. Types of Debt Restructuring Agreements in India & Spain

India - RBI Framework (June 7, 2019 Circular):

• Inter-Creditor Agreement (ICA): All lenders must sign, 75% by value + 60% by number to approve restructuring. Mandatory for > Rs 2000 cr.
• Resolution Plan: Haircut, moratorium, conversion to equity, change in tenure.
• OTS - One Time Settlement: Lump sum payment below outstanding.

Spain:

• Acuerdo de Refinanciación - Art 71 bis Ley Concursal: Pre-insolvency refinancing agreement with 51% financial creditors, protected from clawback.
• Acuerdo Extrajudicial de Pagos
• Homologated Refinancing Agreement - court homologated, binds dissenting creditors.

2. Common Breaches That Lead to Litigation

By Borrower:

1. Failure to pay restructured installment on time - even 1 day delay = breach.
2. Diversion of funds - using restructuring funds for non-agreed purpose.
3. Failure to bring promoter contribution / equity infusion promised.
4. Failure to provide additional security / personal guarantee.
5. Misrepresentation in cash flow projections.
6. Sale of secured assets without lender consent.

By Lender:

1. Failure to release additional finance promised in restructuring.
2. Failure to release security after payment.
3. Unilateral revocation of OTS after borrower complied.
4. Assigning debt to ARC during restructuring period in violation of standstill clause.

3. Litigation Consequences - What Courts Do

Doctrine: Restructuring agreement is a new contract that supersedes old loan to extent of inconsistency. Breach of it gives lender right to:

• Revoke concessions and revive original debt with original interest
• Enforce securities immediately without fresh notice
• Initiate Insolvency under IBC Sec 7
• Criminal action for cheating if funds diverted

4. Landmark Case Laws

CASE 1: Borrower Breach - Revival of Original Debt

L.K. Trust v. EDC Ltd (2011) 6 SCC 780 - Supreme Court India - Leading Case on OTS Breach

Facts: Borrower entered OTS for Rs 100 cr against Rs 250 cr outstanding, to pay in 3 installments. Paid 2, failed 3rd. Lender revoked OTS and demanded Rs 250 cr + interest.

Borrower argued: Lender must give more time, OTS is binding.

SC Held:

OTS is a concession, a contract. If borrower fails to honour timeline, which is essence of OTS, lender is entitled to revive original debt. No estoppel against lender. Borrower who breaches OTS cannot claim equity.

Principle now followed in all DRTs: Time is essence of restructuring agreement.

Similar Spain: STS 315/2019 - Supreme Court Spain held breach of homologated refinancing agreement (failure to pay 1 installment) allows creditor to request termination and enforcement of full original debt plus loss of protection under Art 71 bis.

CASE 2: Borrower Breach - Diversion of Funds = Fraud

State Bank of India v. Kingfisher Airlines Ltd (2017) - DRT + SFIO

Kingfisher entered CDR in 2010 - Rs 7500 cr restructured with moratorium. Alleged diversion of Rs 900 cr from escrow account to other group companies, failure to bring promoter contribution.

SBI revoked CDR, filed wilful defaulter proceedings + IBC + fraud reporting.

DRT Held: Diversion during restructuring is breach of trust and fraud, attracts Sec 66 IBC fraudulent transaction and Sec 447 Companies Act. Lenders can recall entire debt immediately.

CASE 3: Lender Breach - Cannot Revoke OTS After Compliance

Bijnor Urban Co-operative Bank Ltd v. Meenal Agarwal (2001) 6 SCC 658 - SC India

Borrower complied with OTS, paid full amount. Bank then refused to issue No Dues Certificate, demanded more interest claiming OTS was without authority.

SC Held: OTS is binding contract. Once borrower performs, bank cannot go back. Bank estopped. Specific performance of OTS can be enforced.

Recent: Punjab National Bank v. M/s Poonam Traders - NCLAT 2022

PNB offered OTS, borrower paid within time, PNB tried to revoke saying OTS not approved by higher authority. NCLAT held: OTS letter signed by authorized officer is binding on bank. Bank must release securities.

Spain Equivalent: STS 584/2018: Bank homologated refinancing agreement, then refused to release additional tranche. Supreme Court held bank in breach, must fund + damages for loss of opportunity.

CASE 4: Inter-Creditor Agreement Breach - Dissenting Lender

RBI ICA Framework Litigation - SBI v. Videocon Industries Ltd (2020) - NCLT Mumbai

Videocon - 34 lenders signed ICA. 75% approved resolution plan. 2 dissenting lenders filed IBC separately.

NCLT Held: Under RBI June 7 Circular, once ICA signed and 75% approve, dissenting lenders are bound by standstill - cannot file IBC during resolution period (180+90 days). If they file, petition not maintainable.

NCLAT upheld.

Spanish Equivalent: Art 71 bis Ley Concursal - If 51% financial creditors sign refinancing, it binds dissenting financial creditors if homologated by court, provided dissenters not worse off than in liquidation. Breach by dissenting lender filing enforcement during stay is invalid.

CASE 5: Invocation of Personal Guarantee After Restructuring Breach

Lalit Kumar Jain v. Union of India (2021) 9 SCC 321 - SC India

SC upheld: Personal guarantor's liability revives even after restructuring if borrower breaches. Guarantor cannot argue that restructuring without his consent discharges him, if guarantee deed says guarantee covers restructured debt.

All modern guarantees include clause: "Guarantee shall continue to cover restructured/rescheduled debt."

CASE 6: IBC - Restructuring Failure = Ground for Insolvency

Swiss Ribbons Pvt Ltd v. Union of India (2019) 4 SCC 17 - SC

SC upheld IBC. Held: If restructuring under RBI framework fails (breach), lenders have right to file under IBC Sec 7 without fresh default - original default + failure of resolution is enough.

K Sashidhar v. Indian Overseas Bank (2019): If CoC rejects restructuring plan, NCLT cannot interfere - commercial wisdom.

CASE 7: Spain - Breach of Refinancing Agreement and Clawback Protection Loss

STS 629/2012 and STS 100/2015 - Ley Concursal

If debtor breaches refinancing agreement protected under Art 71 bis (e.g., fails to provide new money as promised), protection from clawback is lost. Insolvency administrator can then clawback payments made under that agreement as preferential.

5. Remedies and Litigation Strategy

For Lender on Borrower Breach:

1. Issue Revocation Notice - revive original debt
2. Recall notice under SARFAESI Sec 13(2) - 60 days
3. File Sec 7 IBC - attach restructuring agreement as proof of debt + breach letter
4. Invoke personal guarantee - Sec 128 Contract Act
5. File fraud report to CBI/SFIO if diversion

For Borrower on Lender Breach:

1. Specific Performance suit under Sec 10 Specific Relief Act - enforce OTS
2. Injunction against SARFAESI / IBC during OTS compliance period - DRT has granted stay if borrower proves payment within time (Meenal Agarwal principle)
3. Complaint to Banking Ombudsman + RBI

Limitation: Suit for breach of restructuring agreement = 3 years from breach date under Art 113 Limitation Act.

Evidence that wins: Original restructuring letter signed by authorized officer + proof of payment via bank statement + communication showing compliance + proof of lender's acceptance.