Hassad Food Company Q.S.C. & Anr vs Bank Of India & Ors on 14 September, 2018

[Cites 34, Cited by 11]

Delhi High Court

Hassad Food Company Q.S.C. & Anr vs Bank Of India & Ors on 14 September, 2018

Equivalent citations: AIRONLINE 2018 DEL 2904

1. In the present application filed under Order 39 Rules 1 & 2 CPC, the plaintiffs have sought appropriate ex parte injunction to restrain the defendants from seeking to enforce against the plaintiff any obligation under the Deed of Guarantee dated 16.05.2013 pending disposal of the present suit.

CS (COMM.) 9/2018 Page 1

2. This suit is filed by the plaintiffs seeking a decree of declaration declaring that the Corporate Guarantee dated 16.05.2013 issued by plaintiff No. 1 is vitiated by fraud or misrepresentation including under Sections 17, 18, 142, 143 of the Contract Act, 1872 and is therefore invalid in law and that the plaintiff is entitled to consequential reliefs. A decree is also sought in favour of plaintiff No. 1 against defendants No. 1 to 8, 10, 12 for specified amounts as detailed below:-

       Defendant No.1               Rs.1,43,22,00,000.00
       Defendant No.2               Rs.30,07,00,000.00
       Defendant No.3               Rs.40,06,82,247.68
       Defendant No.4 and 12        Rs.91,11,00,000.00
       (Jointly & severally)
       Defendant No.5               Rs.13,12,00,000.00
       Defendant No.6               Rs.9,28,41,756.00
       Defendant No.7               Rs.37,56,65,846.00
       Defendant No.8 and 10        Rs.35,93,00,000.00
       (Jointly & severally)


3.    Other connected reliefs are also sought.

4. Plaintiff No. 1 is said to be owned and controlled by the Qatar Investment Authority, (a Government of Qatar Entity), which is said to be one of the largest investors in the world. Plaintiff No. 2 is the subsidiary of plaintiff No.1 and was incorporated by plaintiff No. 1 to serve as a special purpose vehicle for the plaintiff‟s investment in the company called Bush Foods Overseas Pvt. Ltd. (hereinafter referred to as „Bush Foods‟). It is stated that Bush Foods was incorporated in July 2005 by Mr.Virkaran Awasty and his wife, namely, Mrs.Ritika Awasty. Its main business was CS (COMM.) 9/2018 Page 2 trading in rice, both domestic and exports. In March 2011, two Mauritius based indirect subsidiaries of Standard Chartered Bank, U.K. invested in Bush Foods by subscribing to its shares and compulsory convertible debentures stock. They came to hold 29% equity in Bush Foods with the balance shareholding then remaining with the promoters, namely, by Mr.Virkaran Awasty and Mrs.Ritika Awasty.

5. In September 2012, the plaintiff was approached to invest in the said Bush Foods. After conducting due diligence, a transaction was closed on 28.03.2013. Plaintiff No. 2 was incorporated and acquired 69.5 % equity shares in Bush Foods. The Mauritius based Standard Chartered Bank subsidiaries and investor Mrs. Ritika Awasty exited Bush Food. Balance 30.5% shares remained with Mr.Virkaran Awasty.

6. As there was a change in the shareholding in Bush Foods, it required a no objection from defendants No. 1 to 7, 10, 11 who are the members of the Consortium of banks led by Bank of India (hereinafter referred to as „Consortium‟) who had granted credit facilities to Bush Foods. Each of the banks had given an NOC upon the condition that plaintiff No. 1 furnishes a Corporate Guarantee securitizing 70% of the loans availed by Bush Foods from the said Consortium. A meeting was held with the Consortium Members at Oberoi Hotel in Delhi on 11.03.2013 which was attended by the Consortium Members and ING Vysya Bank. The Banks are said to have painted a rosy picture to the plaintiff stating that they have good relations with Bush Foods. It was never pointed out or indicated that Bush Foods was in fact desperately struggling to meet its loan repayment obligations and was regularly defaulting in its interest paying obligation. Time and again banks had warned Bush Foods for the delays and defaults and that its debts was CS (COMM.) 9/2018 Page 3 likely to be declared as non-performing assets under the SARFAESI Act. All these facts were deliberately hidden by the Consortium from the plaintiff. On the contrary false assurances were held out to the plaintiff.

The transaction with Bush Foods was closed on 28.03.2013. A Corporate Guarantee was furnished by plaintiff in favour of the Consortium Members on 16.05.2013 as per their stipulation.

7. On paper Bush Foods was a financially healthy and profit making company with annual gross revenue of Rs.1,267 crores and having a rice and paddy inventory worth about Rs.1000 crores which was hypothecated with the banks who had on the strength of this hypothecation loaned a huge amount to the Company.

8. After acquiring majority shareholdings in Bush Foods, the management and business operation remained with Mr.Virkaran Awasty who was CEO and MD. Subsequently, statutory auditors Deloitte gave a disclaimed audit report stating that an attempt for physical verification of the rice and paddy inventory could not be finalized. It was pointed out that Bush Foods had converted its inventory from bags to metric tonnes claiming each bag as weighing 75 kgs. whereas the purchase invoices ranged from 50-65 kg per bag. This itself had an adverse impact of Rs.164.73 crores from the claimed inventory. On account of the disclosure of Deloitte and its inability to complete the stock taking of the inventory, an independent quantity surveyor, namely, Dr. Amin Controllers Pvt. Ltd. was roped in to audit and verify the physical stock of rice and paddy in three warehouses-Shahabad, Murthal and Panipat as well as at the plant at Silos at Sonepat. Shocking state of affairs was discovered in the inspection. Large number of bags were filled with plant sweepage and/or rice husk. Further, bags were stacked to CS (COMM.) 9/2018 Page 4 give a false impression that the warehouses were full at maximum quantity whereas this was only a window dressing. Bags were stacked against the windows and against the entrance to visually give a false impression of full warehouses. Some warehouses were said to be under fumigation but in fact they were found to be empty. A final audit was completed. It was ultimately found that Shahabad, Murthal and Panipat warehouses had a total of 1160.603 MT of rice and 3091.806 MT of paddy as against 2,46,000 MT as claimed by Bush Foods in November 2013.

At all material times, Bush Foods certified its inventory of paddy and rice to be worth somewhere around Rs.1,000 crores. In reality, the inventory of Bush Foods was not even worth Rs. 20 crores.

9. Clearly, it was a case of fraud and cheating being played on the plaintiff by misleading the plaintiff about the value of the stock. This fraud/misrepresentation rendered the entire investment of the plaintiff a total waste and further exposing plaintiff No. 1 to huge liability under the Corporate Guarantee. The plaintiff filed a criminal complaint before the Economic Offences Wing (EoW), Mandir Marg, New Delhi on 06.01.2014 and an FIR was registered on 03.12.2014. EoW filed a charge sheet on 08.08.2016 in the court of ACMM, Saket Court against Mr.Virkaran Awasty in respect of offences under Sections 409, 420, 468, 471, 477A and 120 B IPC, 1860. The court has taken cognizance of the offences.

10. In the absence of the necessary inventory, on the strength of which the Bush Foods had taken a credit of over Rs.700 crores, the Company inevitably slid into insolvency. Vide order dated 10.02.2016 passed by this court, the Official Liquidator was appointed as the Provisional Liquidator. This court also directed the SFIO to carry out an investigation in the CS (COMM.) 9/2018 Page 5 accounts of Bush Foods. SFIO has filed its interim report but the final report is awaited.

11. The plaintiff states that on humanitarian consideration and in order to meet the salary dues of Bush Foods‟ employees, the plaintiff injected funds to the tune of USD 162,00 and subsequently, another sum of USD 1,038,000 into Bush Foods.

12. Keeping in view the acts of Mr. Virkaran Awasty, he was removed from the post of MD and CEO.

13. The shocking fact was that the bank consortium, namely, Bank of India, Allahabad Bank, Bank of Baroda, Central Bank of India, PNB, EXIM Bank and Standard Chartered Bank had executed a joint deed of hypothecation on the stocks of Bush Foods. The Consortium was joined by two banks, namely, HSBC and DBS. A sanctioned credit limit of about Rs. 650 crores was granted by the banks to Bush Foods based on this make belief inventories. It is stated that the banks were so grossly negligent that they failed to keep a track of the inventory of rice and paddy which was hypothecated to them.

14. The Consortium Banks instead of pursuing the remedy against the hypothecated assets of the Bush Foods sought to invoke the Corporate Guarantee given by the plaintiff. The plaintiff has paid a total of Rs. 442.68 crores to various banks/defendants. However, despite having paid the said amount, the Consortium Banks are said to have initiated proceedings against the plaintiff and Bush Foods/Mr.Virkaran Awasty before DRT seeking sums outside the Corporate Guarantee along with interest @ 14.8%. A Total of Rs.282.28 crores are being sought from the plaintiff despite the large payments made by the plaintiff. It is pleaded that the amounts claimed by the CS (COMM.) 9/2018 Page 6 consortium banks are outside the Corporate Guarantee and not the liability of the plaintiff.

15. It is further stated that on account of the fraud played by Bush Foods on the plaintiff, the plaintiff engaged a professional business agency called GPW having its offices in London and Dubai to gather and present evidence relating to the fraud committed on it. Hassad Netherlands B.V. was permitted to take copies of physical and electronic records of Bush Foods for the purposes of enquiry. Other experts were also roped in. The analysis of the experts, it is pleaded, conclusively establish that the bank consortium had great difficulties with the Bush Foods Account but they concealed the same wrongfully and induced the plaintiff to furnish the guarantee. It is pleaded that as per the correspondence of the banks, Bush Food was supposed to have a turnover of Rs.1200 crores per annum and was also reporting each month to the banks that it was sitting on an inventory of stock of about Rs.1,000 crores. Banks were lending money under the structure where they were required to meet, consult and discuss the performance of the Borrower. Despite grave infirmities in the financial and assets structure of the Bush Foods, the banks continued to blindly give loan to the said company and falsely represented to the plaintiff that they had good relations with Bush Foods. Hence, it is pleaded that the banks are liable to return the money realized under the Corporate Guarantee on account of negligence, deceit, fraud and misrepresentation.

16. The grounds on which the relief is sought are as follows:-

(i) The banks negligently did not disclose the unhappy relationship with Bush Foods and the frequent irregularities in its accounts to the plaintiffs.

CS (COMM.) 9/2018                                                        Page 7
 (ii)    The banks were negligent in holding out that their principal security

i.e. stock of rice and paddy was adequately safeguarded and they had full rights over the same whereas the banks did not carry out any independent serious physical verification or valuation exercise. The banks happily sanctioned credit of upto Rs.650 crores to Bush Foods based on hypothecation of stocks worth about Rs.1000 crores whereas the actual stock was worth about Rs.20 crores.

(iii) The banks owe a duty of care to the plaintiff inasmuch as the banks had old banking relationship with Bush Foods. On the contrary, they misled the plaintiff by painting a rosy picture about the finances/assets of Bush Foods.

(iv) The banks are also guilty of fraud and misrepresentation as they actively concealed their knowledge of the poor financial state of Bush Foods.

(v) It has also been pointed out that the plaintiff commenced arbitration proceedings against Mr. and Mrs. Awasty and an Award was passed on 31.05.2016 for USD 197.41 million. However, it is pleaded that the promoters of Bush Foods, namely, Mr and Mrs. Awasty have fled away from India and appear to have taken the nationality of Cyprus.

17. Hence, the present suit.

18. The some of the defendants have filed written statement. An application under Order 7 Rule 11 CPC seeking dismissal of the suit on the ground that this court has no jurisdiction to adjudicate the suit has also been filed. It has been stated by the said defendants that this court does not have jurisdiction to adjudicate the present suit. Reliance is placed on the judgments of the Supreme Court in the cases of United Bank of India, Calcutta vs. Abhijit Tea Co. Pvt. Ltd. & Ors., AIR 2000 SC 2957 and CS (COMM.) 9/2018 Page 8 Radnik Exports vs. Standard Chartered bank, 211 (2014) DLT 436. It is also pleaded on merits that there is no prima facie case of any fraud against the answering defendants. It is pleaded that execution of the corporate guarantee was not dependent upon any representation made by the said defendants but was based on proper due diligence done by the plaintiffs. It is also pleaded that share purchase agreement dated 09.03.2013 was executed before the meeting with the consortium on 11.03.2013. It is further stated that several due diligence report were prepared by KPMG, Khaitan & Co., PricewaterhouseCoopers Pvt. Ltd. Earnest and Young etc. before the plaintiff took steps to invest in Bush Foods. It is stated that defendants were not aware about the prevailing situation when the meeting took place on 11.03.2013 and hence, there is no concealment of fact or fraud by the defendants. It is also stated that in the chargesheet filed by the Economic Offence Wing against Bush Foods, there is no adverse finding against the answering defendants.

19. I have heard learned counsel for the parties.

20. Learned senior counsel for the plaintiff has reiterated the submissions made in the plaint pointing out that the defendant Banks have played a fraud on the plaintiff. They were fully aware of the financial weakness of Bush Foods but in the meeting that was held with the bankers on 11.03.2013 vital information was illegally and fraudulently suppressed from the plaintiff. On the contrary, a completely rosy picture was given misleading the plaintiff and causing loss and damages to the plaintiff. The entire investment of the plaintiff of USD 120.34 million has been completely wiped out. It has been pointed out that the plaintiff made investments on 28.03.2013. Pursuant to the report of Dr.Amin Controllers Pvt. Ltd. and Deloitte, Mr.Awasty was CS (COMM.) 9/2018 Page 9 removed as CEO on 27.11.2013. Hence, within 7 to 8 months, the plaintiff discovered that the inventories claimed were virtually non-existent. By January 2014 i.e. in about 8 months from the date of issuing Corporate Guarantee, the banks started issuing call notice on the Corporate Guarantee. The plaintiff being a responsible Company has honored the Corporate Bank Guarantee and paid the entire dues of the banks totaling Rs.442 crores yet the banks are arm twisting the plaintiff demanding another amount of Rs.282 crores which is beyond the terms of the Corporate Guarantee. In any case on account of the fraud and misrepresentation now discovered by the plaintiff, the plaintiff seeks recovery of its dues/losses from the banks.

21. Learned counsel appearing for the consortium/defendants submits that this court does not have the jurisdiction to entertain the present suit. It is pleaded that it is the DRT which is the appropriate forum to adjudicate upon the defence if any raised by the guarantor, namely, the plaintiff. He relies upon the following judgments: -

(i) State Bank of India vs. Ranjan Chemicals Ltd. & Anr., (2007) 1 SCC 97

(ii) United Bank of India, Calcutta vs. Abhijit Tea Co. Pvt.

Ltd. & Ors., AIR 2000 SC 2957

(iii) Radnik Exports vs. Standard Chartered bank, 211 (2014) DLT 436 The learned counsel has also relied upon the judgment of the learned Single Judge of this court in the case of Radnik Exports vs. Standard Chartered Bank (supra), where this court held that in case of conflict of opinion between the finding recorded by the civil court and the tribunal, the finding of the tribunal would prevail.

CS (COMM.) 9/2018 Page 10

22. Learned senior counsel for the plaintiffs in rejoinder rebutted the contention of the defendants that this court does not have the jurisdiction Reliance is placed on the following judgments:-

(i) Indian Bank vs. ABS Marine Products (P) Ltd., (2006) 5 SCC 72

(ii) Nahar Industrial Enterprises Ltd. Vs. Hong Kong and Shanghai Banking Corporation, (2009) 8 SCC 646

(iii) Mardia Chemicals Ltd. & Ors. Vs. Union of India & Ors., (2004) 4 SCC 311 The learned senior counsel has denied that in case of conflict of view of the tribunal and the civil court, the finding of the tribunal will prevail. He has submitted relying upon the judgment of the Supreme Court in Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation (supra), that finding of the civil court would prevail.

23. I may only note that this matter has been heard extensively on two dates. Parties have filed their written submissions.

24. The essential argument raised by the defendants is about the jurisdiction of this court. Section 18 of the Recovery of Debts and Bankruptcy Act, 1993(in short the 'RDB Act') reads as follows:-

"18. Bar of Jurisdiction.--On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17"

CS (COMM.) 9/2018 Page 11

25. Hence, in matters specified under section 17 of RDB Act, no Court has authority to exercise jurisdiction. Section 17(1) reads as follows:-

17. Jurisdiction, powers and authority of Tribunals.--(1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.

26. In Indian Bank vs. ABS Marine Products (P) Ptd., (supra) the Supreme Court was dealing with a case where the bank had filed a petition before the DRT for recovery of its dues. The respondent company had also filed a suit against the bank for recovery of damages on account of non disbursal of the loans with interest. Subsequently, the bank filed an application in the suit for transfer of the suit filed by the respondent company to the DRT on the ground that the said suit was partly in the nature of a counter-claim and was integrally connected with the bank‟s application. The Supreme Court held that there was no connection between the subject matters of the two suits and they were in no way connected. The Supreme Court held as follows:-

"16. As far as sub-sections (6) to (11) of Section 19 are concerned, they are merely enabling provisions. The Debts Recovery Act, as it originally stood, did not contain any provision enabling a defendant in an application filed by the bank/financial institution to claim any set-off or make any counterclaim against the bank/financial institution. On that among other grounds, the Act was held to be unconstitutional (see Delhi High Court Bar Assn. v. Union of India [AIR 1995 Del 323] ). During the pendency of appeal against the said decision, before this Court, the Act was amended by Act 1 of 2000 to remove the lacuna by providing for set-off and counterclaims by defendants in the applications filed by banks/financial institutions before the Tribunal. The provisions CS (COMM.) 9/2018 Page 12 of the Act as amended were upheld by this Court in Union of India v. Delhi High Court Bar Assn. [(2002) 4 SCC 275] The effect of sub-sections (6) to (11) of Section 19 of the amended Act is that any defendant in a suit or proceeding initiated by a bank or financial institution can: (a) claim set-off against the demand of a bank/financial institution, any ascertained sum of money legally recoverable by him from such bank/financial institution; and (b) set-up by way of counterclaim against the claim of a bank/financial institution, any right or claim in respect of a cause of action accruing to such defendant against the bank/financial institution, either before or after filing of the application, but before the defendant has delivered his defence or before the time for delivering the defence has expired, whether such a counterclaim is in the nature of a claim for damages or not. What is significant is that Sections 17 and 18 have not been amended. Jurisdiction has not been conferred on the Tribunal, even after amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings. The only change that has been made is to enable the defendants to claim set-off or make a counterclaim as provided in sub-sections (6) to (8) of Section 19 in applications already filed by the banks or financial institutions for recovery of the amounts due to them. In other words, what is provided and permitted is a cross-action by a defendant in a pending application by the bank/financial institution, the intention being to have the claim of the bank/financial institution made in its application and the counterclaim or claim for set-off of the defendant, as a single unified proceeding, to be disposed of by a common order.

17. Making a counterclaim in the bank's application before the Tribunal is not the only remedy, but an option available to the defendant borrower. He can also file a separate suit or proceeding before a civil court or other appropriate forum in respect of his claim against the bank and pursue the same. Even the bank, in whose application the counterclaim is made, has the option to apply to the Tribunal to exclude the counterclaim of CS (COMM.) 9/2018 Page 13 the defendant while considering its application. When such application is made by the bank, the Tribunal may either refuse to exclude the counterclaim and proceed to consider the bank's application and the counterclaim together; or exclude the counterclaim as prayed, and proceed only with the bank's application, in which event the counterclaim becomes an independent claim against a bank/financial institution. The defendant will then have to approach the civil court in respect of such excluded counterclaim as the Tribunal does not have jurisdiction to try any independent claim against a bank/financial institution. A defendant in an application, having an independent claim against the bank, cannot be compelled to make his claim against the bank only by way of a counterclaim.

Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a tribunal against his wishes."

27. In Nahar Industrial Enterprises Limited vs. Hong Kong and Shanghai Banking Corporation (supra) the Supreme Court held as follows:-

"105. The civil court indisputably has the jurisdiction to try a suit. If the suit is vexatious or otherwise not maintainable action can be taken in respect thereof in terms of the Code. But if all suits filed in the civil courts, whether inextricably connected with the application filed before the DRT by the banks and financial institutions are transferred, the same would amount to ousting the jurisdiction of the civil courts indirectly. Suits filed by the debtor may or may not be counterclaims to the claims filed by banks or financial institutions but for that purpose consent of the plaintiff is necessary.

106. It is furthermore difficult to accept the contentions of the respondents that the statutory provisions contained in Sections 17 and 18 of the DRT Act have ousted the jurisdiction of the civil court as the said provisions clearly state that the jurisdiction of the civil court is barred in relation only to applications from banks and financial institutions for recovery of debts due to such banks and financial institutions.

CS (COMM.) 9/2018 Page 14

107. A civil court is entitled to decide the respective claims of the parties in a suit. It must come within the purview of the hierarchy of courts as indicated in Section 3 of the Code. It will have jurisdiction to determine all disputes of civil nature unless the same is barred expressly by a statute or by necessary implication.

108. Although some arguments have been advanced before us whether having regard to the provisions of Sections 17 and 18 of the Act the civil court jurisdiction is completely ousted, we are of the view that the jurisdiction of the civil court would be ousted only in respect of the matters contained in Section 18 which has a direct co-relation with Section 17 thereof, that is to say that the matter must relate to a debt payable to a bank or a financial institution. The application before the Tribunal would lie only at the instance of the bank or the financial institution for the recovery of its debt. It must further be noted in this respect that had the jurisdiction of the civil courts been barred in respect of counterclaim also, the statute would have said so and Sections 17 and 18 would have been amended to introduce the provision of counterclaim.

109. We may in this context place on record the following observations from Indian Bank [(2006) 5 SCC 72] : (SCC pp. 81-82, paras 14-16) "14. Section 9 of the Code of Civil Procedure provides that the courts shall have jurisdiction to try all suits of a civil nature, excepting suits of which their cognizance is either expressly or impliedly barred.

15. It is evident from Sections 17 and 18 of the Debts Recovery Act that civil court's jurisdiction is barred only in regard to applications by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any relief. ...

16. ... What is significant is that Sections 17 and 18 have not been amended. Jurisdiction has not been conferred on the CS (COMM.) 9/2018 Page 15 Tribunal, even after amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings."

110. It must be remembered that the jurisdiction of a civil court is plenary in nature. Unless the same is ousted, expressly or by necessary implication, it will have jurisdiction to try all types of suits.

28. It follows from the above judgments that a civil court would have jurisdiction to try a suit filed by the debtor. Jurisdiction of the civil court was ousted under the provisions of sections 16 and 17 of the RDB Act only for such suit which relates application from the banks and financial institutions for recovery of their debts.

29. I may however note that there are two other judgments of the Supreme Courts where the court has take a view that if in such a suit filed by the borrower the issues are inextricably linked with the case of the bank filed before the DRT the suit can be transferred to be adjudicated upon by the tribunal.

30. The Supreme Court in United Bank of India, Calcutta vs. Abhijit Tea Co.Pvt. Ltd. and Ors. (supra) was dealing with a case where a suit was pending filed by the bank in the High Court prior to enactment of RDB Act. The debtor company had also filed a suit for specific performance, perpetual and mandatory injunction raising common issues between the parties which was pending in the High Court. The Supreme Court held that the pleas raised by the debtor company were inextricably connected with the amount claimed by the bank. Holding that the suit of the debtor was in subsistence a counter CS (COMM.) 9/2018 Page 16 claim under section 19(8) of the DRT Act the Court directed the suit to be tried before the DRT.

31. In State Bank of India vs. Ranjan Chemicals Ltd. and Anr. (supra) the Supreme Court was again dealing with a case where the High Court had refused to transfer the suit for being tried jointly with the application of the bank before DRT Patna. The Bank had sought transfer on the basis that the suit was in the nature of counter claim to its claim and arose out of the same cause of action. The Supreme Court held that the two claims are inextricably interlinked. The counter-claims arising out of the said claim arose from transaction between the bank and the company. The court was of the view that a joint trial could be ordered. It was ordered accordingly.

32. In Bank of Rajasthan Limited vs. VCK Shares and Stock Broking Services Limited, (2015) 13 SCC 635 the Supreme Court noted the above views of different benches of the Supreme Court and directed that the matter may be referred to a larger bench. The Supreme Court held as follows:-

"14. It is not possible to accede to the submissions made on behalf of the respondent as pointed out above. There is a difference of opinion between several Benches of this Court on the issue. This is likely to create a doubt as to the true position in law, hence we consider it appropriate to refer the following questions of law to a larger Bench:

14.1 (i) Whether an independent suit filed by a borrower against a bank or financial institution, which has applied for recovery of its loan against the plaintiff under the RDB Act, is liable to be transferred and tried along with the application under the RDB Act by DRT?

14.2. (ii) If the answer is in the affirmative, can such transfer be ordered by a court only with the consent of the plaintiff?

CS (COMM.) 9/2018 Page 17 14.3. (iii) Is the jurisdiction of a civil court to try a suit filed by a borrower against a bank or financial institution ousted by virtue of the scheme of the RDB Act in relation to proceedings for recovery of debt by a bank or financial institution?"

33. I was informed at the Bar that the aforesaid matter is pending adjudication before a larger bench of the Supreme Court.

34. I may only note that in none of the aforesaid judgments of the Supreme Court, any of the Courts has held that a Civil Court would not have jurisdiction to entertain a suit filed by a debtor against the financial institutions. The Supreme Court in Nahar Industrial Enterprises Limited vs. Hong Kong and Shanghai Banking Corporation (supra) has categorically held that a civil suit would lie by a borrower against the Financial Institution keeping in view the provisions of the DRT Act. The aforesaid view has been reaffirmed by the Supreme Court recently in Robust Hotels Private Limited and Others vs. EIH Limited and Others, (2017) 1 SCC 622 where the Supreme Court held as follows:-

"31. The scope and ambit of Section 34 of the SARFAESI Act, 2002 have been considered by this Court in several cases. It is sufficient to refer to the judgment of this Court in Nahar Industrial Enterprises Ltd. v. Hong Kong & Shanghai Banking Corpn.(2009) 8 SCC 646 : (2009) 3 SCC (Civ) 481] This Court held that the jurisdiction of the civil court is plenary in nature, unless the same is ousted, expressly or by necessary implication, it will have jurisdiction to try all types of suits."

35. The facts of the present case would show that it cannot be said that the disputes which have been raised in the present suit are inextricably linked with the claims arising out of the applications filed by the consortium banks before the DRT. The consortium banks have already received a total sum of CS (COMM.) 9/2018 Page 18 Rs.442.68 crores from the plaintiff. It appears that there are still some disputes with the consortium banks claiming additional amounts pursuant to corporate guarantee signed by the plaintiff on 16.5.2013.

In the present suit the plaintiff has sought a declaration declaring that the corporate guarantee is vitiated by fraud and misrepresentation on account of the various facts which have been explained above. The plaintiffs claim that consortium banks have misled the plaintiffs into entering the transaction. The consortium banks were fully aware that the Bush Foods was in dire financial problems and repeatedly defaulting in payment of its dues to the consortium banks. This fact was never revealed to the plaintiffs in the meeting that was held on 11.03.2013. On the contrary the consortium banks deliberately painted a rosy picture about the financial health of Bush Foods and misled the plaintiffs. It is further pleaded that the stock of Bush Foods was hypothecated to the consortium banks on the basis of which credit facility has been granted to Bush Foods. It is pleaded that the consortium banks were grossly negligent in keeping a track on the physical inventory of the hypothecated stock of goods of Bush Foods when the banks should have been diligent about the same. Stock of Bush Foods on paper when transactions took place was worth about Rs.1,000/- crores. When actual physical inventory was prepared by the specialist, the actual inventory turned out to worth about Rs.20 crores only. Hence, the relief sought of declaration that the corporate guarantee is vitiated by fraud and misrepresentation. The plaintiffs also seek to recover damages/dues from the consortium banks.

Learned senior counsel for the plaintiff has clarified that no counter claim has been filed by the plaintiff before the DRT. It is stated that in the reply filed to the applications filed by the consortium banks a clear averment CS (COMM.) 9/2018 Page 19 has been made that the plaintiff would be seeking its remedy against the banks in appropriate civil proceedings.

Hence, the issue before DRT is whether the plaintiff has paid its dues pursuant to the Guarantee dated 16.5.2013. In the present suit the issue is whether the Guarantee is vitiated by fraud and misrepresentation. If so, what relief is the plaintiff entitled to. Hence, it cannot be said that the issues involved here are inextricably linked with the proceedings pending before the DRT.

36. Keeping in view the above facts and legal position, in my opinion, the present suit would be maintainable.

37. I may now see whether an interim order is to be passed in favour of the plaintiffs. Some of the facts in this case are very striking. The plaintiffs have made an investment on 28.3.2013 of USD 120.34 million and have issued the corporate guarantee on 16.5.2013. On 27.11.2013 on receipt of reports from Dr.Amin Controllers Private Limited and the audit report of Deloitte, Mr.Virkaran Awasty was changed as CEO of Bush Food. From January 2014 onwards, namely, in around 9 months the consortium banks began issuing call notices on the corporate guarantee which have been duly paid. Pursuant to the call notices the plaintiff has paid total of Rs.442 crores to the consortium banks. Hence, in a short span of barely nine months the plaintiffs have lost out the entire investment of Rs.120.34 million US Dollars i.e. about Rs.800 crores plus a sum of Rs.442 crores paid on invocation of the corporate guarantee by the consortium banks for no fault of the plaintiffs.

38. Firstly, one cannot help noticing that the consortium banks had given loans to „Bush Foods‟ of over Rs.700 crores on the charge of an inventory of rice and paddy which was supposed to be worth about Rs.1,000 crores. After CS (COMM.) 9/2018 Page 20 taking over Bush Foods when a physical verification was got carried out by the plaintiff company through international experts Dr.Amin Controller Private Limited it transpired that the total worth of the inventory was not even worth Rs.20 crores. Prima facie it appears that the consortium banks have been grossly negligent in keeping a tab on the physical inventory of paddy and rice hypothecated to them and they have for unknown reasons readily believed the account of Bush Foods to conclude the stock of goods was worth Rs.1,000 crores. Of course, a full picture will emerge only after trial. The banks have given about Rs.700 crores credit limit to Bush Foods. Inevitably the Bush Foods went into insolvency and the provisional OL was appointed by this court on 10.2.2016.

39. Secondly, strong allegations have been made in the plaint about a meeting held with the consortium banks on 11.3.2013 which was also attended by ING Vyasya Bank where the bankers have painted a rosy picture to the plaintiff. It was not pointed out as is evident from the documents that Bush Foods was struggling to meet its loan demand/payment and was regularly defaulting. It has been pleaded that the banks and its officials are guilty of fraud and misrepresentation under sections 17 and 18 of the Indian Contract Act and that the corporate guarantee as void. I may look at the minutes of the meeting that was held on 11.03.2013, relevant portion of which reads as follows:

"MINUTES OF THE CONSORTIUM MEETING HELD ON 11.03.2013 AT Hotel The Oberoi, Dr. Zakir Husain Marg, NEW DELHI.

...

Mr. Sood extended special welcome to representatives of Hassad Foods. He informed that Bank of India has had satisfactory relationship with company for over six years. On CS (COMM.) 9/2018 Page 21 behalf of consortium he welcomed Hassad Foods and informed that the consortium expects the relationship with Bush Foods will grow further.

Hassad Foods' representative informed that Hassad foods is owned and was established by Qatar Investment Authority. Qatar Holdings is a subsidiary of Qatar Investment Authority. He informed that Qatar Investment Authority has invested in reputed companies like Porsche, Qatar Airways, Credit Suisse, Barclays Bank, Volkswagon, Al Jazeera etc. He also informed that Qatar Investment Authority makes sector specific investments through separate subsidiaries which have been incorporated for different sectors. For e.g. investments in the agri sector are being done through Hassad Foods, investments in the mining sector has being done through Qatar Mining. He informed that company wants to extend its presence in rice domain (Food and Agri Business segment) He informed that Hassad Foods has found a right partner and he expects their relationship with Bush Foods will grow further in future. Hassad Foods informed that partnership with Bush Foods falls in line with company's future vision and it views its investee companies as standalone investments and they expect to develop solid partnership with consortium members. It was further informed that post (primary and secondary) funding by Hassad Foods (whereby Hassad will own 70% and Mr. Awasty will continue to hold the balance 30%), there will be no major change in management of Bush Foods (other than 4 new board members and the CFO to be eventually nominated by Hassad Foods) and Mr. Vir Karan Awasty will continue as CEO of the company. Company expects long term commitment from the partners.

Regarding Exim Bank's query on investment, Mr. Khalid clarified that Hassad Foods Netherlands, an SPV of Hassad foods will acquire 70% stake in Bush Foods Overseas Pvt. Ltd.

Mr. Sood informed that as far as Bank of India & consortium member banks are concerned, we have full faith in Mr.Vir CS (COMM.) 9/2018 Page 22 Karan Awasty and with Hassad Foods investing in the company, financial position of Bush Foods Overseas Pvt. Ltd. will become strong. Consortium informed that they have good relationship with Bush Foods and assured that they will continue their support to Hassad Foods and Bush Foods."

(emphasis added)

40. It is clear from the above minutes that the banks have clearly held out to the plaintiffs that satisfactory relationship with Bush Foods exists for over six years. They have also held out that they have full faith in Mr.Virkaran Awasty. The actual facts on that date was totally different. Bush Foods was a defaulter in its repayments and was actually struggling to stay afloat. Prima facie there is merit in the plea of the plaintiff that the bankers painted a rosy picture to the plaintiff about the financial health of Bush Foods and induced the plaintiffs to go ahead with the transactions. No doubt the plaintiffs has not relied upon only the defendant for its due diligence.

41. Thirdly, some of the facts are quite glaring. The transaction has been finally closed on 28.03.2013. The corporate guarantee was furnished in favour of the consortium members on 16.05.2013. Within six months, namely in January, 2014 the consortium banks issued a call notice on the corporate guarantee. The plaintiffs paid a sum of Rs.442 crores to the consortium bankers. Hence, within eight-nine months of taking over Bush Foods, the plaintiffs have lost Rs.442 plus about Rs.800 crores of investment in a dead company i.e. about Rs.1242 crores. Prima facie it appears that the plaintiffs have been cheated.

42. I also cannot help noticing the bona fide conduct of the plaintiffs. The plaintiffs have without any litigation paid a sum of Rs.442 crores to the consortium bankers pursuant to the demand of the banks. However, the CS (COMM.) 9/2018 Page 23 consortium feels that this amount does not discharge the plaintiffs. Proceedings are pending before the DRT for recovery of Rs.282 crores claimed by the consortium banks.

43. The plaintiffs have made out a prima facie case. Balance of convenience is also in favour of the plaintiffs and against the defendants. Hence, an interim order is passed restraining the consortium banks/defendants from using any coercive methods against the plaintiffs for recovery of its alleged dues.

44. In the course of arguments I was informed that the petitions filed by the consortium banks before the DRT are pending at the final stage of arguments. In case DRT were to pass recovery certificate in favour of the banks and against the plaintiffs the banks would be free to approach this court seeking appropriate orders for protection of their interest as per law.

45. As far as the issue of conflict of opinion between the civil court and DRT is concerned, at present there is no such conflict arising. This court need not to go into this aspect at this stage. I may only note that the Supreme Court in the case of Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation (supra) had noted the view expressed by the Division Bench of this court in Cofex Exports Ltd. v. Canara Bank, AIR 1997 Del 355. The view was noted as follows:

"36. It was, thus, held that the Tribunal is inferior to that of the civil court. The Court summed up its conclusions, thus: (Cofex Exports Ltd. case [AIR 1997 Del 355] , AIR p. 368, para 42) "42. To sum up our answers to the questions referred to in para 7 above are--

CS (COMM.) 9/2018 Page 24

1. A suit the subject-matter whereof lies within the jurisdictional competence of the Tribunal cannot be refused to be transferred by a civil court to the Tribunal merely because a cross-suit or a counterclaim has been filed or preferred before the civil court.

2. A cross-suit or cross-claim or a plea in the nature of setoff cannot be transferred to the Tribunal along with the suit with which it is associated and which is liable to be transferred to the Tribunal.

3. A plea of setoff raised in a suit filed by a bank or financial institution cannot be tried by Tribunal nor would it enable the suit being retained by civil court before it if the subject-matter of suit lies within the jurisdictional competence of Tribunal otherwise."

37. One of the questions which would arise, thus, for our consideration is whether having regard to the amendment of Section 19 by reason of Act 1 of 2000 and Act 30 of 2004 empowering the Tribunal to determine a claim of setoff and/or counterclaim, and whether Cofex Exports Ltd. [AIR 1997 Del 355] is still good law."

I may only note that the Supreme Court in the said judgment concluded that the tribunal is not a civil court.

46. Application stands disposed of as above.





                                                      (JAYANT NATH)
                                                          JUDGE
SEPTEMBER 14, 2018/v




CS (COMM.) 9/2018                                                          Page 25

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