Bombay High Court
3I Infotech Tusteeship Services ... vs United Breweries (Holding) Limited on 3 December, 2015
Author: V. M. Kanade
Bench: V. M. Kanade
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO.409 OF 2015
IN
NOTICE OF MOTION (L) NO.905 OF 2015
IN
SUIT (L) NO.290 OF 2015
WITH
NOTICE OF MOTION (L) NO. 1285 OF 2015
ICICI Bank Limited )
a Public Company incorporatedig )
under the Companies Act, 1956 )
and a Banking Company within the )
meaning of the Banking Regulation )
Act, 1949 having its registered )
office at Landmark Race Course )
circle, Vadodara 390007 and its )
Corporate Office at ICICI Bank )
Towers, Bandra-Kurla Complex, )
Bandra, Mumbai 400 051 ) Appellant.
V/s.
1. United Breweries (Holdings) Limited, )
A company incorporated under the )
provisions of the Companies Act, 1956 )
and having its registered office at )
UB Tower, Tower, Level 12, )
24 Vittal Mallya Road,Bangalore 560001)
)
2. Kingfisher Finvest (India) Limited, )
A company incorporated under the )
provisions of the Companies Act, 1956 )
and having its registered office at )
UB Tower, Level 12, 24 )
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Vittal Mallya Road, Bangalore-560001 )
)
3. Kingfisher Airlines Limited, )
Having its registered office at UB )
Tower, Level 12, 24 Vittal Mallya Road, )
Bangalore-560001, and having its )
Corporate Office at Kingfisher House, )
Western Express Highway, )
Vile Parle (East), Mumbai-400099 )
)
4. 3i Infotech Trusteeship )
Services Limited, a Company )
incorporated under the provisions of
ig )
the Companies Act, 1956 )
and having registered its office at )
th
Akruti Centre Point, 6 Floor, MIDC )
Central Road, Next to Marol Telephone )
Exchange, Mumbai 400 093 ) .Respondents.
ALONGWITH
APPEAL NO.312 OF 2015
IN
NOTICE OF MOTION (L) NO.905 OF 2015
IN
SUIT (L) NO.290 OF 2015
WITH
NOTICE OF MOTION (L) NO.1305 OF 2015
3i Infotech Trusteeship Services Limited )
A Company incorporated under the )
provisions of the Companies Act, 1956 )
and having registered its office at )
Akruti Centre Point, 6th Floor, MIDC )
Central Road, Next to Marol Telephone )
Exchange, Mumbai 400 093 ) Appellant.
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V/s
1. United Breweries (Holdings) Limited, )
A company incorporated under the )
provisions of the Companies Act, 1956 )
and having its registered office at )
UB Tower, Tower, Level 12, )
24 Vittal Mallya Road,Bangalore 560001 )
)
2. Kingfisher Finvest (India) Limited, )
A company incorporated under the )
provisions of the Companies Act, 1956 )
and having its registered office at
ig )
UB Tower, Level 12, )
Vittal Mallya Road, Bangalore-560001 )
)
3. Kingfisher Airlines Limited, )
Having its registered office at UB )
Tower, Level 12, 24 Vittal Mallya Road, )
Bangalore-560001, and having its )
Corporate Office at Kingfisher House, )
Western Express Highway, )
Vile Parle (East), Mumbai-400099 )
)
4. ICICI Bank Limited )
a Public Company incorporated )
under the Companies Act, 1956 )
and a Banking Company within )
the meaning of the Banking )
Regulation Act, 1949, having its )
Registered Office at Landmark )
Race Course Circle, )
Vadodara 390007 and its corporate )
office at ICICI Bank Towers, )
Bandra-Kurla Complex, Bandra )
Mumbai 400 051. ) Respondents.
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Mr. Iqbal Chagla, Senior Counsel alongwith Mr. Janak
Dwarkadas, Senior Counsel, Mr. Anikt Lokia, Mr. Anuj Menon
& Ms. Shreevardhini Parchure i/b Desai & Diwanji for the
Appellant in Appeal (L) No.409 of 2015.
Mr. V.R. Dhond, Senior Counsel alongwith Mr. Ashish Kamat,
Mr Rahul Jain i/b RES Legal for the Appellant in Appeal
No.312 of 2015.
Mr. N.H. Seervai, Senior Counsel alongwith Mr. M.S. Doctor,
Senior Counsel, Ms. Ankita Singhania i/b Bachubhai Munim &
Co. for Respondent Nos. 1 and 2.
SUMMARY OF THE JUDGMENT:
The Kingfisher Airlines Limited - original Defendant
No.3, who is a proforma Defendant against whom no reliefs
are claimed by the original Plaintiffs, had taken financial
assistance from large number of Financial Institutions and
Nationalized Banks including the ICICI Bank Limited - original
Defendant No.2. The financial condition of the Kingfisher
Airlines Limited - original Defendant No.3 deteriorated and it
requested all the Banks (hereinafter referred to as
"Consortium of Banks) including ICICI Bank Limited to
restructure its debt which, at the relevant time in 2010 was
Rs 573.72 crores.
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The Consortium of Banks including ICICI Bank agreed to
recast the loan and the loan was accordingly divided in two
parts viz. Rs 403.72 crores which was the recast loan plus
Rs 170 crores which was secured by Compulsory Cumulative
Preference Shares ("CCPS") which were converted into equity
shares of Kingfisher Airlines Limited.
The loan was secured by giving the pledged shares
over which ICICI Bank had the first exclusive charge and the
equity shares of Rs 170 crores was secured by undertaking
from Plaintiff No.1 - United Breweries (Holdings) Limited
("UBHL") that in the event of sale of Kingfisher shares by
ICICI Bank if there was short-fall for recovery of Rs 170
crores, Plaintiff No.1 - UBHL would recompense the ICICI
Bank for the said short-fall. So far as the pledged shares
are concerned, there were clauses viz. Clauses 4.1.1 to 4.1.3
in Loan Purchased Agreement ("LPA") which provided that in
the event the value of the pledged shares went below two
times the loan amount, they would be topped up by further
pledge shares by Plaintiff No.1 - UBHL. For the purpose of
this arrangement three Agreements were entered in to viz.
(I) Master Debt Recast Agreement dated 21/12/2010 between
the Kingfisher Airlines Limited and its lenders (ii) Preference
Share Subscription Agreement dated 21/12/2010 between
ICICI Bank Limited, United Breweries (Holdings) Ltd and
Kingfisher Finvest (India) Limited (iii) Loan Purchase
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Agreement dated 21/12/2010 between ICICI Bank Limited,
United Breweries (Holdings) Limited and Kingfisher Airlines
Limited. Under the Loan Purchase Agreement, Plaintiff No.1
- UBHL had secured the loan by giving the pledged shares
and had secured the equity shares of Rs 170 crores by
obtaining an undertaking from United Breweries (Holdings)
Limited - Plaintiff No.1 to recompense the said short-fall by
making payment to the ICICI Bank Limited.
Thereafter, a further Non-Disposal agreement ("NDA")
dated 12/11/2011 was executed between United Breweries
(Holdings) Limited - Plaintiff No.1 (as the NDU provider),
Defendant No.1 - 3i Infotech Trusteeship Services Limited (as
Plaintiff No.1's Attorney) and Defendant No.2 - ICICI Bank
Limited. By the said Non-Disposal Agreement, Plaintiff No.1 -
UBHL deposited 20,14,000 shares belonging to their
Company in a designated account and appointed Defendant
No.1 - 3i Infotech Trusteeship Services Limited as power of
Attorney. The clause (C) of the Recital indicates that till all
the obligations under the Loan Purchase Agreement were
satisfied, all terms and conditions under the Loan Purchase
Agreement would continue to be in operation.
ICICI Bank assigned its debt/loan of Rs 403.72 crores to
Global Competitive Fund ("IGCF") by assigning it for Rs 428
crores along with the pledged shares. Thereafter, initially,
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96,000 Kingfisher equity shares were sold and there was a
short-fall of Rs 45 crores which was squared off by one other
security given by Margosa Consultancy Services
("Margosa") which was to the extent of Rs 45 crores. Later
on, other equity shares of Kingfisher Limited were sold and
there was a short-fall of Rs 146 crores.
ICICI Bank demanded the said short-fall from Plaintiff
No.1 - UBHL, which contended that the said 20,14,000
shares were given to secure the loan and not the
recompense amount and since the ICICI Bank had assigned
the loan to IGCF and recovered the existing loan amount of
Rs 403.72 crores with interest, they were not entitled to
claim sale of these 20,14,000 shares to recover the short-fall
of Rs 146 crores towards the sale of equity shares of
Kingfisher Airlines Limited. ICICI Bank Limited sent a notice
to Plaintiff No.1 - UBHL that if the said amount was not paid
it constituted an event of default as defined under clause
9.1(c) of the Loan Purchase Agreement, they would ask
Defendant No.1 - 3i Infotech Trusteeship Services Limited
who was holding Power of Attorney on behalf of Plaintiff No.1
- UBHL to sell the said shares and deposit the sale proceeds
in the designated account.
Plaintiff Nos. 1 - UBHL and Plaintiff No.2 - Kingfisher
Finvest (India) Limited therefore filed a suit seeking an order
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of injunction. The learned Single Judge granted ex parte
injunction, restraining Defendant No.1 - 3i Infotech
Trusteeship Services Limited from selling the shares
mentioned in the Non-Disposal Agreement, though a caveat
was filed by Defendant Nos. 1 and 2.
The ex parte ad-interim relief was confirmed by the
learned Single Judge by the impugned order. The learned
Single Judge held that the Non-Disposal Agreement was not
meant to secure the recompense amount mentioned in the
Loan Purchase Agreement under clause 10.1. The learned
Single Judge held that LPA had worked itself out after the
assignment of loan alongwith the pledged shares by ICICI
Bank to IGCF.
We have, after interpreting the provisions of Loan
Purchase Agreement and Non-Disposal Agreement, held that
intention of the parties can be gathered from the terms and
conditions of Non-Disposal Agreement. We have further held
that till the entire obligation cast on Plaintiff No.1 - UBHL was
not fulfilled, the Loan Purchase Agreement would continue to
exist and, secondly, the Loan Purchase Agreement also
secured the recompense amount which was payable by
Plaintiff No.1 - UBHL in the event of there being a short-fall
after equity shares of Kingfisher Airlines Limited were sold by
the ICICI Bank. We have also held that since there was
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short-fall of Rs 146 crores, this could be recovered by
disposal of non-disposal shares and since Plaintiff No.1 -
UBHL had, despite being called upon to make payment
towards the short-fall of Rs 146 crores, failed to do so, non-
disposal shares could be sold by Power of Attorney appointed
by Plaintiff No.1 - UBHL viz. Defendant No.1 - 3i Infotech
Trusteeship Services Limited. Recital (C ) reads as under:-
"(C) In terms of the LP Agreement and in
order to provide assurance that it has the
ability to fulfill its obligations under the LP
Agreement, the NDU Provider has agreed
not to divest or deal with the shares of the
Company held by the NDU Provider unless
such divestment or dealing is required to
make payments as and when called upon
by the Lender in terms of this Agreement
and/or the LP Agreement, and undertakes
to irrevocably appoint and authorize the
Attorney to fulfill the obligations of the
NDU Provider under this Agreement."
The Appeals are therefore allowed and Judgment and
Order of the learned Single Judge is set aside.
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CORAM: V. M. KANADE, ACTING CHIEF JUSTICE &
DR. SHALINI PHANSALKAR-JOSHI, J.
Judgment reserved on : 29/09/2015
Judgment pronounced on :03/12/2015
JUDGMENT:(Per Acting C.J.) BRIEF FACTS:
1. Both these appeals can be disposed of by a common judgment since the appellants in both these appeals are aggrieved by a Judgment and Order dated 16/4/2015 passed by the learned Single Judge in Notice of Motion (L) No.905 of 2015 in Suit (L) No.290 of 2015.
2. Written Submissions were submitted by Appellants/original Defendant Nos. 1 and 2 on 11/09/2015 and by Respondent Nos.1 and 2/original Plaintiffs on 28/10/2015.
3. Appellant - ICICI Bank Limited is the original Defendant No.2 in the suit. Appellant - 3i Infotech Trusteeship Services Limited is the original Defendant No.1 and Respondent Nos.1 and 2 are the original Plaintiff Nos.1 and 2 respectively. For the sake of convenience, parties shall be hereinafter referred to as the "Plaintiffs" and "Defendants" respectively.::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -11-
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4. Plaintiff Nos.1 and 2 filed a suit against Defendant Nos. 1, 2 and Defendant No. 3 - Kingfisher Airlines Limited.
Plaintiffs inter alia asked for an order of injunction restraining Defendant Nos. 1 and 2 from assigning or dealing with 20,14,000 shares of United Breweries Limited belonging to Plaintiff No.1.
5. Plaintiff No.1 - United Breweries (Holdings) Limited ("UBHL") is a Company incorporated under the provisions of Companies Act having its registered Office at Bangalore and is a constituent of the UB Group Companies holding shares in various UB Group Companies, including in United Breweries Limited. Plaintiff No.2 - Kingfisher Finvest (India) Limited is a Company incorporated under the provisions of the Companies Act having its registered Office at Bangalore and it is a wholly owned subsidiary of Plaintiff No.1. Defendant No.1 - 3i Infotech Trusteeship Services Limited is a Trusteeship Company incorporated under the provisions of the Companies Act and which provides wide range of trusteeship services in India. Defendant No.1, in the present suit, is claiming to be the Lenders' Agent appointed by Defendant No.2 and also a Power of Attorney holder purported to be appointed by UBHL. Defendant No.2 ICICI Bank Limited is a Banking Company incorporated under the Companies Act and is a Lender of money to the Plaintiffs. Defendant No.3. - Kingfisher Airlines Limited is a proforma ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -12- APP(L)409/2015 A/W APP312/2015 Defendant and no reliefs are claimed against it.
6. Defendant No.3 - Kingfisher Airlines Limited started its airline business in the year 2003 and in the course of its business availed loan from Defendant No.2 - ICICI Bank Limited and also from number of other Banks.
7. Sometime after the year 2008 onwards Kingfisher Airlines Limited suffered financial set back and therefore it availed additional financial assistance from time to time.
8. Defendant No.2 - ICICI Bank Limited entered into Rupee Facility Agreements dated 30/06/2008, 08/09/2010 and 04/08/2009 and advanced Rupee Term Loans to the tune of Rs 527.22 crores and a Working Capital Facility to the tune of Rs 46.5 crores aggregating to a total sum of Rs 573.72 crores (hereinafter referred to as the existing loan.) This loan was secured by the following shares viz.
(A) 31,47,985 shares held by UBHL in United Spirits Limited (USL);
(B) 5,91,50,000 shares held by UBHL in Kingfisher Airlines;
(C ) 17,89,410 shares held by Kingfisher Finvest (India) Limited in USL which are hereinafter referred to as the "pledged shares".
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- Kingfisher Airlines Limited, a request was made for restructuring its debts and, accordingly, Master Debt Recast Agreement ("MDRA") was executed between the Kingfisher Airlines and a consortium of its lenders including the ICICI Bank Limited. Under the Master Debt Recast Agreement, ICICI Bank Limited continued to have the first exclusive charge over the pledged shares as per Clause 5.1(II) of MDRA. As per the terms and conditions of MDRA, two other Agreements were executed viz. Preference Shares Subscription Agreement ("PSSA" dated 21/12/2010 and the Loan Purchase Agreement ("LPA") dated 21/12/2010. The PSSA was executed between the Kingfisher Airlines Limited -
Defendant No.3 and United Breweries (Holdings) Limited - Plaintiff No.1 and the LPA was executed between ICICI Bank Limited - Defendant No.2, United Breweries (Holdings) Limited - Plaintiff No.1 (as purchasing party) and Kingfisher Finvest (India) Limited Plaintiff No.2 as confirming party.
9. Since one of the conditions of restructuring was that the lenders would convert a portion of their credit facilities into preference share/equity shares of Defendant No.3 - Kingfisher Airlines Limited, Preference Share Subscription Agreement was executed under which an amount of Rs 170 crores out of existing loan of the ICICI Bank Limited was converted into preference shares of Defendant No.3 -
::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -14-APP(L)409/2015 A/W APP312/2015 Kingfisher Airlines Limited. By virtue of this, the existing loan of Rs 573.72 crores was reduced by Rs 170 crores and the existing loan became Rs 403.72 crores. Under the third Agreement namely LPA of the same date viz 21/12/2010, Plaintiff No.1 - United Breweries (Holdings) Limited has two-
fold obligations viz (1) to purchase the loan granted by ICICI Bank Limited to Defendant No.3 - Kingfisher Airlines Limited as and when called upon to do so by the Appellant ICICI Bank Limited and (2) if the ICICI Bank Limited were to suffer a loss upon sale of the shares held by it of Kingfisher Airlines Limited - Defendant No.3 (after conversion of debt into equity) to recompense such loss to the ICICI Bank Limited and if there was a default in payment of the recompense amount, it would constitute an event of default. The Clause 4.1.1 of LPA also provided that Respondents/Plaintiffs would ensure that the loan purchase secured obligation was secured by first exclusive pledge over such number of fully paid up equity shares of USL which provided a cover of 1.25 times the ICICI Bank Facilities and such number of fully paid- up equity shares of the Kingfisher Airlines which provided a cover of 0.75 times the ICICI Bank Facilities.
10. On 31/03/2011 the CCPS (Preference Shares) were converted into 2,63,64,764 equity shares of Defendant No.3 - Kingfisher Airlines Limited at an allotment price of Rs 68.48 per share. On 28/06/2011, a sister concern of Plaintiff No.1 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -15- APP(L)409/2015 A/W APP312/2015 viz. Margosa Consultancy Services ("Margosa") issued a Letter of Comfort to the ICICI Bank Limited - Defendant No.2 to the effect that Margosa would provide security to the extent of Rs 45 crores for meeting the claims of ICICI Bank Limited.
11. The fourth Agreement was executed between the parties on 12/11/2011 which is known as a Non-Disposal Agreement ("NDA") between United Breweries (Holdings) Limited - Plaintiff No.1 (as the NDU provider), Defendant No.1
- 3i Infotech Trusteeship Services Limited (as Plaintiff No.1's Attorney) and Defendant No2 - ICICI Bank Limited (as the DP agent and lender) whereby United Breweries (Holdings) Limited - Plaintiff No.1 agreed not to deal in or dispose of 20,14,000 equity shares of United Breweries Limited held by it (hereinafter referred to as "the NDA shares".) In view of this, Plaintiff No.1 - United Breweries (Holdings) Limited executed an irrevocable Power of Attorney in favour of Defendant No.1 - 3i Infotech Trusteeship Services Limited.
12. Sometime during January-February 2012, ICICI Bank Limited - Defendant No.2 sold 96,00,000 shares and, according to ICICI Bank Limited, this resulted in shortfall of Rs 47 crores. This was recovered by ICICI Bank Limited out of Margosa Fixed Deposit.
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13. On 27/06/2012, Defendant No.2 - ICICI Bank Limited transferred its outstanding credit facility viz Rs 403.72 crores by assigning it to one SREI Venture Capital Limited in its capacity as the Investment Manager of one India Global Competitive Fund ("IGCF") By virtue of this transfer, the outstanding credit facility by that time alongwith interest was an amount of Rs 428.36 crores alongwith security for the same i.e. the pledged shares.
14. Thereafter, in December 2013, the ICICI Bank Limited - Defendant No.2 sold in tranches the following equity shares held by it in Defendant No.3 - Kingfisher Airlines viz
(a) 7,753,120 shares at a total price of Rs 35,669,604/- and
(b) 9,011,644 shares at a total price of Rs 35,535,293.80. This was in addition to the prior sale in January-February, 2012 of 96,00,000 shares. According to the ICICI Bank Limited, there was a total shortfall of Rs 146 crores approximately which resulted from the aforesaid sale. Plaintiff No.1 - United Breweries (Holdings) Limited addressed a letter to the ICICI Bank Limited calling for release of the NDA shares (equity shares of Kingfisher Airlines Limited) which were with ICICI Bank Limited.
15. On 12/12/2013 and 17/12/2013, ICICI Bank Limited issued notice to Plaintiff No.1 - United Breweries (Holdings) Limited, seeking payment of its Equity Recompense claims of ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -17- APP(L)409/2015 A/W APP312/2015 Rs 146 crores under clause 10.1 of the LPA. On 23/12/2013, Plaintiff No.1 - United Breweries (Holdings) Limited gave reply to the said letter claiming that the NDA shares were not offered as security for recompense claim and again demanded release of the NDA shares (equity shares of Kingfisher Airlines Limited) which were with ICICI Bank Limited - Defendant No.2. On 02/02/2014, ICICI Bank Limited
- Defendant No.2 issued a notice to Plaintiff No.1 - United Breweries (Holdings) Limited and Defendant No.3 - Kingfisher Airlines Limited, stating therein the event of default under LPA and called upon Plaintiff No.1 - United Breweries (Holdings) Limited to cure the event of default, failing which Defendant No.1 - 3i Infotech Trusteeship Services Limited would proceed against the sale of the NDA shares. On 11/02/2015, Plaintiff No.1 gave reply to the said notice reiterating its earlier stand.
16. Plaintiff No.1 - United Breweries (Holdings) Limited and Plaintiff No.2 - Kingfisher Finvest (India) Limited filed a suit inter alia seeking relief of injunction and also filed Notice of Motion. The Notice of Motion was finally disposed of by an order dated 16/04/2015 and the Notice of Motion was made absolute in terms of prayer clause (a) and further directions were given to ICICI Bank Limited to deposit the NDA shares.
17. Being aggrieved by the said judgment and order passed ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -18- APP(L)409/2015 A/W APP312/2015 by the learned Single Judge, Defendant Nos. 1 and 2 have filed the aforesaid two appeals.
SUBMISSIONS MADE BY THE LEARNED SENIOR COUNSELS APPEARING ON BEHALF OF THE APPELLANTS.
18. Mr. Iqbal Chagla and Mr. Janak Dwarkadas, the learned Senior Counsels appearing on behalf of both the Appellants i.e. Original Defendant Nos.1 and 2 submitted firstly that the learned Single Judge had misconstrued the Recitals (A), (B) & (C) of the Non-Disposal Agreement dated 12/11/2011 and had held that the said Agreement was executed only for the purpose of topping-up the pledged shares and these shares had nothing to do with the recompense amount mentioned in clause 10.1 of the LPA. It was submitted that perusal of the three clauses of NDA would show that the NDA shares were meant to secure all of Plaintiff No.1's LPA obligations. It was submitted that this was evident from Recital (C) and clauses 3.1(h), (i) and (k) of NDA. It was submitted that these clauses show that the NDA shares were furnished by Plaintiff No.1 - United Breweries (Holdings) Limited to secure the payment under LPA or NDA and failure of Plaintiff No.1 to perform the NDA would constitute an event of default under NDA. It was submitted that upon reading of these three clauses, it was abundantly clear that the NDA shares were ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -19- APP(L)409/2015 A/W APP312/2015 the security for the fulfillment of Plaintiff No.1's LPA obligations including recompense claim. It was submitted that the learned Single Judge had erred in coming to the conclusion that the event of default and recompense amount were sought to be interpolated in the NDA Agreement. It was submitted on behalf of Defendant Nos. 1 and 2 that, on the contrary, these three clauses clearly envisaged a situation that in the event of sale of equity shares of the Kingfisher Airlines Limited held by the ICICI Bank Limited - Defendant No.2, if a loss is caused then the same would be compensated by sale of shares of Plaintiff No.1 - United Breweries (Holdings) Limited under the Non-Disposal Agreement. It was submitted that the learned Single Judge had erred in holding that the only security for the equity shares (CCPS) was the Margosa Fixed Deposit and not the NDA shares, is patently erroneous. It was submitted that conjoint reading of the three agreements viz PSSA and LPA both dated 21/12/2010 and the NDA Agreement dated 12/11/2011 clearly established that 20,14,000 shares of United Breweries Limited were furnished as security under the Non-Disposal Agreement dated 12/11/2011 in favour of Defendant Nos 1 and 2 - the Appellants herein, for payment of its recompense claim arising under clause 10.1 of the Loan Purchase Agreement dated 21/12/2010. It was submitted that the balance of convenience was entirely in favour of the Defendant Nos.1 and 2 i.e. the Appellants herein since the ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -20- APP(L)409/2015 A/W APP312/2015 value of the NDA shares was admittedly reducing day by day and when the impugned order was passed the value was Rs 235.26 crores and when the Appeals were filed it was Rs 193.14 crores and on the date when the Appeals were reserved for judgment, the value was Rs 171.65 crores.
Secondly, it was submitted that these shares being shares of a public listed company, even assuming that the same were not a part of the security available for the recompense claim of Defendant No.2 - ICICI Bank Ltd, the same could always be restored to Respondent Nos.1 and 2/original Plaintiff Nos. 1 and 2 by purchasing the same from the market or compensating Respondent Nos. 1 and 2/original Plaintiff Nos. 1 and 2 in monetary terms.
SUBMISSIONS MADE BY THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF RESPONDENT NOS.1 AND 2:
19. On the other hand, Mr. Seervai, the learned Senior Counsel appearing on behalf of Respondent Nos.1 and 2 i.e. the original Plaintiffs Nos. 1 and 2 submitted that the Plaintiffs had made out a prima facie case and that was accepted by the learned Single Judge and in appeal, therefore, this Court should not interfere with the said order.
Reliance was placed on the judgment of the Apex Court in The Apex Court in Wander Ltd and Another vs. Antox India P. ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -21- APP(L)409/2015 A/W APP312/2015 Ltd.1 as also on the Judgment of Division Bench of this Court in Avitel Post Studioz Ltd & Ors vs. HSBC PI Holdings (Mauritius) Ltd.2. He submitted that the only question that fell for consideration in appeal was whether the NDA shares were offered as independent security for securing the recompense amount as contended by the Appellants for the first time in the appeal or were the NDA shares given pursuant to the top-up obligation under clause 4.1.3 (ii)(a) of the LPA to top-up the pledged shares which were only to secure the Loan Purchase Secure Obligation under the LPA. He then invited our attention to Master Debt Recast Agreement, Preference Share Subscription Agreement and the Loan Purchase Agreement. He submitted that the shares which were pledged by three pledged agreements were given for the purpose of securing the loan of Rs 400 crores approximately and not the equity shares purchased by ICICI Bank Limited in the form of Converted ICICI Bank Facilities.
He then submitted that clause 4.1 of the LPA provided for security for the Loan Purchase Secured Obligation and under Clause 4.1.1, the Respondent Nos. 1 and 2 had to ensure that the Loan Purchase Secured Obligation was secured by the first exclusive pledge over such number of fully paid up equity shares of USL which provided a cover of 1.25 times the ICICI Bank Facilities and such number of fully 1 1990(Supp) SCC 727 2 2014 SCC Online Bom 929 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -22- APP(L)409/2015 A/W APP312/2015 paid-up Equity Shares of Kingfisher Airlines which provided a cover of 0.75 times the ICICI Bank Facilities. By virtue of these two clauses, security for the Loan Purchase Secured Obligation was not to fall below two times the value of the ICICI Bank Facilities and to secure this obligation, clause 4.1.3 granted a right to the ICICI Bank Limited to call up the Respondent Nos. 1 and 2/original Plaintiff Nos.1 and 2 to pledge additional/top-up shares, if the value of the pledged shares fell below this threshold level.
ig He then submitted that clause 10 of the LPA provided for repayment of the recompense amount. He submitted that this was secured by Margosa Consultancy Services' Fixed Deposit. It was submitted that the ICICI Bank was not entitled to sell the additional top-up shares to satisfy the demand for this recompense amount. It was submitted that the LPA contemplated two primary obligations viz (i) the Loan Purchase Obligation which was secured by the pledged shares and (ii) the recompense obligation which was not secured by the pledged shares and therefore not to be secured by top-up shares which were only a top-up to maintain the value of the pledged shares. It was therefore submitted that the shares under the Non-Disposal Arrangement were given only as a further top-up of the pledged shares and it covered the amount of the loan advanced by ICICI Bank Limited and not the equity shares which were transferred in the name of ICICI Bank Limited.
::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -23-APP(L)409/2015 A/W APP312/2015 He also submitted that from the Recitals of Non-Disposal Agreement viz Recitals (A), (B) and (C ), it was clear that to provide security of shares pledged as set out in the LPA, the parties had agreed to create additional security to ensure that the stipulated security cover was maintained. Reliance was also placed on the series of correspondence between the parties in support of the said submission. It was submitted that the clauses of NDA had to be read in the context and understanding of the parties. Reliance was placed by the learned Senior Counsel appearing on behalf of the Respondents/original Plaintiffs on the following judgments regarding interpretation of commercial contracts:-
1. Reardon Smith Line vs. Hansen-Tangen 1 WLR [1976] 989 at page 995, Placitum E.
2. Investors Compensation Scheme Ltd. vs. West Bromwich Building Society 1 WLR [1998] 896 at page 912, Placitum E.
3. Mannai Investment Co. Ltd. vs. Eagle Star Life Assurance Co. Ltd. - 2 WLR [1997] 945 at page 967, Placitum G.
4. Antaios Compania Naviera S.A. vs. Salen Rederierna A.B. - 1 AC [1985] 191 at page 200, Placitum G.
5. Mumbai Metropolitan Region Development Authority vs. Unity Infraproject ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -24- APP(L)409/2015 A/W APP312/2015 Ltd. [2008] 5 Bom CR 196 at page 201 & 204 at para 11-13 & 25.
6. The Commissioner of Income Tax, Delhi vs. Shiv Raj Gupta (2014) SCC Online Del 7305.
It was then submitted that the pledged shares secured only the ICICI Bank Facilities and not the amount of Rs 170 crores which was converted into equity shares and after assigning entire loan by ICICI Limited to IGCF along with the entirety of the pledged shares, the obligation to provide top-up cover of the pledged shares under clause 4.1.3 of the LPA came to an end and to that extent the NDU Shares had worked itself out.
He submitted that ICICI Bank received total consideration of Rs 428 crores from IGCF in lieu of assigning the said loan of Rs 403.72 crores and the pledged shares and therefore there was no obligation on the part of Plaintiffs towards the repayment of the loan either under LPA or NDA. It was submitted that IGCF sold the pledged shares far in excess of the loan amount assigned to it and that the IGCF had been ordered by the Hon'ble Karnataka High Court vide order dated 20/06/2014 to deposit the balance amount of Rs 651 crores in Court. It was submitted that the balance of convenience was entirely in favour of the Respondent Nos.1 and 2/original Plaintiff Nos. 1 and 2. It was submitted that if the Appellants/original Defendant Nos. 1 and 2 sell the ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -25- APP(L)409/2015 A/W APP312/2015 shares, the Respondent Nos.1 and 2 /original Plaintiff Nos.1 and 2 will lose multiple rights that accrue to them by virtue of holding the said shares including the voting rights in United Breweries Limited and the sale of these shares would render the suit infructuous.
FINDINGS AND CONCLUSION:
20. We have heard the learned Senior Counsels Mr. Iqbal Chagla and Mr. Janak Dwarkadas appearing on behalf of the Appellants/original Defendant Nos. 1 and 2 and Mr. N.H. Seervai appearing on behalf of Respondent Nos. 1 and 2/original Plaintiff Nos. 1 and 2 respectively.
21. Appellants are aggrieved by the order of injunction granted by the learned Single Judge, restraining the Appellants from selling 20,14000 shares of United Breweries Limited (hereinafter referred to as "the NDA shares") which were furnished as security under the Non-Disposal Agreement dated 12/11/2011.
22. After the Appellants/Defendant Nos. 1 and 2 informed the Respondent Nos. 1 and 2/Plaintiff Nos. 1 and 2 that they were proceeding to sell these NDA shares which were furnished as security, Plaintiff Nos.1 and 2, Respondent Nos. 1 and 2 herein filed a suit inter alia claiming an order of ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -26- APP(L)409/2015 A/W APP312/2015 injunction restraining them from selling the shares. The principal contention of the Plaintiffs is that these 20,14,000 shares were not given as security towards the recompense amount under clause 10.1 of the LPA but were given as a top-up security to the shares which were pledged by three Agreements for securing the loan amount viz. Rs 403.72 crores approximately. It was contended by the learned Senior Counsel appearing on behalf of Respondent Nos. 1 and 2/Plaintiff Nos. 1 an 2 that the equity shares of Rs 170 crores were not collaterallised by NDA shares. It was contended in the plaint that the Appellants/Defendant Nos. 1 and 2 having assigned their debt to IGCF and having received Rs 428 crores, the LPA had worked itself out and Plaintiff No.1 -
United Breweries (Holdings) Limited was entitled to get back these 20,14,000 shares. In support of this submission, reliance has been placed by the learned Senior Counsel appearing on behalf of the Respondent Nos. 1 and 2/Plaintiff No.1 and 2 on the three pledged agreements viz (i) Master Debt Recast Agreement (ii) Preference Shares Subscription Agreement and (iii) Loan Purchase Agreement.
23. On the other hand, it is the case of Appellants/Defendant Nos. 1 and 2 that the NDA shares were also given for the purpose of security towards the recompense amount as per clause 10.1 of the LPA dated 21/12/2010.
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24. Before we consider the rival submissions, admitted facts need to be recapitulated.
25. Original Defendant No.3 - Kingfisher Airlines Limited had taken financial assistance from various Banks including ICICI Bank Limited in 2003. Between 2008 to 2010, Defendant No.3 - Kingfisher Airlines Limited suffered financial difficulties. A ig proposal was given by them for restructuring/recasting their debts. Negotiations were made between consortium of Banks which included ICICI Bank Limited and Kingfisher Airlines Limited and Plaintiff Nos. 1 and 2 i.e. Respondent Nos. 1 and 2 herein. At the relevant time, the loan which was advanced to Kingfisher Airlines Limited was about 573.72 crores. This loan was secured by the shares held by United Breweries (Holdings) Limited in United Spirits Limited and Kingfisher Airlines Limited and also by Plaintiff No.2 - Kingfisher Finvest (India) Limited in United Spirits Limited. It was therefore agreed to enter into restructuring/recasting agreement and divide original loan in two parts. Out of Rs 573.72 crores, the monetary loan would be reduced to Rs 403.72 crores which was secured by the 'pledged shares' which pledge was created on 08/09/2006 and 30/06/2008. The amount of Rs 170 crores was to be converted into Compulsory Cumulative Preference Shares/Equity Shares of Kingfisher Airlines Limited under the ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -28- APP(L)409/2015 A/W APP312/2015 Master Debt Recast Agreement. This was secured by margosa Fixed Deposit of Rs 45 crores. Under the LPA, there were clauses viz clauses 4.1.1 to 4.1.3 which mentioned that the value of the pledged shares would be twice the value of the loan i.e. 1.25 times to be maintained by the fully paid-up equity shares of USL which would cover the ICICI Bank Facilities and fully paid-up shares of Kingfisher Airlines Limited which provided cover of 0.75 times ICICI Bank Facilities. There was, however, a clause 4.1.3 by which the ICICI Bank Limited could call upon Respondent Nos.1 and 2/original Plaintiff Nos.1 and 2 to pledge additional/top-up shares if the value of the pledged shares fall below the prescribed limit.
26. Clause 10 of the LPA provided for the payment of recompense amount in respect of the equity shares in the event of the short-fall between the value of Converted ICICI Bank Facilities i.e. equity shares of Rs 170 crores and the Yield Amount which would have accrued thereon and the value of the share sale proceeds (amounts received from sale of the equity shares of Kingfisher Airlines) recovered by ICICI Bank. Clause 9.1(c) provided that if there was a default in payment of recompense amount, it shall constitute an event of default. Thereafter, Non-Disposal Agreement was entered into on 12/11/2011 and the ICICI Bank Limited accepted the Non-Disposal Undertaking in respect of ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -29- APP(L)409/2015 A/W APP312/2015 20,14,000 shares. The entire controversy revolves around the purpose for which 20,14,000 shares were given.
According to Plaintiffs, the said undertaking for Non-disposal of 20,14,000 shares of UBL was given as a top-up or additional pledge for the payment of recast loan of Rs 403.72 crores so that in the event the value of the pledged shares became less than the value which was to be maintained under clauses 4.1.1 to 4.1.3, these shares could be sold. According to the Respondent Nos.1 and 2/Plaintiff Nos. 1 and 2, upon ICICI Bank assigning the recast loan of Rs 403.72 crores along with the pledges shares to India Global Competitive Fund, the shares held under the Non-Disposal Agreement were liable to be released to UBL, whereas, according to the Appellants/Defendant Nos. 1 and 2, the said 20,14,000 shares were given as security to secure the recompense amount in the event of a default committed by Plaintiff No.1 - Respondent No.1 herein, to perform the NDA and on the occurrence of event of default, the Appellants/Defendant Nos. 1 and 2 could, under clauses 3.1(h), (i) and (k) of NDA, enforce the security by selling the NDA shares and appropriate the proceeds of the NDA shares towards discharge of the payment obligations under LPA.
27. In support of their rival submissions, both the parties have relied on all the agreements including definitions of various clauses under the said agreements. Three questions, ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -30- APP(L)409/2015 A/W APP312/2015 therefore, which fall for consideration before this Court are :
(1) Whether 20,14,000 shares of UBL furnished as security (NDA shares) under Non-Disposal Agreement dated 12/11/2011 was available as security in favour of the Appellants for the payment of their recompense claim arising under Clause 10.1 of the Loan Purchase Agreement dated 21/12/2010?
(2) Whether the Appellants' recompense claim was capable of being collateralised or secured?
(3) Whether the NDA shares were given in lieu of top-up obligation under clause 4.1.3 of the Loan Purchase Agreement only?
28 It would be fruitful to prepare a chart showing the division of loan under the Master Debt Recast Agreement.
::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -31-APP(L)409/2015 A/W APP312/2015 ICICI BANK LTD KINGFISHER AIRLINES LTD.
Original Loan : Rs 573.72 crores
_____________________________
Rs 170 crores Rs. 403.72 crores
Converted into CPPS/Equity Monetary loan which
Shares of Kingfisher Airlines Ltd remained post-Debt
pursuant to MDRA under MDRA
Secured by Secured by
Pledge of
Margosa Fixed Deposit of
Rs 45 crores (created pursuant
to document dated 28/06/2011)
(i) 3,147,985 shares held by UBHL )
(Plaintiff No.1) in United Spirits Ltd. ) ) PLEDGED
(ii) 59,150,000 shares held by UBHL ) SHARES (Plaintiff No.1) in Kingfisher Airlines ) (Pledged Ltd.) ) created b/w ) 8th Sept 2006
(iii) 1,789,410 shares held by Kingfisher) &30th June,2008) Finvest (Plaintiff No.2) in United Spirits Ltd.
Non-Disposal Agreement dated 12/11/2011 Undertaking given by Plaintiff No.1 UBHL to ICICI Bank for non-disposal of 20,14,000 shares of UBL.
According to Plaintiffs this was given to provide a top-up cover for the pledged shares under clause 4.1.3 of the LPA and to that extent only there was a novation.
On the other hand, according to the Appellants/ ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -32- APP(L)409/2015 A/W APP312/2015 Defendant Nos.1 and 2 the said shares also were given as security towards the recompense amount and Defendant Nos. 1 & 2 would be entitled to sell these shares in the event of default, which was secured by NDA.
29. The learned single Judge has relied on Recitals (A), (B) & (C ) of the Non-Disposal Agreement and has come to the conclusion that these shares were given only as as a top-up / additional pledge as per clause 4.1.3 and not for the purpose of collateral security towards the ig recompense amount.
The learned Single Judge held that the term 'event of default' and 'recompense amount' mentioned in LPA dated 21/12/2010 could not be interpolated or incorporated in the Non-Disposal Agreement dated 12/11/2011. In our view, the view taken by the learned Single Judge is erroneous and has been arrived at on the misconstruction of Recitals (A), (B) and (C ) of the Non-Disposal Agreement and also by wrongly holding that term 'event of default' and 'recompense amount' could not be incorporated or read into the Non- Disposal Agreement. The interpretation made by the learned Single Judge therefore is contrary to the known canons of interpretation of commercial transaction. We give the following reasons for our conclusion.
30. In October, 2010, when consortium of Banks agreed to restructure the loan given to Kingfisher Airlines Limited, three agreements were entered into viz. (I) Master Debt ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -33- APP(L)409/2015 A/W APP312/2015 Recast Agreement dated 21/12/2010 between the Kingfisher Airlines Limited and its lenders (ii) Preference Share Subscription Agreement dated 21/12/2010 between ICICI Bank Limited, United Breweries (Holdings) Ltd and Kingfisher Finvest (India) Limited (iii) Loan Purchase Agreement dated 21/12/2010 between ICICI Bank Limited, United Breweries (Holdings) Limited and Kingfisher Airlines Limited. As mentioned hereinabove, the existing loan of Rs 573.72 crores was secured by three agreements viz (1) agreement dated 08/09/2006 which is at Exhibit-A to the Plaint (2) agreement dated 30/06/2008 which is at Exhibit-B to the Plaint and (3) agreement dated 30/06/2008 which is at Exhibit-C to the Plaint. By virtue of this, the existing loan was secured by pledge over : (a) 31,47,985 shares held by United Breweries (Holdings) Limited in United Spirits Ltd. ("USL") (b) 5,91,50,000 shares held by United Breweries (Holdings) Limited in Kingfisher Airlines Limited; and (c) 17,89,410 shares held by Plaintiff No.2 - Kingfisher Finvest (India) Limited in USL (collectively referred to as the "pledged shares")
31. When the Master Debt Recast Agreement was executed, ICICI Bank Limited continued to have the first exclusive charge over the pledged shares by virtue of clause 5.1(II). The debt was divided into Rs. 403.72 crores which was the loan given and a portion of the credit facility was converted ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -34- APP(L)409/2015 A/W APP312/2015 into Preference Shares i.e. equity shares of Kingfisher Airlines Limited to the extent of Rs 170 crores.
32. In order to give effect to the Master Debt Recast Agreement dated 21/12/2010, Preference Share Subscription Agreement was executed on the same date. Similarly, Plaintiff No.1, Respondent No.1 herein i.e. United Breweries (Holdings) Limited gave an assurance to the ICICI Bank Limited in view of agreeing to restructure the Kingfisher Airlines' debt. Under the Loan Purchase Agreement, there were two-fold obligations on United Breweries (Holdings) Limited viz (1) to purchase the loan granted by ICICI Bank Limited to the Kingfisher Airlines Limited as and when called upon to do so which is Rs 403.72 crores with interest; (1-A) to ensure that value of the shares pledged always would be 1.25 and 0.75 times Facilities provided by the ICICI Bank Limited and UBHL thus had agreed to give additional pledged shares/top-up shares to ensure that the said level of 1.25 and 0.75 was maintained and (2) if ICICI Bank Limited were to suffer loss upon sale of shares held by it of Kingfisher Airlines Limited (after conversion of debt into equity) to recompense such loss to the ICICI Bank Limited. If the said loss was not recompensed, it would constitute an event of default. These two conditions clearly revealed that both, the reduced loan of Rs 403.72 crores with interest was secured by the pledged shares and additional pledged shares/top-up shares which ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -35- APP(L)409/2015 A/W APP312/2015 were to be given in the event the value of the pledged shares went below 1.25 and 0.75 and, secondly, an amount of Rs 170 crores in the form of equity shares also was secured and it was provided that in the event there was a loss caused to the ICICI Bank Limited by selling of shares of Kingfisher Airlines Limited then the difference would be recompensed by Plaintiff No.1 United Breweries (Holdings) Limited to the ICICI Bank Limited and if the said difference was not paid, it would constitute an event of default.
ig The said clauses viz 4.1.1, 4.1.2, 4.1.3, 9.1(c), 10 and 10.1 of the Loan Purchase Agreement and the definition of "Converted ICICI Bank Facilities" as mentioned in definition clause of LPA are quoted hereinbelow in tabular form:-
Security by Pledged shares Security for equity shares of & additional security of Rs 170 crores differential shares/top-up. amount (Recompense Amount) to be paid by Plaintiff No.1 - UBHL "4.1.1. The corporate Obligors "10. RIGHT TO RECOMPENSE shall ensure that the Loan AND OTHER PAYMENT Purchase Secured Obligations OBLIGATIONS.
are secured by a first exclusive pledge over: 10.1 Recompense amount:
i. such number of fully paid up i. In case the Share Sale equity shares of USL which Proceeds recovered by ICICI provide a cover of 1.25 times Bank is of value lesser than such the ICICI Bank Facilities; and Converted ICICI Bank Facilities and the Yield Amount which ii. such number of fully paid up would have accrued to ICICI equity shares of the Borrower, Bank on such Converted ICICI which provide a cover of 0.75 bank Facilities, then the ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -36- APP(L)409/2015 A/W APP312/2015 times the ICICI Bank Facilities differential amount (the "Recompense Amount") shall be as held by the Corporate paid by the Purchasing Party Obligors, in a form and manner within 7 Business Days of being acceptable to ICICI Bank." called upon to do so by ICICI Bank in writing; or "4.1.2. Notwithstanding anything to the contrary ii. In case ICICI Bank is unable to contained herein, the divest either part / whole of the Confirming party shall create Equity Shares / CCPS due to any Pledge only over the fully paid reason whatsoever, the up equity shares of USL while Purchasing Party shall pay to the Purchasing Party shall ICICI Bank an amount equal to create pledge over fully paid up the Converted ICICI Bank equity shares of both KFA and Facilities and the Yield Amount USL." (the "Recompense Amount") within 7 (seven) Business Days "4.1.3. The Corporate Obligors of being called upon to do so by shall ensure that during the ICICI Bank in writing. Upon currency of this Agreement: payment of such Redemption Amount, part /whole of the i. the Value of the USL equity Equity Shares/ CCPS shall stand shares pledged in favour of transferred to the Purchasing ICICI Bank shall always be at Party, as the case may be;
least 1.25 times the ICICI Bank Facilities and shall pledge iii. Notwithstanding anything additional shares of USL to contained in this Agreement, the ensure that the Value of the obligation of the Purchasing USL shares pledged / to be party to pay the Recompense pledged in favour of ICICI Bank amount or the Redemption does not fall below a 1.25 times Amount to ICICI Bank shall cover of the ICICI Bank subsist even after the Loan Facilities, within 15 days of Purchase Option has been being called upon to do so by exercised by ICICI Bank and ICICI Bank, in a form and shall survive till such time ICICI manner acceptable to ICICI Bank recovers the Share Sale Bank; and Proceeds which shall not be an amount lesser than the ii. the Value of the KA equity aggregate of the Converted ICICI shares shall always represent at Bank Facilities and the Yield least 0.75 times the ICICI Bank Amount."
Facilities. In case the Value of the KFA equity shares fall below the specified cover, the ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -37- APP(L)409/2015 A/W APP312/2015 Corporate Obligors shall ensure: "1. DEFINITION & INTERPRETATION a. that suitable number of fully 1.1. Definitions"
paid up equity shares of a listed group entity are pledged in favour of ICICI Bank so that a cover of 0.75 times the ICICI "Converted ICICI Bank Facilities Bank Facilities is maintained; or shall mean that portion of the fund based ICICI Bank Facilities b. maintain a fixed deposit with (which are more particularly lien marked to ICICI Bank, in a described in Schedule III hereto), form and manner acceptable to in lieu of which the Borrower ICICI Bank, which shall be of an proposes to issue Convertible amount which represents the Cumulative Preference Shares / deficit in the cover being Equity Shares to ICICI Bank on provided by the KFA equity the terms and conditions as shares pledged in favour of contained in the Debt Recast ICICI Bank. CAL ;"(i.e. equity shares of Rs 170 crores).
iii. The Corporate Obligors shall ensure that at no point of time shall the pledge created/proposed to be created over the equity shares of USL and the Borrower represent more than 30% (thirty percent) of the paid up share capital of either the Borrower or USL."
"9.1. For the purpose of this Agreement the term "Eevent of Default" shall mean any of the events specified hereunder:
(a)........
(b)........
(c ) Default in Payment of the Recompense Amount or Redemption Amounts.
Default has been committed by the Purchasing Party in ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -38- APP(L)409/2015 A/W APP312/2015 payment of any portion of the Recompense Amount or the Redemption Amount in terms of this Agreement.
(d).... to (m)......."
The above ig tabular form clearly restructured/recast loan of Rs 403.72 crores was secured by shows that clauses 4.1.1 to 4.1.3 of LPA and an amount of Rs 170 crores of equity shares was secured by clause No.10.1 of LPA in the event the sale proceeds recovered by ICICI Bank is of a Value lesser than such Converted ICICI Bank Facilities and the Yield Amount. Clause 3.1(h) of NDA secures the ICICI Bank in the event of default by Plaintiff No.1 - UBHL to make good the short-fall after sale of Rs 170 crores equity shares and in that event ICICI Bank could sell 20,14,000 shares of UBL kept in DP Account through Defendant No.1 - 3i Infotech Trusteeship Services Limited. The contention of the learned Senior counsel appearing on behalf of the Respondent Nos. 1 and 2/original Plaintiff Nos. 1 and 2 that these shares are not secured by this agreement (LPA) is incorrect.
33. Clause 11 of the LPA clearly stipulates that the LPA shall ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -39- APP(L)409/2015 A/W APP312/2015 be subsisting till such time all amounts due and payable to the ICICI Bank thereunder are paid to the full and final satisfaction of ICICI Bank and shall be subsisting notwithstanding independently of the loan purchase option. Clause 10.1(iii) (page 601 of the Appeal (L) No.409/15) and clause 11.1 (page 602 of the Appeal (L) No.409/15) of the LPA read as under:-
"10.1(iii) Notwithstanding anything contained in this Agreement, the obligation of the Purchasing Party to pay the Recompense amount or the Redemption amount to ICICI Bank shall subsist even after the Loan Purchase Option has been exercised by ICICI Bank and shall survive till such time ICICI Bank recovers the Share Sale Proceeds which shall not be an amount lesser than the aggregate of the Converted ICICI Bank Facilities and the Yield amount."
"11.1. This Agreement shall come into force on the Effective Date and shall be valid and binding till such time all monies due and payable to ICICI Bank under this Agreement are paid to the full and final satisfaction of ICICI Bank."
34. Non-Disposal Agreement dated 12/11/2011 was executed and an undertaking was given by Plaintiff No.1 United Breweries (Holdings) Limited not to deal with or dispose of 20,14,000 equity shares held by it. In our view, perusal of the agreement clearly reveals that it was executed not only to provide additional security by United Breweries (Holdings) Limited to ensure that stipulated security cover is maintained at all times during the currency of the LPA and as ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -40- APP(L)409/2015 A/W APP312/2015 additional security for fulfillment of the obligation of United Breweries (Holdings) Limited vis-a-vis the ICICI Bank Limited under the LPA but also to secure the recompense amount as defined at 10.1 of LPA. The Non-Disposal Agreement was to subsist until all obligations of United Breweries (Holdings) Limited under LPA were fulfilled. In this context, the word 'term' is relevant which is defined on page 619 of the Appeal (L) No.409/15. This Agreement (LPA) also authorizes Defendant No.1 - 3i Infotech Trusteeship Services Limited to sell the NDU shares and realize the same and use the proceeds therefrom for discharge of the claims of ICICI Bank under the LPA upon occurrence of the event of default under LPA. Clauses 3.1(g) and 3.1(h) of Non-Disposal Agreement (page 621 and 622 of Appeal (L) No.409/15) make specific provision which read as under:-
"3.1 The NDU Provider hereby irrevocably and unconditionally agrees, undertakes and confirms that, during the Term:
(a)......
to
(f).......
(g) and the NDU Provider :
i. shall execute the Power of Attorney (in the manner set out in Schedule II (Format of Power of Attorney) in favour of the Attorney, thereby appointing the POA Agent as its legal attorney to do such acts, deeds and things as may be required under the terms of this Agreement and the Power of Attorney.
ii. shall not revoke the authority or terminate the agency granted to the Attorney, pursuant to the ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -41- APP(L)409/2015 A/W APP312/2015 irrevocable Power of Attorney nor amend or alter any provision of the Power of Attorney executed pursuant to sub clause (i) above; and iiiI. revocation of the authority so granted under the Power of Attorney shall constitute an Event of Default under the LP Agreement.
(h) occurrence of any Event of Default or Potential Event of Default under the MDRA and/or LP Agreement and /or failure of the NDU Provider to do all such acts, deeds and things as may be required under this Agreement shall constitute an Event of Default under this Agreement. The NDU Provider shall rectify / cure such Event of Default within a period of three (3) ig Business Days ("Cure Period") from the occurrence of such Event of Default, failing which the NDU Provider shall promptly sell, transfer, assign and / or otherwise dispose-off for cash consideration on an arms length basis and with prior written consent of the Lender's Agent, the Cover Assets and deposit the Share Sale Proceeds in the Designated Account as per the terms of the Designated Account Agreement."....
In view of this agreement, United Breweries (Holdings) Limited - Plaintiff No.1 executed irrevocable Power of Attorney in favour of Defendant No.1 - 3i Infotech Trusteeship Services Limited. Clauses 3.1(g) and 3.1(h) of NDA clearly falsifies the stand of the Plaintiffs that recompense amount, namely, difference or short-fall on sale of equity shares of Kingfisher Airlines Limited was not to be recompensed by sale of 20,14,000 shares of United Breweries Ltd. We are of the view that the learned Single Judge has clearly overlooked and ignored these vital clauses.
35. The factual position thereafter is that, initially, ICICI ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -42- APP(L)409/2015 A/W APP312/2015 Bank in January-February, 2012 sold 96,00,000 shares which did not give the required returns and the short-fall of Rs 47 crores was recovered out of margosa Fixed Deposit which was also given as security to recover the recompense amount. The contention of the Plaintiffs that this was the only security given for recompense amount is not correct. If the recitals (A), (B) and (C) are read in their proper perspective along with the intention of the parties which is spelt out from the clauses in the contract, the finding of the learned Single Judge that the event of default to recompense amount has been interpolated and incorporated in the Non-Disposal Agreement is erroneous in view of specific clauses viz 3.1(g) and 3.1(h) of NDA. These recitals also show that the definitions and terms used are to be given some meaning which are given in the LPA. It is inconceivable that the ICICI Bank, after restructuring the debts would not secure its amount of Rs 170 crores which was held by it in the form of equity shares though specific clauses 9.1(c) and 10.1 have been incorporated in the LPA Agreement. The said clause 9.1(c) and 10.1 are relevant and which read as under:-
"9.1. For the purpose of this Agreement the term "Event of Default" shall mean any of the events specified hereunder:
c. Default in Payment of the Recompense Amount or ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -43- APP(L)409/2015 A/W APP312/2015 Redemption Amounts.
Default has been committed by the Purchasing Party in payment of any portion of the Recompense Amount or the Redemption Amount in terms of this Agreement.
"10.1 Recompense amount:
i. In case the Share Sale Proceeds recovered by ICICI Bank is of value lesser than such Converted ICICI Bank Facilities and the Yield Amount which would have accrued to ICICI Bank on such Converted ICICI bank Facilities, then the differential amount (the "Recompense Amount") shall be paid by the Purchasing Party within 7 Business Days of being called upon to do so by ICICI Bank in writing;"
The finding of the learned Single Judge has therefore been based on incorrect interpretation of the clauses in the LPA and NDA.
36. ICICI Bank in December, 2013 sold equity shares held by it in Kingfisher Airlines Limited and suffered a total short-
fall of Rs 146 crores approximately from the said sale and, therefore, claimed recompense amount from the United Breweries Ltd. The contention of the Plaintiffs that the ICICI Bank, upon assigning its debt to IGCF alongwith the pledged shares, had no right to claim recompense amount for the short-fall for sale of equity shares is contrary to the provisions of these agreements.
37. Much reliance has been placed by the learned Counsel ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -44- APP(L)409/2015 A/W APP312/2015 appearing on behalf of the Respondent Nos.1 and 2/original Plaintiff Nos.1 and 2 on the Recitals at (A), (B) and (C ) of the Non-Disposal Agreement. It will be necessary to produce the the said Recitals (A), (B) and (C ) which read as under:-
"(A) Pursuant to the Loan Purchase Agreement dated December 21, 2010 (as may be amended from time to time) (the "LP Agreement") entered into inter alia between United Breweries (Holdings) Limited (the "Purchasing Party/UBHL/NDU Provider") and the Lender, the NDU Provider and the Lender mutually agreed on the NDU Provider granting to the Lender an irrevocable option to require the NDU Provider, either by itself or through its nominee/any third Person to purchase all or part of the financial assistances lent to the Borrower by the Lender, in terms of the LP Agreement.
(B) One of the conditions set out in the LP Agreement is that the NDU Provider shall provide security of share pledge as detailed in the relevant provisions of the LP Agreement and shall create additional ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -45- APP(L)409/2015 A/W APP312/2015 security to ensure that the stipulated security cover is maintained at all times during the currency of the LP Agreement.
(C) In terms of the LP Agreement and in order to provide assurance that it has the ability to fulfill its obligations under the LP Agreement, the NDU Provider has agreed not to divest or deal with the shares of the Company held by the NDU Provider unless such divestment or dealing is required to make payments as and when called upon by the Lender in terms of this Agreement and/or the LP Agreement, and undertakes to irrevocably appoint and authorize the Attorney to fulfill the obligations of the NDU Provider under this Agreement."
It is a well settled position in law that while reading the contents of commercial documents, intention of the parties has to be taken into consideration. It is also well settled that apart from recitals, the main agreement itself also has to be taken into consideration. Perusal of Recitals will indicate that Recitals (A) and (B) narrate the circumstances under which the earlier agreements viz. Master Debt Recast Agreement, Preference Share Subscription Agreement and Loan Purchase ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -46- APP(L)409/2015 A/W APP312/2015 Agreement were entered into between the parties and if Recital (C ) is read in its proper perspective, it would indicate that the present agreement was executed for the purpose of securing the entire loan of the Kingfisher Airlines Limited which was to be purchased by Plaintiff No.1 - UBHL under the Loan Purchase Agreement. It cannot be forgotten that the Loan Purchase Agreement makes clear distinction between the pledged shares and equity shares (CCPS) for the purpose of securing the existing loan (Rs 403.72 crores). Clauses 4.1 and 4.2 provided for top-up of pledged shares. At the same time, equity shares - CCPS (Rs 170 crores) also is secured by clauses 9.1 and 10.1 and the Plaintiff No.1 - UBHL was under
an obligation to cover the short-fall, if any, on sale of equity shares. The Non-Disposal Agreement therefore covers both, the pledged shares as as well as the short-fall on sale of equity shares - CPPS since Recital (C ) speaks about fulfillment of all obligations of Plaintiff No.1 - UBHL under the Loan Purchase Agreement. The intention of parties, therefore, become very clear from the Recitals as well as the contents of the clauses of the Non-Disposal Agreement. The contention of Mr. Seervai, the learned Senior Counsel appearing on behalf of Respondent Nos.1 and 2/original Plaintiff Nos. 1 and 2 that there was novation of contract in respect of Clause No.4.1 is not correct.
38. The law on construction of commercial document is ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -47- APP(L)409/2015 A/W APP312/2015 quite well settled. The House of Lords in Reardon Smith Line Ltd. vs. Yngvar Hansen Tangen1 has observed as under:-
"It is less easy to define what evidence may be used in order to enable a term to be construed. To argue that practices adopted in the shipbuilding industry in Japan, for example as to sub-contracting, are relevant in the interpretation of a charterparty contract between two foreign shipping companies, whether or not these practices are known to the parties, is in my opinion to exceed what is permissible. But it does not follow that, renouncing this evidence, one must be confined within the four corners of the document. No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as "the surrounding circumstances"
but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn, presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. I give a few illustration. In Utica City National Bank vs. Gunn (1918) 118 N.E., 607; 222 N.Y. 204 the New York Court of Appeals had to consider the meaning of "loans and discounts" in a contract of guaranty. The judgment of Cardozo J. contains this passage, at p.608 :
1 1 W.L.R. (1976) 989 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -48- APP(L)409/2015 A/W APP312/2015 "The proper legal meaning, however, is not always the meaning of the parties.
Surrounding circumstances may stamp upon a contract a popular or looser meaning. The words 'loans and discounts' are not so clear and certain that circumstances may not broaden them to include renewals. They often have that meaning in the language of business life. To take the primary or strict meaning is to make the whole transaction futile. To take the secondary or loose meaning, is to give it efficacy and purpose. In such a situation, the genesis and aim of the transaction may rightly guide our choice.
Wigmore on Evidence, vol. IV, para 2470, Stephen, Digest of Law of Evidence, art. 91, subds. 5 and 6."
Similarly, the House of Lords in Investors Compensation Scheme Ltd. Vs. West Bromwich Building Society1 has observed as under:-
......"The result has been subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal' interpretation has been discarded. The principles may be summarised as follows.
(1) Interpretation is the ascertainment 1 1 W.L.R. (1998) 896 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -49- APP(L)409/2015 A/W APP312/2015 of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declaration of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -50- APP(L)409/2015 A/W APP312/2015 words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. vs. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.
(5) The "rule" that words should be given their "natural and ordinary meaning"
reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. vs. Salen Rederierna A.B. [1985] A.C. 191, 201:
"if detailed sermantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -51-
APP(L)409/2015 A/W APP312/2015 Further, the House of Lords in Mannai Investment Co. Ltd. vs. Eagle Star Life Assurance Co. Ltd. 1 has observed as under:-
"I propose to begin by examining the way we interpret utterances in everyday life. It is a matter of constant experience that people can convey their meaning unambiguously although they have used the wrong words.
ig We start with an assumption that people will use words and grammar in a conventional way but quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of of their utterance:
so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensable part in the way we interpret what anyone is saying. No one, for example, has any difficulty in understanding Mrs. Malaprop. When she says "She is an obstinate as an allegory on the banks of the Nile", we reject the conventional or literal meaning of allegory as making nonsense of the sentence and substitute "alligator" by using our background knowledge of the things likely to be found on the banks of the Nile and choosing one which sounds rather like "allegory".
1 2 W.LR. (1997) 945 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -52- APP(L)409/2015 A/W APP312/2015 Mrs. Malaprop's problem was an imperfect understanding of the conventional meanings of English words.
But the reason for the mistake does not really matter. We use the same process of adjustments when people have made mistake about names or description or days or times because they have forgotten or become mixed up. If one meets an acquaintance and he says "And how is Mary?" it may be obvious that he is referring to one's wife, even if she is in fact called Jane. One may even, to avoid embarrassment, answer "Very well, thank you" without drawing attention to his mistake. The message has been unambiguously received and understood.
If one applies that kind of interpretation to the notice in this case, there will also be no ambiguity. The reasonable receipt will see that in purporting to terminate pursuant to clause 7(13) but naming 12 January 1995 as the day upon which he will do so, the tenant has made a mistake. He will reject as too improbable the possibility that the tenant meant that unless he could terminate on 12 January, he did not want to terminate at all. He will therefore understand the notice to mean that the tenant wants to terminate on the date on which, in accordance with clause 7(13), he may do so, i.e. 13 January."
Similarly, the House of Lords in Antaios Compania ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -53- APP(L)409/2015 A/W APP312/2015 Naviera S.A. Vs. Salen Rederierna A.B.1 has also observed as under:-
"To the semantic analysis, buttressed by generous citation of judicial authority, which led the arbitrators to the conclusions as to the interpretation of the wording of the withdrawal clause that I have summarised, the arbitrators' added an uncomplicated reason based simply upon business commonsense:
"We always return to the point that the owners' construction is wholly unreasonable, totally uncommercial and in total contradiction to the whole purpose of the N.Y.P.E., time charter form. The owners relied on what they said was 'the literal meaning of the words in the clause.' We would say that if necessary, in a situation such as this, a purposive construction should be given to the clause so as not to defeat the commercial purpose of the contract."
"While depreciating the extension of the use of the expression "purposive construction" from the interpretation of the statutes to the interpretation of private contracts, I agree with the passage I have cited from the arbitrators' award and I take this opportunity of re-stating that if detailed semantic and syntactical analysis of words in a commercial 1 1 A.C. (1985) 191 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -54- APP(L)409/2015 A/W APP312/2015 contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."
This Court in Mumbai Metropolitan Region Development Authority vs. Unity Infraproject Ltd. 1 has observed in paras 11 and 25 as under:-
"11. In interpreting a contract, the Court cannot place emphasis on an isolated provision divorced from the context and unrelated to the other provisions which govern contractual obligations. Contracts represent business understandings between the parties. Commercial dealings between persons who are well versed in the transaction of business are regulated by contracts which parties ought to govern themselves. The law regulates those contracts and provides an ordered framework in which business dealings can be implemented. The duty of the Court when called upon to assess where the balance lies in a contractual dispute, is to read the contract as a whole in order to understand the business meaning which the parties attributed to their obligations. Interpretation in law must ensure in commercial matters that the view which the Court takes records the sense which the parties to an arms length transaction attribute to the terms which they incorporate. The law is not 1 2008(5) Bom. C.R. 196 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -55- APP(L)409/2015 A/W APP312/2015 divorced from business realities nor can the vision of the judge who interprets the law be disjointed from the modern necessities to make business sense to business dealings."
"25. A business like interpretation of contractual provisions must be adopted in construing contracts entered into by persons of business to govern business dealings. The Court must ensure that interpretation of law in commercial cases must not be disjointed from the intent and object which those having business dealings seek to sub-serve unless interpretation of contracts effectuates a business meaning for persons of business, the law will not fulfill its purports and object of being a falicitator for business and providing a structure of ordered certainty to those who carry on business here. The legal system must innovate constantly to keep abreast with rapid changes in technology and business."
39. We are therefore of the view that no prima facie case has been made out by the Plaintiffs for grant of any interim relief and Plaintiff No.1 - United Breweries (Holdings) Limited was duty bound to pay the recompense amount and upon its non-payment of the said total short-fall of Rs 146 crores, Defendant No.1 - 3i Infotech Trusteeship Services Limited became entitled to sell these shares to recover the said short-fall and to whom Plaintiff No.1 - United Breweries ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -56- APP(L)409/2015 A/W APP312/2015 (Holdings) Limited has given Power of Attorney to sell in the event of default being committed by it. Non-payment of short-fall and recompense amount clearly constituted the event of default under clause 9.1 and 10 of the LPA which also has been incorporated under clause 3.1(h ) of the NDA.
It is well settled that recitals alone do not spell out the intention of the parties but terms and conditions of the contract and intention of the parties have to be taken into consideration for arriving at any conclusion. Even otherwise, even if recitals are read in its proper perspective, they would reveal that recitals (A) and (B) refer to the earlier agreements and recital (C ) indicates that all the debts which are due to ICICI Bank are to be satisfied and for that purpose the said shares were given as security. There cannot be any dispute regarding the ratio of the judgments on which reliance has been placed by Mr. Seervai, the learned Senior Counsel appearing on behalf of the Plaintiffs. The ratio of the said judgment, in fact, supports the case of ICICI Bank Limited and not that of the Plaintiffs. ICICI Bank and consortium of Banks had, in fact, permitted the Kingfisher Airlines to recast is debts and had arrived at an arrangement so that the interest component could be converted into equity shares and the loan component would be reduced to 403.72 crores with interest. However, both these components have been fully secured; the loan component by the pledged shares and the top-up shares and equity ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -57- APP(L)409/2015 A/W APP312/2015 component by the Fixed Deposit of margosa and 20,14,000 shares of United Breweries Limited which could be sold in the event of default. The event of default occurred when there was a short-fall of Rs 146 crores in December, 2013 after the Appellant - ICICI Bank sold the pledged shares and called upon the Plaintiff No.1 - United Breweries (Holdings) Limited to pay the recompense amount. The submissions made by Mr. Seervai, the learned Senior Counsel appearing on behalf of the Plaintiffs therefore cannot be accepted. In fact, in the present case, the balance of convenience lies in favour of the Defendant No.1 - 3i Infotech Trusteeship Services Limited and Defendant No.2 - ICICI Bank Limited. The price of the shares of Kingfisher Airlines Limited has been continuously falling. When the impugned order was passed the value was Rs 235.26 crores and when the Appeals were filed it was Rs 193.14 crores and on the date when the Appeals were reserved for judgment the value was Rs 171.65 crores which are the figures given in the written submissions tendered on behalf of the Appellant - ICICI Bank Limited and these figures have not been disputed by the Plaintiffs. In our view, no prejudice would be caused to the Plaintiffs if these shares are sold and the amount of sale proceeds is kept in the DP Account. If the Plaintiffs succeed, they can always be compensated in terms of money or shares can be bought from the market. In any event, the Plaintiffs do not have any legal right to retain these shares in view of the clear terms ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -58- APP(L)409/2015 A/W APP312/2015 and conditions of the contract and Non-Disposal Agreement of shares.
40. Reliance has been placed by the learned Senior Counsel appearing on behalf of the Plaintiffs on the judgment of the Apex Court in Wander Ltd and Another vs. Antox India P. Ltd.1. The Apex Court in the said judgment in para 14 has observed as under:-
"14. The appeals before the Division Bench were against the exercise of discretion by the Single Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to these principles Gajendragadkar, J. 1 1990(Supp) SCC 727 ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -59- APP(L)409/2015 A/W APP312/2015 in Printers (Mysore) Private Ltd vs. Pothan Joseph (1960) 3 SCR 713 : AIR 1960 SC 1156 :
(SCR 721).
"...... These principles are well established, but as has been observed by Viscount Simon in Charles Osenton & Co. v. Jhanaton [1942 AC 130) 'the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles in an individual case."
The appellate judgment does not seem to defer to this principle."
In the present case, the learned Single Judge, in our humble view, has clearly misinterpreted the Non-Disposal Agreement and the Loan Purchase Agreement and has held that LPA has worked itself out without taking into consideration the relevant clauses which clearly mentioned that the LPA would subsist till all the dues of ICICI Bank are paid in full. The other findings also, in our view, are perverse since they do not take into consideration the relevant clauses in LPA and NDA. We are, therefore, of the view that, in fact, the observations made by the Apex Court in the case of Wander Ltd (supra) would squarely apply to the facts of the present case and we have therefore no hesitation in setting aside the impugned order.
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41. Accordingly we answer the three questions framed in para 27 above as under:-
Questions Findings (1) Whether 20,14,000 shares of UBL furnished as security (NDA shares) under Non-Disposal Agreement dated 12/11/2011 was available as security in Yes favour of the Appellants for the payment of their recompense claim arising under Clause 10.1 of the Loan Purchase Agreement dated 21/12/2010?
(2) Whether the Appellants' recompense claim was capable of being collateralised Yes or secured?
(3) Whether the NDA shares were given in lieu of top-up obligation under clause 4.1.3 No of the Loan Purchase Agreement only?
CONCLUSION:
42. The impugned order passed by the learned Single Judge is set aside and the Appeals are allowed.
43. Since both these appeals are allowed and disposed of, Notices of Motion taken out therein do not survive and they are also disposed of.
(DR. SHALINI PHANSALKAR-JOSHI, J.) (ACTING CHIEF JUSTICE) ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 ::: -61- APP(L)409/2015 A/W APP312/2015 SUBMISSION OF THE LEARNED SENIOR COUNSEL FOR RESPONENT NOS.1 AND 2 AND THAT OF THE APPELLANTS AFTER THE JUDGMENT IS PRONOUCED AND THE ORDER THEREON:
44. After pronouncement of Judgment, the learned Senior Counsel appearing on behalf Respondent Nos. 1 and 2 submitted that status quo be continued for a period of four weeks. This is opposed by the learned Senior Counsel appearing on behalf of the Appellants. He submitted there is a possibility of market value of the shares falling down during this period and therefore Respondent Nos.1 and 2 should give an undertaking that in the event no further interim orders are passed by the Apex Court, they should give an indemnity that they shall ensure that short-fall would be indemnified and they would make good the said amount.
45. In our view, since the interim order was in operation for some time, the order of status quo shall continue till 5 th January, 2016.
(DR. SHALINI PHANSALKAR-JOSHI, J.) (ACTING CHIEF JUSTICE) ::: Uploaded on - 04/12/2015 ::: Downloaded on - 04/12/2015 23:58:25 :::