Bombay High Court
Tata Motors Finance Ltd vs Mehrab Logistic And Aviations Ltd And ... on 5 March, 2021
Author: G. S. Patel
Bench: G.S. Patel
10-CARBPL4279-20.DOC
Shephali
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION (L) NO. 4279 OF 2020
Tata Motors Finance Ltd ...Petitioner
Versus
Mehrab Logistic & Aviations Ltd & Anr ...Respondents
Mr Chetan Kapadia,i/b Nitesh V Bhutekar & Sanjay S Prabhu, for the Petitioner.
Mr Sanjeev Singh, with Raghawendra Rathore, i/b Omprakash Parihar, for Respondents Nos. 1 and 2.
CORAM: G.S. PATEL, J
DATED: 5th March 2021
PC:-
1. The matter has been pending for a very long time since Shephali September or October 2020. The only submission repeatedly made Mormare by the Respondents that they are willing to settle the disputes but Digitally signed by Shephali Mormare the "Petitioners are not coming forward". This is a wholly Date: 2021.03.08 unacceptable and untenable proposition in the facts of the case. It is 10:59:27 +0530 not for the Petitioner to approach the Respondent for settlement. It is other way around.
2. I passed order on 28th January 2021, which reads thus:
Page 1 of 135th March 2021 10-CARBPL4279-20.DOC "1. Mr Singh, the learned Advocate for the Respondent has joined the hearing on video conferencing. Mr Bhutekar, learned Advocate for the Petitioner, is present physically in Court.
2. I am told that the Respondents need a little more time as they are arranging funds to pay of the Petitioner's claim. The statement is noted and accepted.
3. The request by Mr Singh is for an adjournment of three weeks. Since his proposal of payment will avoid the costs and delay of an arbitration and the enforcement of an award by the Petitioner, and only for that reason, I will grant the Respondents this indulgence and adjourn the matter to 4th March 2021. This is on the basis that by 4th March 2021 the Respondents have settled their disputes with the Petitioners and satisfed the Petitioners claim in some mutually acceptable manner and a mutually agreed amount.
4. I am today not specifying the manner or mode of settlement, nor the amount. I leave it to the parties to negotiate this. I am, however, making it clear that given the admitted facts of the borrowing and the undoubted indebtedness, in default of any such settlement and satisfaction of the Petitioner's claim by 4th March 2021 (and I have given a slightly extended time than Mr Singh requests), I will be compelled to make an appropriate order on the Section 9 Petition, including possibly in terms of prayer clauses (a) to (f ) of the Petition. The Advocates for the Respondents will instruct their clients accordingly.
5. Lastly, I am making it clear that on 4th March 2021 I will consider an extension of time in only one circumstance:
that the Petitioner joins the Respondents in seeking an extension on the basis that the matter is being worked out. Necessarily, this means that by 4th March 2021 the Page 2 of 13 5th March 2021 10-CARBPL4279-20.DOC Petitioner must have received some payment that will persuade them to agree to a further postponement.
6. Previous interim orders to continue.
7. List the matter on 4th March 2021.
8. This order will be digitally signed by the Private Secretary of this Court. All concerned will act on production of a digitally signed copy of this order."
3. Yesterday, I made the following order:
"1. Despite the last order dated 28th January 2021, an amount of Rs. 90 lakhs is all that has been paid by the Respondents to the Petitioner.
2. I am now making it fnally clear to this Respondent and to every other borrower that this Commercial Court will not treat contractual obligations in this light-hearted manner. Contractual obligations will be fulflled completely. Where the Respondent is a borrower, the obligation is to repay the debt on the due date. These obligations will be enforced rigidly. I will give Mr Singh time until tomorrow, 11.00 am to arrive at an appropriate Consent Terms with the Petitioner. I am rejecting Mr Singh's application for a slightly longer date.
3. The reason is that this has been going since at least September 2020, and the frst order that I made is of 13th October 2020. The contract itself is of 28th August 2017. In the time in between, the Respondent's Managing Director seems to have made some ofers for settlement but has not followed through on them.
4. It is for this reason, that I say now "enough is enough". These contractual obligations are not ones that Page 3 of 13 5th March 2021 10-CARBPL4279-20.DOC can be delayed or extended indefnitely. It is also not possible to accept, and I very frmly reject, Mr Singh's submission that the Petitioner, the creditor, should run after the Respondent, the borrower/debtor, and beg the Respondent for a settlement. The Petitioner is not obliged to do anything of the kind. It is enough for the Petitioner to approach the Court. Once the Petitioner has done that, it is for the debtor to seek out his creditor, and negotiate a mutually acceptable resolution to these disputes.
5. So that there is not the slightest ambiguity about what I mean, I am making it clear that if I do not have settlement by tomorrow morning, I will indeed make a fnal order on this Petition in terms of prayer clauses (a) to (f ). As regards prayer clause (c), which is for a security deposit, the amount will be reduced to the extent of payment already made, but it will also be increased to account for the dues computed and brought up to date from the date of the fling of the Petition until tomorrow.
6. List the matter for orders, frst on board tomorrow, 5th March 2021.
7. This order will be digitally signed by the Personal Assistant of this Court. All concerned will act on production of a digitally signed copy of this order."
4. There is today no settlement. I am, therefore, proceeding with the matter.
5. The Petitioner, Tata Motors Finance Limited ("Tata Motors") is a non-banking fnancial company. The subject matter of this Petition is a Master Loan-Hypothecation-Guarantee Agreement dated 28th August 2017. In July or August 2017, the Page 4 of 13 5th March 2021 10-CARBPL4279-20.DOC Respondents sought a loan from the petitioner to purchase a feet of commercial vehicles for their business. The Respondents submitted the necessary documents. They assured timely repayment and said that they had a good credit record. This led to a Master Agreement between the Petitioner and the Respondents on 28th August 2017. The 2nd Respondent signed the Agreement as a co-borrower. The Master Agreement is linked with 129 annexures executed periodically. These annexures form part of the Master Agreement.
6. The aggregate loan amount under the Master Agreement was 7.25 crores. This was for the purchase of 65 commercial vehicles (chassis only) and for building bodies on these.
7. The loan was secured by hypothecation of all 65 commercial vehicles, including the chassis and the built body. A list of these vehicles is at Exhibit "B to the Petition.
8. It seems that initially the Respondents did make payment of installments on time. Thereafter, they were delinquent. The Petitioners have maintained an account in their books of account in the ordinary and usual course of business. The loan accounts remained overdue until January 2019. As we shall presently see this date is of signifcance.
9. The Petitioner recalled the entire loan accounts on 9th January 2019. Despite this, the Respondents failed to regularize their loan accounts. Copies of the two recall notices dated 9th January 2019 are at Exhibit "C1" and "C2" to the Petition.
Page 5 of 135th March 2021 10-CARBPL4279-20.DOC
10. The reason I say the date of 9th January 2019 is important is that Mr Singh for the Respondents has repeatedly and strenuously urged that on account of the pandemic and lock down, it has not been possible to regularize these accounts. He submits that I should make some allowance of this. What the submission completely overlooks, or perhaps deliberately occludes, is that the recall notices are of 9th January 2019. The agreement, as I noted, is of 28th August 2017. This necessarily means that the defaults occurred in 2018. The lockdown was not declared till March 2020. This leaves defaults in much of 2018, the whole of 2019 and almost the frst quarter of 2021 unexplained on the part of the Respondents. The submission by the Respondents, therefore, has absolutely no value. Indeed, paragraph 4 of the Petition references the Reserve Bank of India's moratorium of March 2020 and notes that the Respondents applied under the moratorium policy. The Petitioner considered this sympathetically and granted a moratorium of six months. The Respondents assured the Petitioner that they would clear the entire overdue amount of unpaid installments -- "in due course". As on date, that is to say 5th March 2021, very nearly 12 months later, that "due course" time has not arrived. For, apart from a payment of Rs.90 lakhs made very recently, nothing at all has been paid.
11. The Petition says that the amount due as on the date of the Petition was Rs.2,34,24,550. Further, this does not include the amount of future instalments which ran at the date of the Petition to Rs.7,61,18,965/-.
12. Mr Singh's submission is that under the Master Loan Agreement, read with the extended period of moratorium, the Page 6 of 13 5th March 2021 10-CARBPL4279-20.DOC Respondents have time till July 2021 to clear their dues. The less said of this argument is better. There is no provision in contract that allows the Respondents to default in payment of installments and to then argue that the Respondents have time till July 2021 to make a one-time payment. The argument would have had some substance had the Respondents been able to show that they had regularly paid the installments until date, and had also regularized and brought into regularity their delinquent loan accounts. The Respondents do not even make an attempt in this direction. Therefore, merely stating a future date is of no consequence. What this amounts to is saying that the Respondents have a right not to pay until July 2021, and have no obligation whatsoever to make payment according to the terms of the contract. This is simply unstatable.
13. Mr Singh's next submission is that although the Section 9 Court may not be constrained by the provisions of Order XXXVIII Rule 5 of the Code of Civil Procedure 1908 ("CPC"), it must nonetheless guided by those principles. This much is correct. His next submission, however, is not, when he says unless a case is made under Order XXXVIII Rule 5 of the CPC, a Section 9 Court cannot make an order of deposit or of securing the Petitioners' claim.
14. The recent decision of the Division Bench of this Court (RD Dhanuka and VG Bhisht JJ) in Essar House Private Limited v Arcellor Mittal Nippon Steel India Ltd1 makes it clear that there is no requirement that for such relief an iron-clad case under Order 38 Rule 5 of the Code of Civil Procedure, 1908 ("CPC") must be made 1 2021 SCC OnLine Bom 149.
Page 7 of 135th March 2021 10-CARBPL4279-20.DOC out (or, if not argued, that the Court must hunt for it). The Division Bench reafrmed the principle that has long been settled, and restated repeatedly, but which seem to be reagitated in the wrong way again and again. The Division Bench said in the clearest terms that the principles of the CPC, including especially Order 38 Rule 5, are guides to a Section 9 Court and the order it makes under that Section. They are not fetters upon the Section 9 Court's discretion. On my reading of the Division Bench order, the position in law is that in such a case an order of deposit not only can be made, but ought to be made. In Valentine Maritime Ltd v Kreuz Subsea Pte Ltd & Anr ,2 the Division Bench of this Court reiterated this position regarding Order 38 Rule 5 and also held that in appropriate case, where the defence is prima facie untenable, the Petitioner has a chance of success, and the defence is moonshine, an order of deposit to secure the claim can and indeed should be made under Section 9. This was also the view of another Division Bench of this Court in Jagdish Ahuja & Anr v Cupino Ltd.3 All three decisions referenced and explained the previous Division Bench decision in Nimbus Communications Ltd v Board of Control for Cricket in India,4 and the Supreme Court decision in Adhunik Steels Ltd v Orissa Manganese & Minerals (P) Ltd.5 I followed the Division Bench decisions (referencing this law) in Parle Agro Pvt Ltd v Shree Aqua Purifier Pvt Ltd6 and IIFL Finance Ltd v Shrenik Dhirajmal Siroya.7 2 2021 SCC OnLine Bom 75, (paragraphs 88, 95 to 97 and 101). 3 2020 SCC OnLine Bom 849 (paragraphs 6 and 7). 4 (2013) 1 Mah LJ 39.
5 (2007) 7 SCC 125.
6 Arbitration Petition (L) No 1821 of 2021, order dated 12th February 2021.
Page 8 of 135th March 2021 10-CARBPL4279-20.DOC
15. These decisions of the Division Bench of this Court are binding. The submission on law by Mr Singe, therefore, has absolutely no substance.
16. The amount due today is Rs.9,85,33,553/-. This is the composite amount recalled after giving credit for the Rs. 90 lakhs that was paid in the course of last week.
17. As I have noted above, there is absolutely no defence to this Petition. The invocation of the lockdown is pointless. The Respondents sought a moratorium and were granted it. They yet did not comply with the demand. The Respondents are borrowers and in a commercial transaction governed by the Commercial Courts Act, it is no defence at all to say that the Respondents are "trying" to make payment. Contracts of this kind demand complete and exact compliance. There is no contractual provision shown to me that the debt can be repaid as and when the Respondents think ft. The defence is untenable and without substance. The Petitioner has an excellent chance of success in arbitration. I see no reason why I should not make an order as sought in the Petition.
18. The previous order of disclosure is not yet fully complied. I will require a complete disclosure of all assets both movables and immovable including all bank statements and fnancial investments to be made. The only reason the Petitioners have not invoked arbitration is because of these repeated assurances by the Respondents of settlement. Mr Kapadia states that the arbitration 7 Commercial Arbitration Petition (L) No 8385 of 2020, order dated 18th February 2021.
Page 9 of 135th March 2021 10-CARBPL4279-20.DOC will be invoked within 45 days' from today and, if necessary, an application under Section 11 will be fled thereafter. Mr Singh states in fairness that he has instructions to accept service of any Section 11 that may be fled. The disclosure statement is to be fled by 31st March 2021 before this Court.
19. Prayer clause (c) of the Petition reads thus:
"(c) Be pleased to direct the Respondents to jointly and/or severally deposit a sum of Rs.2,34,24,550/- (Rupees Two crore Thirty Four Lakh Twenty Four Thousand Five Fifty Five Only) (as set out in Exhibit D hereto), with the Petitioner or in this Hon'ble Court or in alternate furnish security of immovable property sufcient to cover the unpaid loan amounts including future receivables in favour of the Petitioner."
20. It is true that the prayer mentions the amount of Rs.2,34,24,550/- but the prayer also speaks of a coverage of the unpaid loan amounts including future receivables. This amount, as I have noted, amounts to a total of Rs.9,85,33,553/-. The Respondents are required to make a deposit with the Prothonotary & Senior Master of this amount of Rs. 9,85,33,553/- by 31st March 2021. Upon that deposit being made, the Prothonotary & Senior Master will invest the entire amount in accordance with the usual practices of his ofce pending further orders of this Court or the Arbitral Tribunal that may be constituted. The Petitioners will be at liberty to apply to the Arbitral Tribunal for a withdrawal of the amount and the Arbitral Tribunal will consider such application on its merits. At their option, the Respondents may furnish an Page 10 of 13 5th March 2021 10-CARBPL4279-20.DOC unconditional bank guarantee of a nationalized bank of the whole or part of amount of Rs.9,85,33,553/-. Again, any such bank guarantee is to be kept alive during the pendency of the Arbitral proceedings and until the expiry of the statutory period for fling a challenge to any award that may be passed. Once again, it will be open to the Petitioners to apply to the Arbitral Tribunal for an encashment of the bank guarantee and a payment of the amount under that bank guarantee to the Petitioners (apart from withdrawal of the part cash deposit). Such an application, if made, will also be considered on its own merits.
21. There will necessarily have to be an injunction in terms of prayer clause (d), restraining the Respondents from creating any third party rights, alienations or encumbrances not only in respect of the 65 secured commercial vehicles, but also (and except in the ordinary and usual course of their business) any of their immovable or movable assets. This injunction will continue pending a order of confrmation, extension, variation, modifcation or vacating by the Arbitral Tribunal.
22. At this stage I am not appointing the Court Receiver but I am giving the Petitioners liberty to apply for appointment of a Court Receiver of the other assets of the Respondents.
23. However the Court Receiver, High Court, Bombay, will stand appointed Receiver of all 65 of the commercial vehicles listed in Exhibit "B" to the Petition. For the present, and pending the orders of the Arbitral Tribunal the Court Receiver will take symbolic Page 11 of 13 5th March 2021 10-CARBPL4279-20.DOC possession of these vehicles and will appoint the Respondents as agents of the Court Receiver. The royalty to be fxed for the use of the vehicles will be the loan instalment pro-rated across all 65 vehicles. In my view, that is the only fair and equitable order to make in these circumstances because otherwise the defence of the Respondents efectively means that they have undoubtedly borrowed money from the Petitioners, used it to buy commercial vehicles to improve their business, are still using those vehicles, have paid only part of the debt, are not returning the balance, and are yet using the vehicles free of cost. Therefore, if the Respondents wish to act as agents of the Receiver, it can only be on these terms. They must indicate their preference specifcally at the time when the Receiver takes possession. This means that it is open to the Respondents say that they do not wish to retain all 65 vehicles but only some of them for use on these terms of agency. Those vehicles that the Respondents do not wish to retain on agency will be taken into physical custody of the Court Receiver and will be kept in a location to be specifed by the Petitioners initially at the Petitioners' cost. The costs of this storage may be recovered by the Petitioners as costs in arbitration.
24. If the Respondents resist possession of the vehicle, the Court Receiver will take possession forcibly and in that case the Court Receiver will not make an ofer to the Respondents to take up agency in respect of such of the vehicles of which possession is resisted.
25. The Petition is disposed in these terms with liberty to the Petitioners to apply.
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26. It is clear that despite this order it is still open to the Respondents to negotiate a settlement of the entire dispute with the Petitioners. However, the fact that there is any such settlement negotiation or discussion will not stop this order from operating.
27. These are prima facie views. All contentions in arbitration are kept open. The Arbitral Tribunal is not bound to follow the reasoning in this order. It may do so, if it chooses, in its own discretion. The amplitude of the Arbitral Tribunal's discretion is unfettered by this order.
28. This order will be digitally signed by the Private Secretary of this Court. All concerned will act on production of a digitally signed copy of this order.
(G. S. PATEL, J) Page 13 of 13 5th March 2021