Punjab-Haryana High Court
Ifci Limited vs M/S Haryana State Industrial And ... on 12 November, 2013
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul, Augustine George Masih
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
CWP-1209-2013 (O&M)
Reserved on : 22.10.2013
Date of Decision : 12.11.2013
IFCI Limited
...Petitioner
Versus
M/s Haryana State Industrial and Infrastructure
Development Corporation Limited and another
...Respondents
CORAM: HON'BLE MR. JUSTICE SANJAY KISHAN KAUL, CHIEF JUSTICE
HON'BLE MR. JUSTICE AUGUSTINE GEORGE MASIH
Present: Mr. Alok Kumar Jain, Advocate,
and Mr. Salil Sabhlok, Advocate,
for the petitioner.
Mr. Rajvir Singh Sihag, Advocate,
for respondent No. 1.
Mr. Kamal Sehgal, Advocate,
for respondent No. 2.
****
SANJAY KISHAN KAUL, C.J.
The inability of three different financial institutions to settle between themselves the ratio of appropriation of the amount realized from the sale of secured assets of a loanee has given rise to the present writ petition.
M/s Lifeline Injects Limited entered into a Foreign Currency Loan (in short FCL) agreement with the IFCI Limited, the petitioner herein. In order to secure the loan, M/s Lifeline Injects Limited executed a deed of hypothecation on the same date qua the movable assets and created mortgage by deposit of title deeds on 28.04.1989 in favour of the petitioner. The disbursement of the loan was made on various dates amounting to US $ 5,10,924.50 Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 2 and based on the applicable exchange rates on the date of disbursement the amount is stated to be crystallized at Rs. 74.53 lacs.
In so far as repayment of the loan by M/s Lifeline Injects Limited is concerned, clause 2.9 of the FCL agreement qua computation of the borrower's liability reads as under:-
"2.9. Computation of Borrower's Liability in Rupee Currency:
Notwithstanding anything contained in this agreement any amount payable/repayable by the borrower to the lenders shall in the first instance be computed in dollars and the rupee equivalent thereof will be calculated in accordance with the rate of exchange prevailing at the time of payment.
For the purpose of this section, the
following conditions shall apply:-
(a) X X X X X X X X X X
(b) The rupee equivalent of the amounts, if any, remaining unpaid by the borrower on the due dates shall be determined on the basis of the exchange rate prevailing on the date of remittance by the lenders to the foreign lenders.
Subsequently, respondents No. 1 and 2 also provided financial assistance to M/s Lifeline Injects Limited which resulted in an inter se agreement between the three parties to the present petition on 10.05.1989.This agreement provided that the mortgage, hypothecation and charge created there under shall all inter se rank pari-passu in point of security without any preference or priority of one over the other for all intents and purposes. The relevant clause in this behalf is recital clause (viii) which reads as under:-
"(viii) It has been agreed by and between the parties hereto that the securities created under the HFC mortgage, HSIDC Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 3 charge and the IFCI charge shall all inter-
se rank pari-passu for all purposes and to all intents and that all moneys resulting from the enforcement and realization of the joint securities as hereinafter defined shall be distributed and shared among HFC, HSIDC and IFCI ranking pari-passu without any preference or priority of one over the other or others and for all purposes and to all intents and that for such purpose and certain other ancillary purposes an agreement being these presents should be entered into by and between the parties hereto in the manner hereinafter appearing."
The agreement mentions that the nature of loans advanced by HSIDC/respondent No. 1 and HFC/respondent No. 2 are term loans of Rs. 76.64 lacs and Rs. 52.00 lacs respectively, while the IFCI loan was FCL of US $ 5,10,925 equivalent to Rs. 67.36 lacs.
Some of the other salient clauses of the agreement dated 10.05.1989, which are germane for the controversy, are as under:-
"1(d) The principal debts shall mean the liabilities of the company in respect of the loans (including principal interest, commitment charges, pre-payment, premium, costs, charges, expenses liquidated damages for default in payment of installments of principal and/or interest and other moneys for the time being outstanding and secured under the joint securities.
2. Charge to rank pari-passu:
Notwithstanding anything to the contrary or by virtue of or by reason of or implied by or contained in the mortgage documents, the mortgage, hypothecation and charge created there under or pursuant thereto shall all inter se rank pari-passu in point of security without any preference or priority of one over the other for all purposes and to all intents.
10. Application of realization
(a) X X X X X X X X X X Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 4
(b) the balance shall
(i) X X X X X X X X X X X
(ii) In the event of moneys so available for distribution being insufficient to pay to each of the joint mortgagees the full amount of the principal debts due to each of them respectively be applied pari passu as nearly as may be practicable, towards payment to each of them in proportion to the principal debts due to each of them without any preference or priority whatsoever, the amount distributable to each of the joint mortgagees shall bear to the total distributable amount the same proportion which the outstanding amount of the principal debts due to each of such joint mortgagees bear to the aggregate of the outstanding amounts of the principal debts due to all of them by the company under the joint securities."
The additional loan facility of Rs. 23 lacs was granted to M/s Lifeline Injects Limited on 12.09.1989 resulting in agreement being signed on 20.10.1989. The third additional inter se agreement was signed on 20.11.1990.
M/s Lifeline Injects Limited became defaulter of the loan over a period of time resulting in proceedings being initiated for sale of its assets by respondent No.1 on 01.02.1998 under the State Financial Corporations Act, 1951 which sale was confirmed in favour of the purchaser on 08.01.1999. Thus, the petitioner wrote to respondent No. 1 on 15.04.1999 to distribute the sale proceeds on pari-passu basis based on the outstanding positions of loans and interest as envisaged in the agreements, but the same did not happen. The contents of the letter from the petitioner to respondent No. 1 read as under:-
"Therefore, you are kindly requested to distribute the sale proceeds amongst first pari passu charge holders viz. IFCI (FC Loan of US $ 5,10,925 and rupee loan Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 5 of Rs. 23 lacs), HSIDC (rupee loan of Rs. 67.36 lacs) and HFC (rupee loan of Rs. 52 lacs) at the earliest."
A number of reminders followed, but with no resolution. The aforesaid, however, gave rise to a joint meeting held on 13.06.2000, where all the three institutions agreed that the sale proceeds would be shared on the basis of the outstanding amount as on the date of confirmation of the sale as per the inter se agreement between the parties. This date undisputedly is 08.01.1999. Thus, according to the petitioner, the ratio in which the sale proceeds had to be worked out was as under:-
Institutions Principal Interest Total Pro-rata share (%) IFCI
(i) FCL (Re. Cryst) 187.94 264.68 452.62
(ii)RTL 9.60 15.81 25.41 478.03 58.91 HSIDC RTL 76.64 111.72 188.36 23.22 HFC RTL 52.00 92.96 144.96 17.87 Total 326.18 485.17 811.35 100.00 The matter, however, got prolonged without any resolution and unfortunately this went on for a couple of years. It is a case of the petitioner that the respondents sought to resile from the earlier stand reflected in the inter se agreement between the parties which culminated in an inter se meeting only between the respondents on 23.11.2004 resolving to distribute the amount as on 'date of its disbursement' and taking the FCL amount of outstanding equivalent to Rs. 67.36 lacs.
A further meeting was held on 11.06.2004 in which representatives of all the three institutions were present where the respective stands of the parties were recorded as under:- Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 6
"DGM (Law), IFCI, however, pointed out that the loan agreement entered into between IFCI and the company stipulated that the amount payable/repayable by the borrower to the lender shall in the first instance be computed in dollars and the rupee equivalent thereof will be calculated in accordance with the rate of exchange prevailing at the time of payment. He further informed that although the company defaulted in repayment to IFCI, but IFCI remitted the payment to the foreign lender at the then prevailing exchange rate. As a result of this, against the disbursement of US $ 5,10,925 (equivalent in Indian currency Rs. 67.00 lacs), the IFCI remitted US $ 5,10,924.50 between December, 1993 and December, 1999, equivalent amount in Indian rupee works out to Rs. 1,87,94,445/-. IFCI, therefore, requested that the sale proceeds may be shared on the basis of the amount outstanding by calculating the equivalent amount in rupees with interest in terms of loan agreement which works out to Rs. 478.03 lacs.
The view of HFC/HSIDC is that principal amount should be taken at rupee equivalent of $ 5,10,925 at the time of signing of inter se agreement i.e. Rs. 67.36 lacs."
Unfortunately, the matter has got dragged on thereafter also for a number of years without any appropriate resolution, though discussions continued and finally the petitioner served a legal notice dated 30.07.2009 followed by another legal notice dated 11.12.2009. However, it did trigger off a joint meeting on 29.12.2010. Various options were explored and the IFCI proposed as under:-
"In view of the above, it was submitted that IFCIs share on the sale proceeds worked out to Rs. 48.65 lacs (58.91%) whereas IFCI was paid an amount of Rs. 25.32 lacs resulting to under payment of IFCI's proportionate share to the extent of Rs. 23.33 lacs from the sale proceeds. IFCI requested that its share based on the Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 7 above sharing ratio should be released on recovery from HSIDC and HFC."
It is recorded in the minutes immediately thereafter as under:-
"The Committee after deliberations, considering the above facts placed by IFCI, felt that there is prima-facie a case for consideration. The Committee decided to review the sharing of the sale proceeds already made. It was then decided that IFCI would submit the detailed documents in support of the claim inter alia the following listed documents for consideration of the Committee:-
(i) Statement of outstanding dues against the rupee crystallized FCL of IFCI as on cut-off date of 08.01.1999.
(ii) Copy of the FCL agreement executed between IFCI limited and M/s Lifeline Injects Limited.
(iii) USD exchange rates on the relevant date/s of disbursement and rupee crystallization."
Since the matter did not get resolved, the present writ petition was filed under Article 226 of the Constitution of India by the petitioner seeking directions against the respondents to distribute the amounts by correctly applying the proper percentages. The petition has been contested by the respondents.
We noted with regret on 13.08.2013 that these three public institutions were fighting among themselves and not able to resolve the issue. The assets sold had realized less amount than the outstanding of the three institutions taken together and, thus, the issue was division of proceeds. The principal dispute arose from the fact that while the petitioner had given foreign currency sub loan, the loan advanced by the two respondents was in Indian rupees. The loan of the petitioner was disbursed from time to time and the Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 8 principal amount, as per the petitioner, was to be the amount debited to the borrower as and when the loan was taken dependent on the foreign exchange rate at that time. On the other hand, the stand of the respondents was that the rate of US dollars equivalent calculated at the stage of tripartite agreement dated 10.05.1989 should be taken as the principal amount. We also took note of the fact that as per the minutes of the meeting held on 13.06.2000, there was an agreement inter se the parties that the outstanding amount as on date of confirmation of sale i.e. 08.01.1999 had to be the basis of the ratio of division of the proceeds, but the aforesaid dispute had remained unresolved for more than a decade. Learned counsel for the parties assured that they would endeavour to arrive at an amicable solution and we called upon the Managing Directors of all the three institutions to nominate senior level officers who could sit together to resolve the issue as it was really the issue of money going from one pocket of the government to the other.
The aforesaid order did produce a series of meetings held on 03.09.2013, 12.09.2013, 18.09.2013 and 20.09.2013, but alas, once again there has been no resolution and, thus, we are called upon to adjudicate upon the controversy.
We have perused the minutes of the aforesaid meetings also which show that on the basis of the cut-off date i.e. date of confirmation of sale on 08.01.1999, tables were drawn on the basis of total outstanding amount of loans as well as on the basis of outstanding principal loans and the petitioner expressed its willingness to accept any of the two options. Respondent No. 2, however, was of the view that the basis of arriving at the outstanding figures in respect of foreign currency loan as on the Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 9 cut-off date i.e. 08.01.1999 was not acceptable to them as the petitioner had worked out the amounts by converting rupee equivalent of the FCL on the basis of exchange rate on repayment of the foreign currency loan and not on the basis of disbursement thereof. Respondent No. 2 opined that sharing of sale proceeds should be based on the actual disbursement made by each institution on rupee equivalent terms as on date of disbursement. Respondent No. 1 found neither of the options acceptable on the same logic as respondent No. 2, but in order to resolve the issue was willing to go by the basis of actual disbursement made by each institution on rupee equivalent terms as on the date of disbursement. The subsequent minutes of meeting show that the IFCI, however, stuck by its stand as the loan extended by it was in foreign currency which is converted/crystallized into rupee only when the amount is outstanding as per the terms of the foreign currency loan agreement. The loan ledger-sheets evidencing sanction/disbursement of loans were also exchanged.
We have given our thought to the matter on the conspectus of the inter se agreements between the parties as well as to the extent that there was consensus among the parties.
The first agreement dated 18.09.1987 was between the borrower - M/s Lifeline Injects Limited and the petitioner. It was an FCL agreement. In terms of the said agreement, the foreign currency loan was to the tune of US $ 5,10,925 equivalent to 'about' Rs. 67.36 lacs at the then exchange/holding rate of US $ 7.585 = Rs. 100/-. The loan amount was disbursed from time to time. The interest chargeable on this amount specified was at floating rate of 1.5% over and above the six monthly London Inter Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 10 Bank Offered Rate (in short LIBOR). Thus, it is clear that since the loan was in dollar terms, the rates of interests were also to be on the much lower side as applicable to international transactions and was, thus, governed by LIBOR rates.
Clause 2.7 refers to repayment. The principal amount was to be repaid sufficiently in advance to the lenders to fulfill their obligations under the foreign currency agreement on the due dates. Clause 2.9 reproduced aforesaid clearly stipulates that any amount payable by the borrower to the lenders would in the first instance be computed in dollars and the rupee equivalent thereof would be calculated in accordance with the rate of exchange prevailing 'at the time of payment'. The same clause also provides that the rupee equivalent of the amounts remaining unpaid by the borrower on due dates shall be determined on the basis of the exchange rate prevailing on the date of remittance by the lenders to the foreign lenders. Thus, the quantification of liability under this agreement unequivocally and clearly provides for the exchange rate to be made applicable, as prevalent from time to time, as the repayment by the petitioner to the foreign bank was dependent on the rates prevalent on the date of such remittance. The FCL agreement by its very nature of loan transactions provides so and logically so as the obligations were in dollars whether between the borrower and the lender or between the lender and the foreign bank.
In so far as the subsequent arrangement to the inter se agreement dated 10.05.1989 is concerned, the same provides for assistance of term loans to the borrower given by the respondents and recognizes the FCL extended by the petitioner in US dollar terms which is equivalent in Indian rupees. The securities were to Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 11 rank pari-passu for all purposes. The definition clause 1(d) describes principal debts to mean the liabilities of the company in respect of the loans which include not only the principal, but interest, commitment charges, pre-payment, premium, costs, charges, expenses, liquidated damages for default in payment of installments etc. As to how the balance had to be distributed where the realization was less than the dues has been made clear as per Clause 10b(ii) i.e. in proportion to the principal debts due to each of them without any preference or priority. We have already noticed that the principal debt would be inclusive of interest. Thus, it is the total outstanding of each of the parties which has to be taken into account to determine the share of the parties.
It can hardly be doubted that as to what amount is due under the respective loan agreements of the three parties would in turn be governed by the three respective agreements. While the loan agreements of the respondents with the borrower are term loan agreements, the loan agreement between the petitioner and the borrower is an FCL agreement. Thus, the loan outstanding on the borrower qua the petitioner has to be governed by what is reflected in their account which in turn has to be calculated as per the FCL agreement. The reference to the figure of Rs. 67.36 lacs is in the recital of the tripartite agreement in the context of mention of the US dollars FCL loan account on the basis of its disbursement. That being the position, the total loan outstanding, as stated above, in respect of the FCL account of the borrower with the petitioner would be as per the FCL agreement which in turn provides for the dollar rate to be taken into account while remitting the amount to the foreign lender by the petitioner. That the total out-flow which is outstanding from the borrower cannot be worked out only on the notional figure of Sharma Amodhdisbursement when the repayment has to be in dollar terms. 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh CWP-1209-2013 (O&M) 12
We are, thus, in agreement with the views of the petitioner and do not find force in the contention of the respondents that it is the rupee equivalent terms as on the date of disbursement which should be taken into calculation.
We have benefit of the relevant figures in view of the subsequent minutes of the meeting held recently and option 1 as worked out by the IFCI in its meeting held on 03.09.2013 taking cut- off date as 08.01.1999 would, thus, reflect the correct figures. The relevant table is, thus, reproduced hereunder:-
Institutions Principal Interest Total Pro-rata Outstanding share (%) IFCI FCL (Re. Cryst) 187.94 264.68 452.62 RTL 9.60 15.81 25.41 197.54 280.49 478.03 58.91 HSIDC RTL 76.64 111.72 188.36 23.22 HFC RTL 52.00 92.96 144.96 17.87 Total 326.18 485.17 811.35 100.00 The pro-rata share, thus, among the petitioner, respondent No. 1 and respondent No. 2 on applying it for disbursement inter se the parties qua the amount realized from the borrower M/s Lifeline Injects Limited would be 58.91% : 23.22% : 17.87%. Respondent No. 2 would, thus, take steps to forthwith release the deficient amount to the petitioner and re-distribute the amount as specified. The needful be done within maximum period of one month.
The writ petition is accordingly allowed leaving the parties to bear their own costs.
(SANJAY KISHAN KAUL) CHIEF JUSTICE (AUGUSTINE GEORGE MASIH) JUDGE 12.11.2013 Amodh Sharma Amodh 2013.11.12 15:10 I attest to the accuracy and integrity of this document chandigarh