Bombay High Court
Aditya Birla Finance Ltd vs Karvy Data Management Services Ltd And 3 ... on 12 October, 2021
Author: B. P. Colabawalla
Bench: B.P.Colabawalla
CARBPL 19381-21.doc
LAXMI
SUBHASH
SONTAKKE IN THE HIGH COURT OF JUDICATURE AT BOMBAY
Digitally signed by
LAXMI SUBHASH
SONTAKKE ORDINARY ORIGINAL CIVIL JURISDICTION
Date: 2021.10.14
14:28:44 +0530
COMM. ARBITRATION PETITION (L) NO. 19381 OF 2021
Aditya Birla Finance Ltd. .. Petitioner
Vs.
Karvy Data Management Services Ltd. & Ors. .. Respondents
Mr. Venkatesh Dhond, Senior Counsel with Mr. Rohan Kadam, Amit
Vyas, Devdatta Uchil and Mr. M. Ahuja i/b Vertices Partners for the
Petitioner.
Mr. Kersi Dastoor with Atman Mehta and Vipul Shah for the
Respondents.
CORAM :- B.P.COLABAWALLA, J.
DATE :- 12th OCTOBER, 2021.
P. C.:
1. The above Arbitration Petition is filed under Section 9 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act") seeking the following reliefs:
a. A temporary Order and injunction restraining the Respondents, their employees, servants, agents, representatives, or anyone claiming through or under them from in any manner, dealing with, selling, transferring, disposing of, alienating, encumbering, mortgaging, hypothecating, creating a charge, Laxmi 1/16 CARBPL 19381-21.doc parting with possession and/or creating any third party right, title or interest in the mortgaged property (as described at Exhibit"F") in any manner whatsoever.
b. A temporary Order and injunction appointing the Court Receiver Bombay, or such other fit and proper person as Receiver with all powers under Order XL of the Code of Civil Procedure to take charge and possession of the mortgaged property (as described at Exhibit "F").
c. A temporary Order and injunction directing the Respondents to disclose on oath, all their assets and such other unencumbered movable and immovable properties owned by them and all Bank Accounts as on the date of filing of this Petition or such other date as this Hon'ble Court may deem fit and upon such disclosure being made, this Hon'ble Court may be pleased to attach the properties of the Respondents for the satisfaction of the amounts due and payable by them to the Petitioner.
d. A temporary Order and injunction directing the Respondents to deposit a sum of Rs. 100,79,66,979.90/- (Rupees One Hundred Crores Seventy Nine Lakhs Sixty Six Thousand Nine Hundred Seventy Nine and Paise Ninety Only) or equivalent security in the form of a bank guarantee to secure the Petitioner's principle claim of Rs. 100,79,66,979.90/- (Rupees One Hundred Crores Seventy Nine Lakhs Sixty Six Thousand Nine Hundred Seventy Nine and Paise Ninety Only) pending the outcome of arbitration and the enforcement of an arbitral award passed therein.
2. When this matter had come up on 13th September, 2021, Mr. Dastoor, the learned Counsel appearing on behalf of the Respondents requested for three weeks time to file an affidavit-in-reply. Laxmi 2/16
CARBPL 19381-21.doc In the said order a statement was recorded on behalf of the Respondents that without prejudice to their rights and contentions, until further orders, the Respondents shall not create any third party rights and/or interest in relation to the properties mortgaged/secured with the Petitioner. Accordingly, time was granted to file their reply. That is how the matter has come up today when the Petitioner has pressed for the appointment of a Court Receiver in respect of the property being 'Karvy Millenium', a plot of land and building at Plot No. 31/P, Sy No. 115/22 & 115/25 Financial District, Nanakramguda Village, RR district, Hyderabad, belonging to Respondent No.2 (for short the "mortgaged property"). The mortgaged property is more particularly described at Exhibit "F" to the Petition.
3. The Petitioner is a Non-Banking Finance Company and is a part of the Aditya Birla Group. The Petitioner offers end to end lending, financing and wealth management solutions to a diverse clientele. Respondent Nos. 1 to 3 are Companies incorporated under the Companies Act, 1956 and are sister/related concerns and are all part of the Karvy Group of Companies. Respondent No.4 is a Director, in both Respondent Nos. 1 and 2, and is also the Chairman of Respondent No.1. It is the case of the Petitioner that there is a commonality of interest and/or shareholding and/or control between the Respondents and they Laxmi 3/16 CARBPL 19381-21.doc form part of one economic unit and/or group.
4. The present Petition seeks the grant of interim measures of protection pending the arbitration. According to the Petitioner, Respondent No. 1 as the borrower along with Respondent Nos. 2 and 3 as co-borrowers had availed a Term Loan of Rs. 100 Crores from the Petitioner. The term loan facility given to Respondent No.1 was secured, inter-alia by Respondent No.2 through the creation of a mortgage on the mortgaged property by deposit of title deeds, the details of which have been set out in the Petition. Respondent No.4 has guaranteed the Term Loan. It is the case of the Petitioner that Respondent No.1 is in breach of its contractual obligation under the Term Loan Agreement dated 11th March, 2019 and it is in these circumstances, that the present Petition is filed.
5. The brief facts in the matter to decide the present controversy are this. In or around March, 2019, the Director of Respondent No.1 speaking for Respondent Nos. 1 to 3 approached the Petitioner seeking a Term Loan for the purposes of refinancing an existing loan taken from Indiabulls Housing Finance Limited ("Indiabulls") and for meeting Respondent No.1's working capital requirements.
Laxmi 4/16
CARBPL 19381-21.doc
6. Pursuant to discussion between the parties, the Petitioner issued a sanction letter dated 5th March, 2019 to Respondent Nos. 1 and 2 in their capacity as borrower and co-borrower respectively. By this letter, the Petitioner sanctioned a Term Loan of Rs. 100 Crores on the terms and conditions more particularly set out therein. This Term Loan was to be disbursed in two stages. A sum of Rs. 50 Crores was to be disbursed to repay the existing loan taken by Respondent No.1 from Indiabulls and the balance sum would be disbursed to Respondent No.1 after the creation of mortgage of certain securities. Respondent Nos. 1 and 2 confirmed their acceptance of the terms and conditions of the sanction letter by affixing their signatures thereon.
7. Thereafter, on 6th March, 2019, the Petitioner issued an amending letter to the sanction letter dated 5th March, 2019. By this amending letter Respondent No. 3 was added as a co-borrower and the amending letter (6th March, 2019) was also signed and accepted by Respondent Nos. 1 to 3.
8. Pursuant to the aforesaid, a Term Loan Agreement dated 11th March, 2019 was executed between the Petitioner and Respondent No.1. Under this Agreement, the Petitioner agreed to disburse a sum of Laxmi 5/16 CARBPL 19381-21.doc Rs. 100 Crores to Respondent No.1 on the terms and conditions stipulated therein. It is the case of the Petitioner that, the Term Loan Agreement is to be read in conjunction with the sanction letters dated 5th March, 2019 and 6th March, 2019 respectively. Over and above this, on 11th March, 2019, Respondent Nos. 1 and 2 also executed a Power of Attorney in favour of the Petitioner. Under this document, the said Respondents acknowledged that the title documents of the mortgaged property were presently in the custody of Indiabulls. They further acknowledged that the Petitioner would repay the debt owed to Indiabulls against the creation of a mortgage of the mortgaged property in favour of the Petitioner. Respondent Nos. 1 and 2 also inter-alia authorized the Petitioner to collect the title documents of the mortgage property from Indiabulls and keep it in its custody for the purpose of creating a legal and/or equitable mortgage by the deposit of the title deeds in its favour.
9. In furtherance of the loan sanctioned to the Respondents, the Petitioner, on 19th March, 2019, paid Indiabulls a sum of Rs. 50,44,85,969/- and on 26th March, 2019 disbursed a sum of Rs. 43,07,14,031/- to Respondent No.1. Accordingly, and as per the terms and conditions of the loan documents, on 25th March, 2019, a Memorandum of Entry ("MOE") titled "Equitable Mortgage of property Laxmi 6/16 CARBPL 19381-21.doc by deposit of title deeds" was entered into between the Petitioner and Respondent Nos. 1 and 2. Under this MOE, Respondent No. 1 affirmed that it had created a mortgage by deposit of title deeds on the mortgaged property in favour of the Petitioner. This mortgage is registered and duly reflected in the land registry records maintained by the Government of Telangana. The creation of this mortgage is also duly reflected as a 'charge' on Respondent No. 2's assets in the records maintained by the Registrar of Companies. It is the case of the Petitioner that until November, 2019, the Respondents were regular with their payments. Thereafter, continuously and consistently the Respondents were in breach of several of the conditions of the sanction letters and the Term Loan Agreement. These defaults/breaches have been set out by the Petitioner from paragraph 24 onwards of the Petition.
10. Be that as it may, finally on 5th June, 2021, the Petitioner through its advocate addressed a notice to the Respondents inter-alia intimating to them that they had breached the terms of the sanction letters and the Term Loan Agreement by not repaying the installments of Rs.4,09,84,728/- which had fallen due. Due to this default, the Petitioner was exercising its rights under Clause 13.3 of the Term Loan Agreement and recalling the entire outstanding sum, which according to Laxmi 7/16 CARBPL 19381-21.doc the Petitioner, was Rs. 98,61,96,107/-.
11. On 28th June, 2021, Respondent No.1 replied to the aforesaid notice dated 5th June, 2021. By this reply, Respondent No.1 did not seriously dispute its liability or that it had defaulted in repaying the installments that had fallen due. However, it sought to justify its default on the ground that its cash flows had been impacted by bureaucratic delays occasioned in an election year, the COVID Pandemic, etc. It assured the Petitioner that its Parent Company i.e. Respondent No.2 had agreed to sell off 100% of its shareholding in Respondent No.1 to an outside investor. It represented to the Petitioner that the sale would be consummated before 30th June, 2021 and the sale proceeds would be realized in the month of July, 2021. The Petitioner was assured that thereafter the Respondents would pay the entire outstanding Term Loan and interest in full. It was in these circumstances that Respondent No.1 requested for an extension of time to clear the outstanding debt. According to the Petitioner, in spite of these representations, Respondent No.1 persisted in its default and accordingly, the Petitioner was once again constrained to issue a letter dated 20th July, 2021 to the Respondents. Since the Respondents failed to comply with the Petitioner's requisitions, the present Petition is filed seeking the reliefs set out above. It is the case of the Petitioner that, as Laxmi 8/16 CARBPL 19381-21.doc on 26th August, 2021, a sum of Rs. 100,79,66,979.90/- still remains due and payable from the Respondents to the Petitioner.
12. In this factual backdrop, Mr. Dhond, the learned Senior Counsel appearing on behalf of the Petitioner submitted that the facts in the present matter are really undisputed. He submitted that admittedly, the Respondents have availed of a Term Loan from the Petitioner to the extent of Rs. 100 Crores. He submitted that it is also not in dispute that the Respondents have committed various breaches of the terms and conditions of the sanction letters read with the Term Loan Agreement. It is in these circumstances, that the Petitioner was constrained to recall the entire loan amount as contemplated under clause 13.3 of the Term Loan Agreement. Mr. Dhond submitted that far from disputing the claim of the Petitioner, the Respondents in their letter dated 28th June 2021, have in fact accepted that a sum of Rs.98,61,96,107/- is due and payable by the Respondents to the Petitioner and that the same would be paid by July 2021. In this regard, Mr. Dhond placed heavy reliance on paragraph 1(g) and paragraph 4 of the letter dated 28th June 2021. He submitted that in these circumstances, this was a fit case where interim measures of protection ought to be granted in favour of the Petitioner to secure its mortgaged property. Mr. Dhond also brought to my attention that proceedings under the Prevention of Money Laxmi 9/16 CARBPL 19381-21.doc Laundering Act, 2002 have also been initiated against Respondent No. 2 (who has mortgaged its property to the Petitioner) and the adjudicating authority under the Prevention of Money Laundering Act, 2002 has passed orders in respect of the shares of the Karvy Group held directly and/or indirectly by the Chairman and the Managing Director of Respondent No.2 and other persons as more particularly set out therein. In this regard Mr. Dhond brought to my attention a press release that was published by the Enforcement Directorate on 25th September 2021. Mr. Dhond, therefore, submitted that this is yet another fact that the Court ought to take into consideration whilst granting interim measure of protection in favour of the Petitioner, at least in relation to the mortgaged property. For all these reasons, Mr. Dhond submitted that this court may appoint a Court Receiver, High Court, Bombay to take charge and possession of the mortgaged property more particularly described at Exhibit "F" to the Petition.
13. On the other hand, Mr Dastoor, the learned Counsel appearing on behalf of the Respondents, submitted that the Petitioner is not entitled to any relief because the chain of correspondence annexed to the affidavit-in-reply would reflect that the Petitioner has given a complete go-by to their recall notice dated 5th June 2021, under which, the Petitioner has recalled the entire loan due and payable by the Laxmi 10/16 CARBPL 19381-21.doc Respondents to the Petitioner. In this regard, he brought to my attention the chain of email communications exchanged between Respondent No. 1 and the Petitioner from 17th June 2021 to 30th September, 2021, which are annexed at pages 36 to 74 of the affidavit- in-reply. Relying upon this correspondence, Mr. Dastoor contended that the Petitioner, by accepting the installments due and payable by the Respondents under the Term Loan Agreement, though belatedly, clearly goes to show that the Petitioner had given a complete go-by to the recall notice dated 5th June, 2021. According to Mr Dastoor, as on date, only an amount of approximately Rs. 3.09 Crores is due and payable to the Petitioner. In contrast, the value of the mortgaged property is approximately Rs. 136 Crores and therefore, there is no question of appointing any Receiver of the mortgaged property. He submitted that the injunction order passed by this court on 13th September, 2021, would adequately protect the interests of the Petitioner. He therefore, submitted that the above Petition can be disposed of by continuing the statement made by the Respondents on 13th September, 2021, till the disposal of the arbitral proceedings.
14. I have heard the learned Counsel for the parties at length and have perused the papers and proceedings in the above Petition. As mentioned earlier, the facts are really undisputed. It is not in dispute Laxmi 11/16 CARBPL 19381-21.doc that a Term Loan of Rs. 100 Crores was sanctioned by the Petitioner to Respondent Nos. 1 to 3 as a borrower and co-borrowers, respectively. It is also not in dispute that Respondent No. 4 is a guarantor to the above transaction. It is further undisputed that the Respondents availed of the entire term loan Facility and the same has not been repaid. The only defence raised is that the Petitioner, by its conduct, has given a complete go-by to recalling the entire loan as contemplated under Clause 13.3 of the Term Loan Agreement. If this be the case, then there is no question of appointing the Court Receiver in relation to the mortgaged property, especially considering that the value of the said property is Rs. 136 crores, in contrast to the dues of the Respondents, which is approximately only Rs. 3.09 Crores.
15. After going through the record and the correspondence annexed to the affidavit-in-reply, at least prima facie, I am unable to agree with the submissions canvassed by Mr. Dastoor. The correspondence relied upon by Mr. Dastoor does not suggest that the Petitioner, in any way, has given a complete go-by to the recall notice issued by it on 5th June 2021. In fact, what this correspondence seems to suggest is that the Respondent was always in default and in order to ensure that the account of Respondent No.1 does not become an NPA, the Petitioner was calling upon the Respondents to make payments of Laxmi 12/16 CARBPL 19381-21.doc the installments due from them. I am unable to agree with Mr. Dastoor that this correspondence can be construed to mean that the Petitioner has given a complete go-by to its recall notice dated 5th June 2021. In fact, the letter of Respondent No. 1 dated 28th June, 2021 militates against this very argument. In this letter, the 1st Respondent has clearly stated that due to the delays caused by the impacted cash flows of the Company, the parent company (Respondent No.2) had decided to sell 100% of its stake in the Respondent No.1 Company and also signed a term sheet with an investor who would buy out the stake in the 1st Respondent Company from the parent company (Respondent No.2). In furtherance of this, the 1st Respondent has reaffirmed to the Petitioner that the loan that has been availed from the Petitioner, will be closed immediately upon receipt of funds from the investor which were expected in the month of July, 2021. In fact, in the last paragraph of the said letter, the 1st Respondent has requested the Petitioner to provide their support to the 1st Respondent Company and grant extension of time for making total repayment of the term loan along with interest and refrain from filing any judicial proceedings/action against the Company in this regard. On reading the correspondence in its correct perspective and context, I am unable to agree with Mr. Dastoor that there was any go-by to the recall notice issued by the Petitioner. I therefore, have no hesitation in rejecting the aforesaid argument. Laxmi 13/16
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16. The other argument canvassed by Mr. Dastoor was that even assuming that an amount of Rs. 100 Crores is due and payable to the Petitioner, the value of the mortgaged property is Rs. 136 Crores and therefore, no purpose would be served in appointing the Receiver and the injunction already granted would adequately protect the interest of the Petitioner. I am unable to agree with this submission either. In the reply filed by the Respondents, it has produced a valuation report (Exhibit-C to the said reply) of one Mr. G. S. Mittal dated 31st January, 2019, valuing the fair market value of the said mortgaged property at 136 Crores and the forced sale value at Rs. 109 Crores. It is therefore clear that the forced sale value of the property is not much higher than the claim of the Petitioner. This apart, in March, 2019, the 1st Respondent, in its registration of charge before the Registrar of Companies, has itself valued the mortgaged property at Rs.100,03,00,000/- though wrongly mentioned as Rs.100,300,000/-. It is therefore quite clear that the value of the mortgaged property is not more than the claim made by the Petitioner which is to the tune of Rs.100.79 Crores. In view of the aforesaid discussion, I am therefore, satisfied that this is a fit case to appoint the Court Receiver in relation to the mortgaged property. However, since the Respondents carry on business from the mortgaged property, at this stage, it would be just and Laxmi 14/16 CARBPL 19381-21.doc equitable if the Respondents are allowed to occupy the mortgaged property as the agents of the Court Receiver without payment of any royalty or security.
17. In these circumstances, the following order is passed:
a. Over and above the injunction granted by this Court vide its order dated 13th September, 2021, the Court Receiver, High Court, Bombay is appointed as the Receiver of the mortgaged property described at Exhibit-F to the Petition.
b. The Receiver shall only take symbolic possession of the mortgaged property and shall continue to allow Respondent Nos. 1 to 3 to be in occupation thereof as an agent of Court Receiver without payment of any royalty or security, but on furnishing such undertakings as the Receiver may require.
c. To ensure that the business of Respondent Nos. 1 to 3 is not adversely affected by this order, in these peculiar facts and circumstances, it is directed that the Receiver shall not put up his board outside the mortgaged property.Laxmi 15/16
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18. The above Section 9 Petition is disposed of in the aforesaid terms. However, there shall be no order as to costs. It is needless to clarify that all the observations made in this order are only prima facie and tentative and shall not bind the Arbitral Tribunal when it decides the lis between the parties.
19. All parties to act on an authenticated copy of this order digitally signed by the Personal Assistant /Private Secretary/Associate of this Court.
(B. P. COLABAWALLA, J.) Laxmi 16/16