Gujarat High Court
Kkr India Financial Services Limited vs Axis Bank Limited on 5 March, 2020
Equivalent citations: AIRONLINE 2020 GUJ 193
Author: J. B. Pardiwala
Bench: J.B.Pardiwala
C/SCA/18466/2019 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 18466 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 20405 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/
and
HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI Sd/
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1 Whether Reporters of Local Papers may be allowed to YES
see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy of NO
the judgment ?
4 Whether this case involves a substantial question of NO
law as to the interpretation of the Constitution of India
or any order made thereunder ?
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KKR INDIA FINANCIAL SERVICES LIMITED
Versus
AXIS BANK LIMITED
================================================================
Appearance:
IN SPECIAL CIVIL APPLICATION NO.18466 OF 2019:
MR MIHIR JOSHI, SENIOR ADVOCATE WITH MS TANAYA G SHAH WITH MR VIVIDH
TANDON ADVOCATES (8430) for the Petitioner(s) No. 1,2,3
MR ADITYA C YAGNIK(8228) for the Respondent(s) No. 4
MR MIHIR THAKORE SENIOR ADVOCATE WITH MR JAYANI B SHAH(8495) for the
Respondent(s) No. 4
MR DEVEN PARIKH SENIOR ADVOCATE WITH MR ANIP A GANDHI(2268) for the
Respondent(s) No. 1
MR SAURABH SOPARKAR SENIOR ADVOCATE WITH MR SHASHVATA U
SHUKLA(8069) for the Respondent(s) No. 2,3
IN SPECIAL CIVIL APPLICATION NO.20405 OF 2019:
MR KAMAL TRIVEDI ADVOCATE GENERAL WITH MR SAHIL M SHAH for the
Petitioner(s) No.1
MR RAJU K KOTHARI (2789) ADVOCATE for the Respondent(s) No.1
MR SAURABH SOPARKAR SENIOR ADVOCATE WITH MR SHASHVATA U
SHUKLA(8069) ADVOCATE for the Respondent(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI
Date : 05/03/2020
CAV COMMON JUDGMENT
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
1 Since the issues raised in both the captioned petitions are the
same and the challenge is also to the selfsame order passed by the
Commercial Small Causes Court, Ahmedabad, those were heard
analogously and are being disposed of by this common judgment and
order.
2 For the sake of convenience, the Special Civil Application
No.18466 of 2019 is treated as the lead matter.
3 By this application under Article 227 of the Constitution of India,
the applicants (affected third parties) have prayed for the following
reliefs:
"28. a) this Hon'ble Court may be pleased to issue an appropriate order or
direction setting aside the Impugned Order dated 13 September 2019
passed by the Small Cause Court, Ahmedabad in Exhibit 9 (interim
application) in Suit No.379 of 2019;
b) this Hon'ble Court may be pleased to issue an appropriate order or
direction pending the admission, hearing and final disposal of the present
Application, this Hon'ble Court be pleased to stay the operation and
implementation of the Impugned Order dated 13 September 2019 passed
by the Small Cause Court, Ahmedabad in Exhibit 9 (interim application)
in Suit No.379 of 2019 and consequential proceedings, arising therefrom,
if any, in the interest of justice;
c) that this Hon'ble Court be pleased to grant adinterim exparte relief in
terms of para 28(b) above;
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c1) that this Hon'ble Court be pleased to issue an appropriate order or
direction setting aside the Modified Order dated 19 October 2019 passed
by the I/c. Chief Judge, Comm. Small Cause Court, Ahmedabad below
Exhibit 9 in Comm. Suit No.397/2019;
c2) that pending the admission, hearing and final disposal of the present
Petition, the Hon'ble Court be pleased to stay the Modified Order dated 19
October 2019 passed by the I/c. Chief Judge, Comm. Small Cause Court,
Ahmedabad below Exhibit 9 in Comm. Suit No.397/2019;
c3) that this Hon'ble Court be pleased to grant adinterim relief in terms
of para 28 c2) above;
d) this Hon'ble Court may be pleased to grant such other and further
reliefs, in favour of the Applicants, as deemed fit in the interest of justice
and equity."
4 The facts giving rise to this application may be summarised as
under:
4.1 The respondent No.1 herein namely the Axis Bank Limited
instituted the Commercial Civil Suit No.397 of 2019 in the Small Causes
Court at Ahmedabad against the respondents Nos.2, 3 and 4 respectively
herein. In the said civil suit, the plaintiff i.e. the Axis Bank has prayed for
the following reliefs:
"a) Declaration that the Axis Bank Undertaking dated 26 February 2019
(Axis Bank Undertaking) is valid, subsisting and binding on Respondent
Nos.2 to 4;
b) Declaration that the entire sale proceeds of the Proposed Sale shall be
first used towards repayment of the Axis Bank facility;
c) Declaration that Respondent No.1 has a first charge over the sale
proceeds to the extent of its outstanding exposure under the Axis Bank
Facility;
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d) An order of mandatory injunction directing and requiring Respondent
Nos.2 to 4, their respective offices, servants and agents, to deposit/route
the entire sale proceeds with Respondent No.1, as per the obligation agreed
and recorded in the Axis Bank Undertaking dated 26 February 2019, to
enable Respondent No.1 to recover its outstanding exposure under the Axis
Bank Facility."
4.2 The plaintiff also preferred an application Exhibit 9 (Interim
Application) and prayed for the following reliefs :
"(a) Pending the hearing and disposal of the present Suit, the
Defendants, their respective servants, agents or any other persons
claiming through by or under them, be restrained by an order and
injunction of this Hon'ble Court from in any manner dealing with,
disposing off or creating any third party rights or encumbrances or
parting with possession of or from alienating the shares of Sintex NP
SAS, or any part thereof;
(b) In the alternative to prayer clause (a) and only if this Hon'ble
Court is of the view that prayer clause (a) aforesaid injunction ought
not to be granted pending the hearing and disposal of the present
Suit, the Defendants, be directed by an order of this Hon'ble Court to
deposit the proceeds received from the sale of the said Sintex NP SAS
with this Hon'ble Court.
(c) for adinterim reliefs in terms of prayer clauses (a) to (b) above;
(d) for costs of this Notice of Motion; and
(e) for such other and further orders and reliefs as this Hon'ble Court
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may deem fit and proper in the nature and circumstances of the case
may require."
4.3 The Incharge Chief Judge, Small Causes Court, Ahmedabad,
passed an order dated 13th September 2019, granting exparte injunction
in favour of the plaintiff as prayed for in the application Exhibit 9. The
order reads thus :
"1. The suit is filed by the plaintiff - Bank against the defendants and
along with the suit also filed injunction application. The advocate of the
plaintiff has argued before the court that the defendant no.1 approached
the plaintiff requesting a sanction of credit facility in nature of
Sales/Purchase invoices discounting of Rs.125 crores for two times. Then
after around November 2018, after the expiry of the facility the defendant
no.1 once again approached the plaintiff with a request to renew the
facility i) defendant No.1 further requested that facility to be cancelled
to the limit of Rs.125 crores granted in respect to the facility, ii) to utilize
the said sale proceeds for the repayment of the renewed facility. However
on the count of unsatisfactory conduct of the defendant No.1 with respect
of payment of facility, the plaintiff insisted on the defendant No.1 giving
additional security for any renewal of facility. Further advocate has
submitted that at the same time, the plaintiff was informed that the Sintex
NP SAS (Sintex Branch). The said Sintex Branch wholly owner
subsidiaries of the defendant No.3 which in turn is wholly owned by
subsidiary of defendant No.1 to satisfy the fear and apprehension as to the
repayment of the facility it was agreed that the defendant would route the
proceeds from the said of the said Sintex Branch through the plaintiff and
the plaintiff would be entitled to utilize the said sale proceeds for
repayment of the facility or any renewal facility sanction by the plaintiff.
The purpose of this was created to charge the said sale proceeds, to security
the repayment of the amount that may be sanction under the renewal
facility and the outstanding exposure in respect of the such facility as on
date of receipt of funds. Once the funds would be received, the plaintiff can
accordingly have the outstanding amount as on that date and it was also
agreed that the entire amount under the facility will be repaid by
31.12.2019.
2. Advocate of the bank relied upon certain documents and mostly
Annexures - I, J, K, L and M which are produced along with the suit.
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3. Considering the arguments of the plaintiff's advocate, I have gone
through all the documents produced by the plaintiff bank. It reveals that
between the plaintiff and the defendant certain terms and conditions were
carried out and defendants have given undertaking but as per the say of
the plaintiff, defendants are not going to comply with those conditions
which are entered under the agreement. Even though bank has addressed a
letter to the defendants, the same letter is produced with AnnexureM, but
the defendants never replied to the same. Therefore, the plaintiff has come
before this court and asked for urgent relief. Looking to the nature of the
dispute and the looking to the facts of the case, if urgent relief will not be
granted then it is the money of the bank and amount is very big like
Rs.250 crores and ultimately it is money of the people. So in the interest of
large people, the plaintiff has asked adinterim injunction and if this is the
position then the plaintiff bank should be protected. Therefore, I pass the
following order :
ORDER
1. Pending the hearing and disposal of the present suit, the defendants, their respective servants, agents or any other persons claiming through, by or under them, be restrained by an order and adinterim injunction of this Hon'ble Court from in any manner dealing with, disposing off creating any third party rights or encumbrances or parting with the possession of or from alienating the shares of Sintex NP SAS, or any part thereof.
2. Issue notice to the defendants, returnable on 20.09.2019.
3. The plaintiff should intimate passing of this order through direct services through email or courier.
4. The plaintiff to comply with the provisions of Order 39 Rule 3 of the Civil Procedure Code.
Now to come up on 20.09.2019 for further proceedings.
Pronounced in the open court today : 13th September, 2019."
5 The order dated 13th September 2019 referred to above, later, came to be modified vide order dated 19 th October 2019 with the Page 6 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT consent of the parties to the suit and in such circumstances, the Notice of Motion came to be finally disposed of accordingly.
6 The modified order passed by the Small Causes Court, Ahmedabad dated 19th October 2019 reads thus:
"The order passed at exhibit9 is hereby modified with the consent of the learned advocates for the parties as under :
The stay is lifted on the condition that all the defendants shall ensure proceeds of the sale of the shares of the French company i.e. Sintex NP SAS shall directly be transferred to the equivalence of Rs.250 crores to the A/c. No.1530010633007 referred in Annexure M produced at mark7/13 in present proceedings. The said amount shall be so transferred latest by 90 working days from today 24th October, 2019. All the three defendants will file an undertaking to this effect, supported by resolutions of their board. Mr.Amit Patel, M.D. Of defendants who is present in Court states that the undertaking will be filed on or before 25.10.2019. The plaintiff bank undertakes that they shall not appropriate the aforesaid amount of Rs.250 crores except upon obtaining leave from the Court in any judicial proceeding after hearing the defendants herein. In light of the aforesaid undertaking the Notice of Motion stands disposed off. The adinterim relief passed earlier is modified in terms of this order, pending final disposal of this suit."
7 It is in the aforesaid set of circumstances that the applicants herein had to rush to this Court with the present application. At this stage, it would be appropriate to quote the relevant paras of the order passed by this Court dated 21st October 2019:
"6. It is the case of the applicants herein that they came to learn about the institution of the Commercial Civil Suit by the Axis Bank Limited and the passing of the exparte interim injunction only on 16th October 2019. In such circumstances, on 17th October 2019, Mr.Joshi, the learned senior counsel appearing for the applicants, made a request before us at 11 O'clock in the morning for circulation of this petition on urgent basis. This Court granted permission to circulate this petition on 18 th October 2019. However, on 18th October 2019, this bench could not assemble, and in such circumstances, the matter came to be adjourned to 21 st October 2019, Page 7 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT i.e. today. Today, when the matter was taken up for hearing, Mr.Joshi, the learned senior counsel requested this Court to allow the draft amendment in the wake of certain developments which took place on 19 th October 2019. Mr.Joshi brought to our notice that the order passed by the Small Causes Court dated 13th September 2019 referred to above came to be modified with the consent of the parties to the suit and the Notice of Motion came to be finally disposed of accordingly.
9. Mr.Joshi, the learned senior counsel appearing for the applicants herein, submitted that his clients are not parties in the suit proceedings. However, they are directly affected by the interim order which has been passed by the court below while disposing of the Notice of Motion with the consent of the parties in the suit. Mr.Joshi would submit that his clients are the secured creditors and have lended a huge amount of Rs.2700 crore and odd to the respondents nos.2,3 and 4 herein. Mr.Joshi further submitted that after due deliberations with the respondents nos.2, 3 and 4, it was decided that the respondent no.2 would sell 100% of its share holdings in the Sintex NP SAS as a part of the respondent no.2's initiative to reduce its overall debt. According to Mr.Joshi, his clients were informed by the respondent no.2 that they had received and accepted a binding offer dated 4th July 2019 in relation to which the respondent no.2 was in the process of finalizing a share purchase agreement (SPA) (proposed sale).
10. What transpired thereafter has been stated in paragraphs 11.11, 11.12, 11.13, 11.14 and 11.5 of the petition, which read thus :
"11.11 Further, proceeds of the aforementioned Proposed Sale would be utilized towards the following preagreed waterfall, (a) repayment of debts upto the extent of USD 106,000,000 (United States Dollars One Hundred Six Million Only) due to the creditors of Respondent No.4; (b) meeting transactional expenses upto the extent to € 3,400,000 (Euros Three Million Four Hundred Thousand Only) directly in relation to the Proposed Sale; and (c) the remaining proceeds and any unutilized portions of (a) and (b) atleast amounting to € 55,000,000 (Euros Fifty Five Million Only) (Balance Sale Proceeds) towards repayment of the debts due to the Financing Lenders of Respondent No.2, including the Applicants.
11.12 Accordingly, as per the Facility Documents, Respondent No.2, by way of the letter, sought for a prior consent/ noobjection from the Financing Lenders to enter into the aforementioned SPA. Pertinently, in terms of the Facility Documents, the Applicants would be entitled to the Balance Sale Proceeds.Page 8 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
11.13 Subsequently, by way of letter dated 23 August 2019, the Financing Lenders through the Security Trustee, provided their consent/ noobjection to the Proposed Sale, and categorically appraised the Respondent No.2 of the existing arrangement between the parties subject to certain conditions more particularly mentioned therein (Consent Letter). The Consent Letter also provided for distribution of the aggregate proceeds of the Proposed Sale, including the Balance Sale Proceeds which were to be utilised towards discharging repayment obligations of Respondent Nos.2 to the Financing Lenders (as set out in paragraph 11.11 above). The purposive intent behind this Consent Letter was also maximization of the value of assets of Respondent No.2.
11.14 In or around July 2019, the Applicants also learnt that Respondent No.1 had allegedly advanced an Invoice Discounting Facility to Respondent No.2, with an aggregate limit of INR 2,50,00,00,000 (Indian Rupees Two Hundred Fifty Crores Only) in 2017, and it was subsequently renewed in 2019 (Axis Bank Facility). Pertinently, the Applicants were not aware about the aforesaid Axis Bank Facility. Moreover, the Axis Bank Facility is not disclosed in any of the financial statements or books of accounts of Respondent No.2.
11.15 Subsequently, on 8 October 2019, an investment banker of the Respondent No.2 informed the Applicant No.1 about the Suit filed by Respondent No.1 before the Small Causes Court along with Exhibit 9 (Interim Application), in which the Impugned Order was passed, restraining the Proposed Sale. Thereafter, during the lenders meeting on 9 October 2019, the Applicant No.1 and the other lenders including the Applicant No.2 and 3 discussed the same. It is submitted that an incomplete and unexecuted copy of the Suit was made available to the Applicant No.1 and only one annexure i.e. the Axis Bank Undertaking (as defined below) was furnished."
11. Mr.Joshi vehemently submitted that the modified order dated 19th October 2019 passed by the Small Causes Court, Ahmedabad, is also not tenable in law and deserves to be quashed and setaside. According to Mr.Joshi, the Axis Bank cannot come in the way of the transaction of sale of shares which is to take place abroad. According to Mr.Joshi, the Axis Bank may be having its own claim against the respondents nos.2, 3 and 4 herein but, at the same time, the applicants have the first charge over the dues which are recoverable from the respondents nos.2, 3 and 4. Mr.Joshi submitted that the deal should be permitted to go through so that the respondents nos.2, 3 and 4 may be able to fetch around Rs.1000 crore.
Page 9 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENTThe foreign company may take its share of about Rs.500 crore and odd and the balance amount of about Rs.400 crore should be ordered to be maintained in a separate account and a committee of experts that may be constituted by all the lenders thereafter may consider the case of each of the creditors and take an appropriate decision for the disbursement of the appropriate amount. According to Mr.Joshi, although the Small Causes Court has permitted the deal to go through, yet there was no good reason for the court below to pass an order directing that an amount of Rs.250 crore should be credited to the account of the Axis Bank at this stage. According to Mr.Joshi, the Axis Bank also can join with the other creditors and lenders. The Axis Bank cannot steal a march over the applicants who have a better claim than the Axis Bank in the matter of recovering its dues. Mr.Joshi would submit that even if the Axis Bank is asked to keep the amount of Rs.250 crore as it is till an appropriate solution is not found to the problem, there is no good reason why the Bank should be permitted to even earn interest on such a huge amount. In short, according to Mr.Joshi, the amount that may be left after the Dutch company takes away its share, should be maintained in a separate account and later a team of experts that may be appointed by the creditors shall take an appropriate decision as regards its disbursement.
12. In such circumstances referred to above, Mr.Joshi prays that the impugned order dated 19th October 2019 may be modified appropriately to the extent that the deal shall go ahead but, at the same time, the amount of Rs.250 crore should not be permitted to be credited in the account of the Axis Bank as directed by the court below.
13. On the other hand, this petition has been vehemently opposed by Mr.Deven Parikh, the learned senior counsel appearing for the respondent no.1 Axis Bank Limited. Mr.Parikh has raised a preliminary objection as regards the maintainability of this application under Article 227 of the Constitution of India at the instance of third parties. According to Mr.Parikh, the applicants have no locus standi to question the legality and validity of the impugned order passed by the Small Causes Court, Ahmedabad. Mr.Parikh would submit that if the impugned order is hurting the applicants in any manner, then they should take steps to get themselves impleaded as party defendants in the suit filed by the Axis Bank and take appropriate legal steps thereafter in accordance with law.
14. Mr.Parikh would submit that an order of exparte injunction is appealable under Order 43, Rule 1 of the CPC and the applicants herein should have first prayed for the Leave to Appeal and thereafter could have preferred an Appeal from Order challenging the impugned order.
Page 10 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT15. Mr.Parikh would submit that the applicants cannot question the legality and validity of the impugned order passed by the Small Causes Court, Ahmedabad, by invoking the supervisory jurisdiction of this Court under Article 227 of the Constitution of India when they are not the parties in the suit proceedings.
16. Mr.Parikh further submitted that without prejudice to his rights and contentions as regards the maintainability of this petition, even otherwise on merits, the applicants have no case. According to Mr.Parikh, the Axis Bank has the first charge over the assets of the respondents nos.2, 3 and 4. Mr.Parikh would submit that his client undertakes before this Court that the amount that may be credited in their account shall be kept as it is till appropriate orders are passed either in the suit proceedings or in this petition. However, according to Mr.Parikh, no interference is warranted at this stage with the impugned order. In short, the submission of Mr.Parikh is that no case is made out by the applicants for stay of the operation, implementation and execution of the impugned order passed by the Small Causes Court, Ahmedabad, dated 19th October 2019.
17. Mr.Mihir Thakore, the learned senior counsel appearing for the respondent no.2, submitted that even after the deal goes through, it may take about three months before the amount is actually transferred and credited to the account of the Axis Bank as directed by the court below. In such circumstances, at this stage, this Court may not pass any order staying the operation, implementation and execution of the impugned order.
18. Mr.Saurabh Soparkar, the learned senior counsel appearing for the respondent no.4, submitted that it is not in dispute that the Axis Bank has to recover Rs.250 crore from Sintex Limited. However, according to Mr.Soparkar, the deal is yet to take place and even if the deal goes through and the shares are sold, the committee of experts that may be constituted can always look into the claims of individual creditors including the applicants herein.
19. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that the matter will have to be heard at length. We shall be first calling upon Mr.Joshi to convince us as regards the maintainability of this petition at the instance of his clients. If we are convinced on the maintainability which, prima facie, at this stage we are not, then we shall hear the matter in details.
20. The amount of Rs.250 crore is not going to be credited in the account of the Axis Bank in the near future. Its going to take time at least of about Page 11 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT 80 to 90 days. In such circumstances, at this point of time, we are not inclined to stay the operation, implementation and execution of the impugned order.
21. Let notice be issued to the respondents, returnable on 20 th November 2019. Mr.Anip A.Gandhi waives service of notice for and on behalf of the respondent no.1. Mr.Shashwat Shukla waives service of notice for and on behalf of the respondents nos.2 and 3. Mr.Jayani Shah waives service of notice for and on behalf of the respondent no.4."
8 We shall now give a fair idea as regards the dispute between the parties inter se.
● Claim of the applicants:
[1] Amount:
In December 2017, the applicants (KKR & L and T Finance being the senior secured lenders) had extended various financing facility by way of a term loan and nonconvertible debentures in favour of the respondent No. 2.
[2] Term Loan:
The applicant No. 1 advanced a term loan facility of INR 245 crores by way of a Facility Agreement dated 14th December 2017 to the respondent No. 2. In accordance with the Mandatory Prepayment clause in the Facility Agreement Clause 4.5 (c), the respondent No. 2 was obliged to obtain consent from the applicants and mandatorily repay the whole or part of the amount outstanding to the applicants out of the proceeds (after payment of applicable taxes and costs) of sale of any subsidiary (direct or indirect) of the respondent No. 2. In terms thereof, all such Page 12 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT proceeds shall be mandatorily deposited directly to the Specified Account identified by the applicants.
[3] NonConvertible Debentures:
The applicants along with certain other lenders entered into the Debenture Trust Deed dated 14th December 2017 for issuance of unlisted nonconvertible debentures for INR 555 crores issued by the respondent No. 2. (Tranche II). Out of an aggregate amount of INR 555 crores, the applicants have provided finance to the respondent No. 2 against issuance of the unlisted nonconvertible debentures for an amount equivalent to INR 455 crores. The respondent No. 2 has done necessary filings with the Registrar of Companies in respect of allotment. Similarly, per the the Mandatory Prepayment clause in the Debenture Trust Deed Clause 4.5 (c), the respondent No. 2 was obliged to obtain consent from the applicants and mandatorily prepay the whole or part of the amount outstanding to the applicants out of the proceeds (after payment of applicable taxes and costs) of sale of any subsidiary (direct or indirect) of the respondent No. 2. In terms thereof, all such proceeds shall be mandatorily deposited directly to the Specified Account Identified by the Petitioners.
[4] Deed of Hypothecation:
The above facilities under the Facility Agreement and Debenture Trust Deed were, inter alia, secured by a Deed of Hypothecation dated 14th December 2017, creating a first ranking charge over the immovable and movable assets including but not limited to the realisation of the sale proceeds of any sale of an offshore subsidiary of the respondent No. 2, and the first ranking charge by Page 13 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT way of hypothecation over the bank account of the respondent No.2.
Security:
[5] In accordance with the Clause 5 of the Facility Agreement and Clause 6 of the Debenture Trust Deed, this facility is secured in favour of the applicants by way of first ranking charge by way of mortgage and hypothecation over the immovable and movable fixed assets of the respondent No. 2 and first ranking exclusive charge by way of hypothecation over the Specified Account in favour of the Second Debenture Trustee, on a pari passu basis with the consortium of lenders led by the KKR.
[6] It is the case of the applicants that the financing documents are to be understood as the commercial instruments. The abovementioned financing documents clearly mandate that a) no shares of any subsidiary of the respondent No. 2 shall be sold without the permission of the applicants; b) the proceeds of such sale shall be utilized only for prepayment in terms of the above financing documents; c) there is an existing obligation to route the amount through the Specified Account. The applicants are secured lenders having security on the sale proceeds to be brought only into the Specified Account.
Registration of charge and priority:
[7] The charge created in favour of the applicants by way of the abovementioned Deed of Hypothecation is registered with the Registrar of Companies in terms of Section 77 of the Companies Act, 2013.Page 14 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
[8] In terms of the financing documents executed by the respondent No. 2 with the applicants, once the shares of any direct and indirect subsidiary of the respondent No. 2 are sold, the sale proceeds in relation thereto have to be deposited in the Specified Account on which the applicants have first ranking charge.
[9] The facility as well as the charge registration is prior to the issuance of the undertaking dated 26th February 2019 executed by the respondent No. 2 in favour of the Axis Bank Ltd.
[10] The respondents by relying on the minutes of the Lender's Meeting dated 6th August 2019 produced at Annexure 13 to Special Civil Application No. 20405 of 2019 (State bank of India vs. Axis Bank Ltd. & Ors.) seek to contend that the applicants' have agreed in principle to the sale proceeds being deposited in an escrow which would be an account with the SBI and have given up their security and charge over the Specified Account. It is the case of the applicants that such a stance is absolutely baseless. First, the said minutes of the meetings are neither a part of the subject proceedings nor a part of the proceedings before the Comm. Court in the Suit instituted by the Axis Bank Ltd. Secondly, the minutes of meetings are merely discussions. Such discussions held at a meeting would necessarily entail further documentation as per law and cannot by itself modify a written agreement, security interest and registered charge of the applicants.
[11] It is the case of the applicants that the stance of the respondents that the applicants do not have any security which Page 15 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT would secure the sale proceeds in their favour and that they have a charge, if at all any, only over the Specified Account is absolutely incorrect. In terms of the mandatory prepayment clause in the DTD as well as the Facility Agreement read with the Deed of Hypothecation, the applicants have first right over the sale proceeds, which mandatorily have to be transferred only to the Specified Account. As per the Security clause in the DTD as well as the Facility Agreement, the applicants have the first ranking exclusive charge over the Specified Account in which the sale proceeds have to be repatriated. The security over the Specified Account in favour of the applicants is triggered on the sale. The recovery under the mandatory prepayment clause has no linkage/obligation with respect to the Repayment Schedule in the Facility Agreement.
● THE CASE OF AXIS BANK (RESPONDENT NO.1):
9 The respondent No. I had advanced an Invoice Discounting Facility to the respondent No. 2 with an aggregate limit of INR 250 crores in 2017, and it was subsequently renewed in 2019 (Axis Bank Facility). No additional money has been disbursed/ advanced by Axis Bank in 2019.
10 The Axis Bank seeks to rely on the following undertaking given by M/s. Sintex - BAPL Limited. The entire suit instituted by the plaintiff i.e. the Axis Bank is based on the following undertaking:
"THIS undertaking mode at Ahmedabad on this 26th of February 2019 by M/s. SintexAPL limited , a company incorporated under companies Act 1956 and having its registered office at Abhijeet I, 7 th Floor, Mithakhali 6 Roads, Ellisbridge, Ahmedabad 380006 (hereinafter called "the Borrower"
of the first port which term unless the context otherwise requires includes Page 16 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT Its successors and assigns from time to time in favour of AXIS Bank Ltd. a Banking Company incorporated and registered under the Companies Act. 1956 and having its Registered Office of "Trishul', 3 rd Floor, Opposite Samartheshwar Temple, Low Garden, Ellis Bridge, Ahmedabad 380 006 and a branch office inter alia at Corporate Banking Branch, 3 rd Eye One Complex, C.G. Road, Panchvati, Ahmedabad380009 (hereinafter called "the Bank") which term unless the context otherwise requires includes its successors and assigns from time to time. The expression "the Borrower"
includes its successors and assigns;
WHEREAS at the Borrower/s request. The Bank agrees/hos agreed to grant/granted or to continue to the Borrower by way of credit facilities aggregating of Rs.250,00,00,000/(Rupees Two Hundred Fifty Crores Only) vide its sanction letter no. AXIS/SME/SCF/AMD/201819/465 doted 05.02.2019 (hereinafter called "the said Credit Facility").
Now in consideration of the above the Borrower hereby Confirms/undertakes:
That the process of Stoke Sole in Sintex NP Group France and Sintex BAPL Limited shall be first used towards the Soles Bill Discounting limit of Sintex BAPL Limited with Axis Bank.
That the sales proceeds will be routed through Axis Bank limited and will be utilized for reduction of the outstanding exposure with Axis Bank.
This Deed of Undertaking shall be binding on the Borrower, its successors, assigns, administrators, liquidators and all those claiming title under it and shall remain in force as an unconditioned and irrevocable Understanding and no period of limitation will commence in respect of this Deed Undertaking till the repayment of the entire facility by the Borrower.
IN WITNESS WHEREOF the common seal of the Company has been hereunto affixed the day and year first hereinabove mentioned at Kalol (N.G) Gujarat."
11 At this stage, it would also be relevant to give a fair idea as regards the case which was put up by the defendant No.1 namely Sintex
- BAPL Limited for the purpose of opposing the notice of motion. The affidavitinreply filed by the defendant No.1 gives more than a fair idea Page 17 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT as regards the case of the defendant:
"4 The present Suit and Notice of Motion is related to the Answering Defendant who had availed a sales invoice discounting facility with an aggregate limit of INR 125,00,00,000 ("Sales Invoice Facility") and a purchase invoice discounting facility with an aggregate limit of INR 125,00,00,000 ("Purchase Invoice Facility") (collectively, the "Original Facilities") pursuant to the sanction letter dated September 11, 2017 ("Original Sanction Letter").
5 The Sales Invoice Facility was thereafter renewed and enhanced to an aggregate limit of INR 250,00,00,000 ("Renewed Facility") pursuant to the sanction letter dated February 5, 2019 (hereinafter referred to as the "Sanction Letter"). With the sanction of the Renewed Facility, the Purchase Invoice Facility stood cancelled.
6 I say that the Answering Defendant also executed an undertaking dated February 26, 2019 (hereinafter referred to as the "Undertaking") inter alia to the effect that the process of stake sale in Sintex NP SASU (hereinafter referred to as the "French Subsidiary") and the Answering Defendant will be first used towards repayment of the facility and will be routed through the Plaintiff and utilized for reduction of the outstanding exposure of the Plaintiff.
7 As is in the public domain pursuant to relevant disclosures made by Defendant No. 2 to the stock exchanges, the Defendant No. 3 has entered into & Share Purchase Agreement dated 9 August 2019 ("SPA") with one Xtech Invest ("Buyer") for the sale of Defendant No. 3's shareholding in the French Subsidiary ("Share Sale"). As per the terms of the SPA, the outer date for closing the Share Sale transaction with the Buyer is 24 October 2019 9 a.m. Paris local time.
8 I also say that on account of the ongoing financial stress of Defendant No. 1, the consortium of lenders (including State Bank of India, Bank of Baroda, KKR India Financial Services Private Limited, amongst others) of the Company are considering the proposal of resolution of the debt of Defendant No. 1 under the Reserve Bank of India's Prudential Framework for Resolution of Stressed Assets dated 7 June 2019 ("7 June Circular").
9 I say that the proposed Share Sale in the French Subsidiary and the net sale proceeds to be realised by Defendant No. 1 after discharging the Page 18 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT dues of lenders of the French Subsidiary and Defendant No. 3 and meeting the transaction expenses offshore are going to form a critical part of proposed resolution of debts of the Defendant No. 1 under the 7 June Circular. It is pertinent to note that the consortium of lenders of Defendant No.1 are duly aware of the Share Sale, and the same is being undertaken with their due consent and under their supervision.
10 I say that in the interest of resolution of debts of the Company which is being undertaken in terms of the 7 June Circular by the lenders of Defendant No. 1, receipt of net proceeds out of divestment of the French Subsidiary is critical and in the collective interest of all the lenders including the Plaintiff. As stated above, the Share Sale is required to be concluded as per the timelines in the SPA, i.e. latest by 9 a.m. Paris local time on 24 October 2019, and any failure to close the transaction within the said timelines on account of the continuation of the Ex Parte Order would cause the transaction to fail and be prejudicial to the interest of all the lenders of Defendant No. 1 including the Plaintiff.
11 I say that in fact, the Share Sale is in advanced stage of closing and is required to be closed latest by 9 a.m. Paris local time on 24 October 2019 in accordance with the terms of the SPA. The Buyer has informed Defendant No. 1 and Defendant No. 3 that it is ready and willing to close the Share Sale on 22 October 2019, and further that in view of the Ex Parte Order, the Buyer reserves its right to terminate the SPA in the event the Share Sale does not conclude as per the timelines set out in the SPA. The Answering Defendant craves leave to refer to and rely upon the notice received from the Buyer as and when produced.
12 At the outset, and without admitting that the Undertaking dated February 26, 2019 is enforceable, I say that the Commercial Suit No. 397 of 2019 (hereinafter referred to as the "Present Suit") is itself not maintainable and is barred by law for the following reasons:
a) It is a settled principle of law that an interlocutory injunction can only be granted in aid of the final relief. I say and respectfully submit that the injunction granted by this Hon'ble Court vide the Exparte Order exceeds the final relief sought in the Suit and even the undertakings of Defendant N o. 1 under the Undertaking dated February 26, 2019 to the effect that the prohibition of on the sale of & stake in Defendant No. 1's indirect subsidiary, i.e. Sintex NP SASU is not sought by the Plaintiff in the Suit or even contemplated under the said Undertaking. Even assuming in arguendo that the said undertaking is enforceable, it only requires that any dues payable to the Plaintiff by Defendant No. 1 must be paid out of the sale proceeds from the stake sale in Sintex NP SASU. Therefore, on this ground alone, I say and respectfully submit that the Exparte Order Page 19 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT deserves to be vacated.
b) The repayment of the Original Facilities was secured by a corporate guarantee, letter of comfort and postdated cheques, each issued by Defendant No. 2; and the repayment of the Renewed Facility is secured by Corporate Guarantee issued by Defendant No. 2 and the authority to the Plaintiff to debit the current account of Defendant No. 1 for recovery in case there is an event of default in repayment as per the terms of the Sanction Letter. Further, under the terms of the Sanction Letter the Answering Defendant was not required to create any encumbrances or security interest, by way of a charge or otherwise, to secure the Renewed Facility. Therefore, I say that the Plaintiff is, admittedly an unsecured creditor, and the Plaintiff has no charge whatsoever on any assets of the Answering Defendant or any other Defendant in the present Suit.
c) The due date for repayment of any amounts, either principal or interest of the Renewed Facility is 31 December 2019.
d) The Present Suit has therefore, been filed as an action for recovery of monies even prior to the due date for repayment of the Renewed Facility and/ or there being a default.
e) I say that the Plaintiff has made, inter alia, the following prayers in Paragraph No. 38 of the Plaint, more particularly 38 b) and 38 d) thereof, which are extracted hereunder:
"b) That this Hon'ble Court be pleased to declare that the entire sale proceeds of stake sale in Sintex NP SAS and Defendant No.1 shall be first used towards sales bill discounting limit of Defendant No.1 with the plaintiff;
d) that this Hon'ble Court be pleased to pass an order of mandatory order and injunction directing and requiring the Defendants, their respective offices, servants and agents, to deposit/route the entire said Sale Proceeds with the plaintiff, as per their obligation agreed and recorded in the Undertaking dated 26" February, 2019, to enable the plaintiff to recover its outstanding exposure under the Renewed Facility 1;"
f) I say that on a bare perusal of the averments made in the Plaint and the prayers made therein, it is apparent that the Present Suit is nothing but & suit for recovery of money outstanding under the Page 20 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT said facility. I submit that such a suit is barred under the provisions of Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the "RDB Act"). I say that, therefore, this is & f1t case for rejection of Plaintiff under the provisions of Order 7 Rule 11 (d) of the Code of Civil Procedure, 1908 (hereinafter referred to as the "Code").
g) I, therefore, submit that this Hon'ble Court has no jurisdiction to entertain the present suit or to grant any interim relief. In the circumstances, the interim relief granted vide order dated September 13, 2019 deserves to be vacated forthwith.
13 Without prejudice to the above, I say that at the time of renewing the Sales Invoice Facility by sanction of the Renewed Facility, the Plaintiff included a requirement, amongst others, in the Sanction Letter, to furnish the Undertaking, to the effect that the proceeds of sale of the French Subsidiary as received by the Answering Defendant after discharging the dues of lenders of Sintex NP SASU and Defendant No. 3 will be routed through the Plaintiff and will be utilized to repay/ reduce the outstanding amounts due to the Plaintiff.
14 Despite the Sanction Letter being issued, the Answering Defendant has been under a mandate to first prepay the secured financial assistance given by other lenders out of any proceeds of sale of any direct or indirect subsidiary inter alia under the terms of a Facility Agreement dated December 14, 2017 (hereinafter referred to as the "Facility Agreement") entered into between the Answering Defendant and its lenders. Further, under the terms of the Facility Agreement, any proceeds of sale of any subsidiary are required to be mandatorily deposited in a specified account over which inter alia the lender/s under the Facility Agreement, have a first ranking exclusive charge. On February 16, 2019, the Answering Defendant forwarded the Facility Agreement to the Plaintiff so that it could appropriately examine the terms thereof.
15 I further say that under the terms of the Sanction Letter, the Answering Defendant was required to furnish a Declaration to the Plaintiff regarding the credit facilities already enjoyed by it from other banks in terms of Circular dated December 8, 2008 issued by the Reserve Bank of India. The Plaintiff has also stated in paragraph 11 of the Present Suit that it had extended the Original Facility after conducting due diligence. It is therefore, submitted that the Plaintiff had due and prior knowledge of the Answering Defendant's obligations to its existing lenders, and has Page 21 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT entered into the Undertaking with Defendant No. 1 being fully aware of the same.
16 As per the aforesaid requirements under the Sanction Letter, I say that the Answering Defendant, also furnished the details with respect to statement of creditors/debtors and monthly position of accounts with all the banks, along with details of the sanctioned limit and amounts outstanding vide its email dated February 15, 2019, that is prior to the execution of the said Undertaking.
17 I state that the Plaintiff was thus fully aware that the undertaking contemplated under the terms of the Sanction Letter would be subject to and subordinate to the prior obligations of Defendant No. 1 to its other lenders, and despite requests of the Answering Defendant not to insist for it, the Plaintiff demanded that an undertaking in terms of the Sanction Letter be furnished by the Answering Defendant.
18 I state that in this scenario and in these circumstances where both the Plaintiff and the Answering Defendant were aware of the covenants of the Facility Agreement and the effect thereof, the Answering Defendant furnish the Undertaking and the same was accepted by the Plaintiff. In the aforesaid facts and circumstances and in law, the said Undertaking is clearly unenforceable.
19 I say that in view of the above, the immediate vacation of the Ex Parte Order in order to permit the conclusion of the Share Sale is critical and paramount importance to all stakeholders and lenders of Defendant No. 1, including the Plaintiff. I say that in the event the Ex Parte Order is not vacated immediately, the Share Sale is likely to fail, and this would cause tremendous and disproportionate loss to the stakeholders and lenders of Defendant No. 1, including the Plaintiff and would ultimately jeopardize the very debt restructuring of Defendant No. 1 that is being contemplated by the consortium of lenders (including the Plaintiff) of Defendant No. 1 under the 7 June Circular.
20 I say that the balance of convenience is exceedingly in favour of the Answering Defendant for an immediate vacation of the Ex Parte Order, and grave prejudice, irreparable injury and injustice would be cause in the event if the Ex Parte Order is not lifted.
21 Without prejudice to the above and in the alternative, I say that the Page 22 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT copy of the Plaint as well as Notice of Motion along with the Affidavit as served upon the Answering Defendant are unexecuted versions of the same. I say that the Verification made after the Suit is not accordance with the provisions of Commercial Courts Act, 2015 read with Code of Civil Procedure Code 1908, as amended by Commercial Courts Act, 2015. The Suit is not signed and filed by an authorized signatory of the Plaintiff, since there is no document produced by the Plaintiff evidencing that the person who might have signed the Plaint, Notice of Motion, Affidavit and other documents, pleadings, etc. is authorized signatory of the Plaintiff. Further, the Plaintiff has failed to produce any resolution passed by the Board of Directors of the Plaintiff resolving to institute the captioned Suit. Thus, the captioned Suit has been initiated without any authority.
22 I now deal with the Affidavit paragraph wise:
a) With respect to the contents of unnumbered paragraph of the Affidavit, I state that the service of the plaint upon the Answering Defendants is improper. I say that the same contains several blanks and the identity of the Deponent is not known to the Answering Defendants. I do not admit that the Deponent is authorized signatory of the Plaintiff since the copy served upon Answering Defendant neither provides the name nor the designation of the Deponent. I say that the Plaintiff has not produced any document evidencing that the Deponent is the authorized signatory of the Plaintiff.
b) With respect to the contents of paragraph 1 of the Affidavit, I do not admit that the Deponent is conversant With the facts of the present case.
c) With respect to the contents of paragraph 2 of the Affidavit, I say that the contents are reliefs sought by the Plaintiff in the Suit, and the Answering Defendant denies that the same ought to be granted and states that the same would be dealt with in further detail in Answering Defendant's written statement. With respect to the injunction sought by the Plaintiff in the present Notice of Motion, the Answering Defendant states and submits that the same is not maintainable for the reasons set out in the present Reply.
d) With reference to the contents of paragraph 3 of the Affidavit, I put the Plaintiff to the strict proof thereof.Page 23 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
e) With respect to the contents of paragraph 4 of the Affidavit, I say that the Answering Defendant shall file a separate Written Statement to deal with the averments and contentions set out in the Plaint and the Answering Defendant shall not be deemed to have admitted any of the facts set out in the Plaint, merely because the Answering Defendant has not dealt with all the averments of the Plaint herein, in seriatim. I submit that the captioned suit is in any event not maintainable for the reasons set out barred by law and is otherwise not maintainable in law and on facts.
f) With respect to the contents of paragraph 5 of the Affidavit, I deny that the Renewed Facility was sanctioned on the conditions mentioned in the paragraph under reply, as alleged or at all. I submit that the said Undertaking is not a condition of the contract but a mere comfort given by the Answering Defendant.
g) With respect to the contents of paragraph 6 of the Affidavit, I say that the same are a matter of record and I crave leave to refer to and rely upon the letter dated July 19, 2019 for its true meaning and purport.
h) With respect to the contents of paragraph 7 of the Affidavit, I say that the same are & matter of record and I deny anything stated contrary to or inconsistent therewith.
i) With respect to the contents of paragraph 8 of the Affidavit, I say that the Defendant No. 2 has made all relevant disclosures under applicable law from time to time to the stock exchanges. I deny that the Plaintiff/Applicant has the first charge over the sale proceeds to be received from stake sale in the French Subsidiary, as alleged or for the reasons alleged or at all and put the Plaintiff to the strictest proof in this regard.
j) With respect to the contents of paragraph 9 of the Affidavit, I deny that the Plaintiff is entitled to the sale proceeds, as alleged or at all. Without admitting the enforceability of the Undertaking, I submit that the Plaintiff has failed to make out any 'case of breach of the said Undertaking by the Answering Defendant. I deny that the Plaintiff/Applicant has made out a prima facie case much less a strong prima facie case. From the averments made in the paragraph under reply, especially related to utilizing the sale proceeds for repayment to itself, is & clear admission that the Present Suit is nothing but a suit for recovery though styled as a suit for declaration. As also submitted hereinabove, the reliefs sought in the Page 24 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT present Notice of Motion exceed the final reliefs sought in the Suit and also exceed the very Undertaking on which the Suit is based. I submit that the present Suit is not maintainable and Ex Parte Order deserves to be vacated forthwith.
k) With respect to the contents of paragraph 10 of the Affidavit, I say that the due date for repayment of the Renewed Facility is 31 December 2019.
l) With respect to the contents of paragraph 11 of the Affidavit, I submit that the averments made therein conclusively demonstrate that the Plaintiff is fully aware of the credit facilities and the Answering Defendant's obligations in relation to its existing lenders enjoyed by the Answering Defendant and that the captioned suit is clearly aimed at recovery of_outstanding dues by the Plaintiff.
m) With respect to the contents of paragraph 12 of the Affidavit, I submit that the Plaintiff has no privity or cause of action against the Defendant No.3 whatsoever.
n) With respect to the contents of paragraph 13 of the Affidavit, I submit that the sale proceeds of stake sale of the French Subsidiary will have to be received by the Defendant No.3, who is the holding company of the French Subsidiary.
o) With respect to the contents of paragraph 14 of the Affidavit, I deny that if the reliefs prayed for in the Notice of Motion are not granted, irreparable loss or injury shall be caused to the Plaintiff/Applicant. On the contrary in view of the reliefs prayed for by the Plaintiff/Applicant and the adinterim ex parte relief granted by this Hon'ble Court, the Plaintiff/Applicant has obstructed & transaction worth [Rs. 1200 crores] approximately in order to secure a right which has not yet crystallized, pursuant to the SPA.
p) In view of the aforesaid it is evident that the balance of convenience lies in favour of the Defendants and it is the Defendants and its lenders who will suffer irreparable loss if the adinterim exparte relief granted vide order dated September 13, 2019 is not vacated.
q) With respect to the contents of paragraph 15 of the Affidavit, I deny that it is just or necessary that pending the bearing and Page 25 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT disposal of the Suit, the Defendants or their respective servants or agents or any other persons claiming through or by or under them be restrained by an order of injunction of this Hon'ble Court from in any manner dealing With, disposing off or creating any third party rights or encumbrances or parting with possession of or from alienating the shares of the French Subsidiary, or any part thereof.
r) With respect to the contents of paragraph 16 of the Affidavit, I deny that it is just or necessary that pending the hearing and disposal of the suit, the Defendants, be directed by an order of this Hon'ble Court to deposit the proceeds received from the sale of the French Subsidiary, with this Hon'ble Court.
s) With respect to the contents of paragraph 17 of the Affidavit, I deny that if the interim reliefs as prayed for are not granted grave or irreparable harm or loss or injury or prejudice will be caused to the Plaintiff/Applicant. I deny that if the reliefs as prayed for are granted then no harm or loss or injury will be caused to the Defendants. I deny that the balance of convenience is in favour of the Plaintiff/Applicant and against the Defendants.
t) With respect to the contents of paragraph 18 of the Affidavit, I deny that it is in the interest of justice that pending bearing and final disposal of the Suit the prayers as prayed for in the Notice of Motion be granted.
u) With respect to the contents of paragraph 19 of the Affidavit, I deny that the Notice of Motion be made absolute much less with costs.
23 In the premises, the Hon'ble Court may be pleased to reject the Notice of Motion taken out by the Plaintiff and vacate the adinterim exparte relief granted vide order dated September 13, 2019.
24 Without prejudice to Defendant No. 1's rights and contentions, I say and submit that subject to the modification of the Ex Parte Order and subject to there being no restriction/ restraint on the conclusion of the Share Sale as per the originally agreed timelines under the SPA, this Hon'ble Court may direct that the net proceeds of the Share Sale after discharging the dues of the lenders of the French Subsidiary and the Defendant No.3 and meeting the transaction expenses, as received by Defendant No.1 in India be kept in an escrow account for the benefit of all the lenders of the Defendant No.1."
Page 26 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT12 The stance of the respondents Nos.2 to 4, as emerging from the contents of paras 16, 17 and 19 of the reply referred to above is quiet eloquent and makes the picture abundantly clear. Prima facie, it is indicative of the fact that the Axis Bank had absolute knowledge of the agreement entered into between the respondents Nos.2 to 4 and the other creditors i.e. the applicants herein. Prima facie, it also appears that the respondents Nos.2 to 4 herein had made themselves their liabilities towards the applicants very clear about before executing the undertaking in favour of the Axis Bank. Despite the same, it appears prima facie that the Axis Bank thought fit to enter into an agreement with the respondents Nos.2 to 4. However, the respondents Nos.2 to 4 were very desperate to ensure that the sale of the shares of its foreign company sails through at any cost. There was a deadline in this regard and if the ex parte injunction would have continued then the entire deal would have collapsed. In such circumstances, prima facie, it appears that the respondents Nos.2 to 4 arrived at a consensus with the Axis Bank and got the ex parte order of injunction modified accordingly. Prima facie, it also appears that the respondents Nos.2 to 4, with a view to protect their own interest, very conveniently overlooked or rather turned a blind eye to their liabilities towards the applicants herein.
13 Thus, the picture that emerges from the aforesaid is that the applicant No.1 herein had advanced a term loan facility of Rs.245,00,00,000/ (Rupees Two Hundred and Forty Five Crore only) to the respondent No.2 vide the facility agreement dated 14 th December 2017.
14 It is the case of the applicants that under the law it is necessary to Page 27 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT undertake a process of consultation and consent of all the financial creditors whilst considering any plan or proposal to restructure the debt of any distressed company. For instance, under the Insolvency and Bankruptcy Code, 2016, a resolution plan is to be approved by vote of not less than sixtysix per cent (66%) of the voting share of the financial creditors, after considering its feasibility and viability. Further under the regime designed by the Reserve Bank of India (RBI) for the distressed asset, where a resolution is to be implemented, all the lenders shall enter into an intercreditor agreement (ICA) and the ICA shall provide that any decision agreed by the lenders representing seventy five per cent (75%) by value of the total outstanding credit facilities (fund based as well nonfund based) and sixty per cent (60%) of lenders by number shall be binding upon all the lenders as well as the RBI regime, no decision on the distribution of funds can be taken without the consent of the other interested lenders and financial creditors. Any decision on any proposal/resolution is to be taken collectively by majority voting of all the lenders as prescribed under each of the above regimes. No lender is entitled to take a unilateral decision. The claim of the Plaintiff Respondent No. 1 and the undertaking/ consent of the respondents Nos. 24 validating such a claim are contrary to various the legal principles and commercial practices. That by entering into a bilateral arrangement between the Plaintiff Respondent No. 1 and the respondents Nos. 23 before the Small Causes Court, the plaintiff Respondent No. 1 has acted contrary to an already existing understanding that all the lenders would jointly enter into an ICA in terms of the Revised Framework Guidelines dated 7th June 2019 issued by the RBI and accordingly, approve and implement a resolution plan. The Plaintiff Respondent No. 1 had attended the joint lenders meeting convened on 9 th October 2019 held in Mumbai (Lenders Meeting). In the said meeting, the PlaintiffRespondent No. 1 did not show any disinclination to enter into Page 28 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT the ICA or raised any objection to this effect. Additionally, it was mutually agreed during the Lenders Meeting that all the lenders would submit their respective financing documents with an independent law firm for review and validation of their respective claims on the balance Sale Proceeds from the Proposed Sale based on the lenders' right therein. However, the Plaintiff Respondent No. 1 has neither submitted its financing documents with an independent law firm nor apprised the Small Causes Court or this Court about the reasons for nonsubmission of financing documents. Therefore, according to the applicants, it is amply clear from the PlaintiffRespondent No.1's conduct that this is nothing but a clandestine approach to deprive the other lenders including the applicants of their legitimate claims who hold a valid and subsisting charge as on date.
● SUBMISSIONS ON BEHALF OF THE APPLICANTS:
15 We have heard Mr. Kamal Trivedi, the learned senior counsel appearing for the applicants in the Special Civil Application No.20405 of 2019 and Mr. Mihir Joshi, the learned senior counsel appearing for the applicants in the Special Civil Application No.18466 of 2019.
16 The submissions of both the learned senior counsel may be summarised as under:
[A] The Commercial Civil Suit filed by the Axis Bank Limited is not maintainable in law. The debt of Axis Bank is neither shown in the financial statements of the respondent No.2 nor does it form a part of the permitted indebtedness in the various facility documents. No charge has been filed with the Registrar of the Companies by the respondent No.1 in respect of its alleged security created pursuant to the Axis Bank Page 29 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT Undertaking. It is the case of the applicants that they are completely unaware of the Axis Bank Facility. The Axis Bank has failed to produce any cogent material to indicate that it has a valid charge over the sale proceeds or the charge has been registered with the Registrar of Companies in terms of Section 77 of the Companies Act, 2019.
[B] It is submitted by the learned senior counsel that the suit is filed seeking declaration as to the validity of the Axis Bank Undertaking as well as the recovery of alleged claims to the tune of Rs.250 Crore. According to the learned senior counsel, a bare perusal of the pleadings in the Commercial suit would indicate that the same is predominantly for recovery of dues. It is submitted that Sections 17 to 19 of the Recovery of Debts and Bankruptcy Act, 1993 (for short, 'the RDB Act') read with Section 11 of the Commercial Court Act, 2015 require the Debt Recovery Tribunal alone to decide the applications for recovery of debts due to the banks or financial institutions and explicitly bars / ousts the jurisdiction of the civil Court or other authorities.
17 It is submitted that the High Court in a case like one on hand should unhesitatingly exercise its supervisory jurisdiction under Article
227. It is submitted that the Axis Bank by clever and crafty drafting has sought to invoke the jurisdiction of the Commercial Court which is otherwise ousted by the RDB Act. In short, the argument is that the Commercial Suit filed by the Axis Bank by itself is not maintainable.
18 It is submitted that the High Court should interfere with the interim orders passed by the subordinate Courts and Tribunals in exercise of its supervisory powers under Article 227 of the Constitution if the impugned order is passed without jurisdiction. It is argued that there is no legal impediment in the way of the High Court itself to Page 30 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT examine the merits of the case in exercise of its jurisdiction under Article 227 of the Constitution if the circumstances so require.
19 Both the learned senior counsel submitted that the Axis Bank despite being aware of the other creditors of the respondent No.2 has deliberately not joined the applicants and other creditors in the commercial suit. This deliberate act is only with a view to steal a march over the applicants and consortium of the lenders who otherwise have a secured first charge over the specified account wherein the sale proceeds are deposited.
20 It is argued that on 19 th October 2019 i.e. the date on which the consent order was passed, the Axis Bank had complete knowledge of the applicant's prior claim of the applicants as the Axis Bank also entered appearance before this Court. It is argued that during the pendency of the proceedings before this Court, the respondents surreptitiously obtained an order by consent without joining the applicants as necessary parties. It is argued that the adinterim order passed by the Commercial Court vide order dated 13th September 2019 was without issuing notice to the defendants to the Commercial Suit i.e. the respondents Nos.2, 3 and 4 herein. By way of such adinterim order, the defendants i.e. the respondents Nos.2, 3 and 4 were restrained from selling the shares of the Sintex France by the Sintex Netherland.
21 It is submitted that the applicants came to learn about the institution of the commercial suit on 8 th October 2019 and also of the impugned order in the course of meeting of the lenders. It is submitted that being aggrieved by the impugned order, the applicants had to come before this Court with the present petition on 17th October 2019. On that date, the Axis Bank also appeared through its senior counsel. It is argued Page 31 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT that the matter was posted on 18 th October 2019 for hearing. However, the matter could not be taken up on 18 th October 2019 due to nonavailability of the regular Bench. It is pointed out that during the pendency of the petition, as the matter was listed before the Commercial Court on 19th October 2019 to the applicants shock and surprise, the parties to the Commercial Suit by way of a joint consent sought modification of the impugned order and the consent order came to be passed.
22 It is submitted that the impugned order is in violation of Order 39 Rule 3 of the Code of Civil Procedure (for short, 'the CPC'). It is argued that the impugned order was passed ex parte without issuing notice to the concerned parties. Order 39 Rule 3 of the CPC stipulates that the Court shall issue notice to the opposite party before granting an injunction, except in the circumstances where doing so would defeat the very object of granting an injunction. It is also argued that the Commercial Court has failed to record any reason for dispensing with the legal requirement to issue notice to the opposite party before granting an injunction.
23 It is argued that the applicants have not been impleaded as parties in the Commercial Suit. The applicants are seriously prejudiced by the impugned order as well as the modified order passed by the Commercial Court. It is argued that Section 13 of the Commercial Court Act provides for a remedy of appeal from orders of a Commercial Court. Ordinarily, the parties to a suit adversely affected by an order or a decree can file an appeal. A person though not a party to a suit but if prejudicially affected by an order or decree passed therein may prefer an appeal only with the leave of the Appellate Court. According to the learned senior counsel, the remedy of appeal available under Section 13 of the Commercial Page 32 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT Court Act cannot be availed of as a matter of right. Such remedy of appeal which is discretionary in nature cannot be considered as an efficacious alternative remedy, and in such circumstances referred to above, this application under Article 227 of the Constitution is maintainable.
24 It is also argued that the consent order passed by the Commercial Court is without application of mind. According to the learned senior counsel, the Commercial Court failed to consider the following:
[i] The Commercial Suit being a suit for recovery of debts due to the banks or financial institutions is outside the jurisdiction of the Commercial Court.
[ii] By way of consent order, the plaintiff has obtained relief which is not even prayed for in the Notice of Motion.
[iii] By way of the consent order, the plaintiff has obtained Rs.250 crore in their account even before an adjudication on the validity of the undertaking on the basis of which the claim of the applicants for Rs.250 crore rests.
[iv] The consent order prejudicially affects the rights of the third parties such as those of the applicants.
25 It is argued that the institution of the Commercial Suit could be termed as per se mala fide. According to the learned senior counsel, it is settled law that a person who wants to enjoy the benefit of a security must prove that he is in fact a secured creditor.
Page 33 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT26 In such circumstances referred to above, Mr. Trivedi and Mr. Joshi, the two learned senior counsel jointly submitted that this application under Article 227 of the Constitution may be entertained and the reliefs prayed be granted with a view to doing substantial justice, more particularly, protecting the interest of the applicants.
● SUBMISSIONS ON BEHALF OF THE RESPONDENT NO.1
(ORIGINAL PLAINTIFF):
27 Mr. Deven Parikh, the learned senior counsel vehemently
submitted that both the applications invoking the supervisory
jurisdiction of this Court under Article 227 of the Constitution are not maintainable in law. According to Mr. Parikh, if the applicants claim themselves to be directly interested in the litigation, they ought to have preferred an application to implead themselves as party defendants. According to Mr. Parikh, the applicants after being impleaded as defendants could have moved an application for vacation or cancellation of the impugned order invoking the provisions of Order 39 Rule 4 of the CPC. It is argued that the applicants should have first prayed for the Leave to Appeal. It is argued that having not availed any of the above legal remedy, the applicants cannot come before this Court seeking relief by invoking the supervisory jurisdiction of the High Court under Article 227 of the Constitution of India. Thus, a preliminary objection has been raised by Mr. Parikh as regards the very maintainability of both the applications. With regard to his preliminary objection as regards the maintainability of both the applications, strong reliance has been placed on the decision of the Supreme Court in Virudhunagar Hindu Nadargal Dharma Paribalana Sabai and others vs. Tuticorin Educational Society and others [Civil Appeal No.7764 of 2019 decided on 3rd October 2019]. Mr. Parikh seeks to rely upon the observations made by Page 34 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT the Supreme Court in paras 11 to 14 as under:
"11. Primarily the High Court, in our view, went wrong in overlooking the fact that there was already an appeal in C.M.A. No. 1 of 2018 filed before the SubCourt at Tuticorin under Order XLI, Rule 1 (r) of the Code, at the instance of the fifth defendant in the suit (third respondent herein), as against the very same order of injunction and, therefore, there was no justification for invoking the supervisory jurisdiction under Article 227.
12. Secondly, the High Court ought to have seen that when a remedy of appeal under section 104 (1)(i) read with Order XLIII, Rule 1 (r) of the Code of Civil Procedure, 1908, was directly available, the respondents 1 and 2 ought to have taken recourse to the same. It is true that the availability of a remedy of appeal may not always be a bar for the exercise of supervisory jurisdiction of the High Court. In A. Venkatasubbiah Naidu Vs. S. Chellappan & Ors. [2000] 7 SCC 695, this Court held that "though no hurdle can be put against the exercise of the Constitutional powers of the High Court, it is a well recognized principle which gained judicial recognition that the High Court should direct the party to avail himself of such remedies before he resorts to a Constitutional remedy".
13. But courts should always bear in mind a distinction between (i) cases where such alternative remedy is available before Civil Courts in terms of the provisions of Code of Civil procedure and (ii) cases where such alternative remedy is available under special enactments and/or statutory rules and the fora provided therein happen to be quasi judicial authorities and tribunals. In respect of cases falling under the first category, which may involve suits and other proceedings before civil courts, the availability of an appellate remedy in terms of the provisions of CPC, may have to be construed as a near total bar. Otherwise, there is a danger that someone may challenge in a revision under Article 227, even a decree passed in a suit, on the same grounds on which the respondents 1 and 2 invoked the jurisdiction of the High Court. This is why, a 3 member Bench of this court, while overruling the decision in Surya Dev Rai vs. Ram Chander Rai [2003] 6 SCC 675, pointed out in Radhey Shyam Vs. Chhabi Nath [2015] 5 SCC 423 that "orders of civil court stand on different footing from the orders of authorities or Tribunals or courts other than judicial/civil courts.
14. Therefore wherever the proceedings are under the code of Civil Procedure and the forum is the Civil Court, the availability of a remedy under the CPC, will deter the High Court, not merely as a measure of self imposed restriction, but as a matter of discipline and prudence, from Page 35 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT exercising its power of superintendence under the Constitution. Hence, the High Court ought not to have entertained the revision under Article 227 especially in a case where a specific remedy of appeal is provided under the Code of Civil Procedure itself."
28 According to Mr. Parikh, the institution of the Commercial Civil Suit by his client cannot be termed as a mala fide act. It is argued that as a vigilant banker, the plaintiff thought fit to rush at the earliest to the Commercial Court seeking injunction with a view to protect its interest. According to Mr. Parikh, the Axis Bank has the first charge over the sale proceeds. It is argued that the order passed by the Commercial Court with the consent of the parties is a reasonable order and requires no interference at the end of this Court in exercise of its supervisory jurisdiction under Article 227 of the Constitution of India. Mr. Parikh would argue that there is nothing on record to indicate that the applicants have the first charge over the sale proceeds.
29 In such circumstances referred to above, Mr. Parikh, the learned senior counsel prays that both the applications under Article 227 of the Constitution being not maintainable in law, those be rejected. Mr. Parikh further prays that even otherwise on merits, the applicants have no case and the impugned order passed by the Commercial Court may not be disturbed.
● SUBMISSIONS ON BEHALF OF THE ORIGINAL DEFENDANTS:
30 Mr. S.N. Soparkar and Mr. Mihir Thakore, the two learned senior counsel appearing for the defendants submitted that the reply filed by their clients before the Commercial Court to oppose the grant of ex parte injunction is quiet eloquent and speaks for itself. Both the learned senior Page 36 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT counsel submitted that some time in December 2017, the applicants had extended a term loan of Rs.255 Crore in favour of the defendant No.1 herein. The same was advanced by way of a facility agreement dated 14th December 2017. It is further argued that as per clause 4.5(c) of the facility agreement, the defendant No.1 was obliged to seek consent of the applicants and repay the whole or part of the amount outstanding to the applicants out of the proceeds of sale of any subsidiary of the defendant No.1. Both the learned senior counsel fairly submitted that such proceeds were to be deposited directly to the specified account identified by the applicants. It is further submitted that in accordance with the clause 5 of the facility agreement and clause 6 of the Debenture Trust Deed, the facility was secured in favour of the applicants by way of the first ranking charge in the form of mortgage and hypothecation of the movable and immovable assets of the defendant No.1 and the first ranking exclusive charge by way of hypothecation over the specified account in favour of the second debenture Trustee on a pari passu basis with the consortium of lenders led by the applicant No.1 herein. It is also submitted that indisputably, the deed of hypothecation has been registered with the Registrar of the Companies in terms of Section 77 of the companies Act, 2013.
31 Both the learned senior counsel argued that the defendant No.1 found itself in a fix. As the defendant No.1 is undergoing a rough patch so far as the business and finance is concerned, it wanted to ensure that the transaction in the foreign country of sale of shares of its subsidiary sails through at any cost. The ex parte injunction obtained by the Axis Bank was hurting them and any further delay in the matter would have led to the collapse of the entire deal which was entered into abroad. In such circumstances, the defendant No.1 was left with no other option, Page 37 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT but to arrive at a consensus with the Axis Bank. It is only because of such consensus arrived at that the transaction in the foreign country got materialised and the defendant No.1 was able to sell the shares of its foreign subsidiary company to another foreign company. According to both the learned senior counsel, the intention of the defendant was never to dupe the applicants in any manner. As on date also, the defendants acknowledge the first charge of the applicants over the sale proceeds of the share.
32 In the rejoinder to the aforesaid submissions canvassed on behalf of the defendants, Mr. Parikh, the learned senior counsel appearing for the Axis Bank vehemently submitted that the defendants have no right to say anything in this litigation having secured the advantage of the impugned consent order. According to Mr. Parikh, but for the consent order, transaction in the foreign country would not have sailed through. According to Mr. Parikh, the defendants have arrived at a consensus with the Axis Bank for their own vested interest and now they cannot turn around and argue anything contrary to the interest of the Axis Bank.
● ANALYSIS: 33 Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the following two questions fall for our consideration:
[i] Whether the two applications under Article 227 of the Constitution are maintainable at the instance of the applicants being the affected third parties?Page 38 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
[ii] Whether the impugned consent order passed by the Commercial Court on the strength of the consensus arrived at between the plaintiff and the defendants has led to a serious miscarriage of justice warranting interference at the end of this Court in exercise of its supervisory jurisdiction under Article 227 of the Constitution of India.
34 We shall first deal with the preliminary objection raised on behalf of the respondent No.1 - Axis Bank (original plaintiff) as regards the maintainability of the present applications under Article 227 of the Constitution of India.
35 The Supreme Court in Virudhunagar (supra) sounded a note of caution by observing that the Courts should bear in mind a distinction between (i) cases where alternative remedy is available before the Civil Courts in terms of the provisions of the Code of Civil Procedure and (ii) cases where such alternative remedy is available under the special enactments and/or statutory rules and the forum provided therein happen to be the quasi judicial authorities and Tribunals. The Supreme Court observed that in respect of the cases falling under the first category which may involve suits and other proceedings before the Civil Courts, the availability of an appellate remedy in terms of the provisions of the CPC should be construed as a near total bar when it comes to invoking the supervisory jurisdiction of the High Court under Article 227 of the Constitution. However, at the same time, in para 14 of its decision, the Supreme Court observed that the availability of a remedy under the Civil Procedure Code should deter the High Court not merely as a measure of self imposed restriction, but as a matter of discipline and Page 39 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT prudence from exercising its power of superintendence under the Constitution. Should the decision of the Supreme Court in Virudhunagar (supra) be construed as an absolute bar for the High Court to entertain an application invoking supervisory jurisdiction under Article 227 of the Constitution even if the occasion or situation demands interference with a view to doing substantial justice between the parties and with a view to correcting the gross injustice.
36 So far as the decision of the Supreme Court in the case of Virudhunagar (supra) is concerned, we should consider the factual background in which the observations of the Supreme Court came to be made.
37 We take notice of the fact that in Virudhunagar (supra), the appellant had instituted a suit praying for certain relief. The appellant also moved an Interlocutory Application seeking an interim order of injunction restraining the respondents from convening the meetings of the general Body and the Executive Committee. The Trial Court, after hearing both the sides, passed an order allowing the interlocutory application filed by the plaintiff and thereby injuncted the defendants from proceeding with the meeting of the General Body and the Executive Committee as scheduled. As against the order of the Trial Court granting injunction, the fifth defendant in the suit (the third respondent in the appeal before the Supreme Court) who was claiming to be the Patron for life, filed a Regular Appeal under Order 43 Rule 1(r) of the Code of Civil Procedure. However, the respondents Nos.1 and 2 before the Supreme Court who were the defendants Nos.1 and 6 respectively, instead of filing a Regular Appeal, filed a Civil Revision under Article 227 of the Constitution of India before the Madurai Bench of the Madras Page 40 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT High Court. It appears that despite objections to the maintainability of the revision under Article 227 on the ground of availability of an appellate remedy, the High Court allowed the Civil Revision Petition and set aside the order of injunction granted by the Trial Court.
38 In the aforesaid background, the Supreme Court took the view that the High Court ought not to have entertained the revision application and ought not to have exercised its supervisory jurisdiction under Article 227 of the Constitution of India when a direct remedy of appeal under Section 104 (1)(i) read with Order 43, Rule 1 (r) of the Code of Civil Procedure was directly available to the respondents Nos.1 and 2 respectively. While saying so, the Supreme Court also thought fit to clarify that the availability of a remedy of appeal may not always be a bar for the exercise of supervisory jurisdiction of the High Court. In saying so, the Supreme Court relied upon a decision in the case of Venkatasubbiah Naidu Vs. S. Chellappan and others reported in (2000) 7 SCC 695. The Supreme Court observed that if there is statutory remedy under the enactments for the parties to the suit to file an appeal, the High Court ought not to entertain the revision under Article 227 of the Constitution of India.
39 In the case on hand, the applicants are not parties to the suit proceedings. They have come before this Court seeking to invoke the supervisory jurisdiction under Article 227 of the Constitution as aggrieved and affected third parties. Even if they want to prefer an appeal under Order 43 Rule 1 (r) of the CPC, they would have to prefer an application seeking leave to appeal and if ultimately leave is granted, the appeal would be heard. The grant of leave to appeal is discretionary and cannot be claimed as a matter of right. On the other hand, a party to Page 41 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT the suit proceedings, if aggrieved, has a right to prefer a statutory appeal.
40 We have discussed the facts of this litigation at length. We have given more than a fair idea about the respective claims of the parties to this litigation. The stance of the Axis Bank that it has the first charge over the sale proceeds of the defendants and that the applicants have nothing to do with the same, prima facie, appears to be unpalatable. The first and the foremost thing which was expected of the Axis Bank was to implead the applicants as the defendants in the suit. We are sure of one thing having regard to the nature of the dispute that the applicants are necessary parties and in the absence of the necessary parties, the suit instituted by the Axis bank cannot be adjudicated. There are many larger issues involved in the suit instituted by the Axis bank for the recovery of its dues from the defendants. Prima facie, as noted above, the Axis Bank is not ready and willing to accept the fact that the applicants are secured creditors and it was understood between all the secured creditors that they would all together reach to an appropriate understanding with regard to the disbursement of the amount. The Axis Bank wants the entire pound of flesh to itself claiming to be a vigilant banker.
41 Bearing the aforesaid in mind, we are of the view that we should not reject these applications only on the ground that the applicants have a remedy to seek leave to appeal before this Court and if, ultimately, leave is granted, the appeal would be registered and heard. Granting Leave to Appeal once again would be discretionary. Seeking Leave to Appeal is not a matter of right. We may not be understood as having laid down as an absolute proposition of law that seeking leave for the purpose of filing appeal is not an alternative remedy for an affected third Page 42 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT party. What we are trying to convey is that leave by itself is not a remedy. In such circumstances, many other aspects of the matter should be looked into by the court of a particular matter before declining to entertain the application under Article 227 of the Constitution on the ground that the remedy is to file appeal after seeking leave of the court.
42 Mr. Joshi, the learned senior counsel is right in his submission to a considerable extent that having regard to the nature of the impugned consent order passed by the Commercial Court, it is difficult to say that the same is passed in exercise of power under Order 39 Rule 1 or Rule 2 of the CPC so as to make such an order appealable under Section 104(1)
(i) read with Order 43 Rule 1(r) of the Civil Procedure Code. Order 39 Rule 1 empowers the Civil Court to grant temporary injunction in cases in which any property in dispute in a suit is in danger of being wasted, damaged or alienated by any party to the suit, or wrongfully sold in execution of a decree, or the defendant threatens, or intends, to remove or dispose of his property with a view to defrauding his creditors, or if there is any threat at the end of the defendant and the plaintiffs have dispossessed from any property in dispute in the suit. The impugned order is not on merits. It is a consent order. It is an order passed on the basis of the consensus arrived at between the parties to the suit.
● LEAVE TO APPEAL: 43 Indisputably, the applicants are not parties to the suit instituted by
the Axis Bank. The question whether a person who is not a party to a suit, has a right to file appeal, came up for consideration before the Supreme Court in State of Punjab (now Haryana) v. Amar Singh (1974) 2 SCC 70 : AIR 1974 SC 994. In the said elaborate judgment Page 43 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT Hon'ble Mr. Justice Krishna Iyer held that a person, who is not a party to a suit, has no right to file appeal as a matter of right. The relevant portion of the judgment is extracted as under:
"An order like Annexure 'A' ordinarily binds the parties only and here the State which the appellant is seriously prejudiced by that order but is not a party to it. Therefore, it cannot bind the State proprio vigore. It was argued by Shri Dhingra that the State could have moved by way of appeal or review and got the order set aside if there was ground and that not having done so it was bound by the order. As a matter of fact, the State, which is not a party to the proceedings, does not have a right of appeal. The ordinary rule is that only a party to a suit adversely affected by the decree of any of his representativesininterest may file an appeal. Under such circumstances a person who is not a party may prefer an appeal with the leave of the appellate court "If he would be prejudicially affected by the judgment and if it would be binding on him as resjudicata under Explanation 6 to Section 11" (See Mulla Civil Procedure Code 18th Edn. vol. 1, p. 421). Section 82 of the Punjab Tenancy Act, 1887, which may perhaps be invoked by a party even under the Act, also speaks of applications by any party interested. Thus, no right of review or of appeal under section 18 can be availed of by the state as of right."
44 In 'Province of Bombay v. W. I. Automobile Association', AIR 1949 Bom 141, Chagla, C.J. and Bhagwati, J., held that a person not a party to a suit may prefer an appeal if he is affected by the order of the trial Court provided he obtained leave from the Court of appeal. The learned Chief Justice observed as follows :
"The Civil Procedure Code does not in terms lay down as to who can be a party to an appeal. But it is clear and this fact arises from the very basis of appeals, that only a party against whom a decision is given has a right to prefer an appeal. Even in England the position is the same. But it is recognized that a person who is not a party to the suit may prefer an appeal if he is affected by the order of the trial Court, provided he obtains leave from the Court of appeal; therefore whereas in the case of a party to a suit he has a right of appeal, in the case of a person not a party to the suit who is affected by the order he has no right but the court of appeal may in its discretion allow him to prefer an appeal."Page 44 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
Bhagwati, J., referred to the decision in 'AIR 1934 Mad 360' (L) and accepted it as authority for the position that no person who is not a party to a suit or proceeding has a right of appeal. But if he was aggrieved by a decision of the Court the remedy open to him was to approach the appellate Court and ask for leave to appeal which the appellate Court would grant in proper cases. The learned Judge cites a passage from the decision in 'In re Securities Insurance Co.', (1894) 2 Ch D 410 (P), where Lindley, L.J., said that the practice of the Courts of Chancery both before and after 1862 was well settled that while a person who was a party could appeal without any leave a person who without being a party was either bound by the order or was aggrieved by it or was prejudicially affected by it could not appeal without leave.
45 The aforesaid decision of the Bombay High Court has been referred to and relied upon by a Division Bench of the Madras High Court in the case of SM K Ponnalagu Ammal vs. State of Madras, Represented by Secretary to Revenue Department, Madras reported in 1953 AIR (Mad) 485 wherein the Madras High Court observed as under:
"17 There is abundant authority recognising the existence of such a practice and innumerable instances of such a practice to some of which learned counsel referred us, namely, 'In re Markham Markham v. Markham', (1881) 16 Ch D 1 (Q); 'In re Padstow total Loss and Collision Assurance Association', (1882) 20 Ch. D 137 at p.142 (R); 'Attorney General v. Marquis of Ailesbury', (1885) 16 Q B D 408 at p. 412 and 'In re Ex Tsar of Bulgaria', (1921) 1 Ch D 107 at p.110 (T). The position is thus stated in the Annual Practice for 1951 at page 1244 :
"Persons not parties on the record may, by leave obtained on an ' ex parte ' application to the Court of appeal, appeal from a judgment or order affecting their interests, as under the old practice."Page 45 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
Halsbury's Laws of England, Volume 26, page 115, gives the same rule in a different form :
"A person who is not a party and who has not been served with such notice (notice of the judgment or order) cannot appeal without leave, but a person who might properly have been a party may obtain leave to appeal."
Several instances are referred to in the footnote and the limits of the rule can be gathered from these instances. Leave will not be given where the applicant could not have been a party and application for leave must be made within the time limited for the appeal. The reason for the practice apparently is the principle that a person who could have been made a party and who might have appealed could not afterwards bring an action to declare that the judgment or order was not binding on him (Vide 'In re Hambrough's Estate; Hambrough v. Hambrough', (1909) 2 Ch 620 (U).) 18 In more or less similar terms the rule and its limits are stated in Seton on Judgments and Orders, 7th Edition, Volume 1, at page 824:
"Where the appellant is not a party to the record he can only appeal by leave to be obtained on motion ' ex parte ' from the Court of Appeal...... Leave to appeal will not be given to a person not a party unless his interest is such that he might have been made a party."
46 A Division Bench of the Kerala High Court in the case of S.Govinda Menon vs. K Madhavan Nair reported in 1964 AIR (Ker) 235, after referring to the aforesaid two decisions, has observed as under:
"The Code of Civil Procedure does not provide who can prefer an appeal. A party to a proceeding has a right to prefer an appeal when such appeal is allowed by law. As to whether a person who is not a party can file an appeal under such circumstances, Courts in India have been followingthe practice of the Chancery Court, which is summarised in Halsbury's Laws of England as follows :
"Any of the parties to an action or matter and any persons served with notice of the judgment or order may appeal (by leave, where Page 46 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT leave is necessary). A person who is not a party and who has not been served with such notice, cannot appeal without leave, but a person who might properly have been a party may obtain leave to appeal." (Vol. 30, p. 461).
The dictum of Lumley, L.J., in In re, Securities Insurance Co., (1894) 2 Ch 410 which has been followed by the High Courts in India is extracted below :
"Now, what was the practice of the Court of Chancery before 1862, and what has it been since ? I understand the practice to be perfectly well settled that a person who is a party can appeal (of course within the proper time) without any leave, and that a person who without being a party is either bound by the order or is aggrieved by it, or is prejudicially affected by it, cannot appeal without leave...... If a person alleging himself to be aggrieved by an order can make out even a prima facie case why he should have leave he will get it; but without leave he is not entitled to appeal."
We may mention here some of the decisions in which this principle has been followed : Province of Bombay v. W. I. Automobile Association, AIR 1949 Bom 141, Heersingh v. Veerka, AIR 1958 Raj 181 and Shivaraya v. Siddamma, AIR 1963 Mys 127. This Court also adopted this view in Executive Officer v. Raghavan Pillai, AIR 1961 Kerala 114. It has also been pointed out in these decisions that the question whether such, leave should be granted or not is a matter which lies in the discretion of the Court of appeal and that no hard and fast rule can be laid down in the matter, the decision in each case depending upon its own facts and circumstances. We may observe that one test in granting leave is whether he could properly have been made a party to the original proceeding. The following passage in Seton on Judgments may with advantage be extracted:
"Leave will not be given unless his interest is such that he might have been made a party''.
Vol. 1, p. 825.
This principle may be gathered from In re B., an Infant, (1958) 1 QB 12. The Advocate General while contending that the appellant must be held to be a party to the original petition was prepared to grant that in the circumstances of the case the appellant could have been made eo nomine a Page 47 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT party; we also entertain no doubt that lie might have been so made a party. It may therefore be taken as settled law that a person who is not a party to the decree or order may with leave prefer an appeal from such decree or order."
47 The only idea with which we have referred to and discussed the aforesaid decisions is to indicate that a party to a suit proceedings has a right to prefer an appeal against any decree or order (if provided) under the provisions of the CPC, but a person who is not a party to the suit proceedings and finds himself in a precarious situation on account of some prejudicial order passed by the Civil Court in the suit proceeding has the option of filing an appeal, but only after seeking leave to appeal and leave to appeal cannot be as a matter of right, but it would be the discretion of the appeal Court. This aspect has a considerable bearing when it comes to examining the question whether an aggrieved third party has an alternative efficacious remedy available under the Civil Procedure Code or not. There exists special and exceptional circumstances in the case on hand to justify the applicants bypassing the alternative remedy which was available to them by way of an appeal after obtaining leave to appeal. Whether the leave would have been granted if prayed for or not is altogether a different issue.
● ARTICLE 227 OF THE CONSTITUTION:
48 We may begin with noticing that the power of superintending control conferred by Article 227 of the Constitution is similar to the control exercised by the Court of Kings Bench over the inferior Courts of England under the Common Law. The history of Article 227 and its scope were considered by the Apex Court in Waryam Singh v.
Page 48 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENTAmarnath, (1954) SCR 565, and it was indicated that the material part of Article 227 substantially reproduces the provisions of Section 107 of Government of India Act 1915, except that the power of superintendence has been extended by the Article also to Tribunals.
49 The history of Article 227 suggests that the framers of our Constitution believed that they were restoring to the High Court the power which had been taken away by Section 224 of Government of India Act, 1935. In the original Constitution of India Article 227 was devised to empower the High Court to exercise its supervisory jurisdiction not only over the inferior courts within its territory but also over the statutory or quasi judicial Tribunals to ensure that all these inferior bodies exercise the powers conferred on them 'within the bounds of their authority' and 'in a legal manner'. But the supervisory jurisdiction of the High Court over all the administrative Tribunals was abolished by the 42nd Amendment Act, 1976 on the ground that it caused delay and obstruction in the implementation of the Government Policies. By the 44th Amendment Act, 1978, all the Tribunals other than Military Tribunals were again brought under the supervision of the High Court.
50 Article 227 of the Constitution has been the subject matter of various decisions. In Baby v. Travancore Devaswom Board, (1998) 8 SCC 310, the Apex Court held that the powers of the High Court under Article 227 are in addition to the powers of revision conferred on it by the other legislation.
51 In Achutananda Vadya v. Prafullya Kumar Gayen and others, (1997) 5 SCC 76, their Lordships of the Supreme Court observed that the power of superintendence under Article 227 is not confined to Page 49 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT administrative superintendence only but such power includes within its sweep the power of judicial review. The power and duty of the High Court under Article 227 is essentially to ensure that the courts and Tribunals, inferior to High Court, have done what they were required to do. The High Court can interfere under Article 227 in cases of erroneous assumption or acting beyond its jurisdiction, refusal to exercise jurisdiction, error of law apparent on record as distinguished from a mere mistake of law, arbitrary or capricious exercise of authority or discretion, a patent error in procedure, arriving at a finding which is perverse or based on no material or resulting in manifest injustice.
52 We may quote an extract from V. G. Ramachandran's Law of Writs, Sixth Edition, revised by Justice C.K. Thakker (as His Lordship then was):
"Unlike Article 226, the High Court acting under Article 227 of the Constitution is not so much concerned with the enforcement of legal rights of the parties, as with the discharge of its own obligation irrespective of the rights of the parties. In other words, while exercising powers under Article 226, the primary object of the Court is the enforcement of the legal right of the petitioner, in exercising powers under Article 227, the primary duty of the Court is to itself, the sacred discharge of tis obligations as the custodian of administration of justice.
This is also borne out by the fact that whereas various High Courts have framed elaborate rules relating to the issue of various writs under Article 226, no such rules have been framed for action under Article 227. The position appears to have been deliberately left flexible so as to leave to the Court greater discretion and a larger elasticity in the method of procedure, for here the Court is approached and moved on different level. Under Article 227, the Court is moved to action by circumstances which shook the conscience of the Court. The Court finds that the position created is one of negation of law and justice. The Court is faced with a situation fraught with danger to the administration of justice. It notices the administrative foundation of justice shaken or judicial structure imperilled. It feels that the circumstances are such that a failure on its part to act in the matter would be tantamount to the abdication of its role as the custodian of Page 50 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT justice within the limits of its territorial jurisdiction. In such a situation the Court may lend its hand of protection to the parties concerned, but the primary object of the Court is self protection or the vindication of the exalted position of trust and responsibility assigned to it by Article 227."
53 The Supreme Court in Ramesh Chandra Sanka etc. vs. Vikram Cement etc reported in 2009 AIR (SC) 713 has observed as under:
"it clearly transpires that powers under Articles 226 and 227 are discretionary and equitable and are required to be exercised in, the larger interest of justice. While granting relief in favour of the applicant, the Court must take into account balancing interests and equities. It can mould relief considering the facts of the case. It can pass an appropriate order which justice may demand and equities may project. As observed by this Court in Shiv Shankar Dal Mills v. State of Haryana, (1980) 1 SCR 1170, Courts of equity should go much further both to give and refuse relief in furtherance of public interest. Granting or withholding of relief may properly be dependent upon considerations of justice, equity and good conscience."
54 In such circumstances referred to above, with a view to doing substantial justice between the parties and to prevent further miscarriage of justice, we are convinced that the vociferous preliminary objection raised by Mr. Parikh as regards the maintainability of these applications under Article 227 of the Constitution of India is not tenable in law. In view of the same, we reject the preliminary objection and hold that these applications are maintainable and should be looked into on its own merits.
55 There is one another aspect of the matter. When the Court below proceeded to pass the consent order, the reply of the defendants opposing the grant of ex parte injunction was already on record. We have stated above that the reply is quiet eloquent and speaks for itself. If the Commercial Court would have taken little pains to go through the reply, Page 51 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT then probably, the Court would have thought twice before proceeding to pass the consent order. The court below should have examined the matter considering, whether the defendants were giving consent for their own vested interest contrary to their liability and obligations towards the other lenders. We are of the view that having regard to the stance of the defendants on oath, the consent order could not have been passed.
56 The impugned order is a consent order. The consent order, as is wellknown, is an agreement between the parties with the seal of the Court superadded to it. The rights of the third parties cannot be set at naught by consent. In such circumstances, we are required to consider the submissions canvassed on behalf of the applicants in their proper perspective. It is well settled that the High Court in exercise of its supervisory jurisdiction under Article 227 of the Constitution can take cognizance of the entire facts and circumstances of the case and pass appropriate orders to give the parties complete and substantial justice. This jurisdiction of the High Court, being supervisory and extraordinary, is normally exercisable keeping in mind the principles of equity. One of the ends of equity is to promote honesty and fair play. If there be any unfair advantage gained by a party, the Court can take into account the unfair advantage gained and can require the party to shed the unfair gained. [See: Ramchandra Singh vs. Savitri Devi and others (2003) 8 SCC 319] ● ORDER 39 RULE 4 OF THE C.P.C.:
57 Mr. Parikh, the learned senior counsel also sought to argue that the applicants have the remedy of going before the Commercial Court by Page 52 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT preferring an application under Order 39 Rule 4 of the CPC. According to Mr. Parikh, the Commercial Court in exercise of its power under Order 39 Rule 4 may discharge, vary or set aside the impugned order. In other words, the argument is that if the applicants are aggrieved by the impugned order, they can move an application under Order 39 Rule 4 of the CPC. We are afraid we are not in a position to accept such submission. The application under Order 39 Rule 4 of the CPC cannot be entertained at the instance of a "third party" to the suit; for the expression employed in Rule 4 is "any party". That expression would necessarily mean that only a party to the suit can invoke the remedy under Order 39 Rule 4 of the CPC. As explained by the Bombay High Court, speaking through A M. Khanwilkar, J (as His Lordship then was) in the case of Madhav Jeyram Kotak and others vs. Jay Laxmi Gopalji Surji and others reported in 2007(5) Mh.L.J. 797, there is a marked distinction between the words "any party" and "aggrieved person". The expression "party" is not defined in the Code of Civil Procedure. The meaning of the word "party" in the common parlance refers to those by or against whom a legal suit is brought, whether in law or equity, the party plaintiff or defendant. On the other hand, an "aggrieved person" is one whose legal right is affected directly and adversely by a decision of the Court. We may quote the observations made by the Bombay High Court in para 5 as under:
"To buttress the submission, the counsel for the applicant, however, has drawn my attention to the provisions of Order XXXIX, Rules 1, 6 and 7 where the expression used is "any party to a suit". Relying on the said provisions, it is argued that the Legislature was conscious of the distinction between the expressions "any party to a suit" and "any party". In other words, it is contended that "any party" means "any person", "an aggrieved person" or "a thirdparty". However, to my mind, the setting in which Rule 4 of Order XXXIX has been placed and going by the scheme of Order XXXIX, I am inclined to accept the submission of the plaintiffs that the expression "any party" in Rule 4 would mean any party to the suit. The Page 53 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT counsel for the plaintiffs has rightly drawn a distinction, relying on the expression used in Order XL, Rule 1, Subrule (2) of the Civil Procedure Code which refers to "any person whom any party to the suit". The distinction between the word "person" and "party" is recognised at different places in the Civil Procedure Code."
● SECOND QUESTION: 58 The above takes us to consider what type of relief should be
granted to ensure that substantial justice is done between the parties in accordance with law.
59 As noted above, the applicants are necessary parties being directly affected parties. It would be too much to tell the applicants at this stage to either file a separate suit or avail any other appropriate legal remedy before the appropriate forum in accordance with law. The first and the foremost thing which is necessary to be done in the case on hand is to ask the plaintiff to implead the applicants of both the Special Civil Applications as defendants in the suit. Once the applicants are impleaded as defendants, then they may file their written statements.
60 It is not in dispute that on the basis of the consent order passed by the Commercial Court, the sale transaction of the shares of the foreign company of the defendants sailed through.
61 We take notice of the order passed by this Court dated 20 th November 2019. The order reads thus:
"The learned counsel appearing for the respective parties makes a statement that the deal has been sailed through. According to the learned counsel, after discharging the debt of respondent no.4, the balance Page 54 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT available is approximately 55 Million Euros [55,000,000 € (Euro)] which is approximately Rs.400 crore [Indian Rupee]. This amount of Rs.400 crore is yet to come to India. Till the next date of hearing i.e. 11/12/2019, the amount of 55 Million Euros shall not be brought to India.
62 Thus, we directed the respondents Nos.2 to 4 that till the pronouncement of the judgement, the amount of 55 Million Euros shall not be transferred to India.
63 We are of the view that we should quash the impugned consent order and remit the matter to the Commercial Court for the purpose of deciding the matter on merits. According to the consent order, the amount is to be deposited with the Axis Bank in a separate account. On the other hand, according to the applicants, the entire amount towards the sale proceeds should come in a escrow. In other words, according to the applicants, in terms of the security clause in the DTD as well as the Facility Agreement, the applicants have the first ranking exclusive charge over the specified account in which the sale proceeds have to be repatriated.
64 The Commercial Court may address itself broadly on the following issues:
[1] Prima facie case.
[2] Balance of convenience.
[3] Irreparable loss.
[4] Whether the suit has been instituted by the plaintiff with clean hands.Page 55 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
[5] The rights, liabilities and obligations of the defendants towards the Axis Bank by virtue of the agreement relied upon by the Axis Bank.
[6] The rights, liabilities and obligations of the defendants towards the applicants in accordance with the terms of the agreement in writing.
[7] Prima facie, whether the suit instituted by the Axis Bank is maintainable in law?
65 At this stage, any further observation on the merits of the case may cause prejudice to either of the parties. In such circumstances, we deem fit to direct the Commercial Court to look into the matter a fresh. We deem fit not to express any opinion on the merits of the rival claim, but, at the same time, we are sure of one thing that we should not permit the plaintiff to take any undue advantage.
66 At this stage, we take this opportunity to remind the Civil Courts the principles governing the grant of injunction. It is settled law that the grant of injunction is a discretionary relief. The exercise thereof is subject to the Court satisfying that (1) there is a serious disputed question to be tried in the suit and that an act, on the facts before the court, there is probability of his being entitled to the relief asked for by the plaintiff/defendant; (2) the court's interference is necessary to protect the party from the species of injury. In other words, irreparable injury or damage would ensue before the legal right would be established at the trial; and (3) that the comparative hardship or mischief or inconvenience which is likely to occur from withholding the Page 56 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT injunction will be greater than that would be likely to arise from granting it.
67 The satisfaction that there is prima facie case by itself is not sufficient to grant injunction. [See : Dalpat Kumar vs. Prahlad Singh (1992) 1 SCC 719].
68 We remind the Civil Court of the observations made by the Supreme Court in Gujarat Bottling Co. Ltd vs. Coca Cola and others reported in (1995) 5 SCC 545:
"...Under Order 39 of the Code of Civil Procedure, jurisdiction of the Court to interfere with an order of interlocutory or temporary injunction is purely equitable and, therefore, the Court, on being approached, will, apart from other considerations, also look to the conduct of the party invoking the jurisdiction of the Court, and may refuse to interfere unless his conduct was free from blame. Since the relief is wholly equitable in nature, the party invoking the jurisdiction of the Court has to show that he himself was not at fault and that he himself was not responsible for bringing about the state of things complained of and that he was not unfair or inequitable in his dealings with the party against whom he was seeking relief. His conduct should be fair and honest..."
69 The Supreme Court in M. Gurudas and others vs. Rasaranjan and others reported in (2006) 8 SCC 367 has observed in paras 18 and 19 as under:
"18. While considering an application for injunction, it is wellsettled, the courts would pass an order thereupon having regard to:
(i) Prima facie
(ii) Balance of convenience
(iii) Irreparable injury.Page 57 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
19. A finding on 'prima facie case' would be a finding of fact. However, while arriving at such finding of fact, the court not only must arrive at a conclusion that a case for trial has been made out but also other factors requisite for grant of injunction exist. There may be a debate as has been sought to be raised by Dr. Rajeev Dhawan that the decision of House of Lords in American Cyanamid v. Ethicon Ltd. [1975] 1 All ER 504 would have no application in a case of this nature as was opined by this Court in Colgate Palmolive (India) Ltd. v. Hindustan Lever Ltd. [(1999) 7 SCC 1] and S.M. Dyechem Ltd. v. Cadbury (India) Ltd. [(2000) 5 SCC 573], but we are not persuaded to delve thereinto."
70 To sum it up, the rules guiding the grant of interlocutory injunction may be formulated as follows:
[i] Find out whether the plaintiff's case is frivolous or vexatious;
[ii] If it is not, decide in whose favour the balance of convenience lies;
[iii] If the balance of convenience is fairly even, then it may not be improper to take into account in tipping the balance the relative strength of each party's case as revealed by the material produced on hearing of the application as to which there is no credible dispute.
71 We also remind the Civil Courts of what has been observed by the Supreme Court in the case of Shiv Kumar Chadha vs. Municipal Corporation of Delhi and others reported in (1993) 3 SCC 161 as regards Order 39 Rule 3 of the C.P.C.. We quote paras 32, 33, 34 and 35 as under:
"32 Power to grant injunction is an extraordinary power vested in the Court to be exercised taking into consideration the facts and circumstances of a particular case. The Courts have to be more cautious when the said power is being exercised without notice or hearing the party who is to be Page 58 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT affected by the order so passed. That is why Rule 3 of Order 39 of the Code requires that in ail cases the Court shall, before grant of an injunction, direct notice of the application to be given to the opposite party, except where it appears that object of granting injunction itself would be defeated by delay. By the Civil Procedure Code (Amendment) Act, 1976, a proviso has been added to the said rule saying that "where it is proposed to grant an injunction without giving notice of the application to the opposite party, the Court shall record the reasons for its opinion that the object of granting the injunction would be defeated by delay......
33 It has come to our notice that in spite of the aforesaid statutory requirement, the Courts have been passing orders of injunction before issuance of notices or hearing the parties against whom such orders are to operate without recording the reasons for passing such orders. It is said that if the reasons for grant of injunction 540 are mentioned, a grievance can be made by the other side that Court has prejudged the issues involved in the suit. According to us, this is a misconception about the nature and the scope of interim orders. It need not be pointed out that any opinion expressed in connection with an interlocutory application has no bearing and shall not affect any party, at the stage of the final adjudication. Apart from that now in view of the proviso to Rule 3 aforesaid, there is no scope for any argument. When the statute itself requires reasons to be recorded, the Court cannot ignore that requirement by saying that if reasons are recorded, it may amount to expressing an opinion in favour of the plaintiff before hearing the defendant.
34 The imperative nature of the proviso has to be judged in the context of Rule 3 of Order 39 of the Code. Before the Proviso aforesaid was introduced, Rule 3 said "the Court shall in all cases, except where it appears that the object of granting the injunction would be defeated by the delay, before granting an injunction, direct notice of the application for the same to be given to the opposite party". The proviso was introduced to provide a condition, where Court proposes to grant an injunction without giving notice of the application to the opposite party, being of the opinion that the object of granting injunction itself shall be defeated by delay. The condition so introduced is that the Court "shall record the reasons" why an ex parte order of injunction was being passed in the facts and circumstances of a particular case. In this background, the requirement for recording the reasons for grant of ex parte injunction, cannot be held to be a mere formality. This requirement is consistent with the principle, that a party to a suit, who is being restrained from exercising a right which such party claims to exercise either under a statute or under the common law, must be informed why instead of following the requirement of Rule 3, the procedure prescribed under the proviso has been followed. The party who invokes the jurisdiction of the Court for grant of an order of restraint against a party, without affording an opportunity to him of being heard, Page 59 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT must satisfy the Court about the gravity of the situation and Court has to consider briefly these factors in the ex parts order. We are quite conscious of the fact that there are other statutes which contain similar provisions requiring the Court or the authority concerned to record reasons before exercising power vested in them. In respect of some of such provisions it has been held that they are required to be complied with but noncompliance there of will not vitiate the order so passed. But same cannot be said in respect of the proviso to Rule 3 of Order 39. The Parliament has prescribed a particular procedure for passing of an order of injunction without notice to the other side, under exceptional circumstances. Such ex parte orders have far reaching effect, as such a conditions has been imposed that Court must record reasons before passing such order. If it is held that the compliance of the proviso aforesaid is optional and not obligatory, then the introduction of the proviso by the Parliament shall be a futile exercise and that part of Rule 3 will be a surplusage for all practical purpose. Proviso to Rule 3 of Order 39 of the Code, attracts the principle, that if a statute requires a thing to be done in a particular manner, it should be done in that manner or not all. This principle was approved and accepted in wellknown cases of Taylor v. Taylor. (1875) 1 Ch. D. 426, Nazir Ahmed v. Emperor, AIR 1936 PC
253. This Court has also expressed the same view in respect of procedural requirement of the Bombay Tenancy and Agricultural Lands Act in the case of Ramachandra Keshav Adke v. Govind Joti Chavare, AIR 1975 SC
915. 35 As such whenever a Court considers it necessary in the facts and circumstances of a particular case to pass an order of injunction without notice to other side, it must record the reasons for doing so and should take into consideration, while passing an order of injunction, all relevant factors, including as to how the object of granting injunction itself shall be defeated if an ex parte order is not passed. But any such ex parte order should be in force upto a particular date before which the plaintiff should be required to serve the notice on the defendant concerned. In the Supreme Court Practice 1993, Vol. 1, at page 514, reference has been made to the views of the English Courts saying: "Ex parte injunctions are for cases of real urgency where there has been a true impossibility of giving notice of motion....
An ex parte injunction should generally be until a certain day, usually the next motion day. . . ."Page 60 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT
72 The Supreme Court in Seema Arshad Zaheer and others vs. Municipal Corporation of Greater Mumbai and others reported in (2006) 5 SCC 282 has observed in para 30 as under:
"The discretion of the Court is exercised to grant a temporary injunction only when the following requirements are made out by the plaintiff; (i) existence of a prima facie case as pleaded, necessitating protection of the plaintiff's rights by issue of a temporary injunction; (ii) when the need for protection of the plaintiffs rights is compared with or weighed against the need for protection of the defendants rights or likely infringement of the defendant's rights, the balance of convenience tilting in favour of the plaintiff; and (iii) clear possibility of irreparable injury being caused to the plaintiff if the temporary injunction is not granted. In addition, temporary injunction being an equitable relief, the discretion to grant such relief will be exercised only when the plaintiffs' conduct is free from blame and he approaches the Court with clean hands."
73 We dispose of both the applications with the following directions:
[1] The impugned order passed by the Commercial Court disposing of the Notice of Motion with the consent of the parties is hereby quashed and set aside.
[2] The matter is remitted to the Commercial Court for a fresh hearing of the Notice of Motion. The Court shall hear all the parties concerned and take an appropriate decision.
[3] The plaintiff is directed to implead the applicants as defendants in the suit.
[4] Once the applicants are impleaded as defendants in the suit, it shall be open for them to file their respective written statement to the plaint. It shall also be open for the applicants to take all other Page 61 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT legal steps as available to a defendant in a civil suit under the provisions of the C.P.C.
[5] The Court concerned shall complete the entire exercise within a period of four weeks from the date of the receipt of this order.
74 We clarify and it goes without saying that any observations touching the merits of the case are purely for the purpose of deciding the question, whether the court below was justified in passing the consent order and shall not be construed as an expression of the final opinion in the main matter. The court below shall decide the matter afresh without being influenced in any manner with any of the observations of this Court touching the merits of the case. However, at the same time, the court below shall bear in mind the principles of law which have been discussed in this judgment.
75 With the above, both the petitions are disposed of.
(J. B. PARDIWALA, J.) (VIRESHKUMAR B. MAYANI, J.) After the judgment is pronounced, Mr.Deven Parikh, the learned senior counsel appearing for the original plaintiff, namely, Axis Bank Limited, makes a request to stay the judgment from its operation, implementation and execution for a particular period.
The request made by Mr.Parikh is opposed by Mr.Mihir Joshi and Mr.Kamal B.Trivedi, the two learned senior counsel appearing for the Page 62 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020 C/SCA/18466/2019 CAV JUDGMENT applicants. The request is also opposed by Mr.S.N.Soparkar, the learned senior counsel appearing for the defendants.
To a certain extent, the opposition to stay the judgment is quite justified because that would unnecessarily delay the proceedings before the Commercial Court. However, in the facts and circumstances of the case, we deem fit to stay the operation of this order for a period of fifteen days from today. As we are staying the operation of this judgment for a period of fifteen days, the order passed by this Court dated 20 th November 2019 and which has continued till this date shall further continue till an appropriate order is passed by the Commercial Court, subject to any orders that may be passed by the Hon'ble Supreme Court in the event if the original plaintiff deems fit to challenge this order before the Supreme Court. The order dated 20 th November 2019 reads thus :
"The learned counsel appearing for the respective parties makes a statement that the deal has sailed through. According to the learned counsel, after discharging the debt of respondent no.4, the balance available is approximately 55 Million Euros [55,000,000 € (Euro)] which is approximately Rs.400 crore [Indian Rupee]. This amount of Rs.400 crore is yet to come to India. Till the next date of hearing i.e. 11/12/2019, the amount of 55 Million Euros shall not be brought to India."
(J. B. PARDIWALA, J.) (VIRESHKUMAR B. MAYANI, J.) /CHANDRESH /MOINUDDIN Page 63 of 63 Downloaded on : Fri Mar 06 06:20:21 IST 2020