Delhi High Court
Metro Buildtech Pvt Ltd vs Standard Chartered Bank on 20 April, 2012
Author: Veena Birbal
Bench: Veena Birbal
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO 159/2012
% Date of Decision: 20.04.2012
METRO BUILDTECH PVT LTD ..... Appellant
Through : Mr. Ravinder Sethi, Sr. Advocate
with Mr. Ashish Mohan and
Mr. Puneet Sharma, Advocates
versus
STANDARD CHARTERED BANK ..... Respondent
Through : Mr. Neeraj Kishan Kaul, Sr. Advocate
with Mr. Nakul Mohta, Advocate
CORAM:
HON'BLE MS. JUSTICE VEENA BIRBAL
VEENA BIRBAL, J. (ORAL)
*
1. Present is an appeal under section 37(2)(a) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as „the Act‟) against the impugned order dated 16th March 2012 passed by the learned Arbitrator under Section 17 of the Act in an arbitration matter between the parties.
2. The relevant factual background is as under:-
The State Bank of India had extended loan facility to one M/s Vishal Global Ltd. An equitable mortgage was created by the aforesaid FAO 159/2012 Page 1 of 10 borrower by deposit of title deeds of property bearing No. C-4, West End, New Delhi. On default of non-payment, the recovery proceedings were initiated by the State Bank of India against borrower M/s Vishal Global Ltd before the D.R.T-I, Delhi. On 5th June, 2002, recovery certificate in the sum of Rs.7,37,84,093.13 along with pendent lite interest @ 17% p.a. with quarterly interest was issued in favour of SBI with liberty to recover the certificate amount inter alia by sale of the suit property. The State Bank of India assigned the said debt to respondent bank on 29.03.2006 acquired by way of a registered Assignment Deed. In view of the Assignment Deed dated 29.3.2006, respondent was substituted in place of State Bank of India in R.C.No.263/2002 and respondent started pursuing the matter for recovery of outstanding amount pending before D.R.T-I, Delhi from the borrower and its guarantors. During the pendency of the proceedings, a Memorandum of Understanding (hereinafter referred to as the MOU) dated 29th September, 2008 was executed between the appellant and the respondent wherein all the rights, title, interest acquired by respondent under the assignment deed dated 29.03.2006 were transferred in favour of appellant and for the said purpose appellant was required to pay Rs. 18 crores to respondent in the following manner:-FAO 159/2012 Page 2 of 10
(i) Rs.4 crore at the time of signing and execution of the MOU vide draft/cheque no.254362 drawn in favour of Standard Chartered Bank a/c Vishal Global Ltd.
(ii) Rs.1 crore on or before 29th December, 2008;
(iii) Rs.2 crores on or before 29th January, 2009
(iv) Rs.2 crores on or before 29th February, 2009
(v) Rs.9 crores on or before 29th March, 2009.
3. The second instalment of Rs.1 crore which was given by way of cheque was honoured. Two cheques of Rs. 2 crore each were dishonoured on account of insufficient funds and cheque of Rs.9 crore was not presented by the respondent at the request of the appellant. It is stated that on 3rd April, 2009, appellant approached respondent for rescheduling the payment of balance consideration due to economic recession. It is stated that on 16th April, 2009, appellant came to know of the judgment in Kotak Mahindra Bank Ltd Vs O.L. of APS Star Ind.Ltd. (2009) 3 Comp LJ (Guj) wherein it is held that an assignment deed whereby a debt is assigned by a bank to a private third party along with the underlying security is not a valid instrument. Accordingly, appellant got worried as they had already made huge payment and appellant immediately sent a letter dated 16th April, 2009 to the respondent bringing to its notice the aforesaid facts.
4. It is alleged that the MOU was permitting extension of time. Despite that, respondent did not extend the time and rather sent a letter FAO 159/2012 Page 3 of 10 dated 15.04.2009 which was received by the appellant on 18.04.2009 whereby it was intimated that the respondent had terminated the MOU and also informed having forfeited Rs. 5 crores. It is alleged that the respondent refused to accept the request of the appellant vide letter dated 16.04.2009 and again reiterated its stand of forfeiture of Rs. 5 crores. On 12.05.2009, appellant sent a notice for referring the dispute to Arbitration in accordance with Clause 9 of MOU. Thereafter, appellant filed a petition before this court under Section 9 of the Act seeking interim injunction. On 14.12.2009, the counsel for respondent stated before this court that as the talks for settlement between the parties were going on before Mediation and Conciliation Centre, respondent would maintain status quo as regards alienation/parting with possession of property in question. Thereafter, the petition under Section 9 was disposed of with liberty to respondent to file an application under Section 17 of the Act in respect of the status quo order. Thereupon, respondent filed an application under Section 17 of the Act before the learned Arbitrator seeking an order vacating the status quo order dated 14.12.2009. The learned Arbitrator vide impugned order dated 16.03.2012 vacated the status quo order and directed that the respondent is free to sell the property in question subject to deposit of Rs. 5 crores with the Registrar FAO 159/2012 Page 4 of 10 to be deposited within four weeks of the sale.
5. Aggrieved with the said order, present appeal is filed.
6. The learned counsel for the appellant has contended that when the main claim of specific performance of MOU dated 29.09.2008 is pending consideration before the learned Arbitrator, the learned Arbitrator ought not have ordered that the bank is free to sell the property in question. It is contended that if the status quo order as was granted earlier, is not restored, third party interest would be created and it will complicate the matter further. It is further contended that in any event the impugned order does not fully protect the interest of respondent. It is contended that the learned Arbitrator ought to have ordered for the deposit of interest also which has accrued on Rs.5 crores which is admittedly lying with the respondent. It is contended that by not securing the accrued interest on the aforesaid amount, a great prejudice has been caused to the appellant.
7. On the other hand, the stand of the respondent is that vide MOU dated 29.09.2008, the appellant was supposed to pay Rs.18 crores in the manner provided under clause 2.1 of the MOU and the last payment of Rs.9 crores was to be paid on 29.03.2009. It is contended that extension of time under clause 5.1 was permissible, however, the same was subject to payment of interest @ 24% per annum on the delayed amount, with the FAO 159/2012 Page 5 of 10 limitation that the extension of time under no circumstances could exceed beyond 29.03.2009. It is further contended that clauses 5.2 and 5.3 of MOU dated 29.09.2008 clearly provide the right to the respondent to terminate or rescind the MOU and also for forfeiture of amount in case of violation of terms of MOU. It is contended that in the present case the appellant has sought initially extension of time on the ground of economic recession which was not a valid ground. It is contended that the letter dated 16.04.2009 was sent by the appellant rescinding the MOU when the time for payment under MOU had already elapsed. It is further contended that even the grounds stated therein are also not valid grounds.
8. I have heard the learned senior counsel for the parties.
9. The challenge in this appeal has been made to the impugned order dated 16.03.2012 wherein it is ordered that interim relief continuing the order of status quo in respect of the property in question cannot be granted. The learned Arbitrator has further noted that whether the forfeiture of Rs.5 crores by the bank is justified and is in the nature of penalty is one of the issues that is to be determined in the arbitration proceedings and as such as an interim measure, out of sale proceeds, Rs.5 crores were directed to be deposited by the respondent bank with the Registrar of this court.
FAO 159/2012 Page 6 of 10
10. It is admitted position that the parties have entered into MOU dated 29.09.2008. The mode of payment under the MOU under the clause 2.1 is as under:
"(a) Rs.40 million at the time of signing and execution of the MOU vide cheque no.254362 drawn in favour of Standard Chartered Bank a/c Vishal Global Ltd.
(b) Rs.10 million on or before 29th December, 2008;
(c) Rs.20 million on or before 29th January, 2009.
(d) Rs.20 million on or before 29th February, 2009.
(e) Rs.90 million on or before 29th March, 2009."
11. The clause 2.3 of the MOU clearly provides that time is the essence of the agreement. It is clearly provided therein that the agreement remains in force till 29.03.2009. The clause 5.1 provides that extension of time for payment under no circumstances will exceed 29.03.2009. The right to terminate MOU and forfeiture of amount paid by Assignee is provided under Clause 5.2 of MOU. The relevant clauses of MOU are reproduced as under:-
"2.3 That the parties have agreed that the present MOU shall remain valid and in force till 29th March 2009. It is agreed and understood by the parties that the time is the essence of this Agreement and the payment schedule as specified hereinabove shall be strictly adhered to by the Assignee. Unless entire amount is paid by the Assignee in terms of this MOU, the Assignee waives all of its right to claim specific performance of this MOU.FAO 159/2012 Page 7 of 10
xxxxx xxxxx xxxxx xxxxx
xxxxx xxxxx xxxxx xxxxx
5.1. That the Assignee assures the Assignor that it shall make all efforts to ensure the payment of the consideration strictly as per the details and schedule agreed under clause 2 (supra) of this MOU. However, in the event of any delay being caused and a request being made in writing by the Assignee to the Assignor for extending the time for payment of any installment, except the last installment, the Assignor may SOLELY at its discretion agree to such extension, however, subject to the payment of interest @ 24% per annum on the delayed amount and with limitation that the extension of time under no circumstances will exceed 29.03.2009. The Assignor will not be obliged to provide an explanation of any kind for refusal in granting extension.
5.2 That in case the Assignee fails to make the payment of the consideration in terms of clause 2 (Supra) of this MOU or the Assignor refuses to grant extension in terms of clause 5.1 (Supra) of this MOU or any of the cheque tendered by the Assignee is dishonoured upon presentation, the Assignor shall have the exclusive right to terminate and rescind the present MOU and to forfeit the amount which the Assignee has paid up till that date."
12. The terms of MOU as noted above are very clear. Perusal of record shows that earlier appellant had requested for rescheduling the payment of balance consideration and thereafter vide its letter dated 16.4.2012, it had recalled the offer. Even extension of time for making FAO 159/2012 Page 8 of 10 balance payment was sought after the time limit for payment under the MOU had already expired. After considering the relevant material on record, the learned Arbitrator had modified the status quo order and has observed that default has undeniably occurred on the part of the appellant and for the said reason, continuing of the status order cannot be granted. The learned Arbitrator had exercised his discretion in modifying the interim order. Nothing has been placed to show that discretion has been exercised in arbitrary, capricious or in perverse manner. Further the same has been exercised after considering the material on record. In these circumstances, it will not be appropriate to reassess the material on record and reach a conclusion other than the one arrived at by the learned Arbitrator especially when the conclusion arrived at is reasonably possible on the basis of material on record. Reference is made to Wander Ltd. and Another vs. Antox India P. Ltd.; 1990 (Supp) Supreme Court Cases 727.
Further the learned Arbitrator has fully protected the interest of the respondent by ordering that out of the sale proceeds Rs.5 crore shall be deposited by the respondent with the Registrar of this court and same shall be invested in short term interest bearing fixed deposit during the pendency of the proceedings. The entitlement of the appellant for the FAO 159/2012 Page 9 of 10 amount paid under the MOU is yet to be decided in the arbitration proceedings. In these circumstances, even if no order has been made for the deposit of interest on the amount of Rs. 5 crore, the impugned order cannot be said to be illegal.
In view of the above discussion, no illegality is seen in the impugned order.
Appeal stands dismissed.
VEENA BIRBAL, J APRIL 20, 2012 ssb/srb FAO 159/2012 Page 10 of 10