Delhi High Court
Indiabulls Housing Finance Ltd vs Gnex Projects Private Limited & Ors. on 14 March, 2022
Author: Suresh Kumar Kait
Bench: Suresh Kumar Kait
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 18.02.2022
Pronounced on: 14.03.2022
+ ARB. A. (COMM.) 8/2022 & I.A. 1648/2022
INDIABULLS HOUSING FINANCE LTD. ..... Appellant
Through: Mr. Vineet Malhotra, Ms. Sonali
Jaitley Bakhshi, Mr. Jaiyesh Bakhshi,
Ms. Rini Badoni, Ms. Sanjana Bakshi,
Mr. Chirag Sharma, Mr. Daman
Popli, Mr. Siddharth Dey, Mr.Amreen
Qureshi & Mr. Vishal Gohri,
Advocates
Versus
GNEX PROJECTS PRIVATE LIMITED & ORS. ... Respondents
Through: Mr. Arvind Nayar, Senior Advocate
with Ms. Ritwika Nanda, Ms. Petal
Chandhok & Ms. Akshita Salampuria,
Advocates for all respondents 1 to 17
(except respondent No. 9)
Mr. Parag P. Tripathi, Senior
Advocate with Ms. Ritwika Nanda,
Ms. Petal Chandhok, Ms. Akshita
Salampuria & Ms. Mishika Bajpai,
Advocates for respondent No. 9.
CORAM:
HON'BLE MR. JUSTICE SURESH KUMAR KAIT
JUDGMENT
1. Present appeal has been preferred under the provisions of Section 37(2) (b) of the Arbitration and Conciliation Act, 1996 against the interim ARB.A. (COMM) 8/2022 Page 1 of 18 order dated 28.12.2021 passed by the learned Arbitrator.
2. Appellant, M/s Indiabulls Housing Finance Limited is a Public Limited Company incorporated under the Companies Act, 1956 and is engaged primarily into the leading business especially home loan, loan against property, etc. Respondent no.9-Zee Entertainment Enterprise Limited is a company incorporated under the Companies Act, 1956 and is an Indian mass media company owned by Essel Group (respondent no.2) and it has interests in television, print, internet, film, mobile content and allied businesses.
3. Present appeal is directed against the interim order dated 28.12.2021 passed by the learned Arbitrator vide which application filed by the appellant (claimant therein) under the provisions of Section 17 of the Arbitration and Conciliation Act, 1996 praying to restrain respondent no.9 from going ahead with its Scheme of Arrangement with Sony Pictures Networks India Pvt. Ltd. and Bangla Entertainment Private Limited, was rejected.
4. The institution of the appeal rests upon four Agreements dated 13.12.2016 executed between appellant and respondent nos. 1, 3, 4 & 5 along with respondent no.2 (henceforth referred as Borrowing Respondents) ARB.A. (COMM) 8/2022 Page 2 of 18 as co-borrower in each of the agreement for the loan amount of Rs.726,00,00,000/-. The details of the loan amounts are as under:
S.No. Date of Loan Agreement Amount (in Crores) 1. 13.12.2016 with respondent nos.1 & 2 116 2. 13.12.2016 with respondent nos.4 & 2 170 3. 13.12.2016 with respondent nos.5 & 2 210 4. 13.12.2016 with respondent nos.3 & 2 230 Total 726
5. For the repayment of the abovesaid loan amount, certain documents were entered into between the appellant and the respondents other than the Borrowing respondents which are as under:
a. Pledge agreement dated 14.12.2016 between appellant and respondent nos.10 to 17 wherein the said respondents pledged a part of their equity shares as security for the repayment of loan.
b. Deed of hypothecation dated 02.01.2017 between appellant and respondent nos.1, 3, 4, 5, 6, 7 and 8 in respect of the land admeasuring 71.98575 acres situated at villages Kherka Musalman, Nuna Majra & Sarai Aurangabad, Tehsil Bahadurgarh, District 38, Jhajjar, Haryana.ARB.A. (COMM) 8/2022 Page 3 of 18
c. Deeds of Guarantee dated 09.01.2017 between appellant and respondent nos.6, 7 and 8 guaranteeing to be jointly, severally and co- extensively liable to pay the amount along with interest, default interest, costs, etc. d. Declaration and acknowledgment agreements dated 18.08.2017 by respondent nos.1, 3, 4, 5, 6, 7 & 8 in favour of appellant wherein said respondents deposited the title documents of the mortgaged property situated at Jhajjar.
6. It is averred in the petition that in terms of Clause 2.2 of the Loan Agreement(s), it was obligatory upon the Borrowing Respondent(s) to create such security in favour of the appellant/lender to its satisfaction. However, in complete contradiction and defiance of the terms of the Loan Agreement(s) the Borrowing Respondents failed to maintain/create the adequate security.
7. At the hearing, Mr. Vineet Malhotra, learned counsel appearing on behalf of appellant submitted that in aforesaid circumstances, the appellant issued a „Notice for non-maintenance of the security cover Securities and payment of funds‟ on 14.11.2018 to respondent nos.1 to 5 directing them to maintain/create adequate security in terms of Clause-4 of the Loan ARB.A. (COMM) 8/2022 Page 4 of 18 Agreement(s) and pay the default interest in terms thereof. Accordingly, respondent nos.1 to 5 were called upon to pay the appellant a sum of Rs.287,85,49,976/- or pledge additional shares to the sum of Rs.341,82,78,097/-. Appellant also issued a letter to the Borrowing respondents on 15.11.2018 to pay the funds or provide additional security to maintain the security cover and in case of failure, it shall be treated as event of default under the Loan Agreement(s) and the said respondents are liable to pay default interest as per the terms of the Transaction documents.
8. In response to the abovesaid letters of the appellant, respondent no.1 admitted the shortfall and vide letter dated 16.11.2018 it stated that the said respondent would arrange an alternate collateral security within one week for the appellant. Further, vide communication dated 19.11.2018 the Borrowing Respondents gave an undertaking that an amount of Rs.50 crores shall be prepaid by the borrowing respondents on or before 30.11.2018 and the balance total outstanding shall be prepaid on or before 15.12.2018 and breach of the said undertaking may be treated as an event of default under the Loan Agreement(s). The borrowing respondents further gave an undertaking on 29.11.2018 that the prepayment of the loan cumulatively to Rs.100,00,00,000/- shall be made on or before 31.12.2018 to be ARB.A. (COMM) 8/2022 Page 5 of 18 appropriated towards the repayment of the principal of the loan and in case of any default, appellant may take any legal action. In pursuance to the aforesaid undertaking, respondent no.9 executed a Declaration and Acknowledgment in favour of the appellant on 27.12.2018 and deposited the title documents of the properties i.e. Land admeasuring 17,639.64 sq. mtrs. at Road No.78, Jubilee Hills, Shaikpet Village in Hyderabad and borrowing respondents also issued a cheque of Rs.100,00,00,000/- bearing no.000014 dated 31.12.2018 drawn on HDFC Bank for partial discharge of its payment obligations, but the said cheque got dishonoured on 04.01.2019 and a legal notice dated 24.01.2019, under Section 138 of the Negotiable Instruments Act, 1881 was sent to the respondents.
9. Learned counsel further submitted that thereafter appellant sent a notice to the respondents including the borrowers, mortgagors, hypothecators etc for payment of entire outstanding amount, thereby recalling the loan amounts in terms of Clause 12.2 of the Loan Agreement and informed having invoked the pledge/share created in its favour and realized an amount of Rs.274,48,76,109/-. Also, the personal guarantee of Dr. Subhash Chandra, who controls the respondent group of companies, was invoked along with guarantees of respondents No. 6-8. ARB.A. (COMM) 8/2022 Page 6 of 18
10. Thereafter, the appellant filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 for securing its outstanding amount due from Borrowing respondents. Accordingly, vide order dated 01.05.2019, this Court directed Mr.Subhash Chandra, Promoter of respondent companies, to file the details of his personal assets, encumbered and unencumbered in a seal cover. During the pendency of the abovementioned petition, appellant further moved an interim application seeking directions to restrain Dr.Subhash Chandra and Cyquator Media Services Private Limited (respondent no.10 herein) from proceeding with stake sale in Zee Entertainment Enterprises Limited (respondent no.9 herein) and vide order dated 03.06.2019, this Court recorded that respondents shall file an affidavit disclosing the total value of the properties at Jhajjar and Hyderabad, which are part of the security to secure the loan of the petitioner (appellant herein) and respondents shall not dispose of or encumber these properties without the permission of this court. Respondents were also directed to file affidavit disclosing the names of the allottees of these properties and the details and particulars of the properties which are sold or disposed of.
11. Learned counsel further argued that the said affidavit has never been filed by the respondents and this court vide order dated 08.08.2019, disposed ARB.A. (COMM) 8/2022 Page 7 of 18 of Section 9 petition on the statement of counsel for the petitioner that it shall take appropriate steps for commencement of arbitration proceedings and orders dated 01.05.2019 and 03.06.2019 shall continue till constitution of arbitral tribunal. Pertinently, appellant sent notice dated 10.08.2019, under Section 21 of the Arbitration and Conciliation Act, 1996 invoking arbitration to the respondents and appointed Hon'ble Mr. Justice (Retd.) Badar Durrez Ahmed, Chief Justice of High Court of Jammu & Kashmir And Ladakh.
12. An application under Section 17 of the Act is stated to have been filed by the appellant before the learned Arbitral Tribunal seeking interim reliefs for securing the outstanding loan amount of Rs.474,67,72,609/- and also filed statement of claim and prayed inter alia for an award of Rs.474,67,72,609/-. On 28.08.2019, the learned Tribunal directed the respondents to file Statement of Defence and reply to the application of the appellant under Section 17 of the Act, however, neither affidavit of personal assets nor affidavit disclosing the sale of those assets has been filed by Mr.Subhash Chandra before the learned Tribunal.
13. It is submitted on behalf of the appellant that during the pendency of the arbitration proceedings, respondent no.9 filed a disclosure before ARB.A. (COMM) 8/2022 Page 8 of 18 Bombay Stock Exchange Limited, under regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 regarding the scheme of arrangement between respondent no.9, Bangla Entertainment Private Limited and Sony Pictures Networks India Private Limited.
14. Learned counsel further submitted that as per clause 11.5 of the Loan Agreement, prior approval of appellant was necessary before entering into the abovesaid scheme, however, no such approval was sought from the appellant. Accordingly, on 24.12.2021, appellant filed an application under Section 17 of the Act before the learned Tribunal praying inter alia that respondent no.9 be restrained from going ahead with the proposed scheme and also seeking directions for respondent no.9 to deposit a sum of Rs.295,45,68,985/- or provide bank guarantee of a nationalized bank for an equivalent amount in favour of appellant. Appellant also filed an application under Order I Rule 10 CPC seeking impleadment of Bangla Entertainment Private Limited and Sony Pictures Networks India Private Limited as parties to the arbitration and respondent no.1 filed reply to the said application. After hearing both the sides on application filed under Section 17 of the Act, the learned Arbitrator passed the interim Award on 28.12.2021, which is ARB.A. (COMM) 8/2022 Page 9 of 18 under challenge before this Court.
15. Learned counsel appearing on behalf of the appellant submitted that although respondent no.9 was not a party to the original Loan Agreement, however, by virtue of Declaration and Acknowledgment on 27.12.2018 executed by respondent no.9, it became an Obligor in terms of the original Loan Agreement. The Loan Agreement further provided for definition of "Obligor" which means and reads as under:
"Obligor(s)" means the Borrower(s), the Guarantor(s), the Hypothecator(s), the Pledgor(s), the Mortgagor(s), and/or any other person(s) providing any security/collateral/guarantee in favour of the Lender under the Loan Documents and/or who is or becomes a party (other than the Lender) to any Loan Documents".
16. Learned counsel further submitted that as per clause 4 of the Declaration and Acknowledgement, respondent no.9 shall ensure that the entire amount of loan along with other charges is paid by the borrowers and their liability shall continue until the said obligation is completed by the borrowers. Moreover, an application was received for grant of „No Objection‟ to release the title deeds of properties at Hyderabad which had been deposited with the appellant. Though, the appellant returned the ARB.A. (COMM) 8/2022 Page 10 of 18 original papers of the properties to M/s Gnex Projects Pvt. Ltd. upon receipt of Rs.225 crores in terms of the NOC dated 01.06.2020, however, mentioned that NOC was without prejudice to the rights, remedies, claims and/or interests of the lenders under the loan documents and/or applicable laws; and/or any obligations of the obligor under the loan documents. Moreover, all other security/securities created/to be created in connection with the loan shall continue to be valid/unaffected till the fulfilment of all the obligations of the obligor, including payment/repayment of the borrower's dues to the lenders under the loan documents.
17. Learned counsel also submitted that as per clause 4 of the Declaration and Acknowledgment, respondent no.9 continues to be an obligor despite release of the title deeds and by deposit of title deeds, respondent no.9 had created mortgage with respect to the said property and had undertaken to ensure that the entire amount due and payable by the borrower is paid to the appellant.
18. In support of above submissions, reliance was placed by Mr. Vineet Malhotra, learned counsel upon decisions in Chloro Controls India (Pvt.) Ltd. Vs. Severn Trent Water Purification Inc. (2013) 1 SCC 641; Ameet Lalchand Shah Vs. Rishabh Enterprises: (2018) 15 SCC 678; and MTNL ARB.A. (COMM) 8/2022 Page 11 of 18 Vs. Canara Bank: (2020) 12 SCC 767.
19. On the other hand, Mr. Parag P. Tripathi, learned senior counsel appearing on behalf of respondent No.9-Zee Entertainment Enterprises Limited has vehemently opposed the present appeal on the ground that learned Arbitrator, after hearing both the sides, has passed a detailed interim Award.
20. Learned senior counsel submitted that the role of respondent no.9 was of the mortgagor of a property situated in Hyderabad. On 27.12.2018, Declaration and Acknowledgment was executed between appellant and respondent no.9 by way of which the Title Deeds of the said property were handed over by respondent no.9 to the appellant. Thereafter on 01.06.2020, a No Objection Certificate was issued by appellant to respondent nos.1 to 8 against the payment of Rs.225 crores by way of which the title deeds of Hyderabad property were released. Accordingly, with the release of the original title deeds of the Hyderabad Property, the Declaration and Acknowledgment stood extinguished/ terminated. Therefore, respondent no.9 had no further other obligations, as the only contractual relation between respondent no.9 and appellant was the Declaration and Acknowledgment.
ARB.A. (COMM) 8/2022 Page 12 of 18
21. Learned senior counsel also submitted that in view of the „No Objection Certificate‟, respondent no.9 had already filed an application for deletion from the array of parties which is pending before the said Tribunal.
22. Learned senior counsel has emphasized on the Declaration and Acknowledgment dated 27.12.2018 whereby respondent no.9 is only bound by the terms and it is only a signatory to the Declaration and Acknowledgment.
23. With regard to the contention of learned counsel for the appellant that respondent no.9 became obligor in terms of Declaration and Acknowledgment dated 27.12.2018, learned senior counsel for respondent no.9 argued that the said Declaration and Acknowledgment was executed after two years of the loan agreements and it was an independently executed self-contained agreement, delineating the terms and obligations of respondent no.9. Hence, any obligation de hors the Declaration and Acknowledgment cannot be imposed on respondent no.9.
24. Learned senior counsel further argued that respondent no.9 had agreed to only mortgage the Hyderabad property by handing over the original title deeds of the Hyderabad property. Lastly, learned senior counsel urged that the impugned order has been passed by the learned Tribunal under Section ARB.A. (COMM) 8/2022 Page 13 of 18 17 of the 1996 Act and the scope of the interference under Section 37(2)(b) of Arbitration and Conciliation Act is extremely limited. Therefore, learned Arbitrator rightly held that:
"There is no subsisting mortgage inasmuch as the title deeds have been released. It was a mortgage by deposit of title deeds. Once the title deeds have been released in the case of such a mortgage, there is no subsisting mortgage."
25. Attention of this Court was drawn to decisions in Dinesh Gupta & Ors. Vs. Anand Gupta &Ors.: Arbitration Appeal No.4/2020, dated 17.09.2020; Raghuvir Buildcon Pvt. Ltd. vs. Ircon International Limited:
(2021) 281 DLT 41; Augmont Gold Pvt. Ltd. vs. One97 Communication Limited: (2021) 284 DLT 79; M/s Kwality Colonisers Pvt. Ltd. vs. M/s.
Shiva S.S. Strips Pvt. Ltd & Ors.: Arb.A.(Comm.) 44/2021; and SMS Limited vs. ONGC: OMP(I)(COMM) 428/2020.
26. The submissions advanced by learned counsel representing both the sides were heard at length and the impugned interim order dated 28.12.2021, material placed on record as well as decisions cited by both the parties, have been carefully considered.
27. While deciding applications filed by the appellant under Section 17 of the Arbitration and Conciliation Act, 1996 and application under Order 1 ARB.A. (COMM) 8/2022 Page 14 of 18 Rule 10 CPC seeking impleadment of proposed respondent nos.18 & 19 (claimant therein), the learned Arbitrator noted the rival contentions of the parties in the impugned interim Award dated 28.12.2021 and observed as under:-
"Upon considering the submissions made by the learned counsel for the parties, I am of the view that both the applications deserve to be rejected. First of all, there is no subsisting mortgage inasmuch as the title deeds have been released. It was a mortgage by deposit of title deeds. Once the title deeds have been released in the case of such a mortgage, there is no subsisting mortgage. Secondly, the involvement of the Respondent No. 9 in the present transactions was only to the extent that it was a Mortgagor of the said property by way of security offered by the Borrowers. Since the mortgage does not subsist anymore, the Respondent No. 9 has no further exposure insofar as the present loan transactions are concerned. Thirdly, the Respondent No. 9 fell within the definition of obligor as appearing in the loan agreements only because it's Hyderabad property was mortgaged by deposit of title deeds. Since the Respondent No. 9 is no longer a Mortgagor in respect of the current transactions, it ceases to be an Obligor as defined in clause 1.1 of the Loan Agreements. Hence, clause 12.2 of the Loan Agreements no longer have any application insofar as the Respondent No. 9 is concerned.ARB.A. (COMM) 8/2022 Page 15 of 18
The same is the case with clause 11.5. And, therefore, there is no bar on the Respondent No. 9 from continuing with its proposed merger with and into the proposed Respondent's 18 and 19. The Claimant has not been able to establish any prima facie case in its favour in this regard and as such the interim prayers sought for by it in the section 17 application cannot be granted. Further, for the reasons indicated above, particularly as the mortgage does not survive and there is no prohibition on the Respondent No. 9 entering into its proposed merger, the proposed Respondent Nos. 18 and 19 cannot be impleaded in the present proceedings because they are neither necessary nor proper parties."
28. It is relevant to refer clause 20 of the Declaration and Acknowledgment and same is reproduced as under:
"Notwithstanding anything to the contrary contained in any documents, the first ranking mortgage created in favour of the lender over the mortgaged properties shall continue to subsist (till such mortgage over the mortgaged properties is released by the Lender in writing) irrespective of whether the title deeds are held by/deposited with the lender or any entity/person acting as the lender‟s agent."
29. According to the said clause, on return of the title deeds, the mortgage ARB.A. (COMM) 8/2022 Page 16 of 18 stood released and on 01.06.2020, appellant issued a "No Objection for release of the title deeds" to respondent nos.1 to 8 in respect of the title deeds of the property situated in Hyderabad over the original title deeds in terms of the Declaration and Acknowledgment dated 27.12.2018 for a consideration of Rs.225 crores. Thus, on the release of the title deeds of the Hyderabad property, the Declaration and Acknowledgment got terminated and respondent no.9 had no further or other obligation towards the appellant. Therefore, respondent no.9, who is not a party or signatory to the loan agreements, is not bound by the terms of the loan agreement.
30. Undisputedly, respondent no.9 was neither a borrower nor guarantor to the loans in question. The involvement of the said respondent, as obligor at the subsequent stage, was only to the extent that it was a mortgagor of its Hyderabad property which was offered by the borrowers as security cover. Once, upon receipt of Rs.225 crores by appellant in terms of NOC dated 01.06.2020, title deeds of property of respondent no.9 have been released, the mortgage does not subsist anymore. Consequently, respondent no.9 has no further exposer insofar as the present transactions are concerned.
31. In view of above facts and circumstances, this court is of the considered opinion that there is no illegality and perversity in the impugned ARB.A. (COMM) 8/2022 Page 17 of 18 order passed by the learned arbitrator.
32. Accordingly, present appeal is dismissed with no orders as to costs. Pending application is disposed of as infructuous.
(SURESH KUMAR KAIT) JUDGE MARCH 14, 2022 ab/r ARB.A. (COMM) 8/2022 Page 18 of 18