Bombay High Court
Manakchand Hajarimal Loonkar And ... vs Yes Bank Limited And 8 Ors on 22 November, 2021
Bench: A. K. Menon
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
[ COMMERCIAL DIVISION ]
INTERIM APPLICATION NO.1370 OF 2020
IN
COMMERCIAL SUIT NO.319 OF 2020
Bharat Kishormal Shah ] .. Applicant-Plaintiff
Versus
1. Yes Bank Ltd. ]
2. Sumer Corporation ]
3. Ramesh Sumermal Shah ]
4. Rahul Ramesh Shah ]
5. Deepak Ramesh Shah ]
6. Manakchand Hajarimal Loonkar ]
7. Mahendra Manakchand Loonkar ]
8. Sumer Buildcorp Private Limited ]
9. Sumer Builders ]
10. Kunal Goswami ] .. Defendants
ALONG WITH
INTERIM APPLICATION (LODGING) NO.5376 OF 2021
IN
COMMERCIAL SUIT (LODGING) NO.5374 OF 2021
1. Manakchand Hajarimal Loonkar
2. Mahendra Manakchand Loonkar ] .. Applicants-Plaintiffs
Versus
1. Yes Bank Ltd. ]
2. Sumer Corporation ]
3. Ramesh Sumermal Shah ]
4. Rahul Ramesh Shah ]
5. Deepak Ramesh Shah ]
6. Bharat Kishormal Shah ]
7. Sumer Buildcorp Pvt. Ltd. ]
8. Sumer Builders ]
9. Kunal Goswami ] .. Defendants
1/97
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Mr. Virag Tulzapurkar, Sr. Advocate, with Mr. Ashish Kamat, Mr. I.J. Nankani,
Mr. H.S. Khokhawala and Mr. Rohan Sawant, i/by Nankani & Associates, for
the Applicant-Plaintiff in IA/1370/2020.
Mr. Zal Andhyarujina, Sr. Advocate, with Mr. Indranil Deshmukh, Ms. Gathi
Prakash, Mr. Kartik Prasad and Ms. Ishani Khanwilkar, i/by Cyril Amarchand
Mangaldas, for Defendant No.1 in IA/1370/2020.
Mr. R.M. Kadam, Sr. Advocate, with Mr. Chetan Kapadia, with Ms. Kausar
Banatwala and Mr. Chirag Sarawagi, i/by Mr. Tushar Goradia, for Defendant
Nos.2 to 4 and 8 to 10 in both the IAs.
Mr. Chirag Mody, i/by Mr. Joaquim F. Fernandes, for Defendant Nos.6 and 7
in IA/1370/2020 and for the Applicants-Plaintiffs in IAL/5376/2021.
Mr. Ashish Kamat, with Mr. I.J. Nankani, Mr. H.S. Khokhawala and Mr. Rohan
Sawant, i/by Nankani & Associates, for Defendant No.6 in IAL/5376/2021.
CORAM : A. K. MENON, J.
RESERVED ON : 28TH OCTOBER 2021.
PRONOUNCED ON : 22ND NOVEMBER 2021.
P.C. :
1. This order disposes both Interim Applications. The lead arguments have
been canvassed in the first Suit No.319 of 2020 (First Suit). Defendants 6 and
7 in the first suit are plaintiffs in Suit (Lodging) No.5374 of 2021 (Second
Suit). The second suit raises identical issues as the first and the IA in the
Second Suit seeks reliefs similar to IA/1370/2020 in the First Suit. By consent,
both the IAs are taken up for final disposal. Since reliefs sought in the Second
Suit are on the same grounds as those in the First Suit, the facts and array of
parties referred to below pertain to the First Suit.
2. The plaintiff, along with defendants 3 to 8, have been at all material
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times partners of defendant no.2. Defendant no.9 is also a partnership firm.
Plaintiff, defendant nos.4, 6, 7 and one Mrs. Pawan Ramesh Shah, wife of
defendant no.3, were at all material times partners of defendant no.9.
Defendant nos.2 and 9 are engaged in the real estate business. Pawan Shah it
is stated was not in-charge of the affairs of defendant no.9, which firm has
been represented by defendant nos.3 and 4. Pawan Shah is not presently a
party to the suit. Defendant no.10 is a former director of defendant no.8-
company and is said to have executed certain documents on behalf of that
company.
3. In the Suit, the plaintiff seeks declaration that Letters of Authority dated
22nd June 2016 and 29th September 2017; Loan Agreements dated 6 th October
2016 and 6th December 2018; Mortgage Deeds dated 28 th September 2016
and 5th December 2018; Supplemental Mortgage Deed dated 2 nd November
2016 and other documents listed in Exhibit-LL to the plaint, are all void and
of no legal effect and are liable to be cancelled. A decree is also sought to
deliver up for cancellation, originals of these documents. Further declaration
is sought that the plaintiff is not liable for credit facilities granted by
defendant no.1 to defendant no.2. Permanent and temporary injunctions are
being sought against defendant no.1 and indemnities from defendant nos.3 to
5. In the IA, the plaintiff also seeks disclosure on oath by defendant nos.1 and
3 to 5 in relation to the transactions between those defendants and the
business of defendant nos.2, 8 and 9 and also to deposit original documents in
court and to furnish true copies thereof.
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4. The defendant no.1-bank has denied all allegations including that of
forgery, collusion and fraud. The bank contends that the loans were taken,
disbursed in the usual course of business on standard terms. The bank has
also contended that the loans were advanced on the strength of the implied
authority of defendant no.2's partners viz. defendants 3 and 4. Defendants 3
and 4 have denied wrong doing. According to defendants 3 and 4, the
plaintiff and defendants 6 and 7 were at all times aware of the loans being
availed of. The defendants 3 and 4 have denied allegations of collusion,
forgery and fraud. They contend that the impugned documents were sent to
the plaintiff and were received back duly signed, which were then handed
over to the bank.
5. Mr. Tulzapurkar appearing on behalf of the plaintiff submitted that the
defendant no.1-bank has advanced monies to defendant no.2 essentially for
the benefit of defendant nos.3 to 5 and at their instance, but is seeking to
misuse the structure of a partnership in order to make the plaintiff also liable.
This is sought to be done fraudulently by relying upon the impugned letters of
authority dated 22nd June 2016 and 29th September 2017 (LOAs), in which
signature of the plaintiff is forged. Relying upon such forged LOAs, the
defendant no.1-bank colluding with defendant nos.3 to 5, had lent and
advanced monies to defendant no.2. It is submitted that the business of
defendant no.2 was conducted by the three groups viz. (i) Ramesh Group
comprising of defendants 3 to 5 and their family members; (ii) Loonkars
comprising of defendants 6 and 7 and their family members and; (iii) Bharat
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Group comprising of the plaintiff and his family members. Defendant no.2 is
said to be engaged in a Slum Rehabilitation Project at Chandivali, Mumbai. It
also owns lands at Worli and Windmills in Gujarat. The defendant no.2-firm
was reconstituted from time to time. The wife and son of the plaintiff, who
were partners of defendant no.2, retired in 2015.
6. It is contended that disputes arose amongst the groups, as a result of
which the parties mutually agreed to divide the businesses between the three
groups. There were issues pertaining to discharge of liabilities, properties and
assets falling to each group's share. Ramesh Group was said to be entitled to
majority of the assets. Some of the assets came to the share of the applicant
and some to defendants 6 and 7. This division of assets and liabilities was
recorded in a Memorandum of Understanding dated 25 th September 2014
and a Supplemental Memorandum of Understanding dated 8 th December
2015. Each group then stopped participating in day-to-day business and
affairs of business which did not fall into their share. Accordingly, the
plaintiff's group (Bharat Group) and that of defendants 6 and 7 (Loonkars)
stopped participating in the businesses and affairs of defendants 2, 8 and 9.
Ramesh Group reportedly was in full control of defendants 2, 8 and 9.
Certain part payments are said to have been made by the Ramesh Group to
the Bharat Group. Majority shareholding in one Sumer Builders Private
Limited was transferred to the Bharat Group.
7. In accordance with this MOU and Supplemental MOU (collectively
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"MOUs"), the Ramesh Group is said to have assumed full control over majority
of the businesses of the firms, companies and the properties in question, but
are yet to discharge their obligations towards the plaintiff and defendant
nos.6 and 7 in terms of the MOUs. Part payments are said to have been made
and the MOUs are partly performed. This is evident from the fact that some
shares have already been transferred. Mr. Tulzapurkar submitted that the suit
assails the actions of the defendant no.1-bank. The Ramesh Group
represented by defendant nos.3 to 5 were bound to ensure that they would
not create any liability or sell assets of defendants 2, 8 and 9 or other entities
in Sumer Group without obtaining prior written consent and approvals of the
other partners. The Bharat Group was not involved in the day-to-day
functioning of these entities and according to the plaintiff, he has not been
informed of the financial affairs on a regular basis. Except that, after the
financial year ending, the defendants 3 to 5 would furnish copies of the
capital account of the plaintiff in the books of defendants 2 and 9 to enable
the plaintiff to file tax returns. For this and other statutory requirements, the
plaintiff was required to sign certain documents. The plaint sets out the fact
that the plaintiff had been informed of the loan to be taken by defendant no.8
in 2014.
8. According to the plaintiff, in middle of June, 2019, the plaintiff
received a default notice from one Capital India Finance Limited (CIFL)
informing him that defendant no.9 had been sanctioned a term loan of Rs.9
crores from CIFL and the defendant no.9 had committed defaults in
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complying with the terms and conditions of the facility agreements This the
plaintiff states was a surprise because the default notice mentioned certain
properties of defendant no.9, were mortgaged to CIFL to secure the loan. The
plaintiff has disclaimed any knowledge of the same. According to the plaintiff,
consent of the plaintiff was not taken at the time the loan was availed from
CIFL and there was no way that the plaintiff could have learnt of the same by
exercising due diligence. When the plaintiff contacted defendants 3 and 4,
they admitted that a loan had been taken and a mortgage created, but assured
the plaintiff that no liability would pass to him. The plaintiff believed in this
representation / assurance and did not precipitate matters. The plaintiff then
received a notice under Section 138 of the Negotiable Instruments Act, 1881
from the 1st defendant-bank. The notice was also addressed to defendants 2 to
8, 10 and one Ruchita Agarwal informing them of dishonor of two cheques of
Rs.1.70 crores each, which were issued towards repayment / servicing of
facilities sanctioned to and accepted by defendants 3 and 4 on behalf of the
2nd defendant. The total amount claimed was Rs.210 crores approximately.
Once again the plaintiff contacted defendants 3 and 4 seeking an explanation,
but they only tried to pacify him and offered to explain developments. The
plaintiff then sought legal advice and was told that he should immediately
respond to the notice under Section 138 of the NI Act.
9. On 21st June 2019, the plaintiff responded to the defendant no.1-bank
informing them that he had not availed of any loan. He was unaware of any
facility granted to defendant no.2. The plaintiff had neither authorized
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defendant no.2 to act for him nor consented to other partners' acting for him
and taking a loan. He pointed out that the Partnership Deed, as modified,
provided that each partner would be liable for their respective debts and that
no partner could take any loan for defendant no.2 without consent of other
partners. He also informed the bank that he had no knowledge of the cheque
which he had not signed. He was not an active partner of the 2 nd defendant
and had been out of management for several years. He highlighted the fact
that the bank itself had recorded in the notice that defendants 3 and 4 had
accepted facilities sanctioned by defendant no.1 and thereafter, on the bank's
own showing, the facility was granted for defendants 3 and 4. The plaintiff
therefore denied liability.
10. The plaintiff thereafter received a recall notice dated 21 st June 2019
and attached therewith three annexures viz. Annexure-IA, Annexure-IB and
Annexure-II. That notice revealed that receivables from sale of Transfer of
Development Right (TDR) of defendant no.2 and properties belonging to
defendants 8 and 9 had been mortgaged. Apart from the mortgage, it was also
realized that defendants 3 and 4 had issued personal guarantees. The other
partners had not. Defendants 3 and 4 had pledged 30% of shareholding in
defendant no.8. This apart, defendant no.1 claims to have sent repeated
reminders to defendant no.2-firm, but the plaintiff, as a partner, had not
received any such notice. Thus, the plaintiff realized that substantial assets of
defendants 2, 8 and 9 had been encumbered by defendants 3 to 5 and one
Pawan Ramesh Shah, wife of Ramesh Shah (defendant no.3), without
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obtaining consent of the plaintiff or defendants 6 and 7. The plaintiff
therefore once again approached defendants 3 and 4 protesting these acts, but
they were evasive and did not respond. The defendants 6 and 7 (Loonkars)
also pointed out that they have received a similar notice and had no
knowledge of the alleged loan or mortgage. Thus, the plaintiff and the
Loonkars addressed a joint letter protesting these acts.
11. According to Mr. Tulzapurkar, the language of the demand notice
clearly indicates that the bank was aware of the MOUs and that no liability
could have been foisted on defendant no.2 without consent of all partners. He
submitted that the former chairman of defendant no.1 was a close friend of
associate of defendants 3 and 4 and this was a private arrangement between
the bank and defendants 3 and 4, which was not to the knowledge of any of
the other partners of defendant no.2 and hence not binding upon them. The
manner in which the bank has conducted itself made it clear that defendants
3 and 4 alone would benefit from this act and for this reason, the bank had
obtained personal guarantees only from defendants 3 and 4, to the exclusion
of the other partners. The plaintiff then called upon the bank to provide
copies of all the documents, which demand the bank resisted.
12. Further correspondence ensued and in the course of these
developments, the plaintiff received a letter from CIFL dated 5 th July 2019
forwarding what it called an irrevocable consent and authority letter dated 5 th
March 2019, purportedly signed by the plaintiff and the Loonkars. This came
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as a shock to the plaintiff, who found that his signature had been forged. The
signature appearing on this LOA was obviously different from his genuine
signature. He had not signed this LOA and upon contacting the Loonkars, they
too confirmed that they have not signed any such LOA. The plaintiff then
realized that the bank was hand-in-glove with defendants 3 and 4, who were
called upon to explain their conduct. Defendants 3 and 4 continued to assure
the plaintiff that they would obtain clarification from CIFL that plaintiff was
not liable.
13. While the defendant nos.3 and 4 continued to assure the plaintiff that
they would deal with the issues in relation to CIFL and that they were actively
pursuing the matter with CIFL, defendant no.1 issued a notice under Section
13(2) of the Securitization and Reconstruction of Financial Assets and
Enforcement of Secured Interest Act (SARFAESI Act) demanding a sum of
Rs.213.15 crores from the plaintiff and defendants 2 to 10 and the said
Pawan Ramesh Shah. The plaintiff called for a meeting with defendants 3 and
4 and to seek an explanation. At the meeting, the defendants 3 and 4
informed the plaintiff that they had taken a loan from the 1 st defendant and
mortgaged properties of defendants 2, 8 and 9. When asked pointedly
whether the plaintiff's signature has been forged while taking the loan, the
said defendants avoided the question but requested the plaintiff not to
precipitate matters on the basis that they would ensure that the plaintiff was
suitably discharged from liability and that defendants 3 to 5 alone would be
liable. Meanwhile, on enquiries made with one Uday Chowhan, Notary, as to
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the signatures appearing in the notarial register, the Notary informed the
plaintiff that the signatures in the notarial register do not bear the name of
defendant no.9 or CIFL or the plaintiff against the document named
Irrevocable Consent and Authority.
14. Since no response was forthcoming from defendants 3 and 4, on 16 th
August, 2019, the plaintiff filed a criminal complaint against defendants 3, 4,
CIFL and the said Notary and an Advocate and other unknown persons
complaining of forging signatures of the plaintiff on the Irrevocable Consent
and Letter of Authority dated 5 th March 2019. The plaintiff, on advice, also
responded to the SARFAESI notice on 14 th February 2019 narrating the factual
developments. Although the defendant no.1 was called upon to provide
documents relied upon by the bank and to cease and desist from adopting any
action, the plaintiff received no reply. One more request was made for
furnishing copies of documents on 30 th September 2019, to which the bank
responded vide letter of 9th October 2019 denying receipt of the letter dated
30th September 2019. According to the plaintiff, although inspection was
offered, due to shortage of time, he could not attend the office of the bank and
hence he requested for an alternate date and time. The plaintiff claims he was
surprised by the fact that defendants 3 and 4 were already aware of the fact
that the plaintiff had requested inspection of documents and suggested that
inspection is not necessary since the matter was being resolved. Finally, on
25th October, 2019, plaintiff attended the bank and inspection of various
documents was given in relation to the two terms loans. There were 14
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documents in respect of each of the term loans and in both cases, there were
LOAs. This reportedly came as a shock to the plaintiff since he had not signed
these LOAs. During inspection, the plaintiff is said to have noticed that there is
a special condition in the offer letter dated 22 nd June, 2016 issued by the
bank, which required an authority letter. The offer letter of 22 nd June, 2016
recorded the fact that defendants 3 to 5 and/or defendant no.8 will owe 100%
of interest in defendant no.2 within eight months of the first disbursement
and thus it became obvious that the bank was also aware of the MOUs and
that repayment of this loan to defendant no.2 was the responsibility of
defendants 3 to 5. The offer letter is said to reveal the active collusion and
connivance between the bank, its officers and defendants 3 to 5. In an effort
to scrutinize these documents which contained certain amount of details, the
plaintiff sought copies but the request was declined. The plaintiff therefore
endorsed an acknowledgment on the letter recording inspection to the effect
that both the Letters of Authority dated 22 nd June, 2016 and 29 th September
2017 were not signed by him.
15. In the meanwhile, on or about 1st November,2017, the plaintiff
received a letter from CIFL informing him that the loan taken by defendant
no.9 had been fully repaid. This he believes was a result of the criminal
complaint filed against defendants 3, 4 and the officials of CIFL. It seems that
the Deed of Mortgage dated 28 th September 2016, Supplemental Deed dated
2nd November 2016, the Deed of Mortgage dated 5 th December 2018 and the
Fax-cum-Indemnity dated 18th July 2016 were not available for inspection in
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original and only photocopies were shown. Vide a letter of 7 th November
2019, the plaintiff put on record the fact that the signatures on the two letters
of authority were not his, were forged and the fact that signatures on both
these letters differ from each other. In an attempt to secure copies, the
plaintiff is said to have taken search of the website of the Ministry of
Corporate Affairs so as to source the copy of the letter from the Deed of
Mortgage but the Deed of Mortgage itself did not contain a copy of the letters
of authority.
16. According to Mr. Tulzapurkar, around this time, the plaintiff came to
learn that defendants 3 to 5 and Mrs. Pawan Ramesh Shah had obtained
similar loans in various entities owned by the Sumer Group without the
consent or knowledge of the plaintiff or the Loonkars. These includes loans
from SREI Equipment Finance Ltd., Kolkata, Edelweiss Assets Reconstruction
Company Ltd. While the dues of the SREI have since been settled, Edelweiss
had issued a SARFAESI notice to defendants 2 to 4. The plaintiff sought details
and documents in respect of the loans but Edelweiss is yet to reply or respond
to this request. Acting in furtherance of the MOUs, the plaintiff and
defendants 3 and 4 had discussions with the intervention of a common
Advocate and as a result, defendants 3 and 4 and their family members have
transferred the majority shareholding in Sumer Builders Private Limited in
favour of the plaintiff and his family members. The transfer was in pursuance
of the MOUs between the parties but the aspect of the loan taken from Yes
Bank was still outstanding. In this respect, the defendants 3 and 4 assured the
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plaintiff that they would get a letter of discharge of the plaintiff from the
bank. The LOA bears a forged signature of the plaintiff. The letter it was
submitted clearly provides for the signature of Pawan Ramesh Shah, but has
not been signed by her. The aforesaid defendants being in default and despite
the SARFAESI notice having been issued, the bank once again disbursed a loan
of Rs.2.03 crores to defendant no.9 in or around July, 2019. The plaintiff has
informed the defendants that he had not signed any such document nor had
he authorized anyone to sign such document on his behalf. The plaintiff had
also not consented to the other partners availing of such a loan. Written
consent of neither plaintiff nor Loonkars was obtained before availing of the
loan. The plaintiff is given to understand that the defendants 3 and 4 have
taken a further loan from one Integrated Spaces Limited, whose Advocates
have since issued a notice claiming repayment of Rs.7.87 crores. This loan
was once again taken by defendants 2 to 4 without the knowledge or consent
of the plaintiff. Cheques were issued in repayment of these loans without the
plaintiff's knowledge and these cheques have since been dishonoured. The
Loonkars have since filed a commercial arbitration petition under Section 9
after invoking the arbitration clause under the Deed of Partnership. A copy of
this was provided to the plaintiff from which the plaintiff found that Loonkars
have annexed two letters of authority both dated 29 th September 2017, which
are said to have been executed by the plaintiff as well. The plaintiff was
unaware of this till receipt of a copy of the arbitration petitions being Petition
Nos.40 of 2020 and 44 of 2020. In response to the arbitration petitions,
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Defendants 3 and 4 have filed replies contending that the disputes and
differences stood resolved by execution of the MOUs and thus the arbitration
clause did not survive.
17. In this background, the plaintiff filed a criminal complaint against
Defendants 3 and 4 and employees of defendant no.1 in relation to the forged
letters of authority dated 22 nd June 2016 and 29th September 2017. The bank
has in the meanwhile issued a letter in January, 2020 calling upon the
plaintiff to show cause why he and defendants 2 to 8 ought not to be declared
willful defaulters. The plaintiff challenges the show cause notice as being
baseless and malafide. On 7th February 2020, the plaintiff was served with a
copy of Original Application (Lodging) No.1321 of 2019 and Miscellaneous
Application No.127 of 2020 along with Interim Application No.128 of 2020
filed by the defendant no.1 against the plaintiff, defendants 2 to 9 and IDBI
Trusteeship Services Ltd. before the Debt Recovery Tribunal seeking recovery
of the amounts under the two term loans by enforcement of securities. It was
the plaintiff's case that none of the exhibits to the original application were
served upon him, leading the plaintiff to request for copies of the annexures.
In response to the interim application in the present suit, the defendant no.1
filed an affidavit-in-reply dated 23 rd March 2021 annexing thereto
documents in relation to the term loan from which the plaintiff has now
learnt of more the acts of fraud and forgery committed by defendants 1 and 3
to 5. The two letters of authority dated 29 th September 2017 have been
annexed at Exhibits U and W to the affidavit-in-reply but these are different
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from the letters of authority annexed to the deeds of mortgage. Similarly, the
letter of authority of 22nd June 2016 executed on behalf of defendant no.2 and
annexed as Exhibit-R to the reply is different from the letter of authority
forming part of registered deed of Supplemental Mortgage dated 22 nd
November 2016. The defendant no.1-bank had allegedly obstructed the
plaintiff when inspection was not provided. Photocopies, including of the
letters of authority, were annexed to the affidavit-in-reply at exhibits R, U
and W and the plaintiff was required to obtain copies from the Loonkars. The
reluctance on the part of the defendant-bank to part with copies makes it all
the more evident that the bank is in cahoots with defendants 3 and 4 and are
shielding defendants 3 and 4 and such other persons, who may be involved in
the acts of forgery.
18. The Letter of Authority dated 22 nd June 2016 is also stated to be
backdated and fabricated since the registered office of the defendant no.9 on
the letter-head is shown as 203, Peninsula Corporate Park, Tower-1, A Wing,
Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400 013, when, in fact, the
registered office was changed only on 1 st April 2017. As on 22nd June 2016,
the registered office of defendant no.9 was at 201, Commerce House, 114,
Nagindas Master Road, Mumbai - 400 001, which address is also reflected in
the Supplemental Mortgage Deed dated 2 nd November 2016.
19. Apropos the extract of the resolutions said to have been passed in board
meetings on 22nd June, 2016 and 29th September 2017 viz. the dates on which
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the letters of authority are said to have been executed, the plaintiff has
contended that the bank has not produced the notice or agenda for the
meetings. These were suspicious since the resolutions are said to have been
passed on the same day as the date of the facility letter. The resolutions are
thus assailed as got up, fabricated and illegal. The plaintiff has thus termed
the documents as null and void and impugns the LOAs and other
contemporaneous documents.
20. Mr. Tulzapurkar therefore submitted that the acts of the defendant
no.1, along with defendants 3 to 5, being collusive with ulterior motives and
fraudulent especially in the light of the fact that the defendant-bank had
constructive notice of the fact that defendants 3 to 5 did not have the
necessary authority to bind the plaintiff and / or seek or offer securities to
secure the term loans. The loans appear to have been advanced with a full
knowledge that the plaintiff was not bound by the documents and the liability
of defendant no.2 to let defendant no.1 through defendants 3 to 5, was
deliberately concealed from the plaintiff at the time of execution of the loan
document. It is alleged that defendants 1 and 3 to 5 have acted in collusion to
defeat the rights of the plaintiff and cause wrongful loss to him. Mr.
Tulzapurkar submitted that under the Deed of Reconstitution of Partnership
dated 27th March 2015, there is an express stipulation that no partner shall
take any loan or incur debts for the firm without the written consent and
approval of the other partners, except in the ordinary course of business. That
seeking and obtaining loans of Rs.300 crores out of which Rs.210 crores had
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been disbursed is not in the ordinary course of business. Moreover, the MOU
and the Supplemental MOU of which the bank had knowledge contemplated
that defendants 3 and 4 would take on the liability to the exclusion of others
but by virtue of the letter of authority, liability was sought to be foisted on the
plaintiff as well and the conduct of defendants 1, 3 and 4 is therefore
obviously fraudulent and contrary to the terms of the Reconstituted
Partnership.
21. It is further submitted that not having complied with clause 15 of the
Reconstituted Partnership Deed, the loans obtained are personal obligations of
defendants 3 and 4, as, in fact, contemplated by clause 13 of the deed which
provides that partners shall be liable for their respective debts and liabilities
and neither the partnership firm or other partners will be liable. Thus, it is
contended that the loans obtained without authority of the plaintiff are the
personal liability of defendant nos.3 and 4 and not that of the partnership
firm. According to Mr. Tulzapurkar, the defendant nos.3 and 4 have taken
advantage of the fact that the plaintiff had not been active and in control of
defendant no.2. Defendants 8 and 9 had been entrusted to defendants 3 and 4
in accordance with the MOU and Supplemental MOU between the parties.
Defendants 3 and 4 were not entitled to pay it any liabilities in respect of
defendants 2, 8 and 9 without the express consent of the plaintiff but have
acted in breach of trust and have forged the signatures from the Letters of
Authority dated 22nd June 2016 and 29th September 2017 and misused the
same with the knowledge that they were forged.
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22. It is further contended that the 1 st defendant bank's management and
personnel were aware of the MOUs and were required to ensure that the
plaintiff and the Loonkars inter alia were not liable under the credit facilities
if any availed of after the execution of the MOUs. This is sought to be implied
by the bank having obtained personal guarantees only from defendants 3 and
4 to the exclusion of others. But for such exclusion from liability, there was no
occasion for the bank to advance monies without the consent of the plaintiff
since the defendants 3 and 4 did not have the implied authority to obtain
loans of this nature, which were not in the usual course of business. It is
contended that neither the bank nor the defendants 3 and 4 have responded
to the various letters that have been addressed, highlighting the fact that the
plaintiff had not signed the letters of authority and not agreed to avail of the
loan and was not liable thereunder. The property in which the plaintiff has an
interest also could not have been mortgaged without the plaintiff's consent
since the mortgages were sought to be created for loans taken without
authority. Even after the bank was informed of the apparent forgery and
despite issuance of a SARFAESI notice by the bank, it sanctioned and disbursed
a further loan of Rs.2.03 crores to defendant no.9. Thus, the complicity of
bank's officers and in particular the erstwhile chairman of the bank and his
close relations with defendants 3 and 4 were probably responsible for the
bank having advanced large sums of money and attempting to foist liability
on the plaintiff and the Loonkars. The allegation is that the former chairman
of the bank and the defendants 3 and 4 were extremely close, had personal
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relations and defendant no.3 had even attended private functions held by the
former chairman. It is contended that the defendants 3 and 4 have
fraudulently and illegally mortgaged TDR and Receivables belonging to 2 nd
defendant-firm without the consent and knowledge of the Loonkars or the
plaintiffs and as such, the loans so obtained are not the liability of the
plaintiff. The fraudulent mortgage of Tower-3 known as Sumer Trinity
Vertical Project belonging to defendant no.9 was also without the approval or
knowledge or consent of the plaintiffs or the Loonkars. The mortgage created
over the undivided share in the property at Wellington Catholic Colony,
Bandra Village, which belongs to defendant no.8 is also alleged to be
fraudulent and defendants 3 and 4 have not taken approval of the
shareholders of defendant no.8.
23. It is the plaintiff's case that the term of the loan application and its
sanction and operational parameters are all evidence of the bank acting with
full knowledge of the MOUs, its operation, terms and the fact that the plaintiff
and Loonkars are not to be made liable. In practice, however this has hardly
been achieved. The facility letters and their conditions are remained
unexplained and the bank has continued to rely upon forged and fraudulent
documentation without disclosing the source and procedure followed and due
diligence, if any, conducted, obtained by defendant no.2-Sumer Corporation.
The documents were not available for inspection with the bank, nor with the
Registrar of Firms. The plaintiff has reiterated that this court has jurisdiction
to grant reliefs and mere filing of the Original Application will not deprive
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this court of the jurisdiction. The suit is not barred by law of limitation either.
It is contended that reference to the commercial arbitration petition and
invocation of arbitration by defendant no.9-Sumer Builders is of no
consequence. The reliance placed by the defendant-bank on the End Use
Certificates has been criticized and being post-sanction, they did not explain
the fraud committed. The bank and its officers are said to be involved in
perpetration of the fraud and sanction of the loan. Those in the know of
things have been kept available to suppress the true facts. While defendants 3
to 5 are admitting to settle disputes with the bank, the bank has sought
withdrawal of the proceedings by the partners of defendant no.2-Sumer
Corporation, who has not included the plaintiff or the Loonkars in such
settlement talks. Thus, according to the deponent, the transaction is between
the bank and defendants 3 to 5, who alone are liable to repay the loans.
24. It is contended that the Deed of Reconstitution of Partnership of
defendant no.9 also contained restrictive clauses identical to the Deed of
Reconstitution of Partnership dated 27 th March 2015 of defendant no.2 to the
extent it related to creation of security and thus the loans could not have been
taken except with the express approval of the partners. Although the
plaintiff's signature on letter of authority dated 29 th September 2017 has been
forged, it does not evidently contain the signature of Pawan Ramesh Shah
although a provision was made for obtaining her signature.
25. Mr. Tulzapurkar has taken me through the disputed documents and
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compared the signatures on the letters of authority and the admitted
signatures of the plaintiff in his attempt to demonstrate that this is a clear case
of forgery and therefore actionable. He submits that notwithstanding the
jurisdiction vested in the Debt Recovery Tribunals, the jurisdiction of the Civil
Court is not ousted. According to him, the plaintiff has pleaded and produced
documents to substantiate a clear case of fraud which would render the
documents void ab initio and would entitle the plaintiff to the declaratory
reliefs and the consequent cancellation of the documents and in the
meantime, the injunction that is sought for. In other words, Mr. Tulzapurkar
has disputed the character of the plaintiff as a debtor of defendant no.1-bank
in relation to the two term loans that we are now concerned with. He
submitted that the defendant no.1-bank has at best filed an evasive denial and
that should be construed as an admission. Inviting my attention to the
affidavit dated 23rd March 2021 filed by one Hitesh Darji, he points out that
the affidavit was filed about a year after the bank was served. That the
deponent has no personal knowledge whatsoever and has clearly stated that
the deposition is on the basis of information and records and legal advice. He
submits that the facility letters were issued by persons in senior management.
None of these persons have filed affidavits especially considering that there is
a serious charge of collusion between the bank officials and defendant nos.3
and 4.
26. Fraud and forgery having been pleaded, the bank was bound to meet
these charges, but had failed to do so. The affidavits do not disclose that the
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defendant had made any investigation into the allegations levelled against
them, especially after notices were issued and show cause notices were issued
by the bank invoking the SARFAESI Act. In fact, there is no denial that forgery
has been committed. Alluding to the plaintiff's contention that the defendants
3 to 5 had good relations with the former chairman, it was pointed out that
this statement has not been denied. Furthermore, with specific reference to
the MOUs, there is only a blanket denial but the fact remains that the facility
letters issued in relation to Term Loan I and II are contrary to the MOUs.
27. Mr. Tulzapurkar has invited my attention to the documents annexed to
the affidavit-in-rejoinder, in particular Exhibits A to F, in an attempt to
demonstrate how the signature of the plaintiff has been forged and how these
letters of authority are got-up documents and not reliable and therefore
cannot be the basis to foist liability on the plaintiff. Reliance is placed on a
copy of the letter dated 21 st September 2020 issued by defendant no.2-Sumer
Corporation to the bank informing them of family arrangement and
settlement in the Sumer group and impending change of partnership
structure whereby defendant no.8-Sumer Buildcorp Pvt. Ltd., Mr. Ramesh
Shah, Mr. Rahuul Shah and Mr. Deepak Shah shall own 100% in defendant
no.2-Sumer Corporation.
28. Ramesh Group has also not deposed to the validity of the board
resolution. The letter dated 22nd June, 2016 annexed as Exhibit-T to the reply
of the bank contains an address, which was not valid as on date of the letter.
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Ramesh Group has not dealt with this aspect in the additional reply. It is
further contended that the bank has not vouched for the validity of the
resolution. The plaintiff has reiterated that there is forgery as between
defendants 3 to 5-Ramesh Group in collusion with defendant no.1-bank. The
bank has also chosen not to invoke the cross default provision and has
disbursed a further sum to defendant no.9-Sumer Builders. This conduct is
violative of RBI Guidelines. Even the Mortgage Deed dated 5 th December 2018
is incomplete. Part of the document was disclosed initially in order to suppress
the authority letter annexed to the mortgage deed, which is different from the
one annexed to the reply. These are all aspects which Mr. Tulzapurkar
pressed into service to seek relief in the IA.
29. Defendant no.1-bank has filed two affidavits-in-reply; the first being a
limited affidavit-in-reply dated 23rd March 2021 and the second dated 28th
July 2021. Both these affidavits have filed by one Hitesh Darji, authorized
signatory of defendant no.1. In the reply, the defendant no.1 has relied upon
the Deed of Reconstitution of Partnership dated 27 th March 2015. It is the
case of the deponent that the 2nd defendant, through its partners (unnamed)
approached the bank to avail of a loan of Rs.150 crores for construction and
development of an SRA project at Chandivali. This included refinancing of
unsecured loans deployed in the project and the 2 nd defendant is believed to
have obtained this loan in the ordinary course of business. A second loan of
Rs.150 crores was also availed of for the very same project which included
reimbursement of unsecured loans and mobilization advances. Once again
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the bank claims it was given to understand that the loan was being taken in
the ordinary course of business.
30. Thus, two loans of Rs.150 crores were sanctioned under Facility Letter
No.I and Facility Letter No.II. Under the Facility Letter No.I, the defendant no.8,
defendants 3, 4 and 5 were obliged to hold 51% of share capital of defendant
no.2. No change in management was permissible without approval of the
bank. Material change of ownership structure would be an event of default.
Facility Letter No.I provided that defendants 8, 3, 4 and 5 were to own 100%
of the partnership and the beneficial interest in defendant no.2 within eight
months of the first disbursement and any subsequent change will be only
after the prior approval of the bank. As part of the conditions precedent, the
bank has contended that it required defendant no.2-firm to submit true
copies of organizational documents, certified true copies of letter of authority
of defendant no.2 accepting the loan and authorizing particular persons of
defendant no.2 to deal with the bank as also execute necessary documents.
The documents to be provided included the Deed of Reconstitution of
Partnership. It is contended that the MOUs were never provided to the bank,
which remained unaware of the existence of the MOUs. Facility Letter No.II
also provided that there will be no change in management as required under
Facility Letter No.I. Term Loan II also required as a condition precedent a
letter of authority from the partners of defendant no.2 authorizing particular
persons to deal the bank in connection with the loan facility.
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31. Mr. Mody on behalf of the Loonkars, namely, defendants 6 and 7, has
supported the plaintiff. He has adopted all the submissions of Mr. Tulzapurkar
on behalf of the plaintiff and refutes the defence. He has reiterated his case in
the plaint filed in Commercial Suit (Lodging) No.5374 of 2021. There being
no material difference in the facts as compared to the First Suit, he submitted
to orders of the court. Mr. Mody therefore sought relief in terms of Interim
Application (Lodging) No.5376 of 2021.
THE DEFENCE :
32. In the additional affidavit of Mr. Hitesh Darji, filed on behalf of
defendant no.1-bank, the deponent, while stating that he is the officer
handling recovery of loans, deals with the amended plaint, disputes, all that is
to the contrary to what he has deposed to, all of which prima facie appears to
be without personal knowledge of the facts of the present case. In paragraph
6, he states as follows :-
"6. I verily believe that defendant no.1 has followed the systems
and process, as set out in paragraph 5 above, while granting
and disbursing Term Loan I and II to defendant no.2."
33. The deponent denied involvement of the bank in any forgery or
fabrication. He denied any involvement of the bank in the alleged forgery of
the letters of authority, denied knowledge or having taken part in any back-
dating of documents or fabrication of minutes of board meetings. He has
denied that the bank granted further loan of Rs.2.03 crores to defendant no.9-
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Sumer Builders despite defaults committed by the 2 nd defendant and explains
it by contending that defendants 2 and 9 are separate entities executing
different projects. The default under one of the agreements would not cancel
the term loan granted to the other entity. Cancellation of a term loan on
account of cross-default provision is said to be the prerogative of the bank
and the bank is not bound to exercise its cross-default rights. The bank in its
commercial wisdom need not jeopardize projects unaffected by the defaults.
Thus, the amended plaint does not demonstrate any fraud on the part of
defendant no.1-bank, nor does it reveal any negligence or violation of
banking norms. Controversies relating to inspection of documents have also
been commented upon since the plaintiff has alleged that inspection has been
refused and the bank has contended otherwise.
34. Certain documents are annexed to the additional affidavit-in-reply of
defendant no.1-bank and these include copies of ;
Annexed to the
Sr.
Description of Document Date of Document Affidavit in-reply
No.
of Defendant No.1
The account opening form of defendant Undated
no.2-Sumer Corporation, which is
1 undated, appears to be received by the Bears Bank's rubber- Exhibit-B
rd
bank on 3 September 2010 at its Worli stamp dated
Branch. 3/9/2010
Partnership Declaration issued by Sumer
2 18th August 2010 Exhibit-C
Corporation.
Letter of Authority in respect of TL-II,
3 said to be signed by the partners of 29th September 2017 Exhibit-D
Sumer Corporation
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Second version of Letter of Authority in
4 respect of TL-II, said to be signed by the 29th September 2017 Exhibit-E
partners of Sumer Corporation.
Letter of Authority in respect of TL-I,
5 said to be signed by the partners of 22nd June 2016 Exhibit-F
defendant no.2-Sumer Corporation.
Certified true copy of the Resolution of
6 Sumer Buildcorp Pvt. Ltd.-defendant 22nd June 2016 Exhibit-G
no.8.
35. On behalf of the 1st defendant-bank, Mr. Andhyarujina has taken me
through the relevant dates and events. He points out that the plaintiff is a
partner of defendants 2 and 9 Sumer Corporation and Sumer Builders and
shareholders of defendant no.8-Sumer Buildcorp Pvt. Ltd. and the bank had
issued facility letters dated 22nd June 2016, read with an Addendum dated
16th October 2017, in favour of Sumer Corporation and also a facility letter
dated 29th September 2017. Undoubtedly, plaintiff and defendants 3 to 8 were
partners of defendant no.2. Defendant no.3 was the signatory of defendant
no.8 pursuant to resolutions of the board of directors; defendant no.4 was a
director of defendant no.8 as well; the Loonkars were also partners of
defendants 2 and 9 and shareholders of defendant no.8. Defendant no.8 had
two directors, namely, defendants 3 and 4; whereas defendant no.9 has the
directors viz. the plaintiff, defendants 4, 6, 7 and one Pawan Ramesh Shah,
wife of Ramesh Shah as its partners. Pertinently, defendant no.3 is not a
partner of Sumer Builders, but was representing his wife Pawan R. Shah.
Defendant no.10 was an authorized signatory of defendant no.8-company. It
is submitted that TL-I was for a sum of Rs.150 crores. It was granted against
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security provided vide Mortgage Deed dated 28 th September 2016 and
Supplemental Mortgage Deed dated 2 nd November 2016 (collectively
"Mortgage-I"). The mortgage included the charge over certain share in the
development rights held by defendant no.8, defendant no.2 in respect of a
project at Chandivali as also project owned by defendant no.9. The TL-II for
identical amount of Rs.150 crores was also granted vide facility letter dated
29th September 2017 in respect of two projects, which were already part of
security offered under Mortgage-I. This TL-II was secured, as aforesaid, by a
Mortgage Deed dated 5th December 2018 (hereinafter described as
"Mortgage-II"). Defendant no.2-Sumer Corporation having defaulted in
repayment of term loans, the bank took action initially by issuing a notice
under Section 138 of the Negotiable Instruments Act, 1881 upon dishonour
of two cheques of Rs.1.7 crores each and by subsequently issuing recall notice
dated 21st June 2019, followed by a notice under Section 13(2) of the
SARFAESI Act on 18th July 2019. In all, recalling a sum of Rs.213,15,68,587/-
from the plaintiff and defendants 2 to 10 as also the aforesaid Pawan Ramesh
Shah.
36. Incidentally, Pawan Ramesh Shah is not a party in the present suit. The
bank proposed to declare the said plaintiff and defendants as willful
defaulters and to declare them as non-cooperative borrowers. A separate
notice dated 7th January 2020 has been issued to the plaintiff, defendants 2 to
8, 10 and one Ruchita Agarwal to show cause against being declared as non-
cooperative borrowers. Mr. Andhyarujina has relied upon the relevant clauses
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of the Partnership Deed dated 27th March 2015 and in particular clause 3,
which describes the businesses of the firm including the power to borrow and
accept loans. Clause 15 contemplates availing of loans in the ordinary course
of the business and clause 17 provides for arbitration in the event of disputes
between the partners. He submits that any partner could have incurred a debt
on behalf of the firm in the ordinary course of the business and nothing
prevents any partner from doing so especially in view of the provisions of
Clause 15. He submits that no consent is required from other partners. The
term loans were granted, which is a fact that cannot be denied.
37. LOAs, according to Mr. Andhyarujina, were called for and were
received. He has denied the allegations of forgery or fabrication. He submits
that the bank has not forged the signature of the plaintiff or that of the
Loonkars. The LOAs were issued as a part of conditions for availing of the
term loans, but the plaintiff's case that LOAs are false and fabricated has no
merit since the LOAs and the Board Resolutions of defendant no.8-Sumer
Buildcorp Pvt. Ltd. and Facility Letter No.1 are consistent. The documents were
executed on the same day and the allegations of forgery are baseless. Likewise,
in the case of TL-II also, the LOAs were executed, as required by the bank;
resolutions have also been passed by defendant no.8 and he submits that the
allegations of forgery, fraud and fabrication against the bank have not been
established. Counsel relied upon the fact that the defendant no.2-Sumer
Corporation has executed several of these documents, to which I have made
reference and denied allegations that inspection of the documents has not
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given or that defendant no.1-bank was non-cooperative. Mr. Andhyarujina
has submitted that the bank had received certain part payments and refuted
allegations of complicity of the bank's management or employees in any
fraud, fabrication or forgery. It is contended that merely because a fresh loan
was granted in July, 2019 to defendant no.9-Sumer Builders, after issuance of
a SARFAESI notice by defendant no.1 on 18 th July 2019, the bank cannot be
faulted since defendant no.9 was a different entity. He submitted that the
defendants 6 and 7-Loonkars had also filed a suit, in which similar
contentions were taken, and in the arbitration proceedings, defendants 3, 4, 6
and 7 had arrived at consent terms referring the disputes to arbitration, while
agreeing that the present suit and Commercial Suit (Lodging) No.5374 of
2021 would proceed on their own merits. As on date, it is submitted that
copies of all the documents have been provided, inspection has been given
and there is no grievance that survives on this count. During the hearing, Mr.
Andhyarujina assured the court that all original documents are available for
the court's perusal.
38. There is some amount of correspondence between the parties and the
Advocates in this behalf, which indicates the fact that the bank was not
entirely forthcoming in its offer of inspection. The bank had at one point
denied that the plaintiff was entitled to inspection. The reason for this
approach is unexplained. However, at the time of hearing the matter,
inspection had been given and all documents were said to have been kept
ready in court.
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39. Mr. Andhyarujina has also relied upon a compilation of documents
submitted for KYC compliance, which includes the Partnership Declaration of
18th August 2010 signed inter alia by the plaintiff, copies of the plaintiff's PAN
Card and Passport, copy of the account opening form of defendant no.2,
which is also signed by the plaintiff in August, 2010. According to Mr.
Andhyarujina, on comparison of the signatures appearing on the account
opening form and KYC documents with the documents impugned in the
present suit, there is no difference. He is however unable to explain the
discrepancies in the bank's documentation, more particularly different
versions of the LOAs, to which I have made detailed reference above. Except
to state that the bank has not forged signatures, there is no explanation
forthcoming. The bank will, no doubt, have to explain all of this, however the
question is whether that should await decision of the trial of the suit or
whether this is an aspect for the DRT to consider in the pending proceedings.
Mr. Andhyarujina therefore submitted that no case is made out against the
bank.
40. On behalf of defendant nos.3 and 4, a limited affidavit-in-reply dated
25th June 2021 has been filed by defendant no.4, in which he seeks to set out
the operational groups being Bharat Group, the Loonkars and defendants 2, 3,
8, 9 and 10 are described as Ramesh Group. The plaintiff and defendants 3, 4,
6 and 7 belong to the Sumer family and the suit is the result of disputes inter
se within the Sumer family. References are made to the Loonkars' arbitration
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petition and an interim application and the orders passed and consent terms
made therein, which had been signed by the plaintiff as well. All disputes
have been referred to the arbitration and hence the suit should not proceed.
According to the deponent, the Bharat Group and the Loonkars were all along
aware of the loans availed of by defendants 2 and 9 and proper procedures
had been followed while availing of the loans. The loan taken from Capital
India Finance Ltd. had already been repaid and defendants 3 and 4 had not
forged or fabricated signatures of plaintiff or the Loonkars. The Bharat Group
had filed criminal complaints against Ramesh Group and arbitration
proceedings are also pending and hence they do not wish to precipitate
matters by filing further detailed affidavits. The deponent has contended that
Ramesh Group does not have in its possession original documents executed
with the defendant no.1-bank, which are available with the defendant no.1-
bank. Therefore, no relief can be granted in the present suit.
41. In a further additional affidavit-in-reply filed by Mr. Rahuul Shah-
defendant no.4, the deponent has dealt with changed circumstances between
25th June 2021 and 27 th July 2021. According to him, the plaint contains
vague and unsubstantiated allegations of forgery and fabrication. He has
opposed the application on the basis that the statements in the plaint are
denied unless specifically admitted and that all loans have been availed of by
the defendant no.2-firm with the knowledge of the plaintiff. All
documentation has been signed by the plaintiff. The history of the Sumer
Group has been set out as to how differences of opinion arose between the
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three groups and it was to divide the assets and properties, for which the
MOU dated 25th September 2014 was executed. The MOUs are said to record
a complete settlement between the family members and the Deed of
Partnership cannot be read de hors the family settlement or MOUs. The
MOUs altered the family businesses. After the execution of the MOUs, the
relations between three groups were cordial and then certain steps were
taken by the parties, as set out in paragraph 16 of the additional affidavit-in-
reply of defendant no.4.
42. Mr. Kadam highlighted the fact that these were all business
transactions keeping in mind the obligations of the parties under the MOUs.
The groups' offices were initially at Commerce House and later the Ramesh
Group shifted to the Peninsula Corporate Park and the Loonkars have
occupied one office at Commerce House. The plaintiff occupied office no.205
at Commerce House. The loan documents were required to be executed by the
Loonkars and the plaintiff and therefore the loan documents were sent to
their offices for signature and were received back duly signed. I may observe
here that no particulars given as to who signed, who received and who has
brought it back.
43. According to the deponent, the plaintiff has not alleged that defendants
3 and 4 in particular had signed or forged the signature of the plaintiff. It is
not his case that the Ramesh Group approached the plaintiff for signing the
documents and he refused, which resulted in the signature having been
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forged. The Family Settlement still holds and there were break-down in the
family members' relations and hence the settlement is still not fully fructified.
According to the deponent, there was no reason to forge the signatures of the
plaintiff and he denies the allegations of forgery, which he submits is an
afterthought, after having taken advantages arising out of the loans. The
relationships between the parties are always said to be amicable and the
plaintiff is well aware of the nature of the real estate business and the need
for the borrowings. The deponent states that he had requested the plaintiff to
sign the loan documents as required by the banks, which the plaintiff did.
The deponent has contended that the plaintiff was assisting the Ramesh Group
by signing statutory and another documents and it is the qualification of the
obligations/assistance by the plaintiff The contention of the plaintiff that he
was signing the documents only for the sake of compliances and that such
signatures were restricted to the documents required for compliances is an
afterthought. The loans were raised by the Ramesh Group in the name of the
two firms viz. defendants 2 and 9 with the knowledge and consent of the
plaintiff and this explains why the plaintiff derived benefits from the firms
and was also given copies of his Capital Accounts in defendants 2 and 9.
Plaintiff was also provided with copies of the ledgers and all financial
statements. The plaintiff allegedly had full access to all financial statements
and accounts and accounting system of the two firms. The share of profit of
the plaintiff in defendants 2 and 9 was arrived at after taking into
consideration the interest charged by the banks on the loans availed. The
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plaintiff's own income tax returns reflect the figures of profits earned by him.
All documents have been provided to the plaintiff from time to time and had
also been annexed by the Loonkars. All documents provided to the Loonkars
were also provided to the Bharat Group.
44. The documentation executed post MOUs is retained in escrow.
Meanwhile, arbitration proceedings have also been commenced and the
Ramesh Group and the Loonkars have almost arrived at mutual settlement of
their disputes inter se. Talks of settlement between Ramesh Group and the
plaintiff have been discontinued on account of the suit and the interim
application. Arbitration is now proceeding and pleadings are expected to be
completed. In the meantime, the allegations in the plaint have been denied.
45. Mr. Kadam has sought to impress upon the court the steps taken by the
parties in the course of taking over / transfer of their assets, as provided in the
Family Settlement / MOUs. The Bharat Group has raised objections in
connection to certain properties in Mazgaon. These letters resulted in
allegations of forgery and fabrication. Complaints having filed in Dadar Police
Station, the allegations of forgery and fabrication also in relation to the loan
transactions between Capital India Finance Pvt. Ltd. and defendant no.9. As a
result of all these disputes, the Bharat Group and the Loonkars had stopped
participating in day-to-day business affairs of the firms and companies,
which were allocated to the Ramesh Group.
46. It is denied that the Ramesh Group had taken full control of majority of
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the firms. The deponent has denied being evasive in his responses or having
avoided meeting the plaintiff. All allegations and insinuations have been
denied and the loans taken by the group concerned have all been taken by
consent and knowledge of the plaintiff. Thus, the affidavit goes on to deny all
allegations made by the plaintiff and reiterates that all loans have been taken
with the consent and knowledge of the plaintiff. A case in the earlier affidavit
is thus reiterated.
47. Counsel relied upon financial statements of Sumer Corporation-
defendant no.2 for the period 2016-17 to 2019-20. He has taken me through
the schedules and the notes on financial statements, which indicates that the
share of each partner, including that of the plaintiff, amongst others has been
specifically shown. The share in profit has been shown separately for each of
the financial years. Copies of these financial statements, Mr. Kadam has
contended, have already been furnished to the plaintiff from time to time and
the plaintiff is fully aware of the finances of the firms and the businesses of
the firms. Quite apart from the fact that the Family Settlement / MOUs
contemplates bifurcation and division of assets and the fact that the plaintiff is
not supposed to be liable for any of the obligations of the firms post
separation, the plaintiff continues to be a partner and that is a fact that cannot
be overlooked and in his capacity as such, along with the other members of
the Loonkars and the Ramesh Group, the rights and liabilities of the partners
apply equally to the plaintiff and therefore the plaintiff is deemed to be aware
of the activities of the firms.
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48. The additional affidavit-in-reply of defendant no.4 encloses therewith
a copy of the MOU dated 25th September 2014 and seeks to rely upon the
contents thereof. In the meantime, it is pointed out that Term Loan Facility
No.II had been fully repaid and reliance is placed on the letter dated 17 th July
2015 issued by the Yes Bank. The loans taken by Sumer Builders Pvt. Ltd. from
Indiabulls Housing Finance Ltd. have also been repaid, so also the loans taken
from IndoStar Capital Finance Ltd. have been repaid. Reliance is placed on the
Income Tax Returns for the Assessment Years 2015-16, 2016-17, 2017-18
and 2018-19 filed by the plaintiff demonstrate that he had knowledge of the
earnings from the very firms that are subject matter of the present dispute. In
this manner, the additional affidavit seeks to support the defence and seeks to
demonstrate the improbability of the plaintiff's case. Reliance is also placed on
a communication from the Advocate for the contesting defendants addressed
to the plaintiff's Advocate informing them that without prejudice talks cannot
proceed further. Thus, the affidavit makes it evident that the Ramesh Group is
taking steps to settle some loans without participation of the plaintiff /
Loonkars.
49. Relying upon a judgment of the Division Bench of this court in State
Bank of India Vs. Jigishaben B. Sanghavi and Ors. 1, Mr. Kadam submitted that
this court has no jurisdiction to entertain and try the present suit and no
injunction as sought should be granted especially since the bank has now
1 2011(2) Mh.L.J. 342
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taken action under SARFAESI Act and the bar under Section 34 of the
SARFAESI Act will clearly be attracted, as clearly laid down in the said
judgment. The only exception is the one carved out in Mardia Chemicals Ltd.
and Ors. Vs. Union of India and Ors. 2, along with connected matters, in which
the Supreme Court has held that the civil suit is maintainable in cases
involving fraud or where the claim is so absurd or untenable that it did not
require any probe. Further, this court also observed that mere use of the word
"systematic fraud" would not be sufficient to bring the case within the scope
of the exception in Mardia Chemicals since the plaint must be read as a
whole. The SARFAESI Act provides for a remedy for actions under that Act.
50. Mr. Kadam also invited my attention to paragraph 20 of the judgment
in Jigishaben Sanghavi (supra), in which the contention of the third-party
applicant was that there was no mortgage. The mortgage, if any, was illegal
and these were all matters that DRT was empowered to determine and hence
jurisdiction of the civil court is barred. Mr. Kadam also sought to support this
argument by relying upon a decision of Queen's Bench Division of the
England and Wales High Court in Toner Vs. Telford Homes Ltd. and Ors. 3, in
which proof of fraud has been adverted to and the fact that cogent evidence is
required to justify a finding of fraud or other discreditable conduct. The more
serious the allegation, the more cogent the evidence required. In this
judgment, the court also referred to an observation in the case of Jafari-Fini
2 (2004) 4 SCC 311
3 [2021] EWHC 516 (QB)
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Vs. Skillglass Ltd.4, in paragraph 73, in which Lord Justice Carnwath had
observed that unless the court was dealing with known fraudsters, "the court
should start from a strong presumption that the innocent explanation is more
likely to be correct".
51. In the present case, Mr. Kadam urged the court to accept the rather
straightforward explanation that the plaintiff being partner was also liable to
the extent of his interest in the firm. However, he submitted that there is no
intention to deny the existence of the MOUs or the effects thereof, but that is a
matter that is now engaging the attention of the arbitral tribunal constituted
pursuant to invocation of arbitration under the MOUs. My attention is also
invited to Commercial Arbitration Petition No.40 of 2020 filed by the
Loonkars consisting of two partners - defendants 6 and 7 herein and
submitted that the Loonkars had also sought relief of appointment of Court
Receiver of certain projects of the firms pending arbitration. This group had
also taken up contention qua the documentation relied upon by the bank. Mr.
Kadam therefore refuted the allegations in the plaint and submitted that no
case is made out on the basis of the averments of fraud by the defendants 3
and 4. He submitted that defendants 3 and 4 were not involved in any fraud
or fabrication of documents and that no reliance can be placed on these
aspects urged by the plaintiff.
4 [2007] EWCA Civ 261
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CONCLUSIONS :
52. It is in this background that I am required to consider (i) the
jurisdiction of this court to grant relief given the statutory provisions and the
general bar that operates against the civil court entertaining claims pertaining
to subject matters, which are expressly provided for under two Statutes,
namely, Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(RDDBFI Act) and Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act), and this I propose
to do after considering the law on the subject; firstly, on the aspect of
"jurisdiction", then on the aspect of "fraud" and "implied authority of
partners".
53. The plaintiff's case in the present suit is two fold; first, that by virtue of
the family settlement / MOUs, the defendants forming part of the Ramesh
Group, which includes Sumer Corporation and Sumer Buildcorp, were not
entitled to borrow funds from the bank without the express consent of the
plaintiff. The Loonkars' case is similar. By virtue of the proposed division of
assets and businesses, it is contended that the plaintiff would be relieved of all
liabilities in relation to the businesses falling part of the Ramesh Group and
hence no liability can be foisted upon the plaintiff, as now proposed by the
bank by filing the Original Application and by invoking provisions of the
SARFAESI Act. The second line of opposition to the bank's efforts to make the
plaintiff and/or his interest in the businesses liable is sought to be resisted by
contending that his consent has not been obtained for seeking TL-I or TL-II.
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This attempt he supports by urging that the letters of authority form the basis
of the plaintiff being impleaded in the DRT proceedings and the notice being
issued under the SARFAESI Act. An attempt is thus made to establish the
weaknesses of the bank's case and that of the contesting defendants by
demonstrating that the signatures of the plaintiff have been forged on these
LOAs. These LOAs form the backbone of the bank's case against the plaintiff
and the Loonkars. Quite apart from the fact that the plaintiff continues to be a
partner in the firms in question, specific knowledge of the borrowings under
TL-I and TL-II are sought to be attributed to the plaintiff by virtue of his
having executed the LOAs. It is the plaintiff's case that these LOAs were never
signed by him. His signatures have been forged, that the LOAs are fabricated
and therefore a fraud has been perpetrated by such forgery. According to the
plaintiff, this is not a contractual fraud. The fraud is in the forgery. The
plaintiff does not venture to allege that any one person has forged his
signature. The attempt is to show that the plaintiff has not signed these LOAs
and he is unaware of who has purportedly signed in his name. He has denied
his signatures on the LOAs and has sought to demonstrate that he has been
consistently opposing reliance upon these LOAs.
54. My attention has been invited to the provisions of the MOU dated 25 th
September 2014 and the Supplemental MOU dated 8 th December 2015. The
first MOU is between the Loonkars as parties of the first part, the Ramesh
Group as parties of the second part and the Bharat Group consisting of the
plaintiff and his son as parties of the third part. The effect of the MOU is to
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relieve the plaintiff's group of liability of the partnership firm and to obtain a
clean discharge from liability to creditors in terms of the settlement. It also
provides for execution of retirement deeds in respect of Sumer Builders and
for retention of the retirement deed and other documents in escrow. The
contesting defendants are meanwhile permitted to raise finances to the extent
of about hundred crores on the understanding that neither the Loonkars or
the Bharat Group shall be personally liable for the loans raised by the firm
Sumer Builders. The firm is thus allowed to borrow to that extent. The
settlement also contemplates that the contesting defendants shall not avail of
any other secured / unsecured loans beyond the aforesaid sum of one
hundred crores. It is this aspect that is said to have been breached by the
contesting defendants by availing of TL-I and TL-II.
55. Having executed the MOUs, it is contended that the contesting
defendants were duty bound to ensure that these terms are observed and it is
in this behalf that the arbitration proceedings have been commenced by the
plaintiff before a Sole Arbitrator in terms of the MOUs. In view of the
covenants on behalf of the contesting defendants not to raise any further
secured or unsecured loans, the plaintiff have alleged breach of the obligation
to perform the terms of the MOU and as a result of which breach the bank
has now initiated proceedings including against the plaintiff. The plaintiff is
therefore prima facie justifiably aggrieved at the conduct of the contesting
defendants. All counsel before me have cited law primarily on the aspect of
jurisdiction and to some extent on the liability of the plaintiff as a partner of
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the firm. I shall shortly deal with those aspects and as applicable to the facts of
the present case prior to coming to a decision on relief if any that is required
to be granted. Presently it is appropriate that one considers the factual aspects.
56. The plaintiff has relied upon a compilation of documents dated 8 th
September 2021 which is said to contain forged LOAs. These are divided into
two sections; one in relation to TL-I and the second in relation to TL-II. As can
be seen from the compilation, there is a LOA dated 22 nd June, 2016 in relation
to Sumer Corporation. There is also a similar LOA of the same date in relation
to Sumer Builders. According to the plaintiff, the version of the LOA dated
22nd June 2016 in relation to Sumer Corporation appearing at Exhibit-F to the
additional affidavit-in-reply dated 28 th July 2021 of the bank is a different /
cured version of the earlier document of the same date. A comparison of these
two LOAs reveals that it is in respect of a term loan of Rs.150 crores
sanctioned by the bank under facility letter bearing
no.YBL/MUM/FL/0243/2016-2017. This reference number is common in
both letters of authority. Thus it is clear that this LOA pertains to TL-I under
facility letter bearing distinctive no.0243. Prima facie, the two LOAs appear to
be identical, but there are differences. For one, while the contents appear the
same, the "cured" version of the LOA contains a rubber-stamp of Sumer
Buildcorp Pvt. Ltd. against the signature of one "Kunal". Thus, doubts are
sought to be cast on the reason why there are two different versions and this
alludes to fabrication of the letter. Quite apart from the fact that the plaintiff's
case is that he has not signed the LOAs, both versions of LOAs are denied by
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him in terms of content and in terms of his signature appearing thereon. My
attention is also invited to a different LOA of the same date, which is said to be
annexed to the Supplemental Deed of Mortgage dated 2 nd November 2016.
This version of the LOA bears the same date but it is handwritten and on top
of the page. The signatories to this LOA are Ramesh Shah, Manakchand
Loonkar, Rahuul Shah, all for Sumer Corporation. Ramesh Shah is seen to
have executed this LOA on behalf of Sumer Buildcorp Pvt. Ltd. as authorized
signatory; whereas the plaintiff and Mahendra Loonkar and Deepak Shah
have executed it individually. First two versions of the LOA authorized
Ramesh Shah and Rahuul Shah to execute agreements, deeds, securities and
indentures "singly". This third version forming part of the Deed of Mortgage
authorizes Ramesh Shah and Rahuul Shah to execute these documents
"severally". Thus, not only is the letter different in terms of content and the
order of signatories, there is a blank against the date which has entered in
hand in the earlier versions of this LOA.
57. In relation to TL-I, there is also a LOA dated 22 nd June 2016 on behalf
of Sumer Builders-defendant no.9 and there are two versions of this LOA. The
first version while making reference to the same facility letter authorizes the
signatory to execute various documents "severally". The signatory is only one.
Thus there is no question of authorizing two or more persons severally. This
LOA is signed for Sumer Builders by five persons; by Ramesh Shah,
Manakchand Loonkar, Pawan Ramesh Shah, Mahendra Loonkar and
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purportedly by the plaintiff himself. While the place of execution is
mentioned as Mumbai, the date is blank.
58. I will now deal with TL-II. My attention has been drawn to three
versions of this LOA dated 29 th September 2017 pertaining to TL-II. The first
of these is Exhibit-W at page 204 of the plaint. The second at Exhibit-D to an
affidavit-in-rejoinder dated 26th April 2021 on behalf of the plaintiff and the
third as Exhibit II-2 at page 291 of the plaint and as annexed to the Deed of
Mortgage dated 5th December 2018. The number of the facility letter in this
LOA is seen to be YBL/MUM/CF/FL/0224/2017-18 and it also refers to "all
addendums thereto". Thus, in the second version, apart from the rubber-
stamp, the letters are identical. The third version of the LOA purportedly
dated 29th September 2017 is part of the Original Application filed in the
DRT. It is said to be Exhibit-G to the OA and in this LOA, the description of the
facility letter is different as stated above. Secondly, there is a rubber-stamp of
Sumer Buildcorp that appears against the name Sumer Buildcorp Pvt. Ltd. and
the signature of one Kunal, which rubber stamp is not seen in the Version-1
of this LOA. Moreover, the letter also is a different print-out.
59. The description of signatories on behalf of Sumer Corporation are also
differently located. Pertinently, this letter purports to jointly authorize the
signatories mentioned in the first table of the LOA, but it contains only one
name and that is of Rahuul Ramesh Shah. There is no second signatory. There
is also no mention of authorization singly or severally, as in the case of TL-I.
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More importantly, however, the signatures of Deepak Ramesh Shah and
Ramesh Sumerlal Shah appear in different locations in this version of the
LOA. Thus clearly, these are different versions. The next version said to be the
cured version of the earlier document appears at page 882 of the additional
affidavit-in-reply dated 28th July 2021 on behalf of the bank. Having reached
this conclusion, the question is whether any relief can and should be granted.
60. The plaintiff has relied upon Mardia Chemicals Ltd. & Ors. Vs. Union
of India & Ors.5, along with connected matters, to support his case on
jurisdiction. It is contended that the court had observed that to a very limited
extent, jurisdiction of the civil court can be invoked and Mr. Tulzapurkar has
sought to fit his case within the limited scope of interference by a civil court.
In paragraph 51, the Supreme Court observed thus :-
"51. However, to a very limited extent, jurisdiction of the civil court can
also be invoked, where for example, the action of the secured
creditor is alleged to be fraudulent or his claim may be so absurd
and untenable, which may not require any probe whatsoever or to
say precisely to the extent the scope is permissible to bring an
action in the civil court in the case of English mortgages. .........
"22. The remedies of a mortgagor against the mortgagee,
who is acting in violation of the rights, duties and
obligations are two fold in character. The mortgagor
can come to the court before sale with an injunction
for staying the sale if there are materials to show that
the power of sale is being exercised in a fraudulent or
improper manner contrary to the terms of the
mortgage. But the pleadings in an action for
5 (2004) 4 SCC 311
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restraining a sale by mortgagee must clearly disclose a
fraud or irregularity on the basis of which relief is
sought. ....."."
61. The scope of interference contemplated by Mardia Chemicals is
therefore clear. It contemplates a civil court exercising jurisdiction in matters
in respect of which no action may be taken under the SARFAESI Act a
subsequent to the invocation of jurisdiction. No doubt, Mardia has also held
that financial institutions and lenders are required to act fairly and in good
faith and that there has to be fair dealing between the parties. They cannot be
relieved from an obligation of fair dealing and effectively what is
contemplated by the court is that borrowers cannot be left without a remedy
if they have been wrong or subjected to unfair treatment and in violation of
the terms and conditions of a contract. The borrowers are entitled to plead
deficiencies on the part of the bank and the financial institutions. Paragraph
80 of the Mardia Chemicals deals with the procedural aspects of action to be
taken under the SARFAESI Act after a notice under Section 13(2) has been
issued. It deals with steps post-notice that a lender takes.
62. After dealing with the effect of measures under Section 13(4) and the
consequence of such measures having been adopted, the Supreme Court held
that it will be open to maintain a civil suit in a civil court "within the narrow
scope and on the limited grounds on which they are permissible in matters
relating to an English mortgage enforceable without intervention of the
court". The emphasis here is on the maintainability of an action in a civil
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court on the matters pertaining to enforcement of an English mortgage, which
a lender may enforce without the intervention of court. The court also held in
paragraph 81 that the borrowers in the facts of that case would get
reasonably a fair deal and opportunity to get the matter adjudicated before
the DRT. The court was conscious of the fact that some of the provisions of the
SARFAESI Act may be harsh on some borrowers, but the court found that the
action of the banks could not be categorized as unconstitutional. Thus, while
upholding the validity of the Act, except for sub-Section (2) of Section 17,
which was declared as ultra vires Article 14, in Mardia Chemicals, the court
has left a small opening in the window to permit an applicant-borrower to
make an attempt at obtaining relief from a civil court.
63. Nahar Industrial Enterprises Ltd. Vs. Hong Kong and Shanghai Banking
Corporation6, along with connected matters, had occasion to consider
whether the DRT was to be treated as a civil court and observed that if it were
to be a civil court, a debtor or even a third-party must have an independent
right of approaching the DRT without waiting for a bank or a financial
institution to lodge a claim. It also contemplates the fact that a counter-claim
would be dependent upon the bank or institution continuing with its claim,
but in no uncertain terms holds that declaratory relief cannot be sought by a
debtor before the DRT. Although a claim for damages may be maintainable,
that would be more in the nature of a counter-claim and that the focus of
proceedings before the tribunal is on the recovery of a debt(s) due to banks
6 (2009) 8 SCC 646
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and financial institutions. Thus, this is one other aspect that needs to be
considered in the present case as to whether the DRT is competent to deal
with the allegations in the plaint in the right spirit and grant reliefs. In
paragraph 85 of Nahar Industrial Enterprises Ltd. (Supra) , the Supreme Court
observed thus :-
"85. If the Tribunal was to be treated to be a civil court, the debtor or
even a third party must have an independent right to approach it
without having to wait for the bank or financial institution to
approach it first. The continuance of its counterclaim is entirely
dependent on the continuance of the applications filed by the
bank. Before it, no declaratory relief can be sought for by the
debtor. It is true that claim for damages would be maintainable,
but the same have been provided by way of extending the right
of counterclaim."
64. The court also went on to consider the difference between civil courts
and courts trying disputes of a civil nature. It observed that only because a
court or a tribunal is entitled to determine an issue involving a civil nature,
that itself would not lead to a conclusion that it is a civil court and that legal
fiction requires to be put into play before it could have all the attributes of a
civil court. That a tribunal could have been treated as civil court if it could
pass decrees, but in case of a DRT, it issues recovery certificates and it does not
have all the attributes of a civil court. In effect, providing for a trial following
the procedure laid down in the Code of Civil Procedure and in compliance
with the rules of evidence under the Evidence Act, the court was disinclined
to adopt the doctrine of purposive construction to confer additional
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jurisdiction on a DRT. The issue in that case being the proposed transfer of a
case from a civil court to a tribunal. In the case at hand, Nahar Industrial
Enterprises Ltd. (Supra) can come to the assistance of the plaintiff to the extent
that the plaintiff cannot approach the DRT independent of the bank's O.A.
since the reliefs sought in the suit are a result of the O.A.
65. In State Bank of India Vs. Sagar s/o. Pramod Deshmukh and Ors. 7, a
Single Judge of this court, while considering rejection of a plaint under Order
VII Rule 11(d) of the CPC, came to the conclusion that burden of proving that
jurisdiction of a court is excluded in a particular case, is on a party that
raising such a contention. While considering the test to determine ouster of
jurisdiction of a civil court, the court observed that the extent of jurisdiction
of DRT under Section 17 of the Act would determine the extent of exclusion
of jurisdiction of the civil court to decide a dispute and that the normal
jurisdiction of a civil court cannot be invoked to defeat the rights of a secured
creditor under Section 13. To prevent jurisdiction being exercised by the DRT
under Section 17 in view of the bar of jurisdiction created under Section 34 of
the Act. The plaintiff in that case had filed a suit for declaration, partition,
separate possession and an injunction and in a case where the plaintiff had
filed a suit seeking reliefs in two parts; first for a declaration that the action
proposed to be taken by a bank to take possession of suit property and sell the
same was arbitrary and illegally and void ab initio and a second for a
declaration that such action of the bank was not in pursuance of the
7 2011(3) Mh.L.J. 71
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provisions of a SARFAESI Act. In that context, the court held that the
jurisdiction of a civil court to entertain and try a special civil suit for a
declaration, that creation of a mortgage in respect of the suit property was
fraudulent, is not barred by Section 34 of the Act.
66. In Sagar Deshmukh (Supra), the suit claimed partition and separate
possession along with the declarations as aforesaid and also sought a
permanent injunction. The court held that once a civil court has jurisdiction
to entertain and try a suit claiming some of the reliefs and the bar under
Section 34 of the Act does not apply, then the power of the civil court to grant
a permanent injunction on its own merits on the touchstone of the provisions
of Section 38 of the Specific Relief Act cannot be ousted and if a civil court has
jurisdiction to grant permanent injunction, then the power of granting a
temporary injunction under Order 39 read with Section 151 of the Code also
cannot be barred by Section 34.
67. Sagar Deshmukh also considered Mardia Chemicals (Supra) and in
paragraph 33, the court summed up the position observing that the
jurisdiction of the civil court to entertain and try a suit or proceedings in
respect of property which is subject matter of security interest is barred only
to the extent the Debt Recovery Tribunal or the Appellate Tribunal is
empowered to determine under that Act. Those aspects which do not fall
within the jurisdiction of the DRT or Appellate Tribunal under Sections 17
and 18 and are not ousted or barred under Section 34 of the Act would still be
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available for the civil court to act upon and exercise jurisdiction and the real
test to ascertain whether jurisdiction of the civil court under Section 9 is
ousted or not would be to ascertain whether the DRT under Section 17 is
empowered to hold an enquiry on a particular question and to grant relief in
respect thereof. Considering this aspect in the instant case, the question is
whether the declaration sought in the suit can be granted by the DRT.
Alternatively, I may construe the relief sought in the present suit as a prayer
to discharge the plaintiff from liability to the extent it concerns TL-I and TL-II
and/or the demand based on the facility letters. This relief could be granted de
hors the declaration and that in my view would be the real test in the facts of
the present case. Moreover, to the extent the plaintiff seeks relief against the
partner of the defendant no.2 and the other group entities, the ratio in Sagar
Deshmukh (Supra) offers some help. More recently, a Division Bench of this
court has in the case of Bank of Baroda Vs. Gopal Shriram Panda and Anr. 8
considered a reference on the following question :-
"Whether the jurisdiction of a Civil Court to decide all the matters of
civil nature, excluding those to be tried by the Debts Recovery
Tribunal under Section 17 of the Securitisation Act, in relation to
enforcement of security interest of a secured creditor, is barred by
Section 34 of the Securitization Act ?"
8 2021 SCC OnLine Bom 466
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68. This question came to be framed after noticing the difference of
opinion in the judgment of State Bank of India Vs. Jigishaben Sanghavi and
Ors.9 and State Bank of India Vs. Sagar s/o. Pramod Deshmukh and Ors. 10, to
which I have just made reference. In Jigishaben Sanghavi, the court was faced
with a situation where immovable property - a residential flat was mortgaged
with a bank as security by the Karta of the HUF and on default by the
borrower, an application was filed before the DRT for recovery. It was
allowed and in recovery proceedings, the flat came to be attached.
Subsequently, notice under Section 13(4) of the SARFAESI Act was issued. That
came to be questioned in a writ petition, which was dismissed by the Gujarat
High Court. Appeal also came to be dismissed. Thereafter a suit came to be
instituted by the respondent claiming that they have right and interest in the
property and claiming that an action on the part of the bank was illegal and
there was no valid mortgage or security interest in favour of the bank to the
extent it concerns the plaintiff. An application was filed for rejection of the
plaint under Order VII Rule 11(d). That application was rejected in view of
the bar under Section 34. An appeal came to be filed, which held that the bar
under Section 34 applied and once the matter was of a nature that could be
decided by the DRT or the Appellate Tribunal, civil court could not entertain a
suit. The facts of the matter revealed that the plaintiff's grievance was in
respect of validity of the mortgage, which was executed by the Karta and the
action of the bank under SARFAESI, it was held that the suit was barred by
9 2011(2) Mh.L.J. 342
10 2011(3) Mh.L.J. 71
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Section 34 of the SARFAESI Act. It was also held that a borrower or a third-
party cannot be permitted to defeat or render nugatory provisions of the Act
by stray references to the allegations of fraud or systematic fraud.
69. As against this, in Sagar Deshmukh, the suit was for a declaration,
partition and separate possession and a permanent injunction has been
sought, as already dealt with above. Review of the summary of the decision,
the Division Bench deciding the reference found that it was necessary to
determine nature, scope and ambit of the jurisdiction of the DRT under
Section 17 of the RDDB Act read with provisions of Sections 13 and 17 of the
SARFAESI Act. The nature of the claims and proceedings it is entitled to decide
in juxtaposition to the jurisdiction of a civil court under Section 9. After
considering the law on the subject and as dealt with in various judgments, the
court answered the question in paragraph 27 thus :-
"Answer :
The answer, looking to the nature of the question, in our view, is in parts :-
(A) Jurisdiction of the Debts Recovery Tribunal to decide all matters
relating to Sections 13 and 17 of the SARFAESI Act, is exclusive.
(B) In all cases, where the title to the property, in respect of which a
'security interest', has been created in favour of the Bank or
Financial Institution, stands in the name of the borrower and/or
guarantor, and the borrower has availed the financial assistance, it
would be only the DRT which would have exclusive jurisdiction to
try such matters, to the total exclusion of the Civil Court. Any pleas
as raised by the borrowers or guarantors, vis-a-vis the security
interest, will have to be determined by the DRT.
(C) The jurisdiction of the Civil Court to decide all the matters of civil
nature, excluding those to be tried by the Debts Recovery Tribunal
under Sections 13 and 17 of the SARFAESI Act, in relation to
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enforcement of security interest of a secured creditor, is not barred
by Section 34 of the SARFAESI Act.
(D) Where civil rights of persons other than the borrower(s) or
guarantor(s) are involved, the Civil Court would have jurisdiction,
that too, when it is prima facie apparent from the face of record that
the relief claimed, is incapable of being decided by the DRT, under
Section 17 of the DRT Act, 1993 read with Sections 13 and 17 of the
SARFAESI Act.
(E) Even in cases where the enforcement of a security interest involves
issues as indicated in Mardia Chemicals (supra) of fraud as
established within the parameters laid down in A. Ayyasamy (supra);
a claim of discharge by a guarantor under Sections 133 and 135 of
the Contract Act [Mardia Chemicals (supra)]; a claim of discharge
by a guarantor under Sections 139, 142 and 143 of the Contract
Act; Marshalling under Section 56 of the Transfer of Property Act
[J.P. Builders (supra)]; the Civil Court shall have jurisdiction.
(F) Examples, as indicated in para 22.3, are illustrative of the Civil
Court's jurisdiction.
(G) The principles laid down in para 33(i) to (ix) 11*sic of Sagar Pramod
Deshmukh (supra) are in accordance with what we have discussed
and held above.
70. In effect, the plaintiff has placed reliance on sub-para (c) of paragraph
27 in which the court held that Section 34 does not prohibit a civil court from
exercising jurisdiction to decide matters of a civil nature, which could not be
tried by the DRT under Sections 13 and 17 of the SARFAESI Act. Thus, the
plaintiff relies upon this aspect which has specifically considered the
applicability of the SARFAESI Act and the power of the DRT to decide certain
questions under that Act. The Division Bench approved of the principles laid
down in paragraphs 33(i) to 33(xi) of Sagar Deshmukh . Thus, what we have
11 *sic 33(i) to 33(xi)
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here is a reiteration of the principle that there is no bar against a civil court
exercising jurisdiction in matters pertaining to the claims filed by banks and
financial institutions under the SARFAESI Act or for that matter under the
RDDB Act in absolute terms. The ascertainment of jurisdiction would depend
upon the powers of the DRT, the Appellate Tribunal under those specific
special statutes and where the DRT or the Appellate Tribunal is not competent
to exercise jurisdiction under provisions of those Acts, Section 9 of the Code of
Civil Procedure will enable a civil court to decide such excluded aspects.
Thus, the warrant to exercise jurisdiction in a civil suit would be to the extent
of the exclusions from jurisdiction of the DRT or the Appellate Tribunal. Put
differently, those aspects which the DRT or the Appellate Tribunal cannot
decide under the RDDB Act and the SARFAESI Act may form subject matter of
a civil suit and a civil court is not prohibited from considering such claims,
which were declaratory or howsoever else similarly described. This is in order
to identify a fulcrum at which point the civil court could exercise jurisdiction,
one would have to examine the subject matter not merely in terms of its
immediate description. One would also have to consider the effect of an
improper description or misdescription and ascertain what the real
controversy is between the parties. If after this exercise, it is found that the
reliefs sought cannot be granted by the DRT or the Appellate Tribunal, such
an aspect could form part of a claim by way of a civil suit. Needless to
mention, the dispute will have to be of a civil nature and one will have to
ascertain the essence of the dispute rather than its form. In the facts of the
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present case, I find that the relief being sought by the plaintiff is to prevent
the bank from making any claim against him personally on the basis of the
LOAs and on the interest that the plaintiff holds in the properties of the firm,
which are subject matter of the two mortgages that were created to secure the
term loans.
71. The Original Application may not seek to hold the plaintiff personally
liable, but the consequent issuance of notice under Section 13(2) of the
SARFAESI Act and the proposal to declare him a willful defaulter will
probably be bordering on personal liability as well. The question to be
considered is whether the reliefs sought in the interim application can be
granted at this stage by this court and are in the facts of the case required to
be granted. On the aspect of jurisdiction, I have no doubt that the declaration
sought do not prima facie appear to be ones that DRT can grant. To that
extent, I do not find that the jurisdiction of this court will be barred on
principles that have been laid down in the aforesaid judgments. However, the
question is whether the facts of the case would justify exercise of jurisdiction.
The plaintiff's case is premised on alleged forgery and therefore, fraud
sourced from collusion between the plaintiff's partners and the bank and its
officials.
72. On behalf of the bank, Mr. Andhyarujina has placed reliance on
Mardia Chemicals, Bank of Baroda (Supra) and also the decisions in Padma
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Ashok Bhatt Vs. Orbit Corporation Ltd. and Ors. 12, T. Arivandandam Vs. T.V.
Satyapal and Anr.13 and the case of Rentworks India Pvt. Ltd. Vs. Small
Industries Development Bank of India 14. Mr. Andhyarujina has laid stress
upon the fact that the DRT not being a court subordinate to the High Court in
the exercise of its ordinary original civil jurisdiction, the High Court cannot
injunct the bank from prosecuting a proceedings in DRT. Reliance was placed
on Section 41(b) of the Specific Relief Act and to the effect that injunction
cannot be granted to restrain person from prosecuting a proceeding in a court
that is not subordinate to the one from which injunction has sought.
Reference was also made to the decision of the Supreme Court in Cotton
Corporation of India Ltd. Vs. United Industrial Bank Ltd. 15, in which the court
had held that no injunction could be granted restraining prosecution of a
proceeding which was otherwise not permissible under Section 41(b) of the
Specific Relief Act and the argument that the court had inherent power to
issue such an injunction came to be rejected. On facts however what the
plaintiff seeks in the present case is that the partners / contesting defendants
be restrained from raising further loans with liabilities being foisted on the
plaintiff upon the LOAs and the creation of the mortgage and a notice under
SARFAESI Act. The DRT, in my view, cannot grant some of the reliefs claimed
in the plaint and IA. Such reliefs may only be granted by a civil court. Having
come to the above conclusion on the aspect of jurisdiction and before
12 2017(6) Mh.L.J. 102
13 (1977) 4 SCC 467
14 2014 SCC OnLine Bom 258
15 (1983) 4 SCC 625
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considering whether any relief is liable to be granted in the facts of the
present case, it would be appropriate that one considers the aspects of fraud
and the implied authority of partners.
73. The bank's version, as set out in the affidavit dated 23 rd March 2021, is
that for Term Loan-I (TL-I) and Term Loan-II (TL-II), mortgages were created
in respect of projects at Catholic Colony, Bandra and Tower-3 of Sumer
Trinity Vertical Project. Certain documents in respect of these two Terms
Loans were executed between 29 th June 2016 and 6th December 2018, which
are reproduced below in a tabulated form for ease of reference.
TERM LOAN - I
Sr. Annexed
Description of Document Date of Execution
No. to the IA
Demand Promissory Note executed by
1 defendant no.2 in favour of defendant no.1- 29th June 2016 Exhibit-H
bank.
2 Letter of Continuity for the aforesaid DPN. 29th June 2016 Exhibit-I
Deed of Undertaking of Shortfall executed
3 12th July 2016 Exhibit-J
by defendants 3, 4 and 8.
Deed of Mortgage in respect of Catholic
4 Colony Project executed by defendants 2 28th September 2016 Exhibit-F
st
and 8 in favour of the 1 defendant-bank.
Deed of Guarantee executed by defendants
5 6th October 2016 Exhibit-K
3, 4 and 8
Deed of Pledge of shares of defendant no.8
and Sumer Radius Realty Pvt. Ltd. held by
6 6th October 2016 Exhibit-L
defendants 3 and 4 in favour of defendant
no.1-bank.
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TERM LOAN - I
Sr. Annexed
Description of Document Date of Execution
No. to the IA
Supplemental Mortgage Deed in respect of
Tower-3 of Sumer Trinity Vertical Project
7 2nd November 2016 Exhibit-G
executed by defendants 2 and 9 in favour of
the 1st defendant-bank.
TERM LOAN - II
Sr. Annexed
Description of Document Date of Execution
No. to the IA
Demand Promissory Note executed by
1 defendant no.2 in favour of defendant no.1- 30th October 2017 Exhibit-N
bank.
2 Letter of Continuity for the aforesaid DPN. 30th October 2017 Exhibit-O
Deed of Mortgage in respect of Catholic
Colony Project and Tower-3 of Sumer
3 Trinity Vertical Project executed by 5th December 2018 Exhibit-M
st
defendants 2, 8 and 9 in favour of the 1
defendant-bank.
Deed of Guarantee executed by defendants
4 6th December 2018 Exhibit-P
3, 4 and 8
Deed of Pledge of shares of defendant no.8
and Sumer Radius Realty Pvt. Ltd. held by
5 6th December 2018 Exhibit-Q
defendants 3 and 4 in favour of defendant
no.1-bank.
74. It is contended that the 1st defendant-bank received certain documents
on the basis of which term loan facilities were granted. Those documents are
described below :-
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TERM LOAN - I
Sr. Annexed
Description of Document Date of Execution
No. to the IA
Resolution passed by the Board of Directors
of defendant no.8 approving creation of
1 mortgage in Catholic Colony Project and 22nd June 2016 Exhibit-S
authorizing to execute documents on behalf
of defendant no.8.
Letter of Authority issued by defendant no.2
2 for availing TL-I and authorizing to execute 22nd June 2016 Exhibit-R
documents on behalf of defendant no.2.
Letter of Authority issued by defendant no.9
approving creation of mortgage in Tower-3
3 22nd June 2016 Exhibit-T
and authorizing to execute documents on
behalf of defendant no.9.
TERM LOAN - II
Sr. Annexed
Description of Document Date of Execution
No. to the IA
Resolution passed by the Board of Directors
of defendant no.8 approving creation of
1 mortgage in Catholic Colony Project and 29th September 2017 Exhibit-V
authorizing to execute documents on behalf
of defendant no.8.
Letter of Authority issued by defendant no.2
for availing TL-II and authorizing to
2 29th September 2017 Exhibit-U
execute documents on behalf of defendant
no.2.
Letter of Authority issued by defendant no.9
approving creation of mortgage in Tower-3
3 22nd June 2016 Exhibit-W
and authorizing to execute documents on
behalf of defendant no.9.
75. The 1st defendant-bank (the bank) has relied upon certain facts
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admitted by the plaintiff such as (a) defendant no.2 availed of both the term
loans from the 1st defendant-bank; (b) Rs.199 crores had been disbursed to
defendant no.2; (c) defendant no.2 had failed to repay the amount with
interest and; (d) the bank had filed an Original Application, Miscellaneous
Application and Interim Application in Debt Recovery Tribunal-II, Mumbai
against defendant no.2. On 13 th July 2019, the bank issued notice under
Section 13(2) of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act).
76. According to the deponent, the suit is not maintainable since it is
intended to stall the DRT and SARFAESI proceedings. The plaintiff is trying to
avoid submitting to jurisdiction of the DRT. It is also contended that the suit is
barred by the law of limitation. Since the mortgages were created in
December 2016 and January 2017 and had been publicly notified on the
website of the Ministry of Corporate Affairs, the plaintiff had constructive
notice of the same. Moreover, the suit is filed seven months after notice under
the SARFAESI Act and 3½ years after the defendant no.2 availed of the loan.
77. The plaintiff is also "feigning ignorance" of the Balance Sheet filed with
the Registrar of Companies and noting of charges or encumbrances by the
Sub-Registrar of Assurances, which are a matter of record from 2016.
Furthermore, an independent Audit Report dated 27 th October 2017 in
respect of defendant no.2 has been on record and to the knowledge of the
plaintiff, since the plaintiff is deemed to have constructive notice of the same.
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It is also contended that the suit is barred by virtue of the arbitration
agreement between the partners, as embodied in the Deed of Reconstitution of
Partnership dated 29th March 2015. Defendant nos.6 and 7 - Loonkars have
already filed Commercial Arbitration Petition No.44 of 2020 under Section 9
of the Arbitration and Conciliation Act, 1996, wherein the grievance pertains
to the loans raised in breach of the partnership agreement and claiming that
the signatures of the Loonkars have been forged. The deponent has denied any
collusion of the bank or its officers. The allegations of conspiracy, forgery or
fraud have been denied on the basis that these are all vague allegations.
According to the deponent, the bank had advanced TL-I and TL-II after
conducting due diligence and obtaining all documents and approvals.
78. Defendant no.2 was specifically authorized under the Partnership Deed
to borrow facilities in the ordinary course of business. Board Resolutions and
letters of authority were obtained from defendants 2, 8 and 9 and hence the
bank was not to be blamed. The bank had also obtained End Use Certificates
from the Chartered Accountants of defendant no.2, who have certified that
the amounts disbursed were utilized for the purposes set out in the facility
letters. The bank claims to have advanced credit facilities on an arm's length
basis as a bonafide third party lender. The alleged friendship between
defendant no.3 and the former managing director and the chief executive
officer of the bank is not sufficient to establish conspiracy, forgery or fraud.
Similar allegations are also made in cases of other lenders such as SREI
Equipment Finance Ltd., Edelweiss Asset Reconstruction Ltd. and Integrated
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Spaces Ltd. The plaintiff alone will have to prove these allegations and no
such proof is forthcoming. Copies of several documents have been attached to
the affidavit, which include facility letters, photographs of certain projects,
loan agreements pertaining to the facilities, demand promissory notes, which
apparently have been signed by only one partner of the defendant no.2-
Sumer Corporation. The document described as " Deed of Undertaking of
Shortfall" is seen to be signed by defendant nos.3 and 4 on behalf of defendant
no.2-Sumer Corporation and by one Kunal Goswami-defendant no.10 on
behalf of Sumer Buildcorp Pvt. Ltd.-defendant no.8. Deed of Guarantee is also
signed by defendant nos.3 and 4 on behalf of defendant no.2-Sumer
Corporation and defendant no.10 on behalf of Sumer Buildcorp Pvt. Ltd.-
defendant no.8.
79. More particularly, what is of relevance amongst these annexures are
the copies of (i) the Letter of Authority dated 22 nd June 2016, purportedly
issued by the partners or said to have been issued by the partners of defendant
no.2-Sumer Corporation in respect of TL-I (Exhibit-R); (ii) Letter of Authority
dated 22nd June 2016 issued by defendant no.9-Sumer Builders, which is
undated, in respect of TL-I (Exhibit-T); (iii) Letter of Authority dated 29 th
September 2017 issued by defendant no.2-Sumer Corporation, which is
undated, in respect of TL-II (Exhibit-U); (iv) Letter of Authority dated 29 th
September 2017 issued by defendant no.9-Sumer Builders, which is undated,
in respect of TL-II (Exhibit-W). Reliance is also placed on the End Use
Certificates issued by four different Chartered Accountants of defendant no.2-
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Sumer Corporation apparently in respect of TL-I and TL-II, but these
certificates are bereft of any details of the expenses.
80. In view of the additional affidavit, a rejoinder is filed also to the
additional affidavit-in-reply, in which the deponent reiterates that the bank
has failed to deal with the amended portion of the application; in particular,
detailed allegations regarding forgery by defendants 3 to 5 in collusion with
the bank. The detailed allegations of forgery have not been dealt with and
serious discrepancies having been pointed out, have not been explained. All
these allegations, which are specific, are sought to be denied in one sentence.
In its rejoinder to the bank's additional affidavit-in-reply, the plaintiff has
reiterated his contention that inspection is incomplete and from whatever has
been shown, it is evident that no fraud and forgery has been perpetrated. So
also, the Loonkars' signatures had also been forged by the same person.
81. On the other hand, those transaction documents also have
interpolations in the Facility Letters dated 22 nd June 2016 and 29th September
2017. The facility letters, of which inspection was granted, contained
additions and modifications, which were different from those annexed to the
affidavit-in-reply dated 23rd March 2021. The deponent relies upon a
compilation consisting of different documents. While disputing all the
contents of the additional affidavit, the rejoinder highlights the fact that the
additional reply is filed only on the basis of records and not on the basis of the
personal knowledge. Merely relying upon general procedure of the bank is of
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no consequence. Commenting on the account opening form annexed to the
additional reply, which only shows that the Partnership Declaration is of 18 th
August 2010. Different documents bear the same date such as Letters of
Authority dated 29th September 2017 in relation to defendants 2 and 9 and to
which I have already made reference above.
82. These differences are sought to be highlighted by Mr. Tulzapurkar to
buttress his arguments that all these alterations and modifications are without
consent and knowledge of the plaintiff and no explanation is forthcoming in
relation thereto. Apart from different documents of the same dates, there are
different versions of the documents as well, as evident from the compilations
filed and sought to be demonstrated before me during submissions. The
explanations it is contended are not satisfactory. Photocopy of the document
viz. Letter of Authority dated 29 th September 2017, which is annexed to the
Original Application and to the reply affidavit at Exhibit-U, is different from
the photocopy produced at Exhibit-D to the additional affidavit. Thus, it is
contended that different versions of Letter of Authority dated 29 th September
2017 (Exhibit W to the plaint) can be seen with defendant no.9. Although
Exhibit-W is said to have contained handwritten pencil notations, which are
said to be internal, the photocopy of the original which is at Exhibit-E to the
additional affidavit-in-reply is different. No explanation is forthcoming as to
why these differ. All of this is indicative of a case of forgery and fabrication,
which calls for forensic investigation and an order directing such
investigation. The Board Resolution dated 22 nd June 2016 is also said to be
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fabricated. Handwritten pencil notings are now seen and a date which was
missing is now entered as 22nd June 2016. No explanation has been given as
to why photocopies of the same document are different from the photocopy
now produced (the document at Exhibit-S to the affidavit-in-reply of the
bank is different from Exhibit-G in the additional affidavit of the bank). That
the purported scanned version of the final documents is after curing defects is
not a satisfactory explanation.
83. Members of the Bharat Group and Loonkars are not signatories to the
loan documents. The signatories to the Demand Promissory Note are Ramesh
Shah and Rahuul Shah (defendants 3 and 4). These persons have executed the
loan documentation. None of the executants of the loan documentation have
questioned the LOAs. It is only the Bharat Group and the Loonkars that have
questioned availing of term loans based on the LOAs. It is the plaintiff's stated
case that the facts, as set out in paragraphs 58(i), (ii), (vi), (viii) and (ix) of the
plaint, setting out the provisions between defendant no.1-bank and
defendants 3 to 5-Ramesh Group have not been appropriately dealt with. The
bank had noticed actual and constructive of the fraud and forgery committed
by defendants 3 to 5. The focus of forgery is therefore upon defendants 3 to 5.
I did not find any specific allegation of forgery against the defendant no.1-
bank. It is however the contention of the plaintiff that the bank had notice of
lack of authority of defendants 3 to 5 and the financial exposure of defendant
no.2-firm through defendants 3 to 5 was concealed from the plaintiff at the
material time and the loan was not taken in the ordinary course of business.
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In paragraph 58(vi) of the plaint, the plaintiff has clearly averred that
defendants 3 to 5 forged the signatures of the plaintiff on the LOAs and used
it for illegal purposes, knowing them to be forged, which would be apparent
from the plaintiff's signatures on the Bank Verification Form and PAN Card,
which can be used for comparison of the signature of the plaintiff, which is
forged one.
84. Paragraph 58(vii) of the plaint refers to the modus operandi followed
by defendants 3 and 4, where signature of the plaintiff and other partners
have been forged and it is reiterated that the bank was aware of the MOU and
Supplemental MOU and for that reason, the offer letter required defendants 3
to 5 and defendant no.8 to own 100% interest in defendant no.2-Sumer
Corporation within eight months. Prima facie, this seems to be so, as
otherwise there is no occasion for the bank to have made this a pre-condition.
This belief is strengthened by the fact that personal guarantees were taken
only from defendants 3 and 4, since if these guarantees were sought from
others, including the plaintiff, they would have opposed the loan proposal and
therefore the implied authority principle in the partnership cannot be relied
upon. All allegations of malafides and illegal and fraudulent behaviour as
regards creation of mortgage and securities are attributed to defendants 3 and
4. The bank's complicity is urged on the basis that it had not conducted
appropriate due diligence, obtained appropriate board resolutions at the
meeting of the shareholders and it acted in concert with defendants 3 and 4
and had actual and constructive notice of illegalities or else had acted with
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gross negligence and hence these deeds of mortgage, viz. Mortgage-I and
Mortgage-II, are liable to be cancelled. This reasoning does not commend
itself to me to the extent that even considering that some of the documents
issued and obtained by the bank appear to be defective and questionable,
especially the offer letters before signatures of Mr. Sandeep Jain. Similar offer
letters bear signatures of persons purporting to be of Mr. Jain, when evidently
they are not, which, in my view, by itself does not entitle the plaintiff to all the
interim reliefs sought.
85. On the aspect of "fraud", Mr. Andhyarujina has relied upon A.
Ayyasamy Vs. A. Paramasivam and Ors. 16, more particularly paragraph 25
reproduced therein, in which the Supreme Court observed that mere
allegation of fraud simplicitor may not be a ground to nullify the effect of
arbitration agreement. That fraud goes to the validity of the contract itself.
This decision was in the background of a reference of disputes to arbitration
and allegations of fraud were made as a ground to avoid arbitration. The
court must be satisfied that the allegations are serious and complicated in
nature that it would require a court to deal with subject-matter rather than
relegating the parties to arbitration.
86. In Civil Appeal No.7005 of 2019 in the case of Rashid Raza Vs. Sadaf
Akhtar17, the court alluded to principles of law laid down which make
distinction between serious allegations of forgery and fabrication in support
16 (2016) 10 SCC 386
17 Civil Appeal No.7005 of 2019 arising out of SLP(C) No.4061 of 2019 dt. 4th September 2019
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of the plea of fraud as opposed to simple allegations. The court was referring
to the law laid down in A. Ayyasamy's case (supra) and in particular the
observation in paragraph 25, to which I have already made reference above.
The court observed that the two working tests laid down in paragraph 25 are
(1) Does this plea permeate the entire contract and above all, the agreement
of arbitration, rendering it void, or, (2) Whether the allegations of fraud
touch upon the internal affairs of the parties inter se having no implication in
the public domain. I find the second test appealing and as applicable to the
facts of the present case. The disputes between the parties have preceded
institution of the suit. They are disputes which have spread over a wider
canvass. The controversy pertaining to TL-I and TL-II and the LOAs and
Board Resolutions assailed in this suit would all fall within the larger set of
disputes. The only distinguishing factor which has caused the suit to be filed is
the involvement of the bank, the grant of loans by it after the MOUs had been
executed and MOUs have been in operation and of which specific
performance has been sought. These disputes also included the allegations of
the plaintiff and the Loonkars against the contesting defendants forming part
of the Ramesh Group. This clearly meets the test of allegations of fraud, which
touch upon internal affairs of the parties bereft of any public domain
implications. The disputes between the parties pertain to the businesses
carried on by them in partnership and within the framework of the
components which involved very same persons as shareholders and directors.
Those disputes are also subject-matter of the arbitral reference now pending
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and engaging attention of the arbitral tribunal. The dispute in this suit has
been excluded from the scope of the reference. In the present case, I am not
persuaded to hold that the aspect of forgery cannot be gone into by the DRT.
The factual matrix of the case is not so complicated such as to require this
court to conduct the trial. These aspects can be gone into by the DRT. As far as
the bank's claim is concerned, the allegations of collusion and fabrication
levelled against the bank can be dealt with in the O.A. since the plaintiff is still
a partner of the firm against which the O.A. is filed.
87. The cured version of the LOA dated 29 th September 2018 on behalf of
defendant no.2 is said to appear at Exhibit-D to the additional affidavit-in-
reply dated 28th July 2021 of the bank at page 882. This letter contains a
handwritten date of 29th September 2017. The date, month and year are
written in numericals. Clearly, this is a different document. Though it is
possible that the date was handwritten, having noticed the absence of the date
in the version of the LOA at Exhibit-G and as filed in the DRT. Save and
except for this difference, this version of the LOA seems identical to Exhibit-G
as filed in the DRT. The names of the signatories and the location of their
signatures is also identical. On behalf of Sumer Builders, the LOA at Exhibit-Z
of the plaint, Exhibit-D of affidavit-in-rejoinder dated 26 th April 2021 and
Exhibit II-4 at page 293 of the plaint are different from the version annexed
to the Mortgage Deed dated 5 th December 2018. In the version annexed in the
Mortgage Deed, there is a handwritten date of 29 th September 2017, whereas
the other version is undated. The contents also are different. The version
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annexed to the Mortgage Deed starts with the paragraph which reads "Yes
Bank Ltd. has granted credit facilities....." , whereas, the ones provided to the
plaintiff starts with the heading "Term Loan II of INR 150 crores..." . Version-I
annexed to the Indenture of Mortgage contains only two descriptive
paragraphs. The LOA annexed to the plaint contains a heading and three
operative paragraphs. Version-II contains names of two signatories who are
severally authorized to execute documents being Ramesh Shah and Rahuul
Shah; whereas Version-I provided to the plaintiff contains only the name of
Rahuul Shah although authority is given to execute documents severally.
88. In Version-I, on behalf of the Sumer Builders, the LOAs signed by
Rahuul Shah, purportedly bears the plaintiff, Manakchand Loonkar and
Mahendra Loonkar and Pawan Ramesh Shah, whereas the signature of Pawan
R. Shah described as (Mr. Pawan R. Shah although she is Mrs. Pawan R. Shah)
Pawan Ramesh Shah is missing. Thus, clearly, this version is different.
Moreover, this is on a letterhead of Sumer Builders showing the registered
office as Peninsula Corporate Park when it is the contention of the plaintiff
that the office had shifted later and the letterhead is fabricated. There is
substance in these contentions that different letters are being used by the
defendant-bank in support of their case against the plaintiff and the other
defendants.
89. My attention has also been invited to the fact that even the offer letters
appear to be altered and/or fabricated and signatures had been forged.
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Inviting my attention to the execution page / page no.20 of the offer letter of
Yes Bank, it is pointed out that one Punit Malik, Group President and MD
Corporate Finance and Sandeep Jain, Executive Director Corporate Finance
are believed to have executed the letter of offer, which was valid for
acceptance till 20th July 2016. The offer seems to be accepted on behalf of
Sumer Corporation by Ramesh Shah as partner with his name and rubber-
stamp of the firm affixed thereto, but the date is blank while the place is
shown as Mumbai.
90. The second letter of offer is valid for acceptance till 15 th November
2017. It is signed by Satya Mohapatra, Senior President Corporate Finance
and Mr. Sandeep Jain, President Corporate Finance, but apart from the change
of designation of these two persons, the signature of Sandeep Jain is very
different in the second letter of offer. This letter of offer is accepted on behalf
of Sumer Corporation apparently by Rahuul Shah on 16 th October 2017. In a
further third letter of offer, which was valid for acceptance of offer till
October 28, 2017, the signature of Sandeep Jain as President Corporate
Finance is missing. The date is however shown as 29 th September 2017. In a
second version of this third letter of offer, the portion providing for signature
of Sandeep Jain is seen to be signed by some other person "for" Sandeep Jain.
91. For ease of reference, images of those pages are reproduced below.
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92. As seen above, the date which was written as 29 th September 2017
below the signature of Mr. Rahuul Shah is now seen to be entered in numerals
as 29/09/2017; clearly indicative of alterations. It is on this basis that the
learned counsel for the plaintiff has strenuously urged before this court that
there is an obvious attempt to mislead the court and the DRT. The attempt of
the bank is to use different versions of LOAs, offer letters and other documents
to assert a claim against the plaintiff and the Loonkars as well, since in the
Loonkars' suit, the allegations are similar. When these discrepancies were
pointed out by me to Mr. Andhyarujina during the course of submissions on
behalf of the bank, Mr. Andhyarujina had no answers as to why there were
marked differences in (1) the content of the LOAs; (2) the dates; (3) the
identity of the signatories and; (4) the provision for signatories at different
locations within the said documents. Similarly in the case of the letters of
offer, the obvious absence of signatures on behalf of the bank and prima facie
evidence fabrication of the signature of Mr. Sandeep Jain, the use of the words
"for" prior to a signature, which is sought to be passed of as that of Mr.
Sandeep Jain is not explained.
93. Clearly, there is an attempt to pass off the signature appearing in the
second version of the facility letter, which was due for acceptance till 28 th
October 2017. Since the earlier version did not contain any signature above
the name Sandeep Jain, the date was also written in a different form as "29th
September 2017". The second version attempts to replicate the signatures of
Mr. Sandeep Jain from the earlier offer letters. In fact, the offer letter valid till
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15th November 2017 contains a different signature of Mr. Jain with a
different designation from that on the offer letter valid till 20 th July 2016.
94. I can understand that the designation may have undergone a change,
but the signature does not change with a designation and thirdly, the letter of
offer valid till 28th October 2017 is sought to be signed for Mr. Jain. The
signature appearing on this letter is very similar to the one appearing on the
offer letter valid till November 15, 2017. Not to mention the fact that one
version of the letter of offer valid till October 28, 2017 does not bear the
signature of Mr. Sandeep Jain at all. None of these could be explained by the
bank. Thus, prima facie, there is clearly something amiss. The question is in
the face of these obvious deficiencies and contradictory versions, the plaintiff
is entitled to reliefs sought for.
95. A forged document is non-existent qua the person whose signature is
forged and no claim can be based thereon. Thus, it is submitted that the LOAs
which were preconditions to the grant of the loan having been forged, the
loan could not have been granted in the first place and even otherwise the
plaintiff is not liable under that loan, which is not taken in the ordinary
course of business. In A.V. Papayya Sastry, the court found that the fraud
vitiates all acts and the court interferes where justice, equity and good
conscience so requires. Even a judgment, decree or order obtained by playing
fraud on the court or tribunal or authority is a nullity and non est in law and
such a judgment must be treated as a nullity by every court superior or
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inferior. It is contended that if the present Original Application is allowed to
proceed and the DRT passes an order thereon allowing the Original
Application, that judgment would be flawed inasmuch as it would be afflicted
by fraud since the very origin of the claim is on the basis of forged documents
non est in law and therefore the judgment itself would be a nullity. It is
therefore contended that the OA cannot proceed in the light of the fraud and
forgery which has been demonstrated by the plaintiff.
96. This aspect of fraud also engaged the attention of the Supreme Court in
Ram Chandra Singh, which considered the primal question of the effect of
fraud on the court. That commission of fraud on court and suppression of
material facts were core issues, wherein a fraud would vitiate every act. Fraud
could be by conduct, by letter or by words or inducing another person to take
a determinative stand. The plaintiff must prove actual fraud and fraud is
proved when it is shown that a false representation has been made knowingly
and without belief in its truth or recklessly without caring whether it be true
or false. In the instant case, it is contended that the plaintiff had not executed
the LOAs, had not consented to the grant of the term loans and the loan
having been granted is a product of the fraud played by the contesting
defendants in collusion with one another and that such an act should be
viewed seriously. Collusion and conspiracy is one aspect of fraud, which
would render the loan transaction itself void ab initio. The plaintiff has sought
to rely upon these principles to support his case that not having executed the
LOAs which contained demonstrably varying signatures which are not of the
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plaintiff, the very basis of the pre-condition has disappeared are absent such
compliance with the pre-condition which mandated an authentic LOA which
the plaintiff had never agreed to grant and did not in fact grant, the action by
the bank could not be sustained and in that light, it is appropriate that the
relief be granted since otherwise it will result in a judgment afflicted by fraud.
This, in my view, may be a good ground inter se parties, but as far as the bank
is concerned, the loan has been disbursed and its recovery can only be sought
by filing an Original Application in the DRT. The offer letters may be
questionable but no one has denied that loans were sanctioned and disbursed.
At this prima facie stage, I am unable to find material to suggest that the bank
was involved in fabricating documents originating from the borrowers.
97. The plaintiff stressed upon the fact that the defendants' affidavits are
evidence of the correctness of the plaintiff's case because the defendants had
failed to deal with the material allegations in the plaint. The affidavits filed on
behalf of the defendant-bank was full of evasive denials. True, a general
denial of facts is not enough. In Gian Chand and Brothers & Anr. Vs. Rattan
Lal @ Rattan Singh18, the court held that the onus lies on a person asserting a
particular fact to affirmatively establish it and the case at hand absent a
proper and detailed denial, the plaintiff's case must be believed. The plaintiff
had repeatedly demonstrated that his signatures appearing on the LOAs differ
from his real signature, which has by now part of the record of this court in
18 (2013) 2 SCC 606
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the plaint and affidavits-in-rejoinder. He invites the court to hold that prima
facie there has been a forgery and that is being used to his detriment.
98. The plaintiff had been consistently denying having executed the LOAs
and those denials have not been met with the evidence to the contrary. The
defendant no.1-bank was duty bound to demonstrate how and where these
LOAs were signed by the plaintiff, but no such evidence is forthcoming. The
bank has not stated that the LOA was signed in the presence of a bank's
official or whether the plaintiff signed the document in the bank or elsewhere
in the presence of a bank's official. There are no witnesses. Even the other
signatories to the LOAs being the contesting defendants do not say that the
plaintiff executed these LOAs in their presence or in the presence of any one
of them. The Loonkars, who are also defendants in this suit, had filed their
own suit wherein they also deny that they executed these LOAs. In these
circumstances, it is contended that the denial on behalf of the bank ought to
have been specific and should have made an attempt to convince the court
that the plaintiff's allegation is baseless. That not having been done, the court
is urged to view it seriously and hold that the letters are not to be acted upon
at this interim stage and pending a full-fledged trial, at which the falsity of
the bank's case would be established. The plaintiff has contended that an
evasive denial would be amounting to an admission of the fact pleaded in the
plaint. All of these aspects can be considered by the DRT as well and it is not
an aspect that only a civil court can examine.
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99. The law is laid down in Mardia Chemicals and as reiterated in A.
Ayyasamy and as considered in Bank of Baroda (Supra), was in the context
that pleadings should be sufficient enough to bring the matter within the
jurisdiction of the civil court and the allegations of fraud in the case at hand
will not prevent the DRT from exercising jurisdiction. In my view, qua the
bank, these are aspects that can be gone into by the DRT at the trial.
100. Mr. Andhyarujina has also relied upon the definition of "forgery" in
Section 463 of the Indian Penal Code and the provisions of Section 464 IPC
which deal with making of a false document. These are reproduced below for
ease of reference.
"463. Forgery :-
Whoever makes any false documents or false electronic record or
part of a document or electronic record, with intent to cause damage
or injury, to the public or to any person, or to support any claim or
title, or to cause any person to part with property, or to enter into
any express or implied contract, or with intent to commit fraud or
that fraud may be committed, commits forgery.
464. Making a false document :-
A person is said to make a false document or false electronic record-
First - Who dishonestly or fraudulently -
(a) makes, signs, seals or executes a document or part of a
document;
(b) makes or transmits any electronic record or part of any
electronic record;
(c) affixes any electronic signature on any electronic record;
(d) makes any mark denoting the execution of a document or
the authenticity of the electronic signature,
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with the intention of causing it to be believed that such document or
part of document, electronic record or electronic signature was
made, signed, sealed, executed, transmitted or affixed by or by the
authority of a person by whom or by whose authority, he knows that
it was not made, signed, sealed, executed or affixed; or
Secondly - Who, without lawful authority, dishonestly or
fraudulently, by cancellation or otherwise, alters a document or an
electronic record in any material part thereof, after it has been
made, executed or affixed with electronic signature either by
himself or by any other person, whether such person be living or
dead at the time of such alteration; or
Thirdly - Who dishonestly or fraudulently causes any person to sign,
seal, execute or alter a document or an electronic record or to affix
his electronic signature on any electronic record knowing that such
person by reason of unsoundness of mind or intoxication cannot, or
that by reason of deception practiced upon him, he does not know
the contents of the document or electronic record or the nature of
the alteration."
101. Mr. Andhyarujina submitted that these are offences pertaining to
documents and the bank is not guilty of any such offence. According to him,
the LOA was provided to the bank by the Ramesh Group members, who had
been interacting with the bank and as such there is no occasion for the bank
to indulge in any forgery. Attention was also invited to Section 467 which
deals with forgery of a document purporting to give authority to any person
to make or transfer any valuable security or to receive the principal interest
or dividends thereon. In this case also, it is contended that the defendant-bank
cannot be found liable and that under Section 470, a forged document is a
false document and an electronic record made wholly or in part by forgery.
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Only then it can be designated a forged document or electronic record. In the
present case, the bank has not indulged in any forgery. No evidence has been
produced to indicate forgery on behalf of the bank or active participation or
collusion of the bank in such forgery, nor is a bank liable under Section 474,
which deals with possession of a document described in Sections 466 or 467,
knowing it to be forged or intending it to use it as genuine. No offence is made
out under this section as well since the bank was unaware of whether or not
the signatures were forged. It has relied upon its constituent who presented
the document to it and hence no reliance could be placed on this aspect.
102. The disputes in the present case are clearly relating to the functioning
of the firms forming part of Sumer Group as a whole and the individual sub-
groups comprising of Bharat Group, Ramesh Group and Loonkars. Avitel Post
Studioz Ltd. does not take things further. Yet, in another decision of the
Supreme Court in Deccan Paper Mills Co. Ltd. Vs. Regency Mahavir
Properties and Ors.19, a Three-Judge Bench adopted the reasoning in Avitel
Post Studioz Ltd. in respect of the law and invocation of fraud etc. Besides,
there is nothing to suggest that the DRT cannot consider the plaintiff's case on
merits. A. Ayyasamy reiterates that a court while dealing with an application
under Section 8 of the Arbitration and Conciliation Act finds that there are
very serious allegations of fraud, which make a virtual case of criminal
offence or where allegations of fraud are so complicated that it becomes
absolutely essential that such complex issues can be decided only by the civil
19 2020 SCC OnLine SC 655
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court on appreciation of voluminous evidence that needs to be produced, the
court can sidetrack the arbitration agreement by dismissing the application
under Section 8 and proceed with the suit on merits. It was also contemplated
by the court that where fraud goes to the validity of the contract itself of the
entire contract, which contains the arbitration clause or the validity of the
arbitration clause itself, the contrary position is to be adopted where the
allegations of fraud are touching upon the internal affairs of the party inter se
and in this case, the disputes that have given rise to the suit clearly arose from
internal disputes between members of the Sumer Group and its sub-group.
103. A. Ayyasamy has held in paragraph 45.1 that the judgment in N.
Radhakrishnan does not subscribe to the broad proposition that a mere
allegation of fraud is ground enough not to compel parties to abide by their
agreement to refer disputes to arbitration and conscious of the fact that the
context in which the judgments were rendered were in the background of
arbitration agreement embodied in contracts and the choice of some party or
some of them to approach the civil court in a suit only to be made with an
application under Section 8. In the present case, we are not concerned with
that contextual basis but rather considering whether the disputes as set out in
the suit should be heard by civil court rather than the DRT. The suit as filed
seeks (i) a decree and declaration that the LOAs, the loan agreements and the
mortgaged documents are illegal, null and void and not binding upon the
plaintiff and are liable to be cancelled; (ii) for cancellation of the originals of
these documents listed in Exhibit-LL to the plaint; (iii) a decree for permanent
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injunction is sought once again restraining the bank from acting in
pursuance of these documents; (iv) a decree and a declaration that the
plaintiff is not liable in respect of the loans granted by the defendant no.1
and; (v) for a permanent injunction restraining bank and its officers from
taking or continuing with any steps in furtherance of the documents listed in
Exhibit-LL to the plaint or the impugned SARFAESI notice and show cause
notices. Apart from these prayers, the remaining reliefs are sought against
defendants 3 to 5. Damages are also sought in a sum of Rs.100 crores. If any
of these injunctions are granted, it will paralyze the bank's attempts to
recover monies that have admittedly been lent in advance.
104. In the course of his submissions, Mr. Andhyarujina has placed reliance
on a decision of the Supreme Court in Canara Bank Vs. Canara Sales
Corporation and Ors.20, in which the court had occasion to consider that it
deals with the relationship with the banker and customer and inter alia holds
that if an account-holder informs the bank as soon as fraud comes to his
knowledge, his claim is sustainable and negligence on the part of an account-
holder by itself is not sufficient to absolve the bank from the liability. This
decision is in the context of the relationship between a customer of a bank
and the bank as creditor and debtor. The defence of the bank on the basis of
constructive notice in general law is not sufficient to cover a relationship
between the bank and its customer. In the present case, it is contended that
the bank has been provided advance notice of the forgery and fraud and the
20 (1987) 2 SCC 666
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plaintiff's contention that he is not liable since the plaintiff had not signed the
LOAs. The import of relying upon this judgment is that the defendant no.1-
bank has been made aware of the fact that the signature of the plaintiff on the
LOAs is not genuine and hence there was no mandate for the bank to rely
upon the same and issue the loan. Having now sanctioned the loan, it is not
open for the bank to prosecute the case against the plaintiff. The bank has
proceeded on the basis of the plaintiff's signature as a genuine one, it cannot
now seek to recover the amount from the plaintiff, nor can it seek to recover
the amounts claimed by the bank by seeking to enforce the mortgage property
in which the plaintiff has an interest. The question is where else can the bank
file proceedings for recovery of the debt, which is admittedly created ? Surely,
the bank cannot be compelled to file a suit in the civil court.
105. In the present case, the plaintiff cannot be considered to be negligent
inasmuch as prima facie it has been established that he has diligently
informed the bank of the fact that the signature on the LOA is not his. What
the plaintiff seeks to do in the present case is to defend the claim of the bank
on the basis that his signature is forged. Although references have been made
to the case of London Joint Stock Bank Ltd. Vs. MacMillan21, those aspects do
not appear to be relevant in the facts of the present case since in MacMillan's
case, the court observed that the customer had dispensed with ordinary
precautions and he had complete faith in his clerk's honesty. In the present
21 [1918] A.C. 777
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case, the plaintiff has alleged forgery. There is sufficient material to show that
the plaintiff had protested at the appropriate stages. Alluding to the fact that
the MOUs placed restrictive covenants on the power of the contesting
defendants, reference was made to the decision of the Supreme Court in M.V.
Shankar Bhat and Anr. Vs. Claude Pinto 22, in which the court was considering
the clause in agreement for sale, which was subject to ratification by co-heirs.
The term "hereinafter appearing" subject to ratification by co-heirs were
sought to be interpreted and in paragraph 31, the court observed that even an
agreement is entered into subject to ratification by others, a concluded
contract is not arrived at and whenever ratification by some other persons
who were not parties to the agreement is required, such a clause must be held
to be condition precedent for coming into force of a concluded contract. In
this behalf, useful reference can be made to the case of Privy Council in
Warehousing and Forwarding Company of East Africa Limited Vs. Jafar Ali
and Sons Ltd.23 in which the Privy Council held that subject to ratification by a
principal, there would be no concluded contract until ratification had been
obtained. It was contended on behalf of the respondents that ratification by
the principal can operate back to the date when the contract was made by the
agent without the necessity of communicating to the other party but in that
case the limitation of the agent's authority was not known to the other
contracting party. In such a case, the agent contracts as principal and his
principal is bound by the ratification taking place. However, when the other
22 (2003) 4 SCC 86
23 (1964) A.C. 1
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party to the contract has intimation of the limitation of the agent's authority,
neither party can bound until ratification has been duly intimated to the other
party to the contract and that it would be contrary to good sense to hold that a
concluded contract had been made in these circumstances.
106. The effort on behalf of the bank was that the bank was unaware of the
restrictions on borrowing which were contemplated in the MOUs and
therefore the borrowing by the firm would bind all the partners. This is to be
contrasted with the contentions of the plaintiff that the bank is deemed to be
aware of these MOUs and it is for that reasons that the facility letter restricts
the signatories to that of the Ramesh Group members. Even the personal
guarantees are of the Ramesh Group members. The demand promissory note
and agreements were also signed by them. The plaintiff was never called upon
to sign these. This is prima facie indicative of the fact that the bank was aware
of the restrictive nature of the authority that the Ramesh Group enjoyed post
the execution of the MOUs. This is an aspect which in my view could be
considered by the DRT. To what extent this will assist the plaintiff in seeking
interim relief will now have to be considered.
107. One of the other key issues is whether the defendants 3 and 4 had
acted on the basis of implied authority and in this respect Sections 19 to 22 of
the Partnership Act clearly empowers defendants 3 and 4 from exercising
implied authority as long as the plaintiff continues to be a partner. It is the
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firm that had borrowed monies from the bank and there is nothing to suggest
why the plaintiff continued as a partner. The plaintiff had restricted the
implied authority. One must also consider owing to Section 20 of the
Partnership Act, whether there is a contract extending or restricting implied
authority of the partner and if one considers the MOUs, the question is
whether the implied authority of the partners was curtailed by operation of
the MOUs. One other aspect to be considered is whether the borrowing is in a
nature such that it was intended to bind the firm in a manner as
contemplated in Section 22 of the Partnership Act. Prima facie, it does appear
that TL-I and TL-II were taken by the contesting defendants prior to actual
reconstitution but during a window period that the reconstitution had been
proposed. It is in this context that useful reference may be made to Sanganer
Dal and Flour Mill Vs. F.C.I. and Ors. 24, wherein the Supreme Court found that
the partner had implied authority to conduct business on behalf of the
partnership firm and the implied authority binds all the partners. Hence,
under Section 18 of the Partnership Act, a partner is an agent of the firm for
the purposes of its business and under Section 19, an act of a partner, which
is done to carry on in the usual way the business of the kind carried on by the
firm, binds the firm. The question is whether in the instant case, the
defendants 3 and 4 have acted to carry on business of a firm "in the usual
course", which would determine whether the firm can be held liable.
24 (1992) 1 SCC 145
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108. The Supreme Court in Dr. Jiwan Lal and Ors. Vs. Brij Mohan Mehra
and Anr.25 dealt with the aspect of waiver of conditions on a part of a contract
for specific performance and the court found that Clause 6 in the agreement
had been inserted for the exclusive benefit of the vendees, who could waive
that benefit. The institution of the suit after two years did not cause any
disadvantage to the respondent. One other judgment Mr. Andhyarujina has
relied upon is in the case of Om Builders (P) Ltd. Vs. Anil Chinubhai
Kilachand and Ors.26, which once again followed M.V. Shankar Bhat and Anr.
Vs. Claude Pinto (Since Deceased) By LRs. and Ors. 27. However, on facts, the
court found that the suit contract was not subject to any conditions. Referring
to the scope of Section 41(b) of the Specific Relief Act, Mr. Andhyarujina
invited my attention to the judgment of the Full Bench of this court in Export
Credit Guarantee Corporation of India Ltd. Vs. Annamma Philips and Ors. 28,
which reiterated the position that a court cannot grant an injunction to stay
proceedings in a court not subordinate to that from which the injunction is
sought. In other words, only a proceeding in a subordinate court could be
stayed and effectively what the plaintiff is seeking is a restraint on the
proceedings in the DRT, which is not a court subordinate to the High Court.
The court also considered provisions of Section 3 of the Civil Procedure Code,
which sets out subordination of courts and holds that the District Court is
subordinate to the High Court and every Civil Court of a grade inferior to that
25 (1972) 2 SCC 757
26 2015 SCC OnLine Bom 5010
27 (2003) 4 SCC 86
28 2010(5) Mh.L.J. 659
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of a District Court and every Court of Small Causes is subordinate to the High
Court and District Court. In the present context, it cannot be said that the DRT
is subordinate to the Bombay High Court on its Original Side.
109. In the light of the above, I proceed to deal with the reliefs. In prayer (a),
disclosure on oath is being sought as to the exact nature of transactions
between defendants 1 and 3 to 5 with respect to defendants 2, 8 and 9-Sumer
Entities and for an order directing deposit of all original documents in this
court and furnishing true copies thereof to the plaintiff. I do not see any
impediment in first part of the prayer (a) of the IA being granted; however
considering the fact that the proceedings are now pending in the DRT, I am
not inclined to order deposit of original documents in this court. True copies
of all documents are already said to have been provided to the plaintiff, failing
which the plaintiff will be entitled to the same. As far as prayer seeking
injunction against the bank from proceeding on the basis of the documents
enlisted in Exhibit LL and Exhibit D to the plaint and the SARFAESI notice
dated 18th July 2019 and show cause notices dated 6th and 7th January 2020
are concerned, I am not inclined to grant any relief.
110. In the course of submissions in support of the plaint, reliance has been
placed on the Statement of Claim filed by the plaintiff, along with his son,
before the Sole Arbitrator. The array of parties in arbitration is as follows;
plaintiff and his son are the claimants and defendant nos.2, 8 and 9-Sumer
Entities, defendant no.3-Ramesh Shah, defendant no.4-Rahuul Shah,
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defendants 6 and 7-Loonkars and one Pawan Ramesh Shah are the
respondents. It describes the "Ramesh Group" as constituted by respondents 1,
2 and 5, namely, Ramesh Shah, Rahul Shah and Pawan Ramesh Shah and
their family members including Deepak Shah. It sets out the background of
family connections, the businesses and deals extensively with the Family
Settlement resulting from the MOU and the Supplemental MOU. It deals with
loans of the parties to the group concerned and transfer of assets, as proposed.
It inter alia seeks an award declaring the Family Settlement as valid, subsisting
and binding inter se. The group members seek (i) specific performance of the
Family Settlement, including disclosures on oath of sale of premises to various
entities; (ii) directions to effect transfer of shares to execute Deeds of
Conveyance; (iii) to discharge income tax liabilities and in respect of loans
and debts, the claimants require the Ramesh Shah Group to disclose on oath
complete loans and debts in the name of Sumer entities and directing to
discharge these debts save and except to the extent covered by the present
suit; (iv) to execute indemnities in favour of the plaintiff and; (v) in the
alternative, to obtain effective and valid discharge letters from banks,
creditors and financial institutions effectively discharging the claimants from
outstanding loans; (vi) for appointment of an Administrator to control the
affairs of Sumer Corporation, Sumer Builders, both partnership firms, and
Sumer Buildcorp Pvt. Ltd.
111. Thus, the plaintiff seeks comprehensive reliefs to give effect to specific
performance of the MOUs and to the proceedings for discharging the plaintiff
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from all the liabilities in terms of and as contemplated in the MOUs. No
doubt, the bank is not a party, but one must consider the effect of any award
that may be passed. The arbitration agreement has already been invoked and I
am mindful of the fact that the reliefs sought in the present suit have been
kept out of reference for the time being. As far as prayer clause (b) is
concerned, for the very same reasons that I declined to grant second part of
prayer clause (a) viz. pendency of the proceedings in the DRT, I am not
inclined to direct deposit of original documents in this court. If these
documents are forged and fabricated, the bank and the contesting defendants
will face the consequences and this is an aspect of defence, which the
plaintiff can claim in the DRT. The allegations of fraud and forgery are indeed
serious and do not appear to be an afterthought and the DRT will consider
these allegations on merits. I am however making it clear that all these aspects
urged in the plaint and in the IA qua the claims of the parties inter se are kept
open for consideration before the appropriate forum.
112. I am convinced that it is necessary to grant relief in terms of prayer
clause (c), which seeks an injunction restraining Ramesh Shah Group from
availing of any loans or any credit facilities from any banks or financial
institutions without prior written consent of all partners. These are matters
which pertain to the business relationship inter se the partners and largely
encompassed by the MOUs. The arbitral reference has excluded the issues
covered in this suit and hence it is necessary to ensure that the interest of the
plaintiff and Loonkars is protected. If this relief is not granted, there is a
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probability of further loans being obtained with consequences that can be
avoided pending resolution of all disputes.
113. Prayer clause (d) seeks a direction to the bank to deposit transaction
documents in this court, I am not inclined to grant any relief since the DRT
will continue to exercise the jurisdiction and the documents can be examined
by the DRT in the light of the facts of the case. No case is made out therefore
for directing deposit of these documents in this court.
114. I am not inclined to grant an injunction restraining the bank from
proceeding with the actions that it has initiated and hence there will be
justification in granting prayer clause (e). It will be open to the plaintiff to
make an application for examination of documents by a forensic expert
before the DRT and all the allegations in the plaint qua the bank may be
urged by the plaintiff before the DRT, which is expected to consider it on
merits.
115. Relief in terms of prayer (f) can be sought in arbitration
notwithstanding the fact that no such prayer is presently included. Moreover,
this is an aspect which pertains to specific performance of the MOUs, which
are already engaging attention of the arbitral tribunal especially since it is not
the case of any of the parties that the disputes arising out of availing of TL-I
and TL-II are beyond the scope of the arbitration under the MOUs.
116. As far as reliefs under prayer clauses (g), (h) and (i) are concerned,
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considering the view that I have taken in relation to prayer clause (a) to (e), I
do not find that a case has been made out for interference since these are
aspects which cannot be prejudged.
117. In conclusion, the plaintiff's Interim Application No.1370 of 2020
succeeds in part and I pass the following order :-
(i) The defendant no.1 and defendant nos.3, 4 and 5 are
directed to disclose on oath the particulars of all
transactions between the defendant no.1-bank and
defendant nos.3, 4 and 5 in relation to defendant nos.2, 8
and 9.
(ii) True copies of all the documents pertaining to these
transactions shall be furnished by defendant no.1-bank to
defendant nos.3, 4 and 5 to the plaintiff-applicant within
a period of three weeks from today.
(iii) Defendant nos.3, 4 and 5, both inclusive, are restrained by
interim injunction from availing of any loan / credit
facility from any bank or financial institution or any other
third-party in the name of defendant nos.2, 8 or 10
without prior written consent of all partners of defendant
nos.2 and 9 including the plaintiff and all shareholders of
defendant no.8.
118. In Interim Application (Lodging) No.5376 of 2021, the arguments
made in support of the Interim Application No.1370 of 2020 in Commercial
Suit No.319 of 2020 have been adopted in toto by Mr. Mody and in relation to
the facts of the case in Commercial Suit (Lodging) No.5374 of 2021, I have
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considered the factual matrix of the case for the reasons set out in the above
order. I find that only one prayer in the IA is liable to be granted in part and
accordingly, I pass the following order :-
(i) Pending the hearing and final disposal of the suit,
defendant no.1-bank and defendant nos.3, 4 and 5 shall
disclose on oath the particulars of all transactions
between the defendant no.1-bank and defendant nos.3, 4
and 5 in relation to defendant nos.2, 8 and 9.
(ii) True copies of all the documents pertaining to these
transactions shall be furnished by defendant no.1-bank to
defendant nos.3, 4 and 5 to the plaintiffs-applicants
within a period of three weeks from today.
119. Both the Interim Applications are allowed in the above terms.
(A.K. MENON, J.)
IA-1370-2020 & IAL-5376-2021-Order.doc
Digitally signed
SNEHA by SNEHA
ABHAY DIXIT
ABHAY
Dixit
Date:
2021.11.23
DIXIT 16:53:22 +0530
