10 June 2024


Judgments

Central Electricity Regulatory Commission

Warora-Kurnool Transmission Limited and Ors. v. Tamil Nadu Generation & Distribution Corporation Limited and Ors.

MANU/CR/0101/2017

24.05.2017

Electricity

Specific prior approval of Commission is required for assigning licence to nominee of Security Trustee or transfer of any assets to them

First Petitioner, Warora-Kurnool Transmission Limited, has been granted transmission licence under Section 14 of the Electricity Act, 2003 to transmit electricity as a transmission licensee. Warora-Kurnool Transmission Limited and IDBI Trusteeship Services Limited have filed a combined petition for creation and enforcement of security in favour of IDBI Trusteeship Limited as Security Trustee for benefit of lender (including Yes Bank), as security for financial assistance provided/agreed to be provided by such lender (including Yes Bank and each of novates, transferees and assignees of lender) for part financing the project. Petitioners prayed for approval to create security interest, over immovable assets of the project, cash flows, receivables, bank accounts, TSA, project assets, clearances, approvals and all other project documents/clearances including but not limited to any amendments, supplements to the existing project documents and the transmission licence in favour of Security Trustee, including recognition of right to appoint Commission's approved nominee in event of enforcement of security interest in TSA and Transmission Licence. Further, prayer is to approve Security Documents execution, for creation and/or perfection of aforesaid Security Interest annexed at Annexure IV hereto in favour of IDBI Trusteeship Services Limited, in its capacity as Security Trustee, for benefit of lenders including for enforcement thereof in accordance with terms of finance documents.

Transmission projects are capital intensive projects requiring huge capital investment. These projects are financed through loans. It is a normal practice followed by financial institutions/banking industry to ask for sufficient security from borrower to back loan in order to mitigate credit risk of lenders. In instant case, First Petitioner and lender, Yes Bank have appointed Second Petitioner, namely IDBI Trusteeship Services Limited as Security Trustee for creation of security over all movable and immovable assets of project for financing of project. Accordingly, Security Trustee Agreement and Rupee Facility Agreement dated 22nd March, 2017 have been executed for a loan of Rs. 2790 crore with capex LC sub-limit to the extent of Rs. 1400 crore and 110 crore as Performance Bank Guarantee. In accordance with Article 15.2 of TSA, Transmission Service Provider has been allowed to create an encumbrance over all or part of receivables, Letter of Credit or other assets of project in favour of lenders or representatives of lenders, as security for amounts payable under Financing Agreements and other amounts agreed by parties.

As per Section 17(3) and (4) of Electricity Act, 2003, a licensee is required to obtain approval of Commission for assigning his licence or transfer its utility or any part thereof by way of sale, lease, exchange or otherwise and to enter into an agreement relating to any of these transactions. IDBI Trusteeship Service Limited as Security Trustee needs to be given comfort for creation of security for benefit of banks/financial institutions/non-banking financial companies as security for financial assistance provided by the lender. Commission, therefore, accord in principle approval allowing First Petitioner to create security in favour of IDBI Trusteeship Service Limited, presently acting as Security Trustee pursuant to Security Trustee Agreement by way of mortgage and/or hypothecation and/or assignment and/or substitution and/or charge, as case may be, on project assets by execution of indenture of mortgage for project. It is, however, made clear that, transmission licence granted by Commission to First Petitioner and underlying assets cannot be assigned in favour of nominee of Security Trustee unless prior approval of Commission is obtained at time of creating rights in favour of such nominee. Before agreeing to transfer licence and assets of first Petitioner to nominee of Security Trustee, Commission shall evaluate such a nominee's experience in development, design, construction, operation and maintenance of transmission lines, and to be able to execute the project and undertake transmission of electricity. Licensee, lenders, security trustee and nominee, accordingly, shall be jointly required to approach Commission for seeking approval. This will give an opportunity to Commission to satisfy itself of circumstances necessitating such transfer.

Decision of Commission is in accordance with Regulation 12 of Central Electricity Regulatory Commission (Procedure, Terms and Conditions for grant of Transmission Licence and other related matters) Regulations, 2009. As per Regulation, in case of default by licensee in debt repayment, Commission may, on an application made by lenders, assign licence to a nominee of lenders." Accordingly, in case of default by licensee in debt repayment, Commission may, on a joint application made by licensee, lenders, Security Trustee and nominee, approve assignment of licence to a nominee of lenders subject to proper due diligence of process. Therefore, specific prior approval of Commission for assigning licence to nominee of Security Trustee or transfer of any assets to them shall always be needed. Lastly, finance documents and statements may be filed by first Petitioner as and when required by Commission for any specific purpose.

Tags : Approval Security Creation

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