Bombay High Court
Idbi Trusteeship Services Ltd. And Anr vs Mid-City Infrastructure Pvt. Ltd. And 4 ... on 29 October, 2021
Author: A. K. Menon
Bench: A. K. Menon
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
INTERIM APPLICATION (L) NO.24261 OF 2021
IN
COMMERCIAL EXECUTION APPLICATION (L) NO.9357 OF 2021
IDBI Trusteeship Services Ltd. & Anr. .. Applicants/Decree Holders
v/s.
Mid-City Infrastructure Pvt. Ltd. & Ors. .. Respondents(Judg.Debtors)
Mr. Ashish Kamat a/w Shyam Kapadia, Gaurav Shah & Ms. Jigisha
Vadodaria i/b. Negandhi Shah & Himayatullah for the applicants.
Mr. Aseem Naphade i/b. Girish Thakur for the respondents.
CORAM : A. K. MENON, J.
DATED : 29TH OCTOBER, 2021 P.C. :
1. By this application, the applicant-judgment creditor seeks an amendment to the Execution Application creating a charge on the interest of Judgment debtor no.3 ('respondent no.3') in the partnership properties and assets and profits of three Limited Liability Partnerships wherein respondent no.3 is a partner, to the extent of the decretal amount of Rs.388,04,83,954/- and to restrain respondent no.3 from transferring, altering, parting with 1/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa possession otherwise disposing his partnership interest in those three LLPs and also for appointment of the Court Receiver, High Court, Bombay in respect of the partnership interest of respondent no.3 in these LLPs.
2. The applicant is entitled to receive the decretal sum pursuant to a consent decree passed in terms of consent terms dated 21 st January, 2021. An order came to be passed in terms of the consent terms on 10th February, 2021. The decretal sum was required to be paid in installments and a sum of Rs.40 crores was reportedly payable under Clauses 4, 11 & 18. The respondents are in breach of payment of these installments. As such the Court Receiver stands appointed in relation to the properties listed in the consent terms and its schedules. In the process of executing the decree, Court Receiver has taken symbolic possession of some of the properties. One property, however, is not handed over to the Receiver despite time fixed for the same.
3. Meanwhile, the applicants have learnt that the respondent no.3 has a share in the three LLPs. These three LLPs are known as Mid-
City Housing LLP, Mid-City Projects LLP and Manpreet Estates LLP. As partner in these three LLPs, the Respondent no. 3 is said to 2/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa be entitled to an interest in the properties profit and assets.
4. Mr. Kamat appearing on behalf of the applicant submits that the information available on the Website of the Ministry of Corporate Affairs shows that the respondent no.3 is a partner in these firms. This is a fact that is now not in dispute since Mr. Naphade has not denied the fact that the respondent no.3 is a partner in these firms. According to Mr. Kamat, in accordance with Order XXI Rule 49, Sub-Rule (2), the applicant decree holder is entitled to an order charging the interest of the respondent no.3 in the partnership property and profits with the payment due under the decree and for appointment of Court Receiver of such shares in the profits or other monies that may be coming to the respondent no.3. He therefore submits that in the facts of the present case, he is entitled to an order in terms of the present interim application.
5. Mr. Naphade appearing on behalf of the respondent submitted that no order can be passed against the partnership firm. He invokes the provisions of the Limited Liability Partnership Act, 2008 and relies upon the provisions of Section 3 read with Section 14 of that Act. He submits that a limited liability 3/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa partnership is being a body corporate has a separate legal existence from that of its partners and therefore there is no question of charging the partners interests as contemplated in Rule 49 of Order XXI. That provision he submits is only in respect of partnership firms contemplated under the Indian Partnership Act of 1932. The LLP Act of 2008 providing for a different business structure is not subject to the provisions of Order XXI Rule 49. He has also relied upon the fact that on registration of a LLP, it is capable of acquiring, owning and holding and developing and disposing profit property movable and immovable. As such, the property of these LLPs are not subject matter of attachment under the provisions of Order XXI Rule 49. On the contrary, he submits that any attachment application would have to be made under Order XXI Rule 46 which provides for attachment of the share in the capital of a corporation. He therefore submits that the present application is misconceived. The LLP Act he submits was intended to limit the personal liability of a partner and hence the present application is misconceived. He submits that in the present case, the respondent no.3 has already retired from Mid-City Housing LLP on 18 th September, 2021 and upon retirement, he has given his share "derived" by 4/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa him in his capacity as a retired partner and subsequently assigned it to one Indiabulls Commercial Credit Limited. He has craved leave to refer to and rely upon documents pertaining to the assignment. He submits that today there is no question of passing any order at-least in relation to Mid-City Housing LLP. Furthermore, he submits that all partners of the LLP ought to have been joined in this application and in the circumstances, the application is not maintainable.
6. Mr. Naphade has relied upon the provisions of four documents annexed to the affidavit in reply of respondent no.3. The first of which is a Limited Liability Partnership Agreement which is undated. It is stated to be of 2016 but it is an incomplete document. Although it contains several signatures of the parties, it is not witnessed, it is undated, and hence, questionable. The original of this is not forthcoming. The second document he relies upon a Deed of Reconstitution of the Limited Liability Partnership Mid-City Housing LLP which is dated 31 st January, 2020. Respondent no.3 is the first party in this document and Schedule- II of the document reveals that he has a 37% share upon reconstitution of the firm.
5/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa
7. The third document is a limited liability and LLP Agreement dated 24th February, 2015 in respect of Mid-City Projects LLP where respondent no.3 along with one Hiren Vasantkumar Dhruv holding 50% of the right title and interest and share in profits and losses. The fourth document is a Reconstituted Limited Liability Partnership Agreement of one Manpreet Estates LLP.- respondent no.3. In Manpreet Estates LLP, the respondent no.3 is once again the first party. There are two other partners and the respondent no.3 has a 75% share and interest in the partnership. Is in this background that I have to consider the submissions made before me.
8. Prima facie, the argument of Mr. Naphade though attractive is not acceptable. The contention that under Rule 49, the interest of a partner in a partnership firm cannot be charged with the payment due under a decree against such a partner does not commend itself to me. Under Order 21 Rule 46, it is the shares that are issued by the corporation that may be attached. Under the Limited Liability Partnership Act of 2008, there is no provision for issuance of shares. The intention behind this enactment is to provide an alternative to the traditional partnership firm which 6/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa has unlimited personal liability. An LLP is intended to provide a structure of a limited liability company. As set out in the statements of Objects and Reasons of this Act, the LLP is viewed as an alternative corporate business vehicle that provides benefits of limited liability but allows its member the flexibility of organizing their internal structure as a partnership based on mutual agreement.
9. If one accepts the argument of Mr. Naphade, it would mean that assets of limited liability partnership or its partners interest cannot be attached or charged in any manner. Although Order XXI of Code of Civil Procedure in its current form does not make provision for execution specifically against an LLP, the LLP Act cannot be read in a manner such as to defeat the rights of a decree holder under the Code of Civil Procedure, 1908
10. In my view, Rule 46 has no application in the instant case since the LLPs do not have share capital which is capable of attachment. Absent such share capital, there is no occasion to seek attachment of the interests of a partner in such corporation under Rule 46. While an LLP may be incorporated entity, it is not one that is exempted from the provisions of the Code of Civil 7/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa Procedure. The limitation of liability does not extend to rendering a decree unexecutable against the partners of a LLP. Therefore it stands to reason that only provision the law provides as on date to gain access to charging the interests of a partner in a LLP is by virtue of Rule 49 of Order XXI which is reproduced below;
"49. Attachment of partnership property. -
(1) Save as otherwise provided by this rule, property belonging to a partnership shall not be attached or sold in execution of a decree other than a decree passed against the firm or against the partners in the firm as such.
(2) The court may, on the application of the holder of a decree against a partner, make an order charging the interest of such partner in the partnership property and profits with payment of the amount due under the decree, and may, by the same or a subsequent order, appoint a receiver of the share of such partner in the profits (whether already declared or accruing) and of any other money which may be coming to him in respect of the partnership and direct accounts and inquiries and make an order for the sale of such interest or other orders 8/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa as might have been directed or made if a charge had been made in favour of the decree-holder by such partner, or as the circumstances of the case may require. (3) The other partner or partners shall be at liberty at any time to redeem the interest charged or, in the case of a sale being directed, to purchase the same. (4) ....
(5) .....
(6) ....."
11. A fair reading of Rule 49 will reveal that property belonging to a partnership shall not be attached or sold other than in a case where a decree is passed against the firm or against the partners of the firm as such. Thus, there is no absolute bar against attachment of property belonging to a firm. There must be a decree against the firm or against the partner. However, in the meanwhile, Sub-Rule (2) of Rule 49 does provide that the court is empowered to make an order charging the interest of such partner in the partnership property and profits. In the instant case, in order to test Mr. Naphade's submissions based on the contentions in the affidavit in reply, I called upon him to produce the documents relied upon by the respondent no.3 in the 9/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa affidavit. Mr. Naphade has, on instructions, tendered before the court a copy of what is described as a Deed of Creation of Charge dated 18th October, 2021 ('DCC') said to be executed between one Indiabulls Commercial Credit Limited and respondent no.3.
12. Perusal of the Deed of Creation of Charge reveals that the respondent no.3 is the borrower and Indiabulls Commercial Credit Limited is the lender. The respondent no.3 appears to have entered into a Loan Agreement referred to in Schedule-II of the DCC and this Schedule reveals that sum of upto Rs.100 crores has been borrowed. The co-borrower is Mid-City Projects LLP, one of the other LLPs in respect of which charging of the respondent no.3's interest is being sought. Despite the court calling upon the respondent no.3 to produce the loan document and the matter being kept back, the Loan Agreement is not forthcoming. It is only the DCC that has been produced. Indeed Mr. Naphade did seek time to produce the Loan Agreement but on the ground that the Loan Agreement is not with the respondent no.3 but is in the custody of some other person. Prima facie this explanation is not satisfactory.
13. The fact remains that this DCC reveals that the statement in 10/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa paragraph 5 of the reply dated 20 th October, 2021 is clearly an incorrect statement. The concept of retirement from partnership is fairly clear. There is no ambiguity in what the deponent meant in the affidavit. He has stated that he retired from the firm and his share derived as retired partner was assigned to Indiabulls. However, the document that is now disclosed to court is one of Creation of a Charge to secure a loan taken. The loan amount therefore is an amount that represents, for the present, the value of the interest of the respondent no.3 in the partnership LLP Mid- City Housing LLP because the charge is created by the respondent no.3 alone. The co-borrower is described as Mid-City Projects Limited but that LLP has not executed this DCC.
14. Mr. Naphade in the course of his submissions relied upon the judgment of the Supreme Court in the case of Bacha F. Guzdar v/s. Commissioner of Income Tax1 in support of his contention that the shareholder acquires a right to participate in profits, it does not acquire the right in the assets of the company. He relies upon this principle to submit that in a LLP the partner has no right in the property of the LLP. This submission in my view is misconceived inasmuch as the LLP is not a corporation which is 1 AIR 1955 SC 74 11/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa limited by shares. The concept of a LLP is evident from the LLP Act 2008. It is a partnership with limitations on personal liability of the partners and the judgment in Bacha Guzdar (supra) is of no assistance to Mr. Naphade. Thus viewed it is not possible to accept Mr. Naphade's contention that Rule 49 of Order XXI is not attracted in the present case. Rule 49 clearly contemplates the charging of interest of partner of a partnership property. Reference to partnership in the Code cannot be restricted to partnership as contemplated in the Indian Partnership Act, 1932. It is true that the Code does not define "partnership". On the other hand it defines share in a corporation which is defined under Section 2(19) as follows;
"2(19) 'share in a corporation' shall be deemed to include stock, debenture stock, debentures or bonds."
15. Therefore the Code by using the expression "partnership" in Rule 49 does not restrict its scope to a partnership under the Indian Partnership Act, 1932 and I see no reason why it does not include partnership as contemplated under the LLP Act which defines only "Partner" in relation to the Limited Liability Partnership. Section 2(q) defines partner as follows; 12/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa "2(q) "partner" in relation to a limited liability partnership, means any person who becomes a partner in the limited liability partnership in accordance with the limited liability partnership agreement."
16. Thus, although Section 4 clarifies that the Indian Partnership Act, 1932 shall not apply to a limited liability partnership, applicability of an Order XXI is certainly not excluded and thereby Rule 49 will in my view be applicable.
17. In these circumstances, it is evident that the respondent no.3 appears to have attempted to mislead the court. The reasons given and the submissions advanced are completely unsatisfactory and I am unable to accept the contention of Mr, Naphade that no relief can be granted in these circumstances. Undoubtedly, the respondent no.3 has an interest in these LLPs and which can be subject matter of the charge since he has apparently created a charge in respect of his partnership interest in Mid-City Housing LLP. In this view of the matter, it is evident that the charge can now be created on his interest which has has been equated in monetary terms equivalent to the amounts borrowed. The 13/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa amount borrowed is said to be about Rs.100 crores and in my view, that amount would therefore represent the subject matter of a charge which at the very least represents the partnership interests of the respondent no.3 in Mid-City Housing LLP. This having been said, I have heard no opposition whatsoever to the amendment sought to the execution application. In my view, therefore, prima facie case is made out for grant of relief and accordingly I pass the following order,
(i) IA is made absolute in terms of prayer clause (a).
(ii) There will be an ad-interim order in terms of prayer clauses (b) and (c).
(iii) To the extent it concerns, the partnership interest of respondent no.3 in Mid-City Housing LLP, a charge will attach to the amount of Rs.100 crores borrowed under the Deed of Creation of Charge dated 18 th October, 2021 in between respondent no.3 and India Bulls Commercial Credit Limited.
(iv) The respondent no.3 is directed to furnish all particulars of the amount of loan received and the date of receipt of the said amount within a period of one week 14/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa from today.
(v) The affidavit shall be filed in court on 8 th November, copies shall however be served within one week from today.
(vi) Liberty to apply after such reply is filed and in the event it is not so filed.
(A. K. MENON, J.) Digitally signed by SANDHYA SANDHYA BHAGU BHAGU WADHWA WADHWA Date:
2021.10.29 18:14:13 +0530 15/15 IA-2426-2021 (COMEXL-9357-21).doc wadhwa