Bombay High Court
Il And Fs Financial Services ... vs Kohinoor Realty Management ... on 3 May, 2023
Bench: N. J. Jamadar
2023:BHC-OS:3923
sj-44-2019.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUMMONS FOR JUDGMENT NO.44 OF 2019
IN
COMMERCIAL SUMMARY SUIT NO.839 OF 2019
IL & FS Financial Services Limited (IFIN) ...Applicant
In the matter between
IL & FS Financial Services Limited (IFIN) ...Plaintiff
vs.
Kohinoor Realty Management Private Limited
and Others ...Defendants
Dr. Birendra Saraf, Senior Advocate a/w. Mr. Sachit Bhogle, Mr.
Bhushan Shah, Mr. Akash Jain and Mr. Akash Mehta i/b.
Mansukhlal Hiralal & Co., for the Plaintiff.
Mr. Akshay Patil i/b. Mr. Akshay Kamble, for Defendant No. 1.
Dr. Veerendra Tulzapurkar, Senior Advocate i/b. Mr. Mandar
Soman, for Defendant Nos. 2 and 3.
CORAM : N. J. JAMADAR, J.
RESERVED ON : 28th NOVEMBER, 2022
PRONOUNCED ON : 3rd MAY, 2023.
-------------
ORDER :
1. This Commercial Division Summary Suit is instituted to
recover a sum of Rs. 17,52,56,942/- along with further interest @
14% p.a. till payment and/or realization.
2. The material averments in the plaint can be summarized as
under:
Vishal Parekar, P.A. ...1
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a] The plaintiff is a non banking financial company engaged in the
business of finance and advisory services. It is a 100% subsidiary of
Infrastructure Leasing and Financial Services Limited (IL & FS).
The defendant No. 1 is a company incorporated under the
Companies Act, 1956. The defendant No. 2 is the Chairman and
Managing Director of defendant No. 1. Defendant No. 3 is a Director
of defendant No. 1.
b] The plaintiff asserts in or about December, 2017, the
defendant No. 2, in the capacity of the promoter of defendant No. 1,
had approached the plaintiff for a short term loan of Rs. 16 Crores.
Based on the representations of the defendants, the plaintiff had
offered to provide a short term loan facility of Rs. 16 Crores to
defendant No. 1 on the terms and conditions set out in the letter
dated 27th December, 2017. Under the terms of the said letter, the
short term loan was to be repaid within a period of six months from
the date of disbursement. The said facility was to be used for the
purpose of expenses relating to Cluster Redevelopment Project at
Mahim.
c] Pursuant to the terms of the said letter, the plaintiff and
defendant No. 1 had entered a loan agreement dated 4 th January,
2018 for extension of a short term loan of Rs. 16 Crores. Pursuant
to and in accordance with the loan agreement, the plaintiff asserts,
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a number of instruments were executed, namely, the defendant No.
1 executed a Deed of Undertaking I dated 16th February, 2018
followed by another Deed of Undertaking II. An irrevocable,
absolute and unconditional personal guarantee vide letter dated 4 th
January, 2018 was executed by defendant No. 2. An agreement of
first ranking pari pasu pledge of 100% equity shares of Kohinoor
Planet Constructions Private Limited (KPCPL) dated 16 th February,
2018 (Pledge Agreement) was executed by defendant No. 1, as
borrower, and defendant Nos. 2 and 3, as pledger cum guarantors.
Under the Pledge Agreement, defendant Nos. 2 and 3 also agreed to
be jointly and severally liable as a principal debtor without
exclusion/ reference to others for the payment/repayment of the
dues under the loan agreement.
3. The plaintiff claimed that it disbursed the first tranche of Rs.
9,62,78,218/- to defendant No. 1 on 5 th January, 2018. The second
tranche of Rs. 5,35,00,000/- was disbursed on 28th June, 2018.
4. The plaintiff claimed that it repeatedly called upon the
defendant No. 1 to repay the outstanding amount. Defendants failed
and neglected to repay the due amount. Despite service of the last of
the notices dated 21st February, 2019, the defendants neither paid
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the amount nor gave any reply. Thus, the plaintiff was constrained
to institute the suit for recovery of a sum of Rs. 17,52,56,942/-
along with interest @ 14% p.a.
5. In response to the writ of summons the defendant Nos. 1 to 3
appeared. Thereupon, the plaintiff took out the Summons for
Judgment.
6. The defendant Nos. 1 to 3 have filed separate affidavits in
reply seeking an unconditional leave to defend the suit. Since the
defendants No. 1 to 3 have heavily relied upon the affidavit in reply
filed on behalf of defendant No. 2, it may be expedient to first note
the grounds on which defendant No. 2 seeks an unconditional leave
to defend the suit.
7. At the outset, the tenability of the summary suit was assailed
on the ground that it pertains to the claims which are not covered
by the provisions contained in Order 37, Rule 1(2) of the Code of
Civil Procedure, 1908 (the Code). The tenability of the suit was
assailed on the ground that the plaintiff is prosecuting the present
suit without giving up the security namely the shares of Kohinoor
Planet Constructions Private Limited pledged by defendant Nos. 2
Vishal Parekar, P.A. ...4
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and 3. The defendant No. 2 also assailed the tenability of the suit
qua defendant No. 3 as defendant No. 3 is merely a pledgor of the
shares held by defendant No. 3 in KPCPL. The defendant No. 3 is not
personally liable for the repayment of the amount covered by suit
claim.
8. Defendant No. 2 further contended that the suit suffers from
vice of suppression of material facts and, therefore, the plaintiff is
not entitled to any relief.
9. According to the defendant No.2, the real transactions
between IL & FS group and Kohinoor group, evidenced by a number
of documents, were materially distinct from the transaction
asserted in the plaint. IL & FS group and Kohinoor group had a joint
venture agreement and understanding for the acquisition of the
plot of land with structures of Kohinoor Mill-3 for implementation
of a development project thereon namely Kohinoor Square project.
10. A Consortium Agreement dated 20 th July, 2005 was entered
into by and between Kohinoor and IL & FS group was for acquisition
of the Kohinoor Mill-3 and execution and implementation of the
Kohinoor Square project. Pursuant to the said agreement Kohinoor
Vishal Parekar, P.A. ...5
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CTNL Infrastructure Company (KCTNL) was incorporated as a
Joint Venture Company and special purpose vehicle. The plaintiff,
IL & FS group company, and KPPL, a Kohinoor group company,
subscribed to the equity share capital of KCTNL as per the First
Shareholders Agreement. Later on, the plaintiff sold its share
holding in KCTNL to the Kohinoor Group Company and as per the
Second Shareholders Agreement and Second Supplemental
Shareholders Agreement, IFIN Realty Trust and IIRF India VII
Limited, two other IL & FS group entities, subscribed to the equity
and preference share capital of KCTNL so that upon such
subscription the Kohinoor group and IL & FS group held the share
capital in the ratio of 60:40.
11. The defendant contends the plaintiff deliberately suppressed
the fact that all amounts given to Kohinoor group by IL & FS group
were meant for financing the Kohinoor Square Project and the
amounts given, either directly or routed through Kohinoor group
companies, were in the nature of quasi equity participation though
they were shown as loans and advances. The said money brought in
by IL & FS group was treated as an exposure in the Kohinoor
Square project. Drawing heavily upon a Memorandum of
Understanding (MOU) dated 20th January, 2016 the defendant
Vishal Parekar, P.A. ...6
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contends that the repayment towards quasi equity participation in
the form of loans from the IL & FS in KCTNL, was to be made out of
the sale proceeds of Kohinoor Square project.
12. The defendant No. 2 further contended that by an order dated
21st February, 2018 passed by National Company Law Tribunal,
KCTNL underwent corporate insolvency resolution process. In
accordance with the resolution plan, the share capital held by
Kohinoor group in KCTNL was reduced to 1.2% of the equity
shareholding and that of the IL & FS group to 18.8% equity
shareholding, to be held by IIRF India Realty VII Limited. The loan
purportedly advanced by the plaintiff being in the nature of quasi
equity participation for the Kohinoor Square project, the plaintiff is
not entitled to recover the same as a loan simpliciter. Therefore,
defendant No. 2 is entitled to an unconditional leave to defend suit.
13. The defendant No. 1 also seeks unconditional leave by taking
the grounds which are raised by defendant No. 2. In fact, defendant
No. 2 has sworn an affidavit on behalf of defendant No. 1 in the
capacity of the Director of defendant No. 1.
14. Affidavit in reply on behalf of defendant No. 3 proceeds on an
identical line.
Vishal Parekar, P.A. ...7
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15. In the affidavits in rejoinder, the plaintiff avers the
transactions referred to in the affidavits in reply have no bearing on
the suit. The claim in the instant suit is stated to be an independent
transaction governed by an independent agreement between the
parties. The transaction, according to the plaintiff, was not the
subject matter of the alleged MOU as the loan agreement was
executed much after the said MOU. At any rate, according to the
plaintiff, the MOU clearly provides that it does not contain any
binding legal duties and obligations. The parties were not obligated
to consummate any transaction with reference to MOU. The plaintiff
asserts, reference to the transactions and the documents in the
affidavit in reply has been made with a view to create a confusion
about the transaction in question and obtain leave to defend the suit
which the defendants are otherwise not entitled to. Affidavits in
sur-rejoinder were also filed on behalf of the defendants.
16. In the wake of the aforesaid pleadings, I have heard Dr.
Birendra Saraf, learned senior advocate for the plaintiff, and Mr.
Akshay Patil, learned counsel for defendant No. 1 and Dr. Veerendra
Tulzapurkar, learned senior counsel for defendant Nos. 2 and 3.
With the assistance of the learned counsel for the parties, I have
carefully perused the material on record.
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17. Dr. Saraf, the learned senior counsel for the plaintiff
submitted that the plaintiff's claim is supported by documents of
unimpeachable character which render the defences sought to be
urged on behalf of the defendant unworthy of grant of leave to
defend the suit. Laying emphasis on the loan agreement dated 4 th
January, 2018, the undertakings of the defendant dated 16 th
February, 2018, personal guarantee executed by defendant No. 2 on
4th January, 2018 and the pledge agreement dated 16 th February,
2018 executed by defendant Nos. 1 to 3, Dr. Saraf would urge that
advance of loan by the plaintiff to the defendant is rather
incontestable. To add to this, according to Dr. Saraf, there is a clear
and unequivocal acknowledgment of the liability in the balance-
sheets of the defendant for the financial year 2017-18 and 2018-19.
The defences now sought to be put forth by the defendants are
creatures of afterthought and do not raise any triable issue. Thus a
decree must follow, urged Dr. Saraf.
18. In contrast to this, Dr. Tulzapurkar, learned senior counsel
for defendant Nos. 2 and 3 strenuously submitted that the
defendant deserves an unconditional leave to defend the suit for
deliberate suppression of facts on the part of the plaintiff. Whole
body of instruments, which evidence transactions between the
Vishal Parekar, P.A. ...9
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Kohinoor and IL and FS Group, was suppressed by the plaintiff.
Such deliberate suppression of material facts, in itself, constitutes a
ground to dismiss the Summons for Judgment, urged Dr.
Tulzapurkar. Taking the Court through the Consortium Agreement
executed between Kohinoor Projects Private Limited, a group
company of a Kohinoor Group, and Consolidated Transportation
Networks Limited, the then subsidiary of IL and FS Group dated
20th July, 2005 to develop the Kohinoor Square Project,
Shareholders Agreement dated 11th October, 2005, Share
Subscription cum Shareholders Agreement dated 29 th September,
2008 executed between Kohinoor CTNL Infrastructure Company
Limited, Kohinoor Projects Private Limited, IL and FS Trust
Company Limited and IIRF India Realty VII Limited and defendant
No. 2 as the promoter, Supplemental Share Subscription cum
Shareholders Agreement and Memorandum of Understanding
dated 20th January, 2016 (MOU), Dr. Tulzapurkar would urge that
the documents unmistakably indicate that there have been
transactions between various entities of IL and FS and Kohinoor
Group. Yet the plaintiff approached the Court as if the transaction
in question was one of the ordinary transactions between a lender
and creditor. Had the plaintiff approached the Court with a case
that the transaction in question is distinct from the transaction
Vishal Parekar, P.A. ...10
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evidenced by aforesaid documents, according to Mr. Tulzapurkar
different considerations would have come into play. In view of the
suppression of the genesis of the jural relationship between the
parties arising out of commercial transactions, over a period of
time, the defence of the defendant that the advance in question is
also a part of the transaction between IL and FS and Kohinoor
Group cannot be brushed aside as a sham and moonshine defence.
The defendant No. 2 thus deserve an opportunity to prove to the
contrary, at the trial.
19. Dr. Tulzapurkar further submitted that the plaintiff can not
draw mileage from the entry in the balance-sheets for the financial
year 2017-18. In the succeeding year, the defendants have clarified
the said entry in the balance-sheet. Resultantly, the statement in
the balance-sheet for the year 2017-18 cannot be relied upon as a
clear and unequivocal acknowledgment of the liability, which only
can sustain a decree.
20. As regards the liability of defendant No. 3 it was urged that
defendant No. 3 being a pledgor cannot be held personally liable.
The plaintiff has his remedies under section 174 of the Indian
Contract Act in respect of the pledged shares. However, in the case
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at hand, the plaintiff is seeking to proceed against the pledgor as a
guarantor, which is impermissible in law, submitted Dr.
Tulzapurkar.
21. Mr. Patil, the learned counsel for defendant No. 1 while
supplementing the submissions of Dr. Tulzapurkar, made an
endevour to draw home the point that terms of MOU dated 20 th
January, 2016 are comprehensive enough to include the subject
transaction. The MOU, according to Mr. Patil, encapsulates the
course of business dealings between the IL and FS and Kohinoor
group and, thus, the fact that the advance in question was made
after the MOU dated 20th January, 2016 does not detract materially
from the defence of the defendants.
22. To start with, it may be appropriate to note that the factum of
advance of a sum of Rs. 17,52,56,942/- in two tranches of Rs.
9,62,78,218/- on 5th January, 2018 and Rs. 5,35,00,000/- on 28 th
June, 2018, as such, is not in contest. Nor the fact that a loan
agreement came to be executed on 4 th January, 2018 between the
plaintiff and the defendants is in dispute. The execution of the
undertaking on 16th February, 2018 by the defendant in favour of
the plaintiff is also not controverted. Defendant No. 2 indisputably
Vishal Parekar, P.A. ...12
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executed a letter of guarantee on 4 th January, 2018, unconditionally
agreeing to pay the said loan amount alongwith interest and
charges within 24 hours of the demand. Under the pledge
agreement the defendant Nos. 1 to 3 pledged the shares they held in
Kohinoor Planet Constructions Private Limited.
23. Without controverting the execution as such of all the
aforesaid instruments, the defendants essentially questioned the
character of the transaction between the parties. The substance of
the defence is that the loan in question is a subterfuge and the real
transaction was of infusion of quasi equity into Kohinoor Group, in
general, and Kohinoor Square Project, in particular, with an
understanding that the repayment of the said amount would be
made out of the sale proceeds of the Kohinoor Square Projects and,
in the event the amount could not be repaid, through the proceeds
of any other project developed by the Kohinoor Group.
24. Since the defendants faced an obstacle in the nature of the
admission of liability in the balance-sheet, for the financial year
2017-18, an endevour was made to show that the entry in the said
balance-sheet has since been explained. I deem it in the fitness of
things to first deal with this contention.
Vishal Parekar, P.A. ...13
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25. In the balance-sheet as of 31st March, 2018, the sum of Rs.
9,62,78,218/- which was advanced on 5th January, 2018, was shown
as a short term borrowing. In the balance-sheet as of 31 st March,
2019, a sum of Rs. 14,66,02,356/- was shown as a short term
borrowing owed to the plaintiff. An explanatory note came to be
added thereto, to the effect that the said loans were recalled by
letter dated 19th October, 2018 and, according to the management of
the company, it was a quasi equity and thus the company contested
the above mentioned liability and therefore no provision for any
interest was made during FY 2018-19 and 2019-20. Whether this
explanation is of assistance to the defendants ?
26. Dr. Saraf, learned senior counsel for the plaintiff, submitted
that the aforesaid explanation which came to be added after
institution of the suit is of no significance as it is self serving.
Placing reliance on the judgment of the Supreme Court in the case
of Asset Reconstruction Company (India) Limited vs. Tulip Star
Hotels Limited and Others1 Dr. Saraf submitted that the
acknowledgment in the balance-sheet for the year 2017-18 being
unequivocal and contemporaneous with the advance, deserves
precedence.
1 2022 SCC OnLine SC 944.
Vishal Parekar, P.A. ...14
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27. An endevour was made on behalf of the defendants to draw
home the point that it is not the law that an erroneous admission
cannot be explained. In fact, this Court has held that the statement
in the balance-sheet can be explained in subsequent balance-sheet.
Therefore, the statement in the balance-sheet for the year 2017-18
cannot be construed as sacrosanct. Once the defendants succeed in
demonstrating that the statement in the balance-sheet was not
correct, the plaintiff can not draw any mileage therefrom.
28. To bolster up the aforesaid submission, Dr. Tulzapurkar
placed reliance on the judgment of the Delhi High Court in the case
of Vijay Gupta and Others vs. Ashok Kumar Gupta 2 and Karnataka
High Court in the case of Raj A. menda and Others vs. M/s. Rani
Rasamani Real Estate and Others3. The circumstances, in which a
decree on an admission can be justifiably passed under Order XII
Rule 6 of the Code of Civil Procedure, 1908 were considered in the
aforesaid judgments.
29. Mr. Patil placed a strong reliance on the judgment of the
Division Bench of this Court in the case of Inteltek Automation Pvt.
Ltd. vs. Indusind Bank Ltd.4 wherein it was enunciated that in view
2 2007 (95) DRJ 167.
3 ILR 2007 KAR 2627.
4 2011 (1) Mh.L.J. 935
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of the statement in the balance-sheet that the claim for interest and
principal was in dispute, a decree on admission could not have been
passed on the basis of audit report which forms part of the balance-
sheet. The Division Bench followed the judgment of another Division
Bench of this Court in the case of Ultramatix Systems Pvt. Ltd. vs.
State Bank of India and Others5 wherein it was enunciated that the
statement contained in the balance sheet and profit and loss
account of a company would an admission of its liability, unless
subsequent balance sheets were filed to show that either the
amounts have been paid or were not due and payable and/or any
other material was produced to hold otherwise.
30. Mr. Patil also placed reliance on the judgment of the Supreme
Court in the Reliance Asset Reconstruction Company Limited vs.
Hotel Poonja International Private Limited6 wherein in the facts of
the said case in view of the note appended to the balance-sheet, it
was held that in view of the notes, the balance-sheet cannot be
treated as an acknowledgment of the liability.
31. It is trite to sustain a decree on admission, the admission of
liability ought to be clear, explicit and unequivocal. In the case at
5 2007(4) Mh.L.J. 847
6 (2021) 7 Supreme Court Cases 352
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hand, the defendants endevoured to wriggle out of the situation
brought about by an entry in the balance-sheet for the year 2017-18
by placing reliance on the explanation sought to be offered in the
balance-sheet for the succeeding year. In a given situation, a party
could be permitted to demonstrate that the statement in a balance-
sheet is incorrect or that the liability has since ceased. However, it
all turns upon the fact situation which obtains. It is imperative to
note that the first tranche of loan was advanced on January, 2018.
In the balance-sheet as of 31st March, 2018 the very same amount
was shown as a short term borrowing. The statement in the
balance-sheet as of 31st March, 2018 thus has an element of
spontaneity.
32. In the wake of dispute between the parties and institution of
suit on 19th April, 2019, in the balance-sheet for the succeeding
year, the defendants made an attempt to explain away the position.
The fact that the said explanation came to be offered after the
institution of the suit cannot be lost sight of. Had it been a case that
the same explanation found place in the balance-sheet as of 31 st
March, 2018, it would have lent an element of credence to the said
version. Since the explanation was sought to be offered after the
dispute arose between the parties as regards the liability to repay
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the said amount, the defendants cannot be permitted to bank upon
the said explanation to contend that they have a substantial
defence.
33. This takes me to the core of the defence of the transaction in
question being a part of the series of advances by the IL & FS Group
to the Kohinoor Group as and by way of quasi equity. Edifice of this
defence, in addition to Consortium Agreement and Share
Subscription cum Shareholders Agreement, is principally built
around the MOU dated 20th January, 2016. It may be apposite to
consider the relevant clauses of the MOU dated 20 th January, 2016.
They read as under:-
A. KCTNL was set up with equity interest of 60:40
between Kohinoor Group and IL and FS Group and is
developing a mixed use real estate project to be called as
"Kohinoor Square", Kohinoor Square comprises
commercial and residential units, Kohinoor Square has
saleable area 1:40 million square feet including area
already sold to third parties.
B. KCTNL has entered into non-binding arrangement
with Blackstone (as defined herein) (Non-Binding
Arrangement) who propose to acquire specified
commercial area of 0.74 million square feet for a
consideration of Rs. 13,500 mn in Kohinoor Square.
Subsequently, KCTNL has also received proposal from
other Potential Investors to purchase the above area at
aggregate consideration of Rs. 14,500 mn and is under
final stage of negotiation.
C. Out of the aggregate 0.74 million square feet
commercial area, KCTNL has already allocated in
aggregate area of 278,789 square feet to IL & FS Group
and as more particularly described in Annexure I hereto
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(IL & FS Group Area).
D. In addition to the above exposure, IL & FS Group has
exposure in the form of Loans extended to the Kohinoor
Group for the purpose of construction of Kohinoor
Square. The aggregate exposure of the IL & FS Group to
KCTNL is Rs. 9,550 mn as per Annexure II enclosed
hereto (IL & FS Group Exposure).
E. The Aggregate Exposure of IL & FS Group and
Kohinoor Group (after netting off indirect Exposure of IL
& FS Group) to the Kohinoor Square is as under:
Particulars Current Existing Realignment Excess
Exposure Ratio of Exposure Exposure
Kohinoor 4,110 30.5% 4,110 -
Group
IL & FS 9,550 69.5% 2,740 6,810
Group
13,660 100.0% 6,850 6,810
F. KCTNL to utilise the Sale Proceeds of the project so as
to realign the Exposure of IL & FS Group and Kohinoor
Group in accordance with the equity interest. The realign
process would require priority payment to the parties
having excess exposure and its more particularly defined
in Clause (5) of this MOU.
G. Kohinoor Group shall assign another Project to KCTNL
in order to recoup the loss incurred by IL & FS Group in
the Kohinoor Square more particularly defined under
Clause (5) of this MOU.
H. KCTNL has requested IL & FS Group's co-operation to
enable KCTNL to conclude the Divestment Deal (as
defined herein). The parties are therefore entering into
this MOU to record the non-binding understanding
amongst the parties.
I. Definations :-
... ....
(f) IL & FS Group Loans : shall mean the loans provided
by IL & FS Group to Kohinoor Group.
(g) Non-Binding Agreement: shall have the same meaning
as assigned to it in Recital B.
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(h) Sale Proceeds : shall mean proceeds of Rs. 14,500 mn
to be received by KCTNL from Blackstone or Potential
investors pursuant to the Demerger Scheme.
3. Application of Sale Proceeds on Approval of Demerger:-
(a) Immediately upon receipt by KCTNL of Sale Proceeds
from Blackstone or Potential investor towards demerger
of the Commercial Area from KCTNL and transfer to
Blackstone or Potential Investor pursuant to the
Demerger Scheme, KCTNL shall apply the sale proceeds
in the following manner.
Particulars Inflow Outflow
Proceeds of Divestment Deal 14,500
Utilization of the Proceeds
Repayment of Banks Borrowing including 6,300
interest
Amount set aside for Completion of 1,300
Commercial Project
Payout to IFIN & ITNL towards their 5,855
respective area
Part payment of IL & FS Group Loans 1,045
Total 14,500 14,500
(b) KCTNL shall comply with all applicable laws in
connection with the utilization of Sale Proceeds,
including compliance with Section 185 and section 186 of
the Companies Act, 2013.
(c) Post divestment of the commercial project, KCTNL
would be left with residential project, proceeds from the
sale of residential project would be used for repayment of
liabilities and residual equity interest.
... .....
6. Parties Intentions and Compliance :-
Except for the Confidentiality provision (Clause 3),
Duration and Termination provision (Clause 5) and
Miscellaneous provisions (Clause 9), this MOU is only a
statement of intent and does not set forth any legally or
binding duties and obligations under any applicable law
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with respect to either party. The parties are not obliged
to consummate or complete any transaction under or
with reference to this MOU.
In the event that any of the activities envisaged under
this MOU fail to materialize or not achieved, none of the
parties shall have any obligation or liability (as a matter
of contract, tort or otherwise) to the other party with
respect to or arising out of or in connection with the
maters contemplated under this MOU for any direct or
indirect or consequential or economic loss, damages,
costs, expenses or any other claim for compensation of
any other party.
7. Duration and Termination :-
This MOU shall continue for a period of 1 year from the
date of this MOU unless terminated earlier by delivery of
3 (three) months' prior written notice by either Party to
the other.
... .....
Annexure II
Details of IL & FS Group Exposure
Particulars Equity in Kohinoor Loan to Total
Kohinoor Square Kohinoor
Square Property Group
IL & FS Group 2,000 5,855 1,695 9,550
Exposure Total
34. The crucial question that wrenches to the fore is whether the
aforesaid MOU even if construed in the manner the defendants
desire the Court to do, subsumes the transaction in question in its
fold. Indisputably, the said MOU so far as it related to the executory
part namely de-merger of KCTNL and transfer of the assets to
Blackstone or any other prospective purchase did not
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materialize. What the defendants can legitimately draw upon is the
statement of facts contained in the said MOU. Evidently, the said
MOU records the exposure of IL & FS Group into Kohinoor Group to
the tune of Rs. 9550 million as of 20 th January, 2016. Indisputably,
the amounts in question were advanced on 5 th January, 2018 and
20th June, 2018. Whether the said advances were in continuation of
the same operandi, is the question.
35. On first principles, in my view, in the absence of any material
show the nexus between the transactions in question and the
transactions evidenced by the MOU, it would be audacious to draw
an inference merely on the basis of past transactions. Attendant
circumstances, undoubtedly, play a role. Those circumstances,
manifested in the execution of the loan agreement, personal
guarantee and pledge agreement run to the contrary. The nature of
the transactions and the jural relationship brought about by these
documents, is to be inferred from the contract between the parties
as evidenced by those documents.
36. On a cumulative reading of the aforesaid documents, it
becomes evident that the loan was advanced for the cluster
development project at Mahim, Macchimar Nagar. This
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disentangles the transaction from the Kohinoor Square Project,
which the MOU was primarily concerned with. Secondly, the letter
dated 27th December, 2017 under which the loan was sanctioned
explicitly records that there were existing loan facilities to the tune
of Rs. 1200 million by IFIN to Kohinoor Housing Development
Project Limited. Prima facie, it appears to be a historical fact and
shows the relationship between the parties. Thirdly, the borrower
was not shown to be a part of the group companies which
represented the Kohinoor Group in the MOU dated 20 th January,
2016. The matter would be required to be stretched too far to bring
each and every transaction which takes place between the entities
of IL & FS and Kohinoor Group within the ambit of MOU dated 20 th
January, 2016, whatever be the length of time and the nature of
transaction. Such construction of the contract between the
Corporate entities cannot be countenanced. The intent of the
parties to a commercial contract is required to be ascertained
primarily from the terms of the contract.
37. I, therefore, find it difficult to accede to the submission on
behalf of defendant No. 1 and 2 that they are entitled to an
unconditional leave to defend the suit on the count that the
transaction in question also represents quasi equity infusion by the
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IL & FS Group into Kohinoor Group.
38. The defendant Nos. 1 and 2, however, deserve an opportunity
to contest the suit. The defence sought to be raised by defendant
Nos. 1 and 2 cannot be totally brushed aside as vexatious and sham.
In the facts of the case, even if the probability of the defence may be
questioned yet the defendants cannot be deprived of the
opportunity to contest the suit. A conditional leave would, thus, be
in order.
39. The case of defendant No. 3 stands on a different footing.
Defendant No. 3 has executed a pledge agreement. The schedule
appended to the pledge agreement indicates that the defendant No.
3 has pledged all the shares of Kohinoor Planet Constructions
Private Limited (KPCPL). The defendant No. 3 is, however,
professed to be held personally liable for the debt, on the strength of
the recitals in the pledge agreement, as a guarantor.
40. Dr. Saraf placed reliance on the following covenants in the
pledge agreement.
5.1 Affirmative Covenants by the Pledgor :-
During the currency of this Agreement, the Facility
Agreements and until the Borrowers' Dues payable by
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the Borrowers to IFIN remains outstanding, the
Pledgor shall:
.... .....
(g) be jointly and severally liable as principal debtors
without exclusion/ preference to the other or others of
them for the payment of the Borrowers' Dues to IFIN
and IFIN shall be entitled to recover at its option the
amounts due in respect thereof from the Pledgors
without exercising or exhausting any other
remedy/right it has against the Borrowers.
.... .....
6.2 Remedies :-
.... ......
(b) Sale of Pledged Securities :-
..... ........ In case, the proceeds of sale or disposal of
the Pledged Securities are not sufficient to pay/ repay
the Borrowers' Dues to IFIN, the Borrowers and the
Pledgors bind themselves and undertake to make good
the deficit immediately on being required to do so by
IFIN.
41. Dr. Saraf would urge that the aforesaid covenants would
indicate that the pledge agreement does not evidence a pledge
simpliciter. It also constitutes a guarantee furnished by defendant
No. 3. The nomenclature of the documents is not decisive and,
therefore, the defendant No. 3 can be said to have undertaken the
liability to discharge the entire debt in the event of default on the
part of borrower/ defendant No. 1.
42. Dr. Saraf placed a strong reliance on a Division Bench
judgment of this Court in the case of Il & FS Financial Services
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Limited vs. Vandana Global Limited7. Construing the terms of the
Article II, Put Option therein, the Division Bench held that the
petitioner therein irrevocably, absolutely and unconditionally
agreed with and undertook to IFIN that in the event of the
occurrence of an Event of Default under the Facility Agreement
IFIN may, at its discretion, issue the Put Notice; and upon the
receipt of the Put Notice VGL and VL shall, without demur or
protest, make payment of the Exercise Price to IFIN and accept by
way of assignment from IFIN the Facility along with all rights and
liabilities thereunder.
43. The aforesaid decision, with respect, turns on the
construction of particular instrument in the said case. It is trite a
document is required to be read as a whole. To gather the real
intention of the parties, the terms and stipulations in an instrument
cannot be read torn out of context. Undoubtedly, the parties are free
to enter into a contract which gives rise to multiple jural
relationships. In a given case, an instrument of pledge may also
operate as a guarantee. However, such intention of the parties must
be borne out by the instrument and the attendant circumstances.
44. The pledge agreement, in the instant case, primarily deals
7 Company Petition No. 923/2015, Dt. 05/01/2018
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with the pledged securities, the rights and obligations of the
pledgor, the covenants of the pledgor and the consequences which
would ensue in the event of default. The lender is empowered to sale
the pledged securities.
45. On a fair reading of the pledge agreement, as a whole, I find it
difficult to accede to the submission on behalf the plaintiff that the
pledge agreement also constitutes a contract of guarantee. The
aforesaid recitals in the agreement that the pledgors shall be jointly
and severally liable as principal debtors and bind themselves and
undertook to make good the deficit in case the proceeds of the sale
or disposal of the pledged shares are not sufficient to discharge the
debt are required to be considered in context in which the parties
entered into the contract.
46. In the letter dated 27th December, 2017 under which the loan
was sanctioned it was specifically mentioned that the loan was
secured by (a) Demand Promissory Note (b) Personal Guarantee of
defendant No. 2 and (c) First Ranking Pari Pasu pledge of 100%
equity shares of Kohinoor Planet Constructions Private Limited in
demat form together with all accretions thereon. Few things become
abundantly clear. First, the loan was secured by the personal
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guarantee of defendant No. 2. Second, the plaintiff had not insisted
for personal guarantee by defendant No. 3. Third, the loan was
agreed to be secured by pledge of 100% equity shares of KPCPL. It
was nowhere in the contemplation of the parties that defendant No.
3 would also act as a guarantor. This prima facie militates against
the plaintiff's claim that the pledge agreement also operated as a
personal guarantee. In any event, the defendant No. 3 deserves an
opportunity to contest the suit on the ground that her liability was
confined to that of being a pledgor and not a guarantor.
47. The upshot of the aforesaid consideration is that the
defendant No. 3 deserves an unconditional leave to defend the suit.
48. This propels me to the aspect of the conditions subject to
which leave to defend is required to be granted to defendant Nos. 1
and 2. Since the advance of the sum of Rs. 14,97,78,218/- is
incontestable and what the defendants contest is the character of
the said amount and the funds out of which the said amount was to
be repaid, in my view, the defendant Nos. 1 and 2 must be directed
to deposit the said amount in the Court. Since the character of the
said advance is the bone of contention, at this juncture, a direction
to deposit the said amount along with interest may not be
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justifiable. I am, therefore, persuaded to hold that the defendant
Nos. 1 and 2 deserve leave to defend the suit subject to deposit of
the principal amount of Rs. 14,97,78,218/-.
Hence, the following order:
ORDER
1] The defendant Nos. 1 and 2 are granted leave to
defend the suit subject to deposit of the sum of Rs.
14,97,78,218/- in this Court within a period of six
weeks from today.
2] If the aforesaid deposit is made within the
stipulated period, this suit shall be transferred to the
list of Commercial Causes and the defendant Nos. 1
and 2 shall file written statement within a period of
six weeks from the date of deposit.
3] If this conditional order of deposit is not
complied with, within the above stipulated period,
the plaintiff shall be entitled to apply for an ex-parte
decree against the defendants Nos. 1 and 2 after
obtaining a non-deposit certificate from the
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Prothonotary and Senior Master of this Court.
4] The defendant No. 3 is granted an unconditional
leave to defend the suit.
5] The defendant No. 3 shall file the written
statement within a period of eight weeks from today.
6] Summons for Judgment stands disposed in the
aforesaid terms.
(N. J. JAMADAR, J.)
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