposited with the Attorney is fully utilized towards liquidation costs, IIPL USA has a net cash balance of USD 652,763.84 as of 09/09/2020.

19. Further, IIPL USA had no known external liabilities as on 31/03/2020. Other liabilities of IIPL USA comprise of loans payables to IIPL and ITNL aggregating to USD 662,644 after considering the write back due to liquidation basis of accounting. The outstanding amount of loans including interest thereon pre-liquidation write back are: USD 2,000,000 towards ITNL and USD 606,213 towards IIPL.

20. The accounts of IIPL USA have been audited for the Financial Year 2019 and Financial Year 2020. As on 31 March, 2020, the Assets and Liabilities of IIPL USA as per the audited accounts are as follows:

ASSETS USD Cash in Hand 662,644 Restricted Cash - Attorney escrow 50,000 Total 712,644 LIABILITIES USD Due to Group Companies 662,644 Estimated costs of liquidation 50,000 Total 712,644

21. IIPL USA has filed its tax returns for Financial Year 2018-2019 on 15/01/2020 and has appointed a tax consultant for computation and filing of returns for the Financial Year 2019-2020, which is expected to be completed/filed shortly. The summarized financial position of IIPL USA for the last 4 financial years is provided below:

IIPL USA in USD Millions Particulars FY 2017 FY 2018 FY 2019 FY 2020 (prepared on liquidation basis) Audited Revenue 1.62 9.13 8.98 3.32 Total Income 1.62 9.13 9.02 3.32 EBIDTA (2.23) (5.44) (4.39) (1.32) EBIT (2.28) (5.70) (4.52) (1.32) PAT (2.38) (4.26) (5.71) - Net Worth 0.91 5.25 (0.45) -

22. Thus, in view of the above, IIPL USA proposes to file an Application for dissolution and distribute the remaining cash balances among the Group Lenders, in accordance with the prevalent laws of USA. It is submitted that IIPL USA has no business operations at present, and continuation of IIPL USA would yield no commercial results or gains. Also, with the culmination of the dissolution process of IIPL USA, the resolution of IIPL USA would be complete.

23. The Board of Directors of IIPL USA on 18/04/2020 inter alia have approved the initiation of the dissolution process in accordance with the prevalent laws of USA. The Board of Directors of IIPL on 21/04/2020 inter alia gave its consent to proceed for closure of business of IIPL USA and filing the Application(s) with the concerned authorities in USA. The ITNL Board and the New Board have on 21/04/2020 and 22/04/2020 respectively approved the filing of the requisite Application(s) in relation to the closure of IIPL USA. Further, by a letter dated 14/09/2020 Justice D.K. Jain (Retd.) has accorded his approval for the proposed closure of IIPL USA in accordance with the laws of USA, subject to presentation of such proposal before this Tribunal.

24. Thus, under these circumstances and pursuant to orders dated 11/02/2019 & 12/03/2020 of Hon'ble NCLAT, the Applicant is now before us, seeking following reliefs:

A. take on record the proposal for filing application(s) for initiating process of the dissolution of IIPL USA LLC in accordance with laws of the United States of America;

B. exempt the Applicant from affixing the affidavit annexed to this application on stamp paper and notarizing the present Application; and

C. For any further reliefs as this Hon'ble Tribunal deems fit and proper in the facts and circumstances.

25. The UoI represented by the Regional Director, MCA (WR), Mumbai has filed its Reply and has concurred with the recommendations of Hon'ble Justice D.K. Jain (Retd.). The Respondent has no objection to the dissolution process of IIPL USA, as the same will be done in accordance with the approved Resolution Framework.

26. On hearing the counsel for the Applicant as well as the Regional Director and having perused the pleadings and the documents attached, we are satisfied and of the considered view that the dissolution of IIPL USA is the best option for resolution of IIPL USA in the given scenario and the same needs to be approved and recorded. Hence ordered.

27. CA No. 1155 of 2020 be and the same is allowed. The proposal to file Application(s) for initiating the dissolution process of IIPL USA in accordance with the laws of the USA is taken on record. The request of the Applicant for exempting it from affixing the stamp on the affidavit and notarising the Application is also granted.