Delhi High Court - Orders
Pnb Housing Finance Ltd vs Vipul Limited & Ors on 10 June, 2020
Author: C. Hari Shankar
Bench: C. Hari Shankar
$~1 (original side)
* IN THE HIGH COURT OF DELHI AT NEW DELHI
I.A. 4319/2020 & I.A. 4335/2020 in O.M.P(I)(COMM) 78/2020
PNB HOUSING FINANCE LTD ... Petitioner
Through: Mr. Ajay Kohli, Ms. Priyanka
Ghorawat, Mr. Raghav
Marwaha & Mr. Ashutosh
Sharma, Advs.
versus
VIPUL LIMITED & ORS. ... Respondents
Through: Mr. Sarojanand Jha and Mr.
Suraj Malik, Advs.
Mr. N.K. Bhatnagar, Adv.
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
ORDER
% 10.06.2020 This matter has been taken up for hearing by video- conferencing.
I.A. 4335/2020(exemption) in O.M.P(I)(COMM) 78/2020
1. This application seeks exemption from notarisation of the affidavit, accompanying the application i.e. IA 4319/2020, and payment of court fees on the latter application.
2. In view of the presently prevailing situation, where a lockdown has been imposed consequent on the COVID-2019 pandemic, and in view of the order dated 4th April, 2020 passed by this Court on the administrative side, the applicant is permitted to file duly notarised O.M.P(I)(COMM) 78/2020 Page 1 of 16 affidavit, and deposit the requisite court fees within two weeks of resumption of normal court work.
3. The application is allowed to the aforesaid extent.
I.A. 4319/2020 (seeking modification of order dated 04.06.2020) in O.M.P(I)(COMM) 78/2020
1. This application, at the instance of the respondent, Vipul Limited, prays for modification of the order, dated 4th June, 2020, passed by me.
2. Before adverting to the case set out in the application, a brief factual backdrop may be apposite.
3. The parent proceedings, in which this application has been filed, i.e. O.M.P(I)(COMM) 78/2020, were preferred by M/s PNB Housing Finance Limited (the petitioner) under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act").
4. Briefly stated, the case of the petitioner, as sought in O.M.P(I)(COMM) 78/2020, is as follows:
(i) A loan of ₹ 90 crores was sanctioned, by the petitioner, in favour of Respondent No.1 vide loan agreement dated 5th February, 2018.
(ii) The Respondent No. 2 guaranteed the loan, vide a deed of O.M.P(I)(COMM) 78/2020 Page 2 of 16 guarantee of the same date, i.e. 5th February, 2018.
(iii) Respondent No. 3, who is a co-owner, with Respondent No. 1, of certain immovable properties, offered to mortgage the said properties in order to secure the loan. Accordingly, a declaration and undertaking were executed, by Respondent No.3, on the same date, i.e. 5th February, 2018, securing the aforesaid loan of ₹ 90 crores by mortgage of ₹ 19.24 acres of land of a project titled "Aarohan Residences" of Respondent No.1, at village Wazirabad, Gurgaon, along with all present and future constructions, including 382 units in Phase-I of the project, excluding certain specified areas.
(iv) In pursuance thereof, the original title deeds, relating to the said properties, were deposited with the petitioner.
Additionally, all present and future receivables, relating to the said properties, were hypothecated with the petitioner, by way of a security. Further, an Escrow account was required to be established, in which the respondents were to deposit all cash flows, revenues and receivables, consequent to sale, or otherwise, of properties relating to the aforesaid "Aarohan Residences" project.
(v) In accordance therewith, on 5th February, 2018, an Escrow Agreement was executed, between the petitioner, Respondent No. 1, Respondent No. 3, and Punjab National Bank, being the Escrow Agent, with whom an Escrow Account, O.M.P(I)(COMM) 78/2020 Page 3 of 16 was, accordingly, opened.
(vi) On 10th September, 2018, a further loan was sanctioned, by the petitioner to the respondent, resulting in a second loan agreement and a new Escrow Agreement, superseding the earlier Escrow Agreement of 5th February, 2018. Amounts, recovered or receivables from the aforesaid "Aarohan Residences Project" were required, under the said new Escrow account, to be deposited in a master Escrow Account, with 70% thereof to be transferred to the RERA account of the "Aarohan Residences Project" and the remaining 30% retained in the Escrow Account.
(vii) O.M.P(I)(COMM) 78/2020, under Section 9 of the 1996 Act, alleges that the respondents defaulted in making payments, as a result of which the aforesaid loan account was classified as a Non Performing Asset, on 31st January, 2020, in the books of accounts of the petitioner.
(viii) This resulted in the issuance, on 11th February, 2020, by the petitioner, of a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (hereinafter referred to as "the SARFAESI Act").
(ix) On 4th March, 2020, the petitioner recalled the aforesaid loan facility, and informed Respondent Nos. 1 and 2 that an amount of ₹ 94,56,33,928.89 was due from Respondent Nos. 1 O.M.P(I)(COMM) 78/2020 Page 4 of 16 and 2. It is alleged that there was no response to this communication.
(x) Article 10.6 of the Loan Agreement, between the parties, admittedly contains a clause, whereby arbitral disputes can be referred to the arbitration.
5. It is in these circumstances, that the present O.M.P(I)(COMM) 78/2020 has been preferred by the petitioner.
6. The issue raised in the present petition makes it necessary to reproduce para 15 of the O.M.P(I)(COMM) 78/2020 thus:
"That it has come to the knowledge of the Petitioner Company that the Respondents herein, in order to thwart the recovery of the amounts payable by them, to the Petitioner/Applicant Company, have malafidely commenced the process of disposing off/alienating the aforementioned immoveable property that stands mortgaged in favour of the Petitioner. It is pertinent to mention here that a substantial amount is outstanding, and payable by the Respondents, to the Petitioner and in case the Respondents succeed in their intention of disposing off the said property, the same shall frustrate the right of the Petitioner, to recover its dues. Accordingly, it would be in the interest of justice if this Hon'ble Court is pleased, to "attach" the said property and direct the Respondents place the same, at the disposal of this Hon'ble Court."
(Emphasis supplied)
7. The prayer clause, in O.M.P(I)(COMM) 78/2020, reads thus:
"a) Direct the Respondents to furnish a Monetary Security, in the sum of Rs.94,56,33,928.89 (Rupees Ninety Four Crores Fifty Six Lacs Thirty Three Thousand Nine Hundred Twenty Eight and Paise Eighty Nine Only) thereby securing the amount in dispute, in the Arbitration proceedings;O.M.P(I)(COMM) 78/2020 Page 5 of 16
b(i) Restrain the Respondents from disposing off, selling, alienating, transferring or creating any encumbrance, charge or third party interest in any manner, whatsoever; with respect to the following properties:
"Land admeasuring approximately 77,878 (19.24 acres) and structure thereon of the project "Aarohan Residences" situated at Villages Wazirabad and Haiderpur Viran, Tehsil and District Gurgaon, Haryana alongwith all the present and future construction thereon including 382 units in Phase-I and excluding 5875 sq. meters of saleable area as well as 62 identified units"
b(ii) Attach the aforesaid Property, and direct the Respondents to place the same, at the disposal of this Hon'ble Court;
c) Direct the attachment of the hypothecated Receivables including, all the cash flows (current and future), receivables and money(ies) arising from the sale, allotment, transfer and lease of any part of the Real Estate Projects Phase-I and Phase-II of the Borrower namely "Aarohan Residences"
situated at Villages Wazirabad and Haiderpur Viran, Tehsil and District Gurgaon, Haryana.
d) Direct the Attachment of funds lying in the Escrow Account bearing No.4615002900000249, held with Punjab National Bank Limited to the extent of Rs.94,56,33,928.89 (Rupees Ninety Four Crores Fifty Six Lacs Thirty Three Thousand Nine Hundred Twenty Eight and Paise Eighty Nine Only), or to such extent as may be deemed appropriate by this Hon'ble Court;
e(i) Restrain the Respondent No.2 from disposing off, selling, alienating, transferring or creating any encumbrance, charge or third party interest in any manner, whatsoever; with respect to the following Immoveable Properties:
i. Property at Tatvam Villa Gurgaon, Haryana; and ii. Property at Sarvapriya Vihar, New Delhi O.M.P(I)(COMM) 78/2020 Page 6 of 16 e(ii) Attach the aforesaid Immoveable Properties, and direct the Respondent No. 2 to place the same, at the disposal of this Hon'ble Court;
f) Restrain the Respondent No.2 from selling, transferring, pledging and/or alienating the "shares" held by him in various Companies and "attach" the said shares;
g) Direct the attachment funds lying in Bank Account bearing No.912020063427916 held with Axis Bank Limited, Sector-54, Gurgaon, Branch to the extent of Rs.94,56,33,928.89, or to such extent as may be deemed appropriate by this Hon'ble Court
h) Direct the Authorized Representative/Managing Director of the Respondent No.1 and of Respondent No.3 to submit Affidavit(s), disclosing therein the details as contemplated in Form 16A of Appendix E of the Code of Civil Procedure; with respect to the Respondent No.1 and Respondent No.3;
g) Restrain the Respondent No.2 from selling, transferring, pledging and/or alienating the "shares" held by him in various Companies and "attach" the said shares;
h) Direct the Respondent No.2 to submit his Affidavit, disclosing therein the details as contemplated in Form 16A of Appendix E of the Code of Civil Procedure;
i) Pass ad-interim ex-parte orders in terms of prayer (a) to
(i) above, during the pendency of the present petition.
j) Such other interim measures of protection as may appear to this Hon'ble Court, to be just and convenient, may also be passed in favour of the Petitioner and against the Respondents;
k) And/or pass such other/further order(s) as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case"
(Emphasis supplied) O.M.P(I)(COMM) 78/2020 Page 7 of 16
8. Notices were issued in O.M.P(I)(COMM) 78/2020, as well as the interlocutory applications filed therein, by this Court, on 17th March, 2020.
9. An undertaking, by the respondents, to deposit ₹ 25 crores with the petitioner, on or before 27th March, 2020, was also noted, as also the submission, of the respondent, that the matter could be resolved by mediation.
10. IA 4091/2020 was moved, by the respondent, for extension of time to deposit the aforesaid amount.
11. This application, inter alia, was taken up, by me, on 4th June, 2020 and the following order was passed thereon:
"O.M.P. (I) (COMM.) 78/2020 & I.A. 4091/2020 (for extension of time for compliance of the order dated 17.03.2020)& I.A. 3881/2020 O.M.P. (I) (COMM.) 79/2020 & I.A. 3877/2020 O.M.P. (I) (COMM.) 80/2020 & I.A. 3879/2020
1. Notice stands issued, in all these petitions and I.As.
2. These petitions have been preferred under Section 9 of the Arbitration and Conciliation Act, 1996, essentially for securing the properties in dispute and depositing of securities, pending arbitral proceedings.
3. On 17th March, 2020, this Court noted the undertaking, of the respondent, to pay ₹ 25 crores to the petitioner on or before 27th March, 2020, and allowed the respondent to do so.
4. The submission, of the respondent, that it was willing to amicably settle the disputes, was also noted, and the matter was, therefore, referred to mediation.O.M.P(I)(COMM) 78/2020 Page 8 of 16
5. The parties were, therefore, directed to appear before the Delhi High Court Mediation and Conciliation Centre on 3rd April, 2020.
6. Insofar as the proposal for mediation is concerned, Mr. Sarojanand Jha, learned counsel appearing for the respondent, submits that they could not take off owing to the intervening COVID-2019 pandemic and the closure of physical functioning of courts as a consequent thereof.
7. The parties are, therefore, referred to mediation by Mr. J. P. Sengh (Mobile No. 9810034284), a respected Senior counsel of this Court and an experienced mediator.
8. The parties may contact Mr. J. P. Sengh, learned mediator during the course of the day and fix the time, on which the mediation proceedings could be commenced, by video-conferencing.
9. The date and time for mediation proceedings would be fixed by email between the parties, as per the convenience of the learned mediator.
10. The undertaking, to deposit ₹ 25 crores, has, as yet, not been complied with, by the respondent.
11. The respondent has now filed I.A. 4091/2020, submitting that, owing to reasons beyond its control, the aforesaid deposit could not be effected till date, and seeking extension of time therefor.
12. Given the circumstances set out in the application, the applicant - respondent is granted three months' further time to effect the aforesaid deposit of ₹ 25 crores, in terms of the order dated 17th March, 2020.
13. I.A. 4091/2020 stands disposed of in the above terms.
14. Renotify all these petitions as well as I.A.s. 3881/2020, 3877/2020, 3879/2020 on 14th July, 2020.
15. The respondents are restrained from taking any action to disturb the status quo in respect of all the lands forming subject matter of these petitions, till the next date of hearing."O.M.P(I)(COMM) 78/2020 Page 9 of 16
12. As it would be apparent from the aforesaid order, the respondent was restrained, by the order, from taking any action to disturb the status quo in respect of all the lands forming subject matter of the petitions, till the next date of hearing.
13. The present application has been preferred by the respondent in view of a notice dated 4th June, 2020, stated to have been affixed, by the petitioner, at the premises of the Respondent No.1.
14. The notice informs the Respondent No.1 that the secured assets, consisting of various units in "Aarohan Residences", would be sold by public auction, on the expiry of 30 days from the date of the notice, i.e. 4th July, 2020.
15. Respondent No.1, vide the present application, seeks to contend that this proposed auction is entirely illegal and unfair, especially as status quo has been directed to be maintained, by the respondent, in respect of the said properties.
16. Accordingly, the application prays that the order, dated 4 th June, 2020 supra be modified, by extending the direction for maintenance of status quo, in respect of the area relating to the "Aarohan Residences" project, be extended to cover the petitioner as well.
17. Prima facie, it appears that having specifically stated, in para 15 of O.M.P(I)(COMM) 78/2020, that the property relating to the O.M.P(I)(COMM) 78/2020 Page 10 of 16 Aarohan Residences Project" should be attached by this Court and placed at its disposal, and having incorporated, in O.M.P(I)(COMM) 78/2020, a specific prayer (b) (ii), for attachment of the said property and placing the property at the disposal of this Court, the respondent could not, legitimately, proceed to alienate or dispose of the property, thereby acting in contravention of para 15 of the petition and itself rendering prayer (b) (ii), in the petition, preferred by the petitioner itself, infructuous even while the said prayer is under consideration by this Court, and the matter stands referred to Mediation.
18. On this aspect being brought to his notice, Mr. Ajay Kohli, learned counsel for the petitioner, submits that proceedings under the SARFAESI Act are distinct, different and separate from the proceedings under the 1996 Act, and are in the nature of parallel proceedings, which subsist and survive, side by side, with the proposed or pending arbitral proceedings.
19. He submits that this Court ought not to interfere with proceedings, under the SARFAESI Act and relies for the said purpose, on the judgment of a coordinate Single Bench of this Court in Lalit Mohan Madhan v. Reliance Capital Limited 1. Mr. Kohli has specifically drawn my attention to paras 6 to 9 of the said decision, which also take into consideration an earlier precedent, of the Supreme Court, in M.D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp Ltd2, and read thus:
1(2017) SCC OnLine Del 12188 2 AIR 2017 SC 4481 O.M.P(I)(COMM) 78/2020 Page 11 of 16 "6. I have considered the submissions made by the learned senior counsel for the petitioners and counsel for the respondent. In M.D. Frozen Foods (supra), the Supreme Court has discussed the interplay between the SARFAESI Act and the Arbitration Act and I may quote paragraphs 30 onwards of that judgment where question no. A framed by the Court was answered.
"30. The only twist in the present case is that, instead of the recovery process under the RDDB Act, we are concerned with an arbitration proceeding. It is trite to say that arbitration is an alternative to the civil proceedings. In fact, when a question was raised as to whether the matters which came within the scope and jurisdiction of the Debt Recovery Tribunal under the RDDB Act, could be referred to arbitration when both parties have incorporated such a clause, the answer was given in the affirmative. That being the position, the appellants can hardly be permitted to contend that the initiation of arbitration proceedings would in any manner, prejudice their rights to seek relief under the SARFAESI Act.
31. The discussion in the impugned order refers to a judgment of the Full Bench of the Delhi High Court in HDFC Bank Limited v. Satpal Singh Bakshi opining that an arbitration is an alternative to the RDDB Act. In that context, the learned single Judge has rightly held that this Full Bench judgment does not, in any manner, help the appellants but, in fact, supports the case of the respondent. The jurisdiction of the Civil Court is barred for matters covered by the RDDB Act, but the parties still have freedom to choose a forum, alternate to, and in place of the regular courts or judicial system for deciding their inter se disputes. All disputes relating to the "right in personam" are arbitrable and, therefore, the choice is given to the parties to choose this alternative forum. A claim of money by a bank or a financial institution cannot be treated as a "right in rem", which has an inherent public interest and would thus not be arbitrable.
32. The aforesaid is not a case of election of remedies as was sought to be canvassed by learned O.M.P(I)(COMM) 78/2020 Page 12 of 16 senior counsel for the appellants, since the alternatives are between a Civil Court, Arbitral Tribunal or a Debt Recovery Tribunal constituted under the RDDB Act. Insofar as that election is concerned, the mode of settlement of disputes to an arbitral tribunal has been elected. The provisions for the SARFAESI Act are thus, a remedy in addition to the provisions of the Arbitration Act. In Transcore v. Union of India (Supra) it was clearly observed that the SARFAESI Act was enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. Liquidation of secured interest through a more expeditious procedure is what has been envisaged under the SARFAESI Act and the two Acts are cumulative remedies to the secured creditors.
33. SARFAESI proceedings are in the nature of enforcement proceedings, while arbitration is an adjudicatory process. In the event that the secured assets are insufficient to satisfy the debts, the secured creditor can proceed against other assets in execution against the debtor, after determination of the pending outstanding amount by a competent forum.
34. We are, thus, unequivocally of the view that the judgments of the Full Bench of the Orissa High Court in Sarthak Builders Pvt. Ltd. v. Orissa Rural Development Corporation Limited, the Full Bench of the Delhi High Court in HDFC Bank Limited v. Satpal Singh Bakshi (supra) and the Division Bench of the Allahabad High Court in Pradeep Kumar Gupta v. State of U.P. lay down the correct proposition of Law and the view ex-pressed by the Andhra Pradesh High Court in Deccan Chronicles Holdings Limited v. Union of India following the overruled decision of the Orissa High Court in Subash Chandra Panda v. State of Orissa does not set forth the correct position in law. SARFAESI proceedings and arbitration proceedings, thus, can go hand in hand.
(emphasis supplied)"
7. The Supreme Court has, therefore, held that the O.M.P(I)(COMM) 78/2020 Page 13 of 16 arbitration proceedings and SARFAESI Act proceedings can go hand in hand. It has held that the provisions of SARFAESI Act are a remedy in addition to the provisions of the Arbitration Act. The two Acts are cumulative remedies to the secured creditors. While SARFAESI Act proceedings are in nature of enforcement proceeding, the arbitration proceedings would be in form of an adjudicatory process. In the event that the secured assets are insufficient to satisfy the debt, the secured creditor can proceed against other assets in execution against the debtor, after determination of pending outstanding amount by a competent forum i.e. in this case the arbitration.
8. In Transcore v. Union of India (2008) 1 SCC 125, while discussing the interplay between the Debt Recovery Act and the SARFAESI Act, the Supreme Court emphasized that the remedies for recovery under the Debt Recovery Act and SARFAESI Act are complementary to each other and, therefore, doctrine of election has no application.
9. As the SARFAESI Act and the Arbitration/Debt Recovery Act are held to be complementary in nature and the doctrine of election has been held to be not applicable, it cannot be said that if a party has invoked one remedy, it is debarred from invoking the other during the pendency of the first one. Under the SARFAESI Act, specially under Section 13 thereof, the secured creditor will proceed against the security given for the loan. If the amount recovered from the secured asset is less than the amount claimed as due by the financial institution, it would necessarily have to go for an adjudication proceeding before proceeding against the other assets of the debtor. However, that does not mean that if it has invoked the adjudicatory process for determination of its loan amount, it stands denuded of recovering its loan from the secured assets in accordance with law i.e. SARFAESI Act."
(Emphasis supplied)
20. Apart from the propriety of the decision to alienate the properties relating to the "Aarohan Residences" project, even in the face of para 15 of O.M.P(I)(COMM) 78/2020 and prayer (b) (ii) prayed therein, I am of the prima facie opinion that the paragraphs O.M.P(I)(COMM) 78/2020 Page 14 of 16 from Lalit Mohan Madhan1, to which Mr. Kohli has invited my attention, may not particularly further the case of the respondent.
21. In fact, para 33 of the report in M.D. Frozen Foods Exports2 notes that the assets forming subject matter of the proceedings, could be appropriated, towards the debts due "after determination of the pending outstanding amount by a competent forum". Para 7 of the report in Lalit Mohan Madhan1, while referring to this enunciation of the law, also observes, in the concluding sentence that "in the event that the secured assets are insufficient to satisfy the debts, the secured creditors can proceed against other assets in execution against the debtor "after determination of the pending amount by a competent forum, i.e. in this case the arbitration".
22. Prima facie, therefore, even before the arbitral proceedings have commenced, and, therefore, before any exercise, towards determination of the amount due, by the respondent, to the petitioner, has been set in motion, it is questionable whether the petitioner could alienate the properties of the "Aarohan Residences" project, towards satisfaction of the debt allegedly due to the petitioner.
23. Mr. Kohli seeks a short adjournment to examine this aspect and address arguments thereon.
24. Accordingly, issue notice on the application, on 22nd June, 2020, for disposal.
O.M.P(I)(COMM) 78/2020 Page 15 of 1625. Mr. Ajay Kohli, learned counsel for the petitioner/non- applicant, accepts notice.
26. The petitioner/non-applicant is at liberty to file a response to this application, should it so choose, prior to the said date.
C. HARI SHANKAR, J.
JUNE 10, 2020 dsn O.M.P(I)(COMM) 78/2020 Page 16 of 16