Bombay High Court
Aditya Birla Finance Ltd vs Airen Metals Pvt. Ltd. And 4 Ors on 1 October, 2021
Author: B. P. Colabawalla
Bench: B.P.Colabawalla
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM. ARBITRATION PETITION (L) NO. 6754 OF
2021
Aditya Birla Finance Limited ...Petitioner
Vs.
Airen Metals Private Limited & Ors. ...Respondents
Mr. Cyrus Ardeshir with Madhavi Nathuri i/b Vertices Partners
for the Petitioner.
Mr. Hrishikesh Chitaley with Mr. Hitesh B. Sangle for the
Respondents.
CORAM :- B.P.COLABAWALLA, J.
DATE :- OCTOBER 01, 2021.
P. C.:
1. The present Petition is filed under Section 9 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act") seeking the following reliefs:
"a. That pending the hearing and final disposal of the present Petition, the Respondent 1 be directed to deposit the amount of INR 3, 89, 51, 964/- (Rupees Three Crores Laxmi 1/35 6 CARBPL 6754-21.O.doc Eighty Nine Thousand Fifty One Thousand Nine Hundred Sixty Four Only) along with the interest @ 10.25% amounting to total amount of INR 3, 89, 51, 964/- (Rupees Three Crores Eighty Nine Thousand Fifty One Thousand Nine Hundred Sixty Four Only), being the outstanding amount due and payable by the Respondents to the Petitioner as per the Particulars of Claim annexed as per Exhibit "AA" to the Petition, by depositing the said amount in this Hon'ble Court or in such other manner as this Hon'ble Court deems fit;
b. That pending the hearing and final disposal of the present Petition the Respondent No. 1, their agents, servants or any other person claiming through or under them be restrained by a temporary order and injunction of this Hon'ble Court from, in any manner, directly or indirectly, dealing, selling, offering for sale, causing it to be offered for sale, transferring, causing to be transferred, parting with possession of, delivering, creating or causing to be created any third party rights of whatsoever nature, or any right, title and interest in the immovable and movable properties of the Respondent No.1;
b(i) That pending the hearing and final disposal of the present Petition, the Respondent No.1 be directed to fully disclose on oath all moveable and immoveable assets owned by Respondent No.1;
b(ii) That pending the hearing and final disposal of the present Petition, Respondent no.1, their agents, servants or any other person claiming through or under them be restrained by a temporary order and injunction of this Hon'ble Court from, in any Laxmi 2/35 6 CARBPL 6754-21.O.doc manner, directly or indirectly, dealing, selling, offering for sale, causing it to be offered for sale, transferring, causing to be transferred, parting with possession of, delivering, creating or causing to be created any third party rights of whatsoever nature, or any right, title and interest in the immovable and movable properties of the Respondent no.1 as disclosed on oath in terms of b(i) above;"
2. The relief regarding the deposit of the amounts are concerned [prayer clause (a)], the same is sought on the basis that the 1st Respondent - Company has admitted its entire liability to the Petitioner and hence, the same warrants an order of deposit under Section 9 of the Arbitration Act. This is coupled with the fact that the 1st Respondent - Company has created a charge on all its movable and immovable assets in favour of the Union Bank of India and therefore, any Award that may be passed in favour of the Petitioner [in the proposed Arbitration] would be rendered only a paper Award. It is in these circumstances that relief is also sought in relation to the disclosure of assets [prayer clause b (i) above] as well as an order of injunction in relation to the assets disclosed [prayer clause b (ii) above].
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3. The Petitioner is a non-banking finance company and had granted certain facilities to Respondent No.1 - Company. Respondent Nos. 2 to 5 are the Directors of the 1st Respondent - Company and have also executed guarantees in favour of the Petitioner to secure the monies advanced by the Petitioner to the 1st Respondent.
4. At the outset, Mr. Chitaley, the learned counsel appearing on behalf of the Respondents, submitted that though in the present Petition no relief is sought against Respondent Nos. 2 to 5, even otherwise, no relief can be granted against the said Respondent Nos.2 to 5. This is for the simple reason that Respondent Nos. 2 to 5 have approached the NCLT, Jaipur Bench on 1st September 2021 and filed an Application under Section 94 of the Insolvency and Bankruptcy Code, 2016 (for short "IBC") being an Application by a debtor to initiate the insolvency resolution process. He submitted that there is an automatic moratorium when such an application is filed as more particularly set out in Section 96 of the IBC. This being the position, no relief can be granted in any case against Respondent Nos. 2 to 5. As an example, Mr. Chitaley Laxmi 4/35 6 CARBPL 6754-21.O.doc also tendered to the Court a copy of the Application filed by Respondent No. 3 (Sudhir Kumar Agarwal) before the NCLT under Section 94 of the IBC.
5. Mr. Ardeshir, the learned counsel appearing on behalf of the Petitioner submitted that in the present Petition, the Petitioner is only seeking reliefs against the 1st Respondent - Company, who is the principal borrower and not against Respondent Nos. 2 to 5, who are the guarantors. He submitted that separate Petition/Petitions shall be filed against Respondent Nos. 2 to 5 in their capacity as guarantors seeking various interim reliefs. As and when those Petition/s are filed, it is at that time that the Court may consider whether the Petitioner is entitled to any relief against Respondent Nos.2 to 5, despite them approaching the NCLT under section 94 of the IBC. Mr. Ardeshir stated that for the time being, they are pressing for reliefs as set out above only against the Respondent No.1 - Company.
6. The brief facts that give rise to the present controversy are undisputed. The Respondent No.1 - Company is engaged inter- Laxmi 5/35
6 CARBPL 6754-21.O.doc alia in the business of manufacturing base metals. The 1st Respondent - Company provides copper flats, wires, bars, tubes, strips, sheets and other related products. The Petitioner and one Hindalco Industries Limited (for short "HIL") belong to the same group, namely the Aditya Birla Group. The Petitioner and HIL entered into a Memorandum of Understanding dated 15th March, 2017 (for short the "MOU") under which the Petitioner agreed to provide a Channel Finance Facility to the Dealers/Distributors/ Customers of HIL. Under this MOU it was agreed that HIL would share the details of the concerned borrower by way of an Introduction Letter. The finance to be granted to the borrower would be a Channel Finance and the sanction limit would be set by the Petitioner based on the due diligence of the borrower. The borrower would be introduced by HIL and when HIL supplies the products to the borrower, the Petitioner would directly make payment to HIL on behalf of the borrower on or before the due date as per the invoice. The tenure of this MOU was for a period of five years from the date of signing and was to be reviewed on a yearly basis on the expiry of the 12th month of each calendar year. This MOU specifically provided that the finance facility provided by the Laxmi 6/35 6 CARBPL 6754-21.O.doc Petitioner to any borrower introduced by HIL would be without any recourse to HIL.
7. In terms of the aforesaid MOU, HIL recommended the name of the 1st Respondent - Company for the purpose of availing the Channel Finance Facility from the Petitioner. After conducting due diligence, pursuant to a sanction letter dated 6th July, 2018, financial assistance to the tune of Rs. 4 Crores came to be sanctioned by the Petitioner in favour of the 1st Respondent - Company. To encapsulate the terms of the financial assistance, the Petitioner and Respondent No.1 - Company entered into a Facility Agreement dated 10th July, 2018. Under this Facility Agreement, the terms and conditions governing the financial assistance came to be reduced in writing to secure the financial assistance availed of by the Respondent No.1 - Company. Respondent Nos. 2 to 5 also provided their personal guarantees in favour of the Petitioner dated 10th July, 2018. The 1st Respondent - Company also issued a demand promissory note of the same date in favour of the Petitioner to the tune of Rs. 4 Crores to secure the financial assistance granted by the Petitioner to the 1st Respondent - Company. In addition to the deed Laxmi 7/35 6 CARBPL 6754-21.O.doc of guarantee executed by Respondent Nos. 2 to 5 as well as the demand promissory note executed by Respondent No.1 - Company, the 1st Respondent - Company also executed five cheques all in the sum not exceeding Rs.80,00,000/- each in favour of the Petitioner. These cheques were forwarded to the Petitioner along with a covering letter dated 12th July, 2018. It is not in dispute that the financial assistance as contemplated in the Facility Agreement dated 10th July, 2018, was availed of by the 1st Respondent - Company. The Facility Agreement and the finances disbursed thereunder were thereafter extended from time to time, as mentioned in the above Petition.
8. Since the 1st Respondent - Company did not clear their outstandings, the Petitioner by its demand notice dated 22nd July, 2020 called upon Respondent No.1 - Company to clear its outstanding dues. It is the case of the Petitioner that, in reply of the aforesaid demand notice, the 1st Respondent - Company started levelling sham, baseless and bogus allegations against HIL and demanded that the profit booked by HIL for the material sold by it, and which was manufactured for the Respondent No.1 - Company, Laxmi 8/35 6 CARBPL 6754-21.O.doc be recovered by the Petitioner from HIL. This was, of course, refuted by the Petitioner in its letter dated 8th August, 2020 and the 1st Respondent - Company was once again called upon to clear their outstanding dues. This was once again reiterated by the Petitioner vide its letter dated 7th September, 2020. Thereafter, some more correspondence was exchanged between the parties (as set out in the Petition). Since the dues of the Petitioner were not paid by the Respondents, they have filed the present Petition under Section 9 of the Arbitration Act seeking interim reliefs more particularly set out above. I must also mention that the Petitioner has invoked the Arbitration Clause between the parties vide its letter dated 10th September, 2021.
9. In this factual backdrop, Mr. Ardeshir, the learned counsel appearing on behalf of the Petitioner, submitted that there is no dispute that the 1st Respondent - Company has availed of the financial assistance given by the Petitioner under the aforesaid Facility Agreement and utilized the monies thereunder. He submitted that this apart, the Respondents have, time and again, admitted their liability to the Petitioner. In this regard, Mr. Ardeshir Laxmi 9/35 6 CARBPL 6754-21.O.doc placed reliance on the letter dated 2nd August, 2020 addressed by the 1st Respondent - Company to the Petitioner wherein the 1st Respondent has admitted that a sum of Rs. 372.72 Lakhs was outstanding as the principal amount and interest thereon is extra. Thereafter, he also brought to my attention a letter dated 12th September, 2020 wherein, the 1st Respondent - Company, far from disputing the claim of the Petitioner, has in fact stated that a financial facility was granted by the Petitioner to the 1st Respondent
- Company to the tune of Rs. 4 Crores against which five blank cheques (without any date and amount) were issued in favour of the Petitioner as per the terms of the sanction letter. Since the pandemic had affected their business adversely, Respondent No.1 - Company requested the Petitioner not to deposit the aforesaid five cheques. Mr. Ardeshir submitted that even this letter clearly shows that the 1st Respondent had admitted its liability to the Petitioner. Thereafter, Mr. Ardeshir drew my attention to Paragraph No. 43F of the Affidavit-in-Reply filed on behalf of the Respondents. He submitted that even in this affidavit, the Respondents have admitted that they are in default of an amount of Rs. 372.72 Lakhs towards the Petitioner and that the 1st Respondent - Company has also Laxmi 10/35 6 CARBPL 6754-21.O.doc sought for restructuring of its accounts with Union Bank of India (Bank of the 1st Respondent - Company). Lastly, Mr. Ardeshir submitted that even in the application filed before the NCLT by Mr. Sudhir Kumar Agarwal (Respondent No. 3, who is a Director of the Respondent No.1 - Company), the liability of the 1st Respondent - Company is admitted to the extent of Rs. 3,83,59,728/-. This being the factual position, Mr. Ardeshir submitted that this was a fit case for the 1st Respondent - Company to be directed to deposit in this Court the admitted amounts so as to secure the claim in the proposed arbitration to be initiated by the Petitioner.
10. To justify the order of deposit, Mr. Ardeshir submitted that this Court has ample power to direct the 1st Respondent - Company to deposit the admitted amount as there is no real dispute that the same is due and payable by the 1st Respondent - Company to the Petitioner. In this regard, Mr. Ardeshir relied upon a decision of a Division Bench of this Court in the case of Jagdish Ahuja Vs. Cupino Limited [2020 SCC OnLine Bom 849], and a decision of a learned Single Judge (G. S. Patel, J.) in the case of Kotak Mahindra Bank Ltd Vs. Williamson Magor & Co. Ltd. & Laxmi 11/35 6 CARBPL 6754-21.O.doc Anr. [2021 SCC OnLine Bom 305]. Mr. Ardeshir then submitted that the financial condition of the 1st Respondent - Company is precarious at best. He submitted that according to the 1st Respondent - Company, its entire assets are mortgaged with Union Bank of India. Further, the 1st Respondent - Company has itself admitted in correspondence that due to the pandemic their business has been adversely affected and Union Bank of India has imposed severe restrictions on their account operations. Looking at the financial condition of Respondent No.1 - Company, Mr. Ardeshir submitted that apart from the order of deposit, this Court should also direct the 1st Respondent to disclose on oath all its movable and immovable assets and pass an order of injunction in relation to those assets. In other words, Mr. Ardeshir submitted that the Petitioner is also entitled to interim reliefs in terms of prayer clauses b(i) and b(ii) reproduced earlier.
11. On the other hand, Mr. Chitaley, the learned counsel appearing on behalf of the Respondents, submitted that the present petition is not maintainable because there is no enforceable Arbitration Agreement between the Petitioner and the Respondents. Laxmi 12/35
6 CARBPL 6754-21.O.doc He submitted that in the facts of the present case, the Arbitration Clause authorizes the Petitioner to unilaterally appoint a Sole Arbitrator to decide the disputes and differences between the Petitioner and the 1st Respondent - Company. He submitted that it is now well settled that no party to an Arbitration Agreement can have unilateral power to appoint a Sole Arbitrator, considering that such a party is interested in the outcome of the Arbitration proceedings. He, therefore, submitted that this invalidates the Arbitration Agreement itself and hence, there is no question of granting any relief to the Petitioner under Section 9 of the Arbitration Act. In support of this contention, the learned counsel relied upon a decision of the Supreme Court in the case of Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. [2019 SCC OnLine SC 1517].
12. Without prejudice to the aforesaid argument, Mr. Chitaley then submitted that no order ought to be passed in favour of the Petitioner considering that the Petitioner has security available through its sister concern (HIL) under the Facility Agreement entered into between the Petitioner and Respondent Laxmi 13/35 6 CARBPL 6754-21.O.doc No.1 - Company. It is the obligation of that sister concern (HIL) to secure the amounts payable to the Petitioner, was the submission. He submitted that the Petitioner and HIL are managed by the same group and have substantially the same management controlling the two companies. He submitted that it is pertinent to note that the sanction of the financial assistance by the Petitioner was an unsecured loan to the 1st Respondent - Company and there was no collateral security demanded from the 1st Respondent - Company by the Petitioner. This is because the goods that were to be supplied by HIL to the 1st Respondent were more or less the security for the Petitioner. In this regard, Mr. Chitaley relied upon certain clauses of the Facility Agreement and more particularly on clauses 5, 6, 8 and 8.3 thereof. Mr. Chitaley also brought to my attention a detailed letter written by the 1st Respondent - Company to the Petitioner dated 2nd August, 2020 wherein, the 1st Respondent informed the Petitioner that they have pending copper bookings of 933.131 Metric Tons from HIL and the current rate of copper is higher and would amount to 7.22 Crores. The outstandings of the Petitioner may therefore be recovered from HIL. He, therefore, submitted that no order ought to be passed in the present Petition and the Petitioner Laxmi 14/35 6 CARBPL 6754-21.O.doc be directed, if at all, to recover its dues from HIL.
13. The last argument canvassed by Mr. Chitaley was that in the present case, an interim measure of protection was granted to the Petitioner by this Court vide its order dated 1st April, 2021. Section 9(2) of the Arbitration Act stipulates that a party may, before the commencement of the Arbitral proceedings apply to the Court for an order for interim measures of protection under Section 9(1) of the Arbitration Act and the same shall commence within a period of 90 days from the date of such order or within such further time as the Court deems fit. In the facts of the present case, the invocation of the Arbitration Agreement by the Petitioner is only on 10th September, 2021 which is far more than the period of 90 days as stipulated in Section 9(2) of the Arbitration Act. This is yet another reason as to why the Petitioner is not entitled to any interim reliefs, was the submission of Mr. Chitaley. For all the aforesaid reasons, Mr. Chitaley submitted that the above petition be dismissed with costs.
14. I have heard the learned counsel for both parties at great Laxmi 15/35 6 CARBPL 6754-21.O.doc length and have perused the papers and proceedings in the above Arbitration Petition. As mentioned by me earlier, the facts of the present matter are undisputed. It is in fact admitted that the 1st Respondent - Company availed of financial assistance to the tune of Rs.4 Crores from the Petitioner. In this regard, a Facility Agreement was entered into between the Petitioner and the 1st Respondent - Company dated 10th July, 2018. The 1st Respondent - Company also executed a demand promissory note of the same date to the tune of Rs.4 Crores in favour of the Petitioner and also issued five blank cheques in favour of the Petitioner each in the sum not exceeding Rs. 80 Lakhs. Further, to secure the aforesaid amounts, Respondent Nos. 2 to 5 also gave their personal guarantees in favour of the Petitioner dated 10th July, 2018. It is also not disputed that the 1st Respondent - Company defaulted in repaying their outstandings to the Petitioner. In fact, from the record, it is clear that the 1st Respondent - Company has time and again admitted its liability to the Petitioner. One such admission can be found in the 1st Respondent's letter dated 2nd August, 2020 (page 183-185 of the paper book). In the said letter, the 1st Respondent - Company has categorically admitted that the outstanding principal amount as on Laxmi 16/35 6 CARBPL 6754-21.O.doc 2nd August, 2020 is Rs. 372.72 Lakhs. It has also admitted that interest would be extra. Further, even in the Affidavit in Reply filed before this Court, the same admission has been made in paragraph 43F thereof. The said paragraph reads as under:-
"F. The Respondent No.1 owing to unavoidable circumstances was in default of an amount of Rs. 372.72 Lakhs only towards the petitioner company and there were several communications exchanged inter-se between the parties in relation to the outstanding principal amount. The Respondent No.1 had also sought restructuring of the said account with its main banker Union Bank of India."
15. This does not stop here. In the Application filed by Respondent No.3 herein before the NCLT, Jaipur Bench, [under Section 94 of the IBC], the dues of the Respondent No.1 - Company have been clearly admitted in Annexure 18 to the said Application. In the said Annexure, it is clearly stated that an amount of Rs.3,83,59,728.71/- is due and payable by Respondent No.3 as a guarantor to the Petitioner, of which Respondent No.1 - Company is the principal borrower. These facts are undisputed and at least prima facie, I am satisfied that the 1st Respondent - Company has clearly admitted its liability to the Petitioner. Laxmi 17/35
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16. However, before I proceed further and consider whether the Petitioner is entitled to any relief, it would only be apposite to deal with the arguments canvassed by Mr. Chitaley. The first argument canvassed by Mr. Chitaley was that the Arbitration Agreement itself is invalid because it gives the Petitioner the unilateral power to appoint a Sole Arbitrator to decide the disputes and differences between the Petitioner and the 1st Respondent - Company arising out of the Facility Agreement dated 10th July, 2018. In support of this submission, Mr. Chitaley relied upon the decision of the Supreme Court in the case of Perkins Eastman (supra). I am afraid that this submission of Mr. Chitaley is only partly correct. Mr. Chitaley is correct in his submission when he states that after the amendment of 2015 [to the Arbitration Act], the Petitioner does not have the unilateral power to appoint a Sole Arbitrator to decide the disputes and differences between the Petitioner and the 1st Respondent - Company. This has been clearly held by the Supreme Court in the case of Perkins Eastman (supra). However, that by itself does not invalidate the Arbitration Clause. The right to go to Arbitration still subsists and survives notwithstanding the fact that Laxmi 18/35 6 CARBPL 6754-21.O.doc now, after the 2015 amendment, the Petitioner does not have the unilateral power to appoint an Arbitrator to decide the disputes and differences between the Petitioner and the 1st Respondent - Company. In an Arbitration Agreement, if one of the parties to the dispute has been given the unilateral power to appoint an Arbitrator, then notwithstanding that power, and in the absence of an Agreement between the parties, the party seeking the constitution of the Arbitral Tribunal, would have to come to Court under Section 11 of the Arbitration Act and seek the appointment of an Arbitrator. Merely because the Petitioner does not have the right to appoint a Sole Arbitrator, that does not by itself, make the Arbitration Agreement invalid and/or void ab-initio. It is pertinent to note that in the decision of the Supreme Court in the case of Perkins Eastman (Supra), after holding that a party interested in the outcome of the Arbitration proceedings does not have any unilateral power to appoint an Arbitrator, the Supreme Court in Paragraph 38 proceeded to appoint Justice A. K. Sikri, a former Judge of the Supreme Court, as the Sole Arbitrator to decide the disputes arising between the parties thereof. Paragraph 38 of the said decision reads thus:
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6 CARBPL 6754-21.O.doc "38. In the aforesaid circumstances, we accept the application, annul the effect of the letter dated 30.07.2019 issued by the respondent and of the appointment of the arbitrator. In exercise of the power conferred by Section 11(6) of the Act, we appoint Dr. Justice A.K. Sikri, former Judge of this Court as the sole arbitrator to decide all the disputes arising out of the Agreement dated 22.05.2017, between the parties, subject to the mandatory declaration made under the amended Section 12 of the Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the Act. A copy of the Order be dispatched to Dr. Justice A. K. Sikri at 144, Sundar Nagar, New Delhi - 110003 (Tel. No. : - 011 - 41802321).
The arbitrator shall be entitled to charge fees in terms of the Fourth Schedule to the Act. The fees and other expenses shall be shared by the parties equally."
17. This itself indicates that even the Supreme Court, in the case of Perkins Eastman (Supra), was of the opinion that merely because one of the parties interested in the Arbitration does not have the unilateral power to appoint an Arbitrator, the same would not invalidate the Arbitration Agreement in its entirety. Apart from this, the exact same issue was argued before me in the case of Tata Capital Finance Services Limited Vs. Mitashi Edutainment Private Limited (Commercial Arbitration Petition No. 457 of 2021 decided on 8th September, 2021). In the said decision, I have held as under:
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"18. The second argument canvassed by Mr. Shirvate was that the Arbitration clause is invalid in view of the fact that the same grants unilateral power to the Petitioner to appoint a sole Arbitrator to adjudicate the disputes and differences between the Petitioner and the Respondents. I find no merit in this argument either. It is true, and now well settled, that the Petitioner does not have unilateral power to appoint a Sole Arbitrator to decide the disputes and differences between the Petitioner and the Respondents. However, this does not mean that the Arbitration clause is thereby rendered invalid. In a case where, in the Arbitration Agreement, one of the parties to the dispute is given the unilateral power to appoint an Arbitrator, then, notwithstanding that power and in absence of an agreement between the parties, the party seeking the constitution of the Arbitral Tribunal would have to come to Court under Section 11 of the Arbitration Act and seek the appointment of an Arbitrator. Merely because, the Petitioner does not have a right to appoint a Sole Arbitrator, that, does not by itself, make the Arbitration Agreement invalid and/or void ab-initio. I, therefore, find no merit in this contention either. It is hereby rejected."
18. In view of the aforesaid discussion, I have no hesitation in rejecting the first argument canvassed by Mr. Chitaley.
19. The second argument canvassed by Mr. Chitaley was that no order ought to be passed in favour of the Petitioner considering that security is available to the Petitioner through its sister concern (HIL) and it is the obligation of the Petitioner under the Facility Agreement to recover its dues owed by the 1st Laxmi 21/35 6 CARBPL 6754-21.O.doc Respondent - Company to the Petitioner from its sister concern, HIL. To understand this argument, it would be appropriate to reproduce the clauses relied upon by Mr. Chitaley, namely, clauses 5, 6 and 8.3 of the Facility Agreement. The aforesaid clauses read as under:
"5. REPAYMENT AND RECOVERY 5.1 Subject to the other provisions of this Agreement, the method of recovery of the amounts due under the Facility shall be as follows:
5.1.1. the buyer hereby confirms and acknowledges that he/she/it has been is irrevocably and unconditionally instructed by the Seller to deposit the amounts due under the relevant Invoice(s) or under the Disbursement Request to the Facility Provider in the manner designated by the Facility Provider for this purpose. The Buyer hereby furnishes his/its unconditional and irrevocable acceptance of these instructions by virtue of signing the agreement;
5.1.2. The facility provider shall forthwith on such deposit by the buyer be entitled to appropriate the same towards the dues under the Disbursement Request or under Invoice Payment on a first in first out basis towards settlement of principal amount interest or additional interest due from the Buyer to the Facility Provider at the Facility Provider's discretion.
5.1.3. In payment of the dues to the Facility Provider, the Buyer agrees that all payments to be made by the Buyer to the Facility Provider shall be by way of ECS mandate by the Buyer in favour of the Finance Parties on a scheduled bank at the city in Laxmi 22/35 6 CARBPL 6754-21.O.doc which the office of the Finance Parties is situated unless any other place or such other account has been notified by the Finance Parties to the Borrower in advance in writing. Provided however, payment made directly to the Facility Provider by real time gross settlement (RTGS) to the account of the Facility Provider may be accepted as a mode of payment.
5.1.4. The buyer agrees and understands that it/he will be required to make payment under the Approved Invoices, even if the Goods supplied by the seller to the buyer are returned by the Buyer to the Seller or goods were damaged/lost in transit.
6. DEFAULT EVENT 6.1 The full repayment of the Debt shall be required to be made by the Buyer under this Facility in accordance with this Agreement and the Buyer confirms and acknowledges the same. In case of any failure on the part of the Buyer to make the said payments as it becomes due on the due dates as specified by the Facility Provider, it shall be deemed to be a "Default Event". Upon the occurrence of a Default Event, following shall take place;
6.1.1. Any payments made by the Buyer, held by or vesting in the Seller towards settlement of the Debt, or part thereof, by the Buyer, under the approved Invoices or under Disbursement Request shall be held by the Seller in trust for the Facility Provider and the Seller has undertaken to ensure that all of the same shall be appropriated towards repayment of the debt amount under the concerned approved Invoice(s). In the event of such appropriation towards repayment of the Facility, the Buyer agrees and undertakes not to object, raise any demur or protest to such appropriation and shall not obtain any order, decree or injunction prohibiting or restricting the Facility Provider or the Seller in this regard.Laxmi 23/35
6 CARBPL 6754-21.O.doc 6.1.2. In the case that the buyer fails to make payment under the approved Invoices/disbursement request as on the due date, the Buyer confirms and would ensure that the Seller shall assign, transfer and release unto the Facility Provider all the Seller's right, title, interest and benefit in and to the Approved Invoice(s)/Disbursement Request together with all Associated Rights and incidental rights there too including the rights and benefits there under and the Facility Provider shall require the Seller to execute the deed of assignment if required in favour of the Facility Provider in a manner acceptable to the Facility Provider and the cost of such deeds and documents will be first paid by the Facility Provider and shall be recovered by the Facility Provider from the Buyer. In such an event, the Buyer agrees and undertakes that it shall not object, raise any demur or protest to such assignment of Seller's right, title, interest and benefit in and to the approved Invoice(s) together with all Associated Rights and incidental right there too including the rights and benefits thereunder in favour of the Facility Provider. Further, Buyer agrees and undertakes not to object to such transfer and shall not obtain any order, decree or injunction prohibiting or restricting the Facility Provider or the Seller in this regard.
6.1.3. In the case that the Buyer fails to make payment under the Approved Invoices or as mentioned under the Disbursement Request as on the due date, the Seller has agreed that, on receipt of the written instructions of the Facility Provider, it will stop any further supply of Goods or Services to the Buyer till such time the Debt has been repaid in accordance with the terms of the Facility. The Buyer shall not object or raise any demur or protest with respect to the said stopping of supply of goods or services.
6.1.4. In the case that the Buyer fails to make payment under the Approved Invoices or under the Disbursement Request as on the due date, the Buyer undertakes that it would endeavour that Seller Laxmi 24/35 6 CARBPL 6754-21.O.doc on receipt of the written instructions of the Facility Provider, shall forthwith transfer to Facility Provider all credit/deposits/securities of the Buyer lying with them. The Buyer shall not object or raise any demur or protest with respect to the said transfer of any credits/deposits/securities and shall not obtain any order, decree or injunction prohibiting or restricting the Facility Provider or the Seller in this regard.
8.3 SECURITY The Facility Provider may require the Buyer to provide, to the Facility Provider such other security in such form and in such manner as may be acceptable to the Facility Provider. The Buyers shall at its expense, execute such necessary documents and instruments in favour of the Facility Provider as may be required by the Facility Provider. The Facility Provider may, as security for the payment and discharge by the Buyer of the Debt becoming due and payable by the Buyer to the Facility Provider under this Agreement may require the Buyer to:
8.3.1. Create charge by the way of hypothecation and/or pledge over the Buyer's goods, debts and assets in favour of the Facility Provider; and/or 8.3.2. Procure Personal guarantee of the directors, partners and other persons acceptable to the Facility Provider in a form satisfactory to the Facility Provider."
20. On carefully examining these clauses, prima facie, I do not find that there is any obligation cast upon the Petitioner to recover the outstandings of the 1st Respondent - Company from HIL. What these clauses contemplate is that the Petitioner has an option Laxmi 25/35 6 CARBPL 6754-21.O.doc to recover these monies from HIL if it so chooses. It does not mean that it is barred from recovering these amounts from Respondent No.1 who is the primary party responsible for repaying the dues of the Petitioner under the financial facilities granted to it. In fact, under the MOU entered into between the Petitioner and HIL, it is categorically agreed and understood that in the event the borrower/customer (in the present case, Respondent No.1 - Company), fails to clear the dues towards the facility granted, HIL is under no obligation or under no circumstances responsible for the non-payment of dues by the said borrower/customer to the Petitioner. Considering the long-standing relationship between the Petitioner and HIL, without any commitment or obligation, HIL agreed that it shall extend necessary support to the Petitioner in recovering the dues payable by the borrowers/customers. It is clearly stipulated that for the avoidance of any doubt, the Petitioner shall have no recourse towards HIL. The relevant clause in the MOU reads thus:
"In the event of the Borrowers/Customers failing to clear their dues towards the Facility, HIL is under no obligation or under no circumstances responsible for the non-payment of dues by the Borrowers/Customers to ABFL. Considering the long standing relationship, HIL without any Laxmi 26/35 6 CARBPL 6754-21.O.doc commitment or obligation agrees that HIL shall extend necessary support to ABFL in recovering the dues from the Borrower/Customers. For avoidance of any doubt, ABFL shall have no recourse to HIL. HIL will also provide necessary documentation to ABFL pertaining to sale and delivery of goods to the Borrower/Customers."
21. Looking at all this material on record, I am unable to accept, at least at this prima facie stage, that the Petitioner is not entitled to any relief under the Facility Agreement entered into between the Petitioner and the 1st Respondent - Company. No obligation can be imposed on the Petitioner to recover its outstandings dues from HIL, as was sought to be contended by Mr. Chitaley. This argument is also therefore rejected.
22. The last argument canvassed by Mr. Chitaley was that no relief ought to be granted because the Petitioner has not invoked Arbitration within a period of 90 days from the date that this Court granted interim relief in favour of the Petitioner. This submission is made on the strength of section 9(2) of the Arbitration Act. I find this argument also to be without any merit. What has been granted by this Court on 1st April, 2021 are not interim reliefs but ad-interim reliefs. This petition was thereafter kept for further reliefs and has Laxmi 27/35 6 CARBPL 6754-21.O.doc not been disposed of. In such circumstances, I do not think that Section 9(2) of the Arbitration Act would be of any assistance to the Respondent No.1 - Company. As mentioned earlier, during the pendency of this petition itself, the Arbitration Clause has been invoked by the Petitioner vide its letter dated 10th September, 2021. This being a factual situation, even this argument holds no merit and is therefore rejected.
23. Having rejected all the arguments canvassed by Mr. Chitaley, I have to now consider what reliefs the Petitioner would be entitled to. As mentioned above, the 1st Respondent - Company has clearly admitted its liability time and again to the Petitioner in correspondence as well as in the affidavit-in-reply filed before this Court in the above petition. The 1st Respondent - Company has admitted its liability to the Petitioner to the extent of Rs. 372.72 Lakhs as the principal amount outstanding and payable to the Petitioner. This is without any interest which would be extra. This is categorically admitted by the 1st Respondent - Company in its letter dated 2nd August, 2020. Over and above this, the 3rd Respondent, as the guarantor to the above transaction, and who is a Director of the Laxmi 28/35 6 CARBPL 6754-21.O.doc Respondent No.1 - Company, has clearly admitted before the NCLT that an amount of Rs.3,83,59,728/- is due and payable by the 3rd Respondent (as a guarantor) to the Petitioner for the monies advanced by the Petitioner to the Respondent No.1 - Company as the principal borrower. In the face of these admissions, at least prima facie, not only are these amounts admitted, but there is no real dispute with reference to the payment of these amounts. Coupled with this is the fact that the 1st Respondent - Company is in a precarious financial condition. According to the 1st Respondent - Company themselves, all its assets, movable and immovable, are hypothecated/mortgaged with Union Bank of India. This itself would indicate at least prima facie that the 1st Respondent - Company is heavily indebted and in a precarious financial condition. In such a situation and considering the interest of justice, I would be fully justified in ordering the 1st Respondent - Company to deposit in this Court a sum of Rs. 3,83,59,728/- which is the admitted amount. In the view that I take, I am supported by a decision of a Division Bench of this Court in the case of Jagdish Ahuja (Supra) which has clearly laid down that where the Court is of the view that there is practically no defence to the amount Laxmi 29/35 6 CARBPL 6754-21.O.doc payable and where it is in the interest of justice to secure the amount which forms the subject matter of the proposed Arbitration, even if no case is strictly made out within the letter of Order 38 Rule 1 or 2, though there are serious allegations concerning such case, it is certainly within the power of the Court to order a suitable interim measure of protection under Section 9 of the Arbitration Act. In other words, in the aforesaid case, the Division Bench has held that where there is no defence to the payability of the amount and where the interest of justice so demands, the Court always has the power under Section 9 to secure the amount by ordering the Respondents to deposit the sum in Court. The relevant portion of the aforesaid decision reads thus:
"7. In an appropriate case, where the court is of the view that there is practically no defence to the payability of the amount and where it is in the interest of justice to secure the amount, which forms part of the subject matter of the proposed arbitration reference, even if no case strictly within the letter of Order 38 Rule 1 or 2 is made out, though there are serious allegations concerning such case, it is certainly within the power of the court to order a suitable interim measure of protection. As we have noted above, the amount is either to be deposited into the treasury in accordance with the agreement between the parties or if, for any reason, it is not payable to the revenue towards the Respondent's tax liability, as is the case of the Appellants here, it is to be paid to the Respondent itself as part of the price of debentures. In Laxmi 30/35 6 CARBPL 6754-21.O.doc fact, when these two options were posed by the learned Single Judge to the Appellants' counsel, in fairness both conceded that there was no third option."
24. After the aforesaid decision, another learned Single Judge of this Court (G. S. Patel, J.), had the occasion to consider the law on the subject in the case of Kotak Mahindra Bank Ltd (Supra). After considering the law laid down by this Court, the learned Judge held thus:
"31. Lest it be argued either here or in any other forum that no case has been made out under Order 38 Rule 5 of the Code of Civil Procedure, 1908 ("CPC"), which seems to me more or less the habitual and automatic chanting of every respondent in a Section 9 Petition, this needs to be stated : that is not the law. The recent decision of the Division Bench of this Court (RD Dhanuka and VG Bhisht JJ) in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Ltd. [2021 SCC OnLine Bom 149] makes it clear that there is no requirement that for such relief an iron-clad case under Order 38 Rule 5 of the Code of Civil Procedure, 1908 ("CPC") must be made out (or, if not argued, that the Court must hunt for it). The Division Bench reaffirmed the principle that has long been settled, and restated repeatedly, but which seem to be reagitated in the wrong way again and again. The Division Bench said in the clearest terms that the principles of the CPC, including especially Order 38 Rule 5, are guides to a Section 9 Court and the order it makes under that Section. They are not fetters upon the Section 9 Court's discretion. On my reading of the Division Bench order, the position in law is that in such a case an order of deposit not only can be made, but ought to be made. In Valentine Maritime Ltd. v. Kreuz Subsea Pte Ltd. [2021 SCC OnLine Bom 75], the Division Bench of this Court reiterated this position regarding Order 38 Rule 5 and also held that in Laxmi 31/35 6 CARBPL 6754-21.O.doc appropriate case, where the defence is prima facie untenable, the Petitioner has a chance of success, and the defence is moonshine, an order of deposit to secure the claim can and indeed should be made under Section
9. This was also the view of another Division Bench of this Court in Jagdish Ahuja v. Cupino Ltd. [2020 SCC OnLine Bom 849]. All three decisions referenced and explained the previous Division Bench decision in Nimbus Communications Ltd. v. Board of Control for Cricket in India [2013 (1) Mah L.J. 39] and the Supreme Court decision in Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd.[(2007) 7 SCC 125]. I followed the Division Bench decisions (referencing this law) in Parle Agro Pvt. Ltd. v. Shree Aqua Purifier Pvt.
Ltd. and IIFL Finance Ltd. v. Shrenik Dhirajmal Sirqya.
32. Williamson Magor has no defence at all. Khaitan's defence is untenable and, in view of the settled law on the subject, is unstatable and probably the most complete moonshine. There is a contract with a clear and unequivocal obligation cast on the Respondents. The Petitioner has an excellent chance of success. Accordingly, the Respondents are required to deposit with the Prothonotary and Senior Master an amount of Rs. 14.88 crores by 31st March 2021. I have rounded off the amount of deposit."
25. Considering the law laid down by this Court, and being satisfied at least prima facie, that there is no real dispute with reference to the payability of the amount of Rs. 3,83,59,728/- by the Respondent No.1 - Company to the Petitioner, this would be a fit case to direct Respondent No.1 to deposit the said sum in this Court, pending the hearing and final disposal of the proposed Arbitration between the parties. Considering the precarious financial condition Laxmi 32/35 6 CARBPL 6754-21.O.doc of the 1st Respondent - Company, I am of the opinion that it would also be in the interest of justice, if the 1st Respondent - Company is directed to disclose on oath all its movable and immovable assets including the encumbrances, if any, on the said assets. It is made clear that this disclosure would also be in relation to all the bank accounts of the 1st Respondent - Company and the balance in those bank accounts as on the date of the passing of this order as well as for a period of one year prior thereto. Apart from the disclosure, the Petitioner is also entitled to an injunction restraining the 1st Respondent from disposing of any of its assets.
26. In these circumstances, the following order is passed:
a) Pending the hearing and final disposal of the Arbitration proceedings, Respondent No.1 - Company is directed to deposit in this Court a sum of Rs. 3,83,59,728/- within a period of eight weeks from today.
b) In addition to the aforesaid order of deposit, there shall also be interim relief in terms of prayer clauses b(i) and b(ii) reproduced above.
c) It is made clear that the disclosure affidavit shall also disclose Laxmi 33/35 6 CARBPL 6754-21.O.doc the bank accounts of the 1st Respondent - Company along with all its details for the past one year.
d) The 1st Respondent - Company shall be entitled to operate these bank accounts only in the usual course of business and not otherwise.
e) It is clarified that the above injunction order operates only against the Respondent No.1 - Company and shall not preclude any other party including the Union Bank of India in taking action against the 1st Respondent for recovery of its dues.
f) In case, the aforesaid deposit is made by the 1st Respondent - Company, it shall be at liberty to move this Court or the Arbitral Tribunal, for vacating the reliefs granted in terms of prayer clauses b(i) and b(ii) of the above Petition. If such an Application is made, the same shall be decided on its own merits and in accordance with the law.
g) It is clarified that if the aforesaid deposit is not made within the stipulated time, the Petitioner shall be at liberty to execute this order under Section 36 of the Code of Civil Procedure, 1908 to ensure that the said sum of Rs. 3,83,59,728/-, or any part thereof, is brought into this Court.
27. The above Section 9 Petition is disposed of in the Laxmi 34/35 6 CARBPL 6754-21.O.doc aforesaid terms. However, there shall be no order as to costs. It is needless to clarify that all the observations made by me herein are only prima facie and tentative and shall not influence the Arbitral Tribunal while deciding the lis between the parties.
28. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order. GANESH SUBHASH LOKHANDE Digitally signed by GANESH SUBHASH LOKHANDE Date: 2021.10.04 17:35:09 +0530 (B. P. COLABAWALLA, J.) Laxmi 35/35