Bombay High Court
Yes Bank Limited vs Asit Koticha And 3 Ors on 24 September, 2021
Bench: G.S. Patel
905-IAL19784-2021 IN COMSL19776-2021.DOC
Atul
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
INTERIM APPLICATION (L) NO. 19784 OF 2021
IN
COMMERCIAL SUIT (L) NO. 19776 OF 2021
Yes Bank Ltd ...Plaintiffs
Versus
Asit Koticha & Ors ...Defendants
Mr Dinyar Madon, Senior Advocate, with JP Sen, Senior
Advocate, Aditya Mehta, Nikita Mishra, Janaki Garde, &
Shamant Satiya, i/b Rashmikant & Partners, for the Plaintiffs.
Mr Ravi Kadam, Senior Advocate, with Rohan Kadam, Munaf
Virjee, Yash Momaya, & Rushabh Parekh, i/b ABH Law LLP, ,
for Defendant No. 1.
Mr Chetan Kapadia, with Yash Momaya, i/b Prashant S Goyal, for
Defendant No. 2.
Dr Veerendra Tulzapurkar, Senior Advocate, with Rajendra
Barot, & Cherul Fernandes, i/b AZB & Partners, for Defendant
No. 3.
Mr Aspi Chinoy, Senior Advocate, with Nitesh Jain, & Atul Jain,
i/b Trilegal, for Defendant No. 4.
Mr Janak Dwarkadas, Senior Advocate, with Rishika Harish,
Digitally Ravitej Chilumuri, & Mitakshi Lakhani, i/b Khaitan & Co., for
signed by
ATUL Defendant No. 5.
ATUL
GANESH
GANESH
KULKARNI
Mr Venkatesh Dhond, Senior Advocate, for Defendant No. 6
KULKARNI Date: (appearance not given).
2021.09.27
11:08:48
+0530
Page 1 of 17
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CORAM: G.S. PATEL, J
DATED: 24th September 2021
PC:-
1.
Having heard counsel, for the reasons that follow, I have
refused ad-interim relief.
2. The final prayers in the Suit are:
"(a) That this Hon'ble Court be pleased to direct
Defendant No. 1 to forthwith deposit and/or remit the
Shortfall Amount of INR 379,18,20,325 (Rupees Three
Hundred Seventy Nine Crores Eighteen Lakhs Twenty
Thousand Three Hundred Twenty Five Rupees Only) as on
30th August 2021, together with interest, compound
interest, liquidated damages and other charges upon the
footing of compound interest until payment / realization,
into Defendant No. 2's account NO. 013481400000380
maintained with the Plaintiff, Bandra Branch, Mumbai, in
fulfilment of Defendant no. 1's obligation under the
Shortfall Undertaking;
(b) This Hon'ble Court be pleased to direct Defendant
No. 4, its affiliates, agents, servants, employees, officers
and/or any other person claiming through or under it to
deposit and/or remit the Transaction Consideration to the
extent of INR 379,18,20,325 (Rupees Three Hundred
Seventy Nine Crores Eighteen Lakhs Twenty Thousand
Three Hundred Twenty Five Rupees Only) into Defendant
No. 2's account NO. 013481400000380 maintained with
the Plaintiff, Bandra Branch, Mumbai;"
3. The corresponding prayers in the Interim Application at
pages 10 to 12 read thus:
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"(a) Restrain Defendant No. 1, his agents, servants,
employees and/or any other person claiming through or
under him by an order and/or injunction, from selling,
transferring or disposing of in any manner whatsoever the
shares of Defendant no. 1 in Defendant No. 3;
(b) Restrain Defendant No. 4, its affiliates, agents,
servants, employees, officers and/or any other person
claiming through or under it, by an order and/or injunction,
from paying the said Transaction Consideration to the
extent of INR 379,18,20,325, owned by Defendant No. 4
and/or its affiliates to Defendant No. 1 for the sale of
Defendant No. 1's shareholding in Defendant No. 3, to
Defendant No. 1 and/or any other person claiming under or
through him, except by way of deposit/remittance of the
same to Defendant No. 2's account no. 013481400000380
maintained with the Applicant, Bandra Branch, Mumbai;
(c) Restrain Defendant No. 1, his agents, servants,
employees and/or any other person claiming through or
under him, from utilising the funds, if any, received to the
extent of INR 379,18,20,325 from the said Transaction
Consideration from the sale of Defendant No. 1's
shareholding in Defendant No. 3, except for the purposes of
depositing/remitting the same to Defendant No. 2's
account no. 013481400000380 maintained with the
Applicant, Bandra Branch, Mumbai;
(d) Restrain Defendant No. 1, his agents, servants,
employees and/or any other person claiming through or
under him, by an order and/or injunction, from in any
manner, dealing with and/or creating any right title and/or
interest in assets of Defendant No. 1 until the Defendant
No. 1 deposits/remits the Shortfall Amount of INR
379,18,20,325 to Defendant No. 2's account no.
013481400000380 maintained with the Applicant, Bandra
Branch, Mumbai.
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(e) Direct Defendant No. 1 to disclose on oath the true
and correct status of all his assets and liabilities;
(f ) Direct the Defendant Nos. 1 and/or 3 and/or 4
and/or their respective affiliates, agents, servants,
employees, officials and/or any other person(s) claiming
through or under them to disclose on oath the full details
and particulars of the said Transaction;"
4. Today Mr Madon for the Plaintiff does not press prayer (a) of
the Interim Application. He presses prayer (b), but submits that this
may be moulded in two ways. First, that the amount claimed in the
prayer of INR 379,18,20,325/- may be reduced to whatever remains
after the sale of certain shares by the 1st Defendant to the 4th
Defendant after paying Defendants Nos. 5 and 6 (but without
accepting the 1st Defendant's case that after that sale there is no
surplus). Second, he says that instead of requiring the deposit to be
made in a designated escrow account with the Plaintiff, the amount
may be brought into Court.
5. Prayer (c) appears to be a repetition of prayer (b). It was cast
on the basis that money had already been received from the sale of
these shares by the 1st Defendant to the 4th Defendant. Prayer (d)
asks for an injunction against the 1st Defendant from using the
funds that he receives (obviously, adjusted as above) until the
deposit is made. Prayer (d) also extends to other assets of the 1st
Defendant other than the rupee deposit. Prayers (e) and (f ) are then
for a disclosure.
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6. The relevant facts run like this. The Plaintiff (" Yes Bank")
granted the 2nd Defendant ("Lily Realty") a credit facility of about
Rs. 330 crores under a Facility Letter dated 30th September 2015.
There was a Master Facility Agreement dated 29th October 2015
and a Term Loan Agreement also of 29th October 2015. The Master
Facility Agreement and the Term Loan Agreement are not annexed
to the plaint or the interim application. At Exhibit 'E' to the plaint
from page 61 is the Facility Letter. I will be considering some of its
terms a little later.
7. The entire dispute turns on the document that the 1st
Defendant ("Koticha") gave Yes Bank as security. Koticha holds
the entire equity of Lily Realty. The suit security, on which the
entirety of this case is based, is something called a Shortfall
Undertaking also dated 29th October 2015. It is at Exhibit 'B' at
pages 55 and 56. Notably, Koticha also gave a personal guarantee,
but the present suit does not invoke that guarantee at all. It only
proceeds on the footing, very shortly stated and telescoping some of
the arguments, that if Lily Realty cannot pay its debts (principal and
interest) to Yes Bank, whatever Lily Realty cannot pay constitutes
the shortfall. By virtue of the Shortfall Undertaking, Koticha is
bound to make payment or to deposit in an escrow account the
entirety of that shortfall. His failure to do so entitles Yes Bank to an
order in this commercial civil suit that Koticha should deposit the
entire shortfall amount either in the designated escrow account or at
the very least in this Court.
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8. To complete the factual narrative, on 29th February 2020,
Lily Realty's account with Yes Bank came to be classified as Non-
Performing Asset. On 30th July 2020, Yes Bank issued a notice
under Section 13(2) of the SARFAESI Act 2002 demanding the
entire amount due from Lily Realty within 60 days. On the same
day, by a separate notice, Lily Realty recalled the credit facility. It
also invoked the guarantees provided by Koticha and other personal
guarantors. On 15th September 2020, Yes Bank invoked a pledge of
the shares of another company, JCB Salons Pvt Ltd.
9. There followed correspondence between September 2020
and March 2021 regarding the classification of the facility as NPA
and the classification of Mr Koticha and Mrs Koticha as wilful
defaulters. According to Mr Madon, the Kotichas accepted that they
have given incorrect net-worth certificates. There is a complaint
about a rights issue in respect of JCB Salons Pvt Ltd, shares of
which had been pledged. That, in my view, need not detain us. The
complaint is that the result of the rights issue and of Koticha not
subscribing to it is that Lily Realty's stake in JCB Salons dropped
from 68.85% to 4.77% and the value of the security thus reduced to
2%. Because Koticha holds 100% of the equity of Lily Realty, Yes
Bank complains, it was left with a vastly reduced security.
10. In August 2021, Yes Bank claims that it learnt from
newspaper reports that Defendant No. 4 ("BCP Topco"), a
Singapore-based entity represented by Mr Chinoy, had entered into
Share Purchase Agreements with Koticha and with Defendant No. 3
("ASK Investment"), a holding company in the Koticha group, to
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acquire Koticha's interest or shareholding in ASK Investment. The
result of this, Yes Bank believed, was that Koticha had received or
was soon likely to receive, Rs. 1,000 crores. On 30th August 2021,
Yes Bank issued a shortfall demand notice to Koticha asking it to
fund the shortfall to the extent of Rs. 379,18,20,325/-. Koticha
declined to comply. Therefore, this suit and the interim application.
11. Mr Madon's case is centred around the Shortfall
Undertaking. It is a short document and is best reproduced in full:
SHORTFALL UNDERTAKING
Date: 29-Oct-2015
Yes Bank Limited
9th Floor, Nehru Centre,
Discovery of India,
Dr Annie Besant Road,
Worli, Mumbai, Mumbai - 400 018
Branch Add: Ground Floor,
Prestige Obelisk, Municipal No. 3,
Kasturba Park, Bangalore 560 001
Dear Sirs,
In consideration of your having agreed to grant to Lily
Realty Private Limited (LRPL) ("the Company") credit
facilities in terms of Facility Letter No.
YBL/DEL/FL/0751/2015-16 dated September 30, 2015
and Loan Agreement and Master Facility Agreement dated
29-October-2015 (herein collectively referred as "the
Facility Agreements").
We, (1) Mr Asit Koticha son of Kishore Koticha presently
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residing at Rameshwara Appt., 19th Floor, Palkhe Wadi,
KD Marg, Prabhadevi, Mumbai - 28
(do hereby, in pursuance of the provisions of the Facility
Agreements, jointly and severally, undertake to you that if
there is any shortfall in the resources of the Company for
completing its project, for working capital and/or for
servicing of its financial obligations under the said Facility
Agreements due to any circumstances whatsoever, we shall
make arrangements satisfactory to you to provide to the
Company in those events and when called upon by you such
additional funds as may be required to complete its project,
working capital and/or servicing of its financial obligations
under the said Facility Agreements.
I/We also hereby jointly and severally undertake to you that
such additional funds as and when provided by us shall be in
the form of equity capital or such other manner and on such
terms as may be required by you and shall not involve any
charge or lien on or other interest in the assets of the
Company. In the event of such funds being brought in by us
by way of unsecured loans / deposits to the Company, I/we
shall not demand or withdraw such funds or any part
thereof nor shall the Company repay such funds or any part
thereof so long as any moneys remain due by the Company
to you under the said Facility Agreement or till the project
is duly completed, whichever is later without your prior
written approval.
I/We agree if a dispute arises in connection with
requirement of funds, your decision shall be final and
binding on us.
I/We note that funds infused if in the form of unsecured
loans/deposits, shall carry interest as may be agreed to by
you. We further agree that the Company shall not pay any
interest on such unsecured loans / deposits if, at the time of
such payment, there is a default in the payment of
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instalments of principal and/or interest due and owing by
the Company to you.
I/We are aware that any breach in fulfilment of our
obligations under this undertaking would constitute an
event of default under the Facility Agreements unless such
breach is cured within 45 (forty five) days of occurrence of
such breach ("Cure Period").
We note the above and agree and confirm that we shall not
repay to the above mentioned Promoters/ Directors/
parties the unsecured loans / deposits or any part thereof
when received by us to meet the shortfall in our resources
for completing our project and/or for working capital so
long as any moneys remain due by us to you under the said
Facility Agreement without your prior written approval.
We shall pay such interest on the said unsecured loans /
deposits as may be agreed to by you. We agree not to pay
any interest on the said unsecured loans / deposits if at the
time of such payment there is a default in the payment of
instalments of principal and/or interest and owing by us to
you.
We agree and understand that non-fulfilment of the terms
of this undertaking by the Promoters/Directors/parties
would constitute an Event of default unless such breach is
cured with the Cure Period.
IN WITNESS WHEREOF the Company has caused its
Common Seal to be hereunto affixed the day and year first
herein above written.
The Common Seal of M/s. Lily For LILY REALTY PVT
Realty Private Limited (LRPL) LTD
has been affixed hereto
pursuant to the resolution of
the Board of Directors passed Authorised Signatory
at its meeting held on 30th-
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Sept-2015 in the presence of
Mr. Ritesh Sheth and Mr
Cheerag Sirsalewala and
counter signed by Mr Ritesh
Sheth authorized signatory."
12. The document refers to the Facility Agreements. I do not
have those, but I am assured that it makes little difference.
13. The undertaking is clearly for three purposes: (i) project
completion; (ii) working capital; and (iii) servicing of financial
obligations under the Facility Agreements. The third of these is
invoked. The Shortfall Undertaking then goes on to say that on
demand by Yes Bank, Koticha would provide "such additional funds
as may be required to complete its project, working capital and/or
servicing of its financial obligations".
14. Then there is an assurance that the additional funds may be in
the form of unencumbered equity, and that if the additional funds
take the form of unsecured loans, Lily Realty would not have to pay
interest. Then comes the last clause at page 58. This is a default
clause. By this, Koticha has agreed that if there was a non-fulfilment
of the terms of this Undertaking, that is to say Koticha did not meet
the shortfall, this would constitute an "Event of Default" unless the
breach was cured within the "Cure Period". This Shortfall
Undertaking does not define either "Event of Default" or "Cure
Period".
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15. What actually happened, at least in terms of the numbers, is
to be found in the Affidavit in Reply that Koticha has entered in the
Interim Application from pages 221 to 263. He says in paragraph 20
that he owns 85,84,030 shares in ASK Investments. He confirms
that he is selling these shares to BCP Topco at Rs. 707/- per share.
BCP Topco is to pay a total amount of Rs. 606,92,62,596/- (not Rs.
1,000/- crores). Then in paragraph 21, Koticha goes on to say that
some part of this consideration is already committed or spoken for.
It is to be used for the repayment of some debts. Rs. 307 crores is
due to Defendant No. 5 ("IIFL Wealth Prime"), represented by
Mr Dwarkadas, which holds a consent decree dated 16th December
2020 passed on consent terms dated 11th November 2020. Another
amount of Rs. 145 crores with interest (and penal interest) computed
up to December 2021 is payable to Defendant No. 6 ("IDBI
Trusteeship") represented by Mr Dhond under an interim order
dated 25th August 2021.
16. Mr Madon is not today assailing the payments to IIFL Wealth
Prime or IDBI Trusteeship at all. He is concerned with the balance,
i.e. the sale consideration from BCP Topco less the payments to
IIFL Wealth Prime and IDBI Trusteeship. He, therefore,
concentrates on paragraphs 22, 23 and 24 of the Affidavit in Reply at
pages 230 and 231 which read thus:
"22. A sum of INR 169 Crore approximately will then be
applied towards clearing tax liabilities that arise from the
sale.
23. I will also be incurring transactional costs of
approximately INR 10 Crore to facilitate the sales of the
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ASK shares. These costs comprise inter alia of fees payable
to the investment bankers, Nomura and legal costs.
24. The sales proceeds from the sale of my ASK shares
will thus stand fully exhausted in the manner set out above.
The Plaintiff's claims (based on unsubstantiated media
reports) therefore, that my shareholding in Defendant No. 3
is worth around USD 136 Million equivalent to around INR
1000 Crore is incorrect and untrue. The claim that a
surplus amount of over INR 500 crore will remain is also
incorrect and untrue. The proceeds of the sale of my ASK
shares will be fully exhausted in discharging the decretal
and award debts owed to Defendant Nos. 5 and 6, taxes and
transactional costs."
17. Mr Madon that this is a complete breach of the Shortfall
Undertaking. Lily Realty is now indebted to Yes Bank. Its credit
facility has been revoked. The entire debt has been recalled. There is
overdue interest. The Shortfall Undertaking by Koticha
automatically operates and he has a liability to make good whatever
Lily Realty cannot pay. Since Lily Realty says it cannot pay anything,
the entire amount is therefore the shortfall. Consequently, he says
there is no question of having to assess the shortfall. He does not
accept Koticha's calculations of the amount payable towards tax or
what are mysteriously called transactional costs to facilitate the
shares and payable to investment bankers and as legal fees. It is for
this reason that he says that after paying Defendants Nos. 5 and 6,
IIFL Wealth Prime and IDBI Trusteeship whatever is left over must
be put into the escrow account or brought into Court.
18. Mr Kadam appears for Koticha. He submits, first, that there is
a jurisdictional bar. The suit is nothing but a recovery suit that has
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been, to use his words, dressed-up. What Yes Bank seeks is recovery
of the entire loan that has been recalled along with interest. This is a
debt, an expression that has been judicially interpreted to be of the
widest amplitude within the meaning of Section 2(g) of the
Recovery of Debts Due to the Banks and Financial Institutions Act
1993 read with Sections 17 and 18. The attachment before judgment
application sought today has to be in aid of a final relief. It cannot be
that the attachment before judgment is obtained against Koticha
here and the final relief that is sought is to be obtained in the Debts
Recovery Tribunal against Lily Realty and possibly also against
Koticha as a personal guarantor. This is, therefore, in his submission
nothing but a regular bank suit for recovery. There are various
statements in the plaint that establish this and the particulars of
claim annexed to the plaint also show this.
19. In any case, he submits, the Shortfall Undertaking prima facie
creates no personal liability of Koticha. The personal guarantee may
do that, but the suit is not based on personal guarantee at all. The
Shortfall Undertaking has a requirement that Koticha must infuse
such funds as constitute the shortfall. Therefore, there must first be
an ascertainment of that shortfall. That can only be done after there
is an actual adjudication of Lily Realty's liability, for it is only when
Lily Realty's liability is established that one can know what it has
not paid and what is the shortfall. To that extent, in his submission,
the suit is entirely speculative and proceeds on an assumption. That
cannot be the basis of an application for attachment before
judgment.
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20. He would then have me look at the default provision in the
Shortfall Undertaking. I believe he is right when he says that what
this does is simply to trigger an additional Event of Default operable
against Lily Realty under the Facility Letter. That Facility Letter
runs from page 61. The Events of Default are listed in clause 11.
There are 11 such Events of Default. Then there follows a statement
of the rights of Yes Bank on the occurrence of any of those 11 events
of default. The relevant clause reads thus:
"If any Event of Default has occurred, then at any time
thereafter we shall be entitled to terminate or suspend the
Facilities with immediate effect. Thereafter, you shall
forthwith upon our demand repay all outstanding under the
Facilities to us, and/or pay to us such amount equals to the
total contingent or future liabilities under the Facilities and
we shall have the rights to realise the security. All remedies
either under this Facility Letter or otherwise afforded to us
shall be cumulative and not alternative."
21. Mr Kadam's submission is that the default clause in the
Shortfall Undertaking furnishes Yes Bank with a twelfth event of
default. It does not create on its own any personal liability that could
subject Koticha to a decree let alone an order of attachment before
judgment.
22. Mr Madon's argument that this can never be because an
Event of Default has already occurred is not one that I am persuaded
to accept, because that may be true only in this particular situation.
The clauses must be read as they were intended to operate during
the subsistence of the agreement. It is entirely conceivable that there
may have been a funding requirement for, let us say, working capital
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or project completion requiring the infusion by Koticha of additional
funds but which may not have been an event of default per se by Lily
Realty. A failure by Koticha in those circumstances would have been
precisely the twelfth event of default triggering the consequences
noted in the Facility Letter.
23. These are of course all only prima facie views. All I am
assessing just now is whether the Plaintiff has a sufficient prima facie
case to warrant an ad-interim injunction. Given these defences and
oppositions, I do not think that it does. A most telling circumstance
is also to be found in the Facility Letter itself, where there are many
different types of securities created. Note 1 at pages 65-66 lists eight
different types of securities that Yes Bank has in respect of this loan.
There are hypothecations, mortgages, corporate guarantees,
personal guarantees and the pledge referred to above. Yes Bank has
not gone against any of these. It seems to be very doubtful that the
Plaintiff has a prima facie case.
24. This is the first of the three determinants I must assess in any
ad-interim or interim application.
25. As to the balance of convenience, I have no manner of doubt
that the balance of convenience is not with the Plaintiff. As Mr
Chinoy for BCP Topco points out, his clients' agreement to
purchase shares is an executory contract. Against payment,
whenever that happens, it must receive shares. An order of the kind
Mr Madon seeks will possibly scuttle that entire transaction and will
be an order without any possible fruitful result. Also, given that
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there is an Award and a decree operating against Koticha, the
balance of convenience does not seem to me to be with the Plaintiff
at all.
26. On the final question, the prejudice that is likely to be caused
to one or more of the many Defendants far outweighs any possible
prejudice to the Plaintiff. It has its remedies under the RDDB Act
and SARFAESI Act. It has wide security covered in the agreement
itself.
27. At a previous stage, on 8th September 2021, Mr Justice BP
Colabawalla noted the submission made on behalf of IIFL Wealth
Prime that there were consent terms between Koticha and IIFL
Wealth Prime. Those consent terms contemplate the creation of a
Trust in favour of IIFL Wealth Prime. The shares are to be held in
Trust for IIFL Wealth Prime. This is another factor that will affect
the consideration of both balance of convenience and the question
of irretrievable prejudice.
28. The application for ad-interim relief is rejected.
29. Affidavits in Reply to be filed and served by 28th October
2021. Affidavit in Rejoinder to be filed and served by 18th November
2021.
30. List the Interim Application for final hearing on 29th
November 2021.
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31. All concerned will act on production of a digitally signed copy
of this order.
(G. S. PATEL, J)
24th September 2021
