Bombay High Court
L And T Finance Limited vs Manoj Pathak And Anr on 2 December, 2019
Author: G. S. Patel
Bench: G.S. Patel
6-CARBP1315-19.DOC
Arun
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION NO. 1315 OF 2019
L&T Finance Limited ...Petitioner
Versus
Manoj Pathak And Anr ...Respondents
Mr Akash Rebello, with Ms Hubab Sayyed, Mr Nadeem Sharma and
Mr Salman Athania, i/b Triumph Legal, for the Petitioner.
Mr Prakash Shinde, with Ms Niyati Merchant, i/b Mr Devanshu P
Desai, for Respondents Nos. 1 and 2.
CORAM: G.S. PATEL, J.
DATED: 2nd December 2019 PC:-
1. The petition is under Section 9 of the Arbitration and Conciliation Act 1996. The respondents are served and are now represented by Mr Shinde.
2. The respondents themselves were served as the afdavit of service shows on 1st October 2019. The afdavit of service dated 8th November 2019 is taken on record. The reason I note this is because I have the usual request by Mr Shinde for an adjournment to take instructions. What the respondents have been doing since 1st Page 1 of 9 2nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC October 2019 is wholly unexplained. Some limited protection is necessary. My reasons follow.
3. The two respondents are guarantors. The 1st respondent has given a personal guarantee. The 2nd respondent is both a director and the personal guarantor. The company, Usher Agro Limited ("Usher Agro") approached Axis Bank Ltd, the original lender, sometime in February 2010 with a request for a Rs. 35 crores loan to set up a rice milling capacity expansion at its plant on the Delhi Agra Highway in District Mathura, Uttar Pradesh.
4. The project cost was over Rs. 80 crores. Axis Bank disbursed Rs. 35 crores to Usher Agro. Axis Bank entered in to a security trustee agreement dated 13th July 2012 with IDBI Trusteeship Services Limited to create a security on the assets of the company as mentioned in Schedule I of the term loan agreement. The petitioner itself, L&T Finance Limited sanctioned a term loan on 10th October 2013 in the amount of Rs.22,59,49,410/- to the company for this rice milling capacity expansion.
5. There followed a deed of assignment of 15th October 2013 by which Axis bank assigned the remaining portion of its disbursed loan in the amount of Rs. 22,59,49,410/- to the petitioner. There was then an addendum of that date between Axis Bank, L&T Finance and Usher Agro by which the terms and conditions of the original term loan agreement were made applicable to the loan so assigned. The loan itself was repayable in 13 quarterly instalments at floating interest rate of 13.25n per annum. Default interest in Page 2 of 9 2nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC addition at 2n per annum was also provisioned. The addendum also made mention of the security including the primary and collateral securities and the personal guarantees executed on 15th October 2013 by the two respondents. These guarantees are unconditional and irrevocable and they assure the petitioner of the payment by the respondents of all amounts due or to be due by Usher Agro to the petitioner. They also cover all interests, costs, charges and expenses. Copies of these two deeds of guarantee are annexed.
6. In August 2014 there was a working capital consortium agreement between various fnancial institutions, the company and IDBI Trusteeship Services Limited as security trustee. The company took additional term loans and working capital facilities inter alia from L&T Finance. The company executed a deed of accession to the security trustee agreement. The security originally created by the company was extended in favour of the security trustee inter alia for the beneft of the petitioner. Security was also created in favour of the petitioner, L&T Finance in regard to the term loan agreement dated 15th October 2013. That security covers a charge on the movable and entire immovable assets of the company along with the two personal guarantees of the two respondents.
7. Paragraph 12 of the petition narrates that there was a later agreement of 23rd August 2014. Again, the personal guarantees were noted in this later agreement. In that month there was a security trustee agreement by which the 2nd respondent, a director of the borrower company give a declaration and undertaking to IDBI Page 3 of 9 2nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC Trusteeship Services Limited to appoint a single security trustee and also reafrming the previous transactions and indebtedness. The petition recites that the manner in which security was created over several assets of the principal borrower. There were also deeds of hypothecation.
8. Paragraph 16, importantly for my purposes today, states that ICICI Bank Limited, one of the institutional lenders, initiated insolvency proceedings against the company before the NCLT, Mumbai. An interim resolution professional was appointed after the petition was admitted. The petitioners also tendered its claim. It is clear however that these proceedings do not prevent the petitioner from proceeding against the guarantors: see State Bank of India v V Ramakrishnan & Anr.1
9. Indeed, this is the only opposition today to even an ad-interim relief. The submission is that nothing should be done towards enforcement of these personal guarantees because if the company, in the course of those insolvency proceedings under the Insolvency and Bankruptcy Code, enters into any form of any arrangement or compromise, then the debt of the guarantors will be completely extinguished. This submission is incorrectly positioned. There is no dispute that the guarantees are irrevocable and unconditional. There can be no dispute that each constitutes a separate and independent contract. The law in that regard is well-settled. As mentioned above, the invocation of insolvency proceedings do not absolve or even limit the liability of guarantors under such documents. There is no 1 (2018) 17 SCC 394.
Page 4 of 92nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC dispute that the guarantees contained an arbitration clause. This is clause 43. The relevant portion is reproduced below:
"Clause 43 Arbitration:
In case of a dispute with regard to any claim or right of L&T against the Borrower/Guarantor, the same shall be referred to arbitration under the Arbitration and Conciliation Act, 1996 ("Arbitration Act") and it is agreed by all the Parties that:
(a) claims, disputes or rights, of L&T against the Borrower/Guarantor may be adjudicated by L&T through arbitration as provided hereinafter. All/any disputes or differences between the Borrower/Guarantor as provided hereunder may be referred to arbitration under the provisions of the Arbitration and Conciliation Act, 1996.
(b) Such disputes or differences shall be adjudicated by a sole arbitrator to be appointed by L&T, in accordance with the provisions of the Arbitration and Conciliation Act, 1996, and rules framed there under and any amendments thereto from time to time.
(c) It is agreed between the Borrower and L&T that nothing contained in Section 17 of Arbitration and Conciliation Act, 1996, shall in any way, affect the right of, or preclude L&T to/from seek/seeking such interim reliefs under Section 9 of the Arbitration and Conciliation Act, 1996, and the rules framed thereunder.
(d) The award of the arbitrator shall be a speaking award and shall be fnal, conclusive and binding on all the parties to the arbitration whether on question of law or fact.Page 5 of 9
2nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC
(e) In the event of death, refusal, negligence, inability, incapability of the person so appointed to act as the sole arbitrator, a new shall be appointed by L&T. (f ) The venue of arbitration shall be New Delhi or such other place as may be determined by L&T in its sole discretion and courts in New Delhi or such other place shall have exclusive jurisdiction.
(g) ....
(h) The Guarantors agree, confrm and covenant that
the Guarantors shall not object to claims arising out of the out standings of L&T covered by this section between L&T and the Guarantors, alone being adjudicated by the sole arbitrator in terms of this section, on any grounds including the ground that the claim/s of the other lenders (as defned in the Security Trustee Agreement) against the Guarantors is/are to be adjudicated in any other appropriate forum/court/authority/tribunal."
10. Mr Rebello for the petitioners make a limited submission at this ad-interim stage. The total debt today is about roughly Rs. 12.5 crores and submission is only that the two respondents should be ordered to make a disclosure of their personal assets and that there should be an ad-interim restraint against them from dealings with those assets pending the fnal disposal of the Section 9 petition.
11. I believe this is a reasonable submission. There is no doubt that a sufcient prima facie case is made out. The balance of convenience is clearly with the petitioners to whom irretrievable prejudice will be caused if reliefs are not granted for they will be left without remedy against these undisputed guarantees. There will, Page 6 of 9 2nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC therefore, be an order of disclosure against the two respondents in the following terms:
(a) Immovable properties: The disclosure will be of all immovable properties wherever situated, whether in India or overseas with complete details sufcient to identify the properties. If any of these are in any way encumbered, full particulars of such encumbrance/s and the amounts yet due as secured by those properties will also be disclosed.
(b) Movable Assets
(i) Non-financial: They will also disclose all
non-fnancial movable assets of the
acquisition or replacement value of more than Rs. 50,000/- including all particulars as described above.
(ii) Financial assets: They will also disclose all investments and demat accounts with full particulars, including all holdings and encumbrances.
(iii) Bank accounts: All bank accounts with account numbers, bank names, branches, account types and holding patterns are to be disclosed. Bank statements for the last one year are required for all accounts.Page 7 of 9
2nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC
(iv) Bank Lockers: contents of all safety deposit vaults and bank lockers will be disclosed.
(c) Tax and Financial Returns: Copies of all tax and fnancial returns for the last three years are to be disclosed.
(d) Disclosures to be on Afdavit:
(i) All disclosures must be on properly sworn
afdavits.
(ii) Each deponent will make a separate afdavit.
(iii) Every afdavit is to be afrmed before a court
ofcer.
(iv) Afdavits to be serially paginated.
(v) Each afdavits to have its own detailed index
identifying each disclosure.
12. In the meantime, the respondents are restrained from directly or indirectly alienating, encumbering, parting with possession or creating any third party rights hereafter in respect of any of their immovable and movable properties. This order will continue until 9th January 2020.
13. Afdavit in reply including the statement of disclosure noted above to be fled and served on or before 20th December 2019. No rejoinder without leave of the Court. List the matter for hearing and fnal disposal on 8th January 2020.
Page 8 of 92nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 ::: 6-CARBP1315-19.DOC
14. All contentions are left open.
15. Mr Rebello makes a statement on instructions that the petitioner will invoke arbitration within 90 days from today. The statement is noted and accepted.
(G. S. PATEL, J) Page 9 of 9 2nd December 2019 ::: Uploaded on - 03/12/2019 ::: Downloaded on - 03/12/2019 23:45:51 :::