Mere Execution Of Restructuring Agreement Does Not Extinguish Corporate Debtor's Liability When Restructuring Scheme Is Not Approved By NCLT: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that the mere signing of a Master Restructuring Agreement, wherein a third party undertakes to discharge the liabilities of the Corporate Debtor, does not result in the extinguishment of the Corporate Debtor's obligations if the restructuring subsequently fails. It cannot be presumed that liabilities have been transferred solely due to the existence of a restructuring agreement. For such a transfer or extinguishment to be valid, the conditions under Section 62 of the Indian Contract Act—specifically, mutual agreement between the original parties for substitution or novation—must be satisfied. Brief Facts: Jaypee Cement Corporation Ltd. (“JCCL”) is a wholly owned subsidiary of Jaiprakash Associates Ltd. (“JAL”). The JCCL availed various credit facilities from the SBI between 2012-15. Under the Reserve Bank of India (“RBI”) Circular a Joint Lenders Forum (“JLF”) comprising of all the Banks was constituted with a view to overcome the liquidity crunch of JAL and finalize Corrective Action Plan. Both JAL and JCCL defaulted in payment of loans and Lenders including SBI declared JAL and JCCL as NPA with effect form 08.03.2016. A Composite Scheme of Debt Realignment Plan for debt of JAL and JCCL was proposed. To enable restructuring, the debt of JAL and JCCL was to be reduced as their cash flows couldn't support existing exposure. A carve-out strategy was adopted: Bucket 1 included assets to be sold to UltraTech Cement Ltd. (UTCL); remaining debt was split into Bucket 2A (sustainable, retained by JAL) and Bucket 2B (unsustainable, transferred to an SPV). A Master Implementation Agreement was executed on 31.03.2016, followed by NCLT approval on 02.03.2017. JCCL's balance sheet as of 31.03.2017 acknowledged debt owed to SBI. A Comprehensive Restructuring Plan (CRRP) was later approved in the JLF meeting on 18.05.2017, with further discussions held on 19.06.2017. The RBI, through letters dated 14.08.2018 and 30.08.2018, directed ICICI Bank and other lenders to initiate proceedings against JAL and declared the restructuring 'null and void'. Between 2020 and 2022, JAL and JCCL issued various debt acknowledgment letters, with NESL records confirming JCCL's default on 03.03.2016. SBI filed a Section 7 application (CP (IB) No. 26/ALD/2023) against JCCL for a total debt of ₹363.78 Cr, citing 03.03.2016 as the default date. On 03.06.2024, NCLT admitted ICICI's application against JAL and dismissed the scheme of arrangement. Appeals against this were dismissed by NCLAT on 06.12.2024, and the Supreme Court upheld the CIRP initiation against JAL on 10.01.2025. Subsequently, NCLT admitted SBI's Section 7 application against JCCL on 22.07.2024 that has been challenged in the present appeal. The Appellant submitted that the Section 7 application filed by SBI on the basis of an alleged default dated 03.03.2016 (NPA date) is misconceived, as the default was effectively waived under the approved restructuring framework. The Comprehensive Reorganization and Restructuring Plan (CRRP), endorsed by the JLF, led to the execution of the Master Restructuring Agreement (MRA) on 31.10.2017, which explicitly recorded the waiver of the earlier debt obligations of JAL and JCCL. It was further submitted that Fresh Sanction Letter dated 20.06.2017 issued by the SBI and execution of Master Restructuring Agreement by Holding Company and the Lenders, all debt of JCCL stood transferred to Holding Company and there was no debt due on the JCCL to initiate any CIRP against JCCL. It was further submitted that by executing the Master Restructuring Agreement (MRA) on 31.10.2017, the original loan contract between SBI and JCCL was novated under Section 62 of the Indian Contract Act, 1872. This novation replaced the old agreement with new terms, substituting JAL as the sole borrower and thereby discharging JCCL from its prior obligations. With the restructuring and sanction letter dated 20.06.2017, the original debtor-creditor relationship between SBI and JCCL stood extinguished. In reply, the Respondent submitted that for Section 62 of the Indian Contract Act to apply, the same parties must agree to substitute the original contract. However, the MRA dated 31.10.2017 was executed only between ICICI Bank and JAL; JCCL was not a party. JCCL's assets, like the Shahbad Project, remain on its balance sheet. It was submitted that the debts of JCCL were part of a composite restructuring with JAL, not a standalone arrangement. Since the JAL restructuring has failed—as acknowledged by the RBI, NCLT, NCLAT, and affirmed by the Supreme Court—the composite restructuring has effectively collapsed. Lastly, it was submitted that JAL insolvency has been affirmed up to the Supreme Court. JAL has undertaken to ...

Mere Execution Of Restructuring Agreement Does Not Extinguish Corporate Debtor's Liability When Restructuring Scheme Is Not Approved By NCLT: NCLAT

Mohd Malik Chauhan

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