Bombay High Court
Bharati Defence And ... vs Edelweiss Asset Reconstruction ... on 20 September, 2016
Bench: Anoop V. Mohta
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
COMMERCIAL APPELLATE DIVISION OF THE HIGH COURT
COMMERCIAL APPEAL (L) NO. 26 OF 2016
IN
NOTICE OF MOTION (L) NO. 92 OF 2016
IN
COMMERCIAL SUIT (L) NO. 133 OF 2016
1 Bharati Defence & Infrastructure Limited
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
2 Dhanshree Properties Private Limited
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
3 Nirupam Energy Projects Private Limited
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
4 Natural Power Ventures Private Limited
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
5 Harsha Infrastructure Pvt. Ltd.
A company incorporated under the
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Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
6 Bharati Maritime Services Pvt. Ltd.
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
7 Bharati Shipping and Dredging Co. Pvt. Ltd.
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
8 Bharati Infratech Projects Pvt. Ltd.
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at 302 Wakefield
House, 3rd Floor, Sprott Road,
Ballard Estate Mumbai-400 001.
9 Mr. Prakash Chandra Kapoor
Flat 46, CCI Chambers,
Churchgate, Mumbai-400 020.
10 Mr. Vijay Kumar,
410/411, Mittal Park, Ruia Park,
Juhu, Mumbai-400 049.
11 Mrs. Madhu Kapoor,
Flat 46, CCI Chambers,
Churchgate, Mumbai-400 020.
12 Ms. Ashraf Geeta Kumar,
410/411, Mittal Park, Ruia Park,
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Juhu, Mumbai-400 049.
13 Mr. P.B. Roy,
603/604, Cliff Tower CHS,
Samarth Nagar, Cross Road,
Andheri (W), Mumbai-400 058.
14 Dr. J. Subbiah,
1602, Adonis Raheja Acropolis 11,
Sion Trombay Road, Deonar,
Mumbai-400 088.
15 GOL Offshore Limited,
A company incorporated under the
Provisions of Companies Act, 1956 having
its registered Office at Energy House 81,
Mumbai 400001. ...Appellants/
(Orig. Plaintiffs)
Vs.
1 Edelweiss Asset Reconstruction
Company Limited, incorporated under
The Provisions of Companies Act, 1956
having its Registered Office at 15th Floor,
Edelweiss House, Off. CST Road,
Kalina, Mumbai-400 098.
2 SBICAP Trustee Company Limited
incorporated under the provisions of
the Companies Act 1956, having its
Registered Office; 202, Maker Tower E,
Cuffe Parade, Mumbai-400 005.
3 Link In Time (India Pvt. Ltd.)
A company incorporated under
the Provisions of Companies Act, 1956
And having its registered office at
C-13, Pannalal Silk Mill Compound,
LBS Marg, Bhandup West,
Mumbai 400 078.
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4 TSR Darashaw
A company incorporated under
the Provisions of the Companies Act 1956
6-10, Haji Patrawala Industrial Estate
Dr. E Moses Road, Near Famous Studio
Mahalaxmi, Mumbai 400 011. ...Respondents/
(Original Defendants)
Mr. Sanjay Jain a/w Mr. Prathmesh Kamat a/w Ms. K. Khan a/w Ms.
A. Cutche i/by K.K. Associate for the Appellants.
Dr. Birendra Saraf a/w Adv. Sachin Chandarana and Adv. Pritvish
Shetty i/by M/s. Manilal Kher Ambalal & Co. for the Respondents.
CORAM : ANOOP V. MOHTA AND
ig G.S. KULKARNI, JJ.
DATE : 20 SEPTEMBER 2016.
ORAL JUDGMENT (PER ANOOP V. MOHTA, J.):-
Heard finally, by consent of the parties.
2 The Appellants/Original Plaintiffs, in this Commercial
Appeal, under Section 13 of The Commercial Courts, Commercial
Division and Commercial Appellate Division of High Courts Act, 2015
(for short, Commercial Courts Act) have challenged impugned order
dated 3 September 2016, pending the Notice of Motion in Commercial
Suit whereby, the Appellants'-Plaintiffs' prayer for an ad-interim
injunction/the protective reliefs, has refused by the learned Single
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Judge (Commercial Division), by giving detailed reasons.
3 Appellant No. 1 is a company in the ship building industry.
Appellant Nos. 2 to 4 are the subsidiaries and others are the
shareholders of the subsidiaries of Appellant No.1. Respondent No.1
has acquired 80% of the outstanding secured debts owed by the
Appellant No.1 from 18 consortium banks and is acting in its capacity
as trustees of various trusts. Respondent No.2 is acting as a security
trustee for Consortium Bankers who have at material times lent and
advanced loan/credit facilities to Appellant No.1 for its business
activities. Respondent No.3 is the share transfer agent of the
Appellants' shares.
4 Appellant No.1, as facing financial difficulties on account
of various reasons made consistent defaults in the
payments/obligations, therefore, requested the lender to reconstruct
its existing facilities. CDR Forum, a non-statutory voluntary
mechanism under the aegis of the Reserve Bank of India, is available
for the Appellants being Class A borrower (Category 1). The
concerned Respondents have approved for a restructuring package as
set out in Letter dated 25 June 2012. A Master Restructuring
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Agreement (MRA) was executed to give effect to the CDR package. It
was amended also. The Appellants could not implement MRA
package for various reasons and the issues. In the Joint Lender
Meetings, additional facilities were agreed to be issued to Appellant
No.1. However, it could not be utilised by Appellant No.1-Plaintiff
again. The Appellants had created additional security including
execution of the personal guarantees of the directors and corporate
guarantees, mortgage of various properties and hypothecation of
movable assets. The Appellants admittedly, have hypothecated shares
in favour of the Respondents which were in addition to the securities
provided by the Appellants in order to facilitate the implementation
of the CDR/MRA scheme. The CDR mechanism was cancelled on 21
August 2014 for the reasons stated in the communication. The
Appellants could not utilise the CDR Scheme. Notice dated 21 August
2014 was issued. The MRA executed between the parties was
remained unutilised and so also the Share Pledge Agreements dated 9
January 2013 and 31 March 2014. (The Agreements)
5 Respondent No.1 has taken over the assignment of debts
of 18 banks, thereby is in control of 80% of the debts Consoritum
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Lenders. Respondent No.2, by notice dated 25 August 2016 invoked
the pledged shares of the Appellants. Based upon the decision taken
by the joint members of Consortium at the meeting held on 28 July
2016.
The Appellants, therefore, filed a Commercial Suit on 2
September 2016 in this Court for the reliefs so stated therein along
with the Notice of Motion for seeking ad-interim reliefs. The
Respondents have on 2 September 2016 itself, as invoked, the
agreements transferred 1,25,25,692 equity shares i.e. 24.90% of
Appellant No.1. The learned Judge has rejected the ad-interim reliefs
on 16 September 2016. Hence this Appeal on 16 September 2016.
6 Admittedly, the Motion is pending, which is offshoot of the
Commercial Suit where, the basic prayers are for a declaration that
Notices dated 25 August 2016 and further the averred unilateral
actions taken, by Respondent No.2 against the Appellants, for an
invocation of Pledge Agreements, of 2,14,92,908 shares of the face
value of Rs.10/- each, pledged by the Appellants in favour of
Respondent No.1, are bad in law, illegal and null and void and so also
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the agreements itself.
7 Impugned notices dated 25 August 2016, of the
Respondents are for invocation of Pledge of shares as per the
Agreements, as there were consistent defaults committed by the
Appellants in payments of the outstanding principal and interest to the
lenders, even and inspite of restructuring. It was permissible under
the Agreements to sell the shares so pledged. This is with clear rider
to recover its outstanding dues with respect to the financial facilities,
already provided.
8 The submission is again made to grant an ad-interim relief
as prayed for, in the Notice of Motion, by setting aside the impugned
order. Pending the hearing of the Notice of Motion, the ad-interim
relief so sought, has been rightly rejected by the learned Single Judge,
based upon the stated interpretation of the commercial
documents/agreements between the parties as no case is made out for
any such reliefs.
9 The learned Single Judge, after considering the rival oral
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and written submissions so raised, by giving independent reasons on
the necessary points, has passed the impugned order.
10 The relevant paragraphs of the impugned order read thus:-
"10 As set out hereinabove, Plaintiff No. 1 Company
availed of various facilities from different banks and financial
institutions. Pursuant to various assignment agreements,
more than 80 per cent of the debt vests in Defendant No. 1
and at present the outstanding payable by the Plaintiff No. 1
to Defendant No. 1 is in excess of Rs. 7,000 crores. Thereafter
the lenders had undertaken a CDR of the debts of Plaintiff No.
1 payable to various banks/financial institutions. The MRA
was executed between Plaintiff No. 1 and the State Bank of
India as the monitoring institution/Lead Bank on behalf of
the Banks/Institutions."
The learned Single Judge has elaborated the scheme and
the relevant clauses in paragraph Nos. 11 to 14.
"15 Thus, from the aforesaid Clauses it is apparent
that under the MRA, the debt was restructured and various
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additional securities were created. On the occurrence of an
event of default or any other event set out in Clause 31, the
lenders were entitled to revoke all or any part of "the
restructuring". Clause 32 expressly provides that even "Upon
revocation of the restructuring of the Existing Loans", the
rights to any securities created pursuant to the MRA are not
affected and the lenders are entitled to exercise all the rights
and remedies conferred on them. From the aforesaid, it is
apparent that upon an event of default, it is the restructuring
which is revoked and the rights of the lenders under the MRA
or any document / security created pursuant to the
restructuring do not come to an end and the lenders are
entitled to enforce such rights and securities."
"16 Pursuant to the restructuring, Plaintiff Nos. 1, 4 to
14 pledged their shareholding in the companies being Plaintiff
Nos. 1 to 4 and 15 in favour of Defendant No. 2 which was
acting as the Security Trustee of the lenders. Under the Pledge
Agreements, "Obligations" is defined to mean all the
obligations of the company under the restructuring documents
including all the present and future monies, debts and
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liabilities due, owing or incurred by the Plaintiff No. 1 to the
lenders in relation to the facilities and under or in connection
with any Restructuring Document. As noted above, the
restructuring documents as defined in the MRA includes not
just the MRA but also all existing documents as modified by
the MRA and the security documents. Thus, the obligations
would include obligations under the existing Agreements also.
The pledge of the shares under Clause 3.1 of the Pledge
Agreements are for fulfilment of the obligations as stated
above. Thus, the interpretation placed by the Plaintiffs on the
definition of "Obligations" read with recitals (C) and (D), to
contend that the pledge of shares is only to secure the
performance of the MRA is erroneous and cannot be
accepted."
"18 Again, the contention of the Plaintiff that the
MRA came to an end and consequently the pledge has become
infructuous, or is inoperative, is untenable and cannot be
accepted. By way of restructuring, indulgence is shown to
the borrower at times by way of extension of time to repay the
debt. For this, certain additional securities are created in
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favour of the lenders. If the contention of the Plaintiffs were
to be accepted, in the event of default in payment of the
restructured debt, all the additional securities will become
inoperative. That would tantamount to a debtor taking
various undue advantages, after defaulting on its obligations
and thereafter backing out of all the securities created by
them. Such a stand or interpretation would completely defeat
the arrangement between the parties. In any case, in the
present case, as set out above, Clause 32 of the MRA expressly
provides that the rights of the lenders in any security created
after the restructuring would remain intact and would be
enforceable."
"23 I am therefore of the view that the Plaintiffs have
failed to make out even a prima facie case. The Plaintiffs have
for the first time tried to give an incorrect explanation qua
the Revival Letters dated 10th October, 2014, knowing that
the same destroys their submission that upon revocation of
the MRA the pledge does not survive. The Plaintiff No. 1 has
also suppressed in the Plaint the Meeting which took place
on 23rd August, 2016 and the e-mail received by its Director
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recording what transpired thereat, knowing well that what
was recorded in the said Meeting completely destroys the
challenge raised by the Plaintiffs in the present Suit. The
Plaintiffs are dis-entitled to any urgent ad-interim reliefs on
these grounds, as also on merits. It is true that as held by the
Hon'ble Supreme Court in the case of Bhagwati Prasad vs.
State of Madhya Pradesh (supra), since the Plaintiffs have
failed to make out a prima facie case, the question of
assessing the balance of convenience does not arise. However,
even otherwise, the Plaintiffs owe the Defendant No. 1 an
amount in excess of Rs. 7000 crores. The securities have been
created by the Plaintiffs in favour of the lenders being fully
conscious that if there is a breach, the lenders would invoke
their right and enforce their securities. If, any injunction is
granted, the rights of the Defendants would be severely
prejudiced. The balance of convenience tilts heavily in favour
of the Defendants and against the Plaintiffs."
11 The submission, that the learned Single Judge has not
passed the specific reasoned order, is unacceptable. On the contrary,
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after noting the submissions, the learned Single Judge has accepted
the submission of one party and dealt with other submissions and
provided the sufficient reasons to decide the case at ad-interim stage.
This, in our view, is well within the framework of law and the record.
There is no case of breach of principle of natural justice, on the stated
ground of no reasons and/or insufficient reasons. The order is
apparent and clear as sufficient reasons are given, considering the ad-
interim stage of the proceedings. Even otherwise, in commercial
documents/transactions like this, the fact about the execution of the
Master Restructuring Agreements, the related Pledge Agreements in
question, is not in dispute. The concept of "restructuring" itself
reflects that the parties, including the concerned Banks-Respondents,
have decided to give an opportunity to the Appellants/Plaintiffs to
restructure a plan/scheme, so that ultimately the borrower would be
in a position to make further payments, as agreed, on the basis of the
main Agreements/documents. If restructuring fails, the parties are
bound by such clauses of the invocation of Pledge Agreements of the
year.
12 The commercial agreements- MRA, cannot be separated
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and dissected, at this stage, from the main contract. In our view, the
Appellants, based upon the MRA, and the Pledge Agreements, were
able to delay the recovery proceeding and it enabled the Appellants to
continue to enjoy the facilities, as per the main contract, without
making timely agreed payments. Admittedly, there were defaults
committed by the Appellants, even after the MRA and Pledge
Agreements, in question. The Respondents have, in view of the
defaults, invoked the agreed clauses of the Pledge Agreements and
proceeded within the framework of Agreements itself.
13 In addition to above, we are inclined to observe that by the
impugned notices, the invocation of equity shares based upon the
Pledge Agreements, in the facts and circumstances, cannot be stated
to be illegal and/or contrary to any Agreements clause. The share
security so submitted, in case of defaults, required to be used and
utilized by selling it and/or by transferring it to recover the amount, at
the earliest as the same is admittedly due and payable as the liability
itself remained intact. The failure of restructuring itself is sufficient to
invoke such action. Merely because, earlier the properties were
mortgaged, that itself, nowhere takes away the right of the
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Respondents to take recourse to such recovery proceedings. The
effect of share prices in the market on the date and later on, has its
own impact. Surely, these securities cannot be rendered to be mere
paper securities. The pledge is required to be meaningful to achieve
the object for which it is made.
14 Admittedly, the effect of invocation has taken effect.
Except one day, there was no interim relief in favour of the Plaintiffs-
Appellants till this date. The reasons given by the learned Single
Judge, in the background and on the admitted position on record,
about the Appellants defaults, existing liability, apart from the
observations about the suppression of facts; and the finding on e-mail;
and the decision in the joint lenders meetings, as recorded, we are of
the clear opinion that, no case is made out for any ad-interim reliefs.
In any case, the Respondents entitlement to invoke and enforce the
security under the pledge, therefore cannot be denied. The impugned
order is well within the framework of law and the record. For all the
above reasons, we are also not inclined to either entertain the Appeal
or grant any ad-interim reliefs so sought.
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15 However, considering the facts and circumstances of the
case, liberty is granted to the Appellants to apply before the learned
Single Judge, for early hearing of the Notice of Motion/or the Suit, to
be decided on its merits.
16 Needless to mention that our observations are prima-facie
only in the context of the impugned order and the submissions as
made on behalf of the parties. All contentions of the parties to be
urged at the final hearing of the Motion and the Suit are expressly
kept open.
17 The Appeal is dismissed. No order as to costs.
(G.S. KULKARNI, J.) (ANOOP V. MOHTA, J.)
