Gujarat High Court
Kkr India Financial Services Limited vs Axis Bank Limited on 21 October, 2019
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
C/SCA/18466/2019 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 18466 of 2019
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KKR INDIA FINANCIAL SERVICES LIMITED
Versus
AXIS BANK LIMITED
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Appearance:
MR.MIHIR JOSHI, SR. ADVOCATE with MS.TANAYA G. SHAH and
MR.VIVIDH TANDON, ADVOCATES for the Petitioner(s) Nos. 1,2,3
MR.DEVEN V.PARIKH, SR. ADVOCATE with MR.ANIP GANDHI for the
Respondent No.1
MR.SAURABH SOPARKAR, SR. ADVOCATE with MR.SHASHWAT
SHUKLA for the Respondent Nos. 2, 3.
MR.MIHIR THAKORE, SR. ADVOCATE with JAYANI SHAH for the
Respondent No.4.
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI
Date : 21/10/2019
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
1. Draft amendment is allowed. The same shall be carried out at the earliest.
2. By this application under Article 227 of the Constitution of India, the applicants 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 Noo.379 of 2019;Page 1 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER
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 ad-interim ex-parte relief in terms of para 28(b) above;
c-1) 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;
c-2) 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;
c-3) that this Hon'ble Court be pleased to grant ad-interim relief in terms of para 28 c-2) 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."
Page 2 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER3. It appears from the materials on record that the respondent no.1 herein, namely Axis Bank Limited has 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, praying 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;
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. The plaintiff also preferred an application Exh.9 (Interim Application) and prayed for the following reliefs :
Page 3 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER"(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 therof;
(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 ad-interim 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 may deem fit and proper in the nature and circumstances of the case may require."
5. The In-charge Chief Judge, Small Causes Court, Ahmedabad, passed an order dated 13 th September 2019, granting ex-parte injunction in favour of the plaintiff as prayed for in the application Exh.9. The order reads thus :
Page 4 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER"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 Page 5 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER 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.
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 Annexure-M, 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 ad-interim 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 Page 6 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER other persons claiming through, by or under them, be restrained by an order and ad-interim 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 e-mail 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 : 13 th September, 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 ex-parte 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 18th 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, i.e. today.
Page 7 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDERToday, 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 19th October 2019. Mr.Joshi brought to our notice that the order passed by the Small Causes Court dated 13 th 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.
7. The modified order passed by the Small Causes Court, Ahmedabad, dated 19th October 2019, reads thus :
"The order passed at exhibit-9 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 mark-7/13 in present proceedings. The said amount shall be so transferred latest by 90 working days from today 24 th 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 Page 8 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER disposed off. The ad-interim relief passed earlier is modified in terms of this order, pending final disposal of this suit."
8. Thus, the Small Causes Court, Ahmedabad, permitted the defendants in the suit to proceed with the deal but, at the same time, directed that an amount of Rs.250 crore from the total amount that may be fetched through the deal shall be directly transferred to the Account No.1530010633007 maintained by the Axis Bank.
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 :
Page 9 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER"11.11 Further, proceeds of the aforementioned Proposed Sale would be utilized towards the following pre-agreed 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/ no-objection 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.
11.13 Subsequently, by way of letter dated 23 August 2019, the Financing Lenders through the Security Trustee, provided their consent/ no-objection 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 Page 10 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER 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, Page 11 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER Ahmedabad, is also not tenable in law and deserves to be quashed and set-aside. 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. The 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 Page 12 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER 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 19 th 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 ex-parte 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 13 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER15. 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.
Page 14 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER18. 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 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.
Page 15 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019 C/SCA/18466/2019 ORDER22. By the next date of hearing, the parties to the present proceedings shall ensure that the pleadings are completed.
(J. B. PARDIWALA, J.) (VIRESHKUMAR B. MAYANI, J.) /MOINUDDIN Page 16 of 16 Downloaded on : Wed Oct 23 23:10:10 IST 2019