Bombay High Court
Edelweiss Asset Reconstruction ... vs Meeti Developers Private Limited on 3 September, 2024
Author: N. J. Jamadar
Bench: N. J. Jamadar
2024:BHC-OS:13633
1-IA-1319-2024.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION NO. 1319 OF 2024
WITH
INTERIM APPLICATION NO.431 OF 2024
IN
COMMERCIAL SUIT NO. 178 OF 2023
Edelweiss Asset Reconstruction
Company Limited ...Petitioner
Versus
Meeti Developers Private Limited ...Respondent
Mr. Gaurav Joshi, Senior Counsel a/w Mr. Ankit Lohia and
Mr.Varun Nathani,Ms. Suchitra Valjee, Ms. Riya Vasa i/by Manilal
Kher Ambalal and Co. for Applicant/plaintiff in COMS/178/2023.
And Applicant in IA/1319/2024 and IA/1431/2024.
Mr. Ayush Rajani a/w Khushboo Shah i/by AKR Legal for
Defendant No.1.
Mr. Zal Andhyarujina Senior Counsel, Mr. Karan Bhide, Mrs. Rati
Patni, Mrs. Kathleen Lobo and Mr. Vikrant Dere i/by Wadia
Ghandy and Co. for Respondent No.5 and 7.
Mr. Sachin Mhatre a/w Rochelle Fernandes i/by Mhatre Law
Associates for Defendant No.6.
CORAM : N. J. JAMADAR, J.
DATE : 3rd SEPTEMBER 2024
ORDER
1. Heard the learned Counsel for the parties.
2. This is an application for amendment of the plaint under
order I Rule 10 and order VI Rule 17 of the Code of Civil Procedure,
1908 (The Code) to implead Ajmera Luxe Realty Pvt. Ltd.(R7) as a
party Defendant No.7 and make certain averments and seek
additional reliefs.
Vishal Parekar, PS 1 of 30
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3. Meeti Developers Pvt. Ltd. (Meeti), the Defendant No.1
entered into a Development Agreement dated 27 th December 2006
with New Kamal Kunj Co-Operative Housing Society Limited (The
Society), the Defendant No.6, to redevelop the society premises.
Under the terms of the development agreement, Meeti Developers
Pvt. Ltd. (D1) was required to construct the rehab units for the
existing members of the Society (D6) and had right to utilize and
deal with the balance available FSI quantified at 74,226 square
feet in such manner as Meeti (D1) may deem fit. Addendum
Agreements were executed in furtherance of the development
agreement, on 31st October 2015 and 18th March 2017. Under the
terms of these agreements, Meeti(D1) was authorized to create
security interest or encumbrance on the developer's share and the
society (D6) agreed that it shall not raise any objection or
withhold necessary consent to create such security interest.
4. Thus, to finance redevelopment, Meeti (D1) approached the
ECL Finance Limited ("ECL"), the predecessor in interest of the
plaintiff, to advance a loan of Rs.55 crores. The Society (D6)
granted its unconditional consent to Meeti (D1) to mortgage and
create charge over free sale area of 74,226 square feet against the
facility approved by ECL. The Financial Assistance was in the
form of Non-Convertible Debentures (NCD's) issued by Meeti (D1).
Vishal Parekar, PS 2 of 30
1-IA-1319-2024.doc
Catalyst Trusteeship Limited ("Catalyst") came to be appointed as
Debenture Trustee on 3rd November 2016. Meeti (D1) and Catalyst
executed Debenture Trust Deed recording the terms and
conditions for grant of facility of Rs. 55 crores to Meeti (D1). The
issuance of the NCDs was secured inter alia by a
charge/security/mortgage over the free sale area of 74,226 square
feet in the redevelopment project of the society (D6). Defendant
Nos. 2 to 4 are the legal representatives of late Paresh Bhuta, the
personal guarantor of Meeti (D1).
5. Meeti(D1) committed several defaults under the Debenture
Trust Deed. The plaintiff initially filed C.P. No.783 of 2020 under
the Insolvency and Bankruptcy Code, 2016, (IBC) against Meeti
(D1) before the National Company Law Tribunal Mumbai
("NCLT"). The said Petition was admitted by an order dated 5 th
March 2021.
6. In the meanwhile, Ajmera Realty & Infra India Limited
(Ajmera Realty) Defendant No.5, evinced interest in the
redevelopment project. On 8th July 2022, the plaintiff and Ajmera
Realty (D5) executed a Transfer Agreement and Financial
Undertaking whereunder the Defendant No.5 agreed to purchase
the NCDs from the Plaintiff for a consideration of Rs.
31,66,00,000/-. Believing the representations of Meeti (D1) and
Vishal Parekar, PS 3 of 30
1-IA-1319-2024.doc
Ajmera Realty (D5), the plaintiff withdrew C.P. No.783 of 2020
before the NCLT.
7. The Society (D6) terminated the development agreement
with Meeti (D1). That led to filing of Commercial Arbitration
Petition before this Court. By a Judgment and Order dated 12 th
September 2023, the Commercial Arbitration Petition (L)
No.12837 of 2023 filed by the Society (D6) was allowed while
Commercial Arbitration Petition (L) No.6410 of 2023 filed by
Meeti (D1) came to be dismissed.
8. The plaintiff instituted the instant Suit on 2 nd November
2023 asserting its rights under the Debenture Trust Deed inter
alia seeking a monetary decree against Defendant Nos.1 to 4 for
failure to repay NCDs and to enforce its mortgage and protect and
preserve the security created by Meeti (D1) in favour of the
plaintiff with the consent of Society (D6). The plaintiff also filed
Interim Application No. 431 of 2024 seeking ad-interim and
interim reliefs.
9. In the said Interim Application, an affidavit-in-reply came to
be filed on behalf of Defendant No.5 contending that the Society
(D6) executed a development agreement on 21 st October 2023
with Ajmera Luxe Realty Pvt. Ltd. (Ajmera Luxe), Respondent
No.7.
Vishal Parekar, PS 4 of 30
1-IA-1319-2024.doc
10. The plaintiff thus asserts the alleged transaction sought to
be entered into by Defendant Nos.5 and 6 and Respondent No.7 is
prejudicial to the rights of the plaintiff. It has transpired that
Ajmera Luxe (R7) is an associate/subsidiary company of Ajmera
Realty (D5). These subsequent events have, according to the
plaintiff, necessitated the amendment in the plaint. The plaintiff is
thus constrained to amend the plaint so as to make averments
regarding the collusion between the Defendant Nos.5 and 6 and
Respondent No.7 and bring the subsequent developments on the
record of the Court.
11. The plaintiff avers that the proposed amendment neither
changes the nature of the Suit nor the cause of action is altered.
The proposed amendment does not cause any prejudice to the
defendants. In fact, the impleadment of Ajmera Luxe (R7) as a
party Defendant is necessary for a complete and effectual
adjudication of the dispute. The proposed amendment would also
avoid multiplicity of the proceedings as all the real question in
controversy between the parties can be adjudicated in the Suit.
Hence, this application.
12. An affidavit-in-reply is filed on behalf of the Society (D6). At
the outset, the Society (D6) contends that application for
amendment is completely misconceived. There is no privity of
Vishal Parekar, PS 5 of 30
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contract between the plaintiff and the Society (D6). The reliance
on the consent given by the Society (D6) to Meeti (D1), the
erstwhile developer, was stated to be misplaced as the agreement
between the Society (D6) and Meeti (D1) clearly provided that no
encumbrance or charge would be created on the property of the
Society (D6).
13. The Society (D6) contends that it was constrained to
terminate the development agreement with Meeti (D1) on account
of gross breaches committed by Meeti (D1). The said termination
has been upheld by this Court in Commercial Arbitration Petition
(L) No.12837 of 2023 by a Judgment and Order dated 12 th
September 2023 and the Society (D6) has been permitted to enter
into a fresh agreement with another developer for redevelopment.
14. Without assailing the said judgment, the plaintiff is trying to
indirectly restrain the Society (D6) from proceeding with
redevelopment of the society's property pursuant to the
development agreement executed with Respondent No.7, by
seeking to amend the plaint. The society (D6) further contends
that, since the development agreement with Meeti (D1) came to be
lawfully terminated and challenge thereto, at the instance of Meeti
(D1), has failed, the plaintiff cannot claim any right, title or
interest in the free sale area, over which encumbrance was
Vishal Parekar, PS 6 of 30
1-IA-1319-2024.doc
created by Meeti (D1), the erstwhile developer.
15. Lastly, the Society (D6) contends that, if the proposed
amendment is allowed and the development agreement executed
between the Society (D6) and Ajmera Luxe (R7) is made a subject
matter of the dispute in the instant Suit, the members of the
society, who have been out of their own homes since the year 2017,
would suffer irreparable loss. Thus, the application for
amendment be rejected.
16. Ajmera Luxe (R7) has also resisted the application by filing
an affidavit in reply. The tenability of the application to implead
Ajmera Luxe (R7) is assailed on multiple counts. First it is
contended that Ajmera Luxe (R7) has no nexus to the dispute at
hand and is ex facie neither a necessary nor a proper party to the
instant suit. Second, the instant suit has been instituted by the
applicant for recovery of money from defendant Nos. 1 to 4 and it
is not concerned with the right of redevelopment of the subject
property, which has been granted by the society (D6) in favour of
Ajmera Luxe (R7). Third, the development agreement dated 21 st
October, 2023 which is sought to be assailed by the plaintiff has
been executed pursuant to an express permission granted by this
Court by an order dated 12th September, 2023 in Arbitration
Petition (L) No. 6410 of 2023. Since the said order has attained
Vishal Parekar, PS 7 of 30
1-IA-1319-2024.doc
finality, plaintiff cannot be permitted to put further hindrances in
much delayed redevelopment project of the society (D6).
17. Referring to the Company Petition, being IB No. 624 of 2023,
instituted by the plaintiff against Meeti (D1) and the order dated
5th April, 2024 admitting the petition and, consequently, imposing
the moratorium as envisaged by section 14 of the IBC, Ajmera
Luxe (R7) contends that the plaintiff is not entitled to proceed
with the instant suit itself and, therefore, an application for
amendment therein is wholly misconceived. Since the reliefs in
the instant suit are primarily against Meeti (D1), in the face of
statutory moratorium, the present suit cannot be proceeded with.
18. It is further contended the proposed amendment which calls
in question the development agreement executed by the soceity
(D6) in favour of Ajmera Luxe (R7), substantially alters the cause
of action and/or introduces a fresh cause of action and/or changes
the nature of the suit and, therefore, on this count also the
application deserves to be rejected. Lastly, it is contended that the
plaintiff has resorted to multiple proceedings despite having not
succeeded in the previous attempts to stall the redevelopment of
the society (D6). There are no equities in favour of the plaintiff.
Thus, the application deserves to be rejected.
19. In the backdrop of the aforesaid pleadings, I have heard Mr.
Gaurav Joshi, learned Senior Advocate for the Plaintiff, Mr.Ayush
Vishal Parekar, PS 8 of 30
1-IA-1319-2024.doc
Rajani, learned counsel for defendant No. 1, Mr. Zal Andhyarujina,
learned senior counsel for defendant Nos. 5 and Respondent No.7
and Mr. Sachin Mhatre, learned counsel for defendant No. 6. The
learned counsel took the Court through the pleadings and
documents on record.
20. Mr. Joshi, learned senior advocate for the plaintiff,
submitted that the resistance to the proposed amendment and
impleadment of Ajmera Luxe (R7) does not merit countenance
either on facts or in law. The grounds of objection, namely, the bar
to the continuation of the proceedings under section 14 of the IBC
in view of the order passed by NCLT and the change in cause of
action and nature of the suit claim, are both unsustainable. These
grounds have been raised with an oblique motive to defeat the
legitimate claim of the plaintiff emanating from the Debentures
Trust Deed and the instruments executed by Meeti (D1) to secure
the financial facility extended by the plaintiff. As the proposed
amendment is at a pre-trial stage and the facts which necessitate
the proposed amendment have emerged subsequently, the
amendment deserves to be allowed.
21. Amplifying the submission, Mr.Joshi strenuously submitted
that the relief by way of proposed amendment is primarily against
Ajmera Realty (D5), the Society (D6) and Ajmera Luxe (R7). The
character of Ajmera Realty (D5) and Ajmera Luxe (R7) is that of
Vishal Parekar, PS 9 of 30
1-IA-1319-2024.doc
third parties to CIRP. It is beyond the stretch of imagination that
the third parties can be permitted to take benefit of the
moratorium under section 14 of the IBC and defeat legitimate
rights of the financial creditor by dealing with the assets of the
corporate debtor, with impunity. Mr. Joshi urged with a degree of
vehemence that by the proposed amendment and the reliefs which
the plaintiff proposes to seek, the plaintiff is not at all endangering
or touching the property of the corporate debtor. Laying emphasis
on the object of the moratorium envisaged by section 14 of the IBC,
Mr. Joshi would urge that the legal position has been crystallized
by a catena of decisions that even the promoters and directors of
the corporate debtor cannot claim immunity from the proceedings
by invoking section 14 of the IBC much less the third parties like
defendant Nos. 5 and 6 and respondent No. 7 herein.
22. To buttress these submissions, Mr. Joshi placed reliance on
the decisions of the Supreme Court in the cases of P. Mohanraj and
Ors. vs. Shah Brothers Ispat Private Limited1; Anjali Rathi and
Ors. vs. Today Homes & Infrastructure Pvt. Ltd. And Ors. 2; Ansal
Crown Heights Flat Buyers Association(Regd.) vs. Ansal Crown
Infrabuild P. Ltd and Ors.3; a decision of the Delhi High Court in the
case of SSMP Industries Limited vs. Perkan Food Processors
1 (2021) 6 SCC 258.
2 2021 SCC OnLine SC 729.
3 2024 SCC OnLine SC 64.
Vishal Parekar, PS 10 of 30
1-IA-1319-2024.doc
Private Limited4; and a decision of Allahabad High Court in the
case of Trading Engineers (International) Limited vs. Uttar
Pradesh Power Transmission Corporation Limited 5.
23. Refuting the contentions on behalf of defendant Nos. 6 and 7
that the proposed amendment alters the nature of the suit and/or
introduces a new cause of action. Mr. Joshi submitted that the
cause of action to call in question the development agreement
dated 21st October, 2023 executed by the Society (D6) in favour of
Ajmera Luxe (R7) flows from the very rights which have been
created in favour of the plaintiff under the Debenture Trust Deed
(DTD). The action of termination of development agreement
executed by Society (D6) in favour of Meeti (D1) had already been
assailed by the plaintiff. The challenge to the subsequent
development agreement between the Society (D6) and respondent
No. 7 is in continuation of the assertion of the plaintiffs rights
under DTD. To buttress the submission that the amendments
which are necessary to determine the real question in controversy
and are necessitated by the subsequent events are required to be
liberally allowed, Mr. Joshi placed reliance on the decisions of the
Supreme Court in the cases of Prem Bakshi and Ors. Vs. Dharam
Dev and Ors.6 and Om Prakak Gupta Vs. Ranbir B. Goyal.7
4 2019 SCC OnLine Del 9339
6 (2002) 2 SCC 2
7 (2022) 2 SCC 256
Vishal Parekar, PS 11 of 30
1-IA-1319-2024.doc
24. Mr. Ayush Rajani, the learned counsel for for IRP appointed
in respect of Meeti(D1), supported the application for amendment.
25. Mr. Zal Andhyarujina, learned Senior Advocate for
respondent No. 7, countered the submissions of Mr. Joshi. Inviting
the attention of the Court to the prayers in the plaint and the
additional prayer sought to be introduced by way of amendment,
Mr. Andhyarujina urged with tenacity that the suit as it stands as
well as the case sought to be introduced by way of proposed
amendment, cannot proceed any further. Mr. Andhyarujina
mounted a two-fold challenge to the continuation of the suit. First,
in view of the provisions contained in section 14(1)(a), the suit
cannot proceed against Meeti (D1), the corporate debtor as it is
essentially for recovery of the debt purportedly owed by the
corporate debtor to the plaintiff. Second, the interdict contained in
clause (c) of sub section (1) of section 14 of IBC, according to Mr.
Andhyarujina, operates with full rigor as "any action to foreclose,
recover or enforce any security interest" created by the corporate
debtor in respect of its property is completely barred till the
moratorium remains in force. The substratum of the plaintiff's
claim, by way of proposed amendment, is the security interest
allegedly created by the corporate debtor in its favour. Therefore,
no action to enforce such security interest can continue.
Resultantly, the application does not deserve to be entertained.
Vishal Parekar, PS 12 of 30
1-IA-1319-2024.doc
26. Mr. Andhyarujina joined the issue of the protection under
Section 14 of IBC being claimed by third parties, by canvassing a
submission that resistance of defendant Nos. 5 and 6 and
respondent No. 7 does not proceed on the premise that during the
currency of moratorium no action can be initiated against them,
but on a statutory ground that 'any action to enforce the security
interest created by the corporate debtor' which, the plaintiff
proposes to resort to, cannot be permitted. Mr. Andhyarujina
would urge that the key words in clause (c) of sub section (1) of
section 14 are "any action" and "in respect of its property". The
word "any" expands the scope of the prohibition and is not
restricted to a proceeding against the corporate debtor which is
covered by clause (a) of sub section (1) of section 14. Irrespective
of the parties to the proceedings, be it corporate debtor or the
third parties, if the action is to enforce any security interest
created by corporate debtor in respect of its property, the interdict
contained in clause (c) of section 14(1) of IBC comes into play,
urged Mr. Andhyarujina. Reliance was placed on a decision of the
Supreme Court in the case of Shri Balaganesan Metals v/s. M.N.
Shanmugham Chetty and Ors.8 wherein the wide amplitude of the
word "any' was expounded.
27. It was submitted that the import of the prohibition against
8 (1987) 2 SCC 707
Vishal Parekar, PS 13 of 30
1-IA-1319-2024.doc
the proceedings during the currency of the moratorium is
required to be appreciated in the light of the object of section 14 of
IBC. To lend support to this submission, Mr. Andhyarujina placed
reliance on the decisions of the Supreme Court in the cases of
Alchemist Asset Reconstruction Company Limited vs. Hotel
Gaudavan Private Limited and Others 9 and Indian Overseas Bank
vs. M/s. Ram Infrastructure Limited and Anr. 10. Mr. Andhyarujina
further urged that the submissions on behalf of the plaintiff that
the plaintiff would be left in the lurch if the plaintiff is not
permitted to amend the plaint and proceed against Ajmera Luxe
(R7) is wholly unfounded. It was submitted that the plaintiff has
an efficacious remedy under section 60(5) of the IBC, before the
NCLT. Therefore, the plaintiff can approach the NCLT in the
pending Company Petition which has been instituted by the
plaintiff himself.
28. Mr. Andhyarujina further urged that there is a complete
change in the cause of action. The suit, as originally instituted,
primarily represents an action for recovery of the debt. By the
proposed amendment, the plaintiff seeks to challenge the
development agreement executed by Society (D6) in favour of
Ajmera Luxe (R7), purportedly in an action for enforcement of a
mortgage over a non-existent property. The free sale component,
9 (2018) 16 SCC 94.
Vishal Parekar, PS 14 of 30
1-IA-1319-2024.doc
over which the security interest was created, does not exist. The
development agreement between the Society (D6) and Meeti (D1)
has been lawfully terminated. Therefore, the reliefs sought to be
claimed, by the proposed amendment, fundamentally alter the
character of the suit. Such an amendment is not permissible in
law, submitted Mr. Andhyarujina. To this end, reliance was placed
on a decision of the Supreme Court in the case of Asian Hotels
(North) Limited vs. Alok Kumar Lodha and Others11.
29. Mr. Sachin Mhatre, learned counsel for defendant No. 6
supplemented the submissions of Mr. Andhyarujina.
30. Mr. Joshi, learned senior counsel for the plaintiff, submitted
that the contention on behalf of respondent No. 7 that the plaintiff
has an efficacious remedy under section 60(5) of IBC is a part of a
litigative strategy to defeat the rights of the plaintiff. The NCLT
has no jurisdiction over the matters de hors the insolvency
proceedings. Had the plaintiff approached NCLT against the
defendants other than the corporate debtor, and respondent No. 7,
the jurisdiction of NCLT would have been promptly questioned on
that count alone. Mr. Joshi submitted that the decision of the
Supreme Court in the case of Gujarat Urja Vikas Nigam Limited vs.
Amit Gupta and Others12 elucidates the nature of the residuary
jurisdiction exercised by NCLT under section 60(5)(c) of IBC, and
11 (2022) 8 Supreme Court Cases 145.
12 (2021) 7 SCC 209.
Vishal Parekar, PS 15 of 30
1-IA-1319-2024.doc
affords an answer to the contetnion raised on behalf of R7.
Therefore, the application cannot be resisted on the count that the
plaintiff can approach NCLT.
31. I have carefully considered the material on record and the
rival submissions canvassed across the bar.
32. To begin with, it is necessary to keep in view general
principles which govern the determination of an application for
amendment of plaint. The overarching principles, which govern
the decision to permit a party to amend the pleadings are that, the
proposed amendment is necessary for the determination of the
real question in controversy between the parties, and the
potentiality of prejudice and injustice which is likely to be caused
to the other side in the event the amendment is allowed. All the
amendments which are necessary for the determination of real
question in controversy between the parties are required to be
allowed. Whether the proposed amendment has the propensity to
fundamentally change the nature and character of the suit and
whether a fresh suit on the amended claim would be barred by
limitation or any other statutory provision, are the others
considerations which weigh with the Court in considering the
prayer for amendment. Ordinarily the amendments at a pre-trial
stage, where the interdict contained in the proviso to Order VI
Rule 17 of the Code has no application, are liberally allowed.
Vishal Parekar, PS 16 of 30
1-IA-1319-2024.doc
33. In the case at hand, the suit is at a pre-trial nay at a nascent
stage. The prayer for amendment of the plaint is contested on two
counts. One, the bar under section 14 of IBC to the institution and
continuation of the suit or proceedings or initiating of an action to
enforce the security interest. Two, that the proposed amendment
fundamentally changes the nature and character of the suit.
34. Section 14(1) of the Insolvency and Bankruptcy Code, 2016
reads as under:-
14. Moratorium -
(1) Subject to provisions of sub-sections (2)
and (3), on the insolvency commencement date, the
Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following,
namely:--
(a) the institution of suits or continuation of
pending suits or proceedings against the corporate
debtor including execution of any judgment, decree
or order in any court of law, tribunal, arbitration
panel or other authority;
(b) transferring, encumbering, alienating or
disposing of by the corporate debtor any of its assets
or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any
security interest created by the corporate debtor in
respect of its property including any action under
the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002 (54 of 2002);
(d) the recovery of any property by an owner or
lessor where such property is occupied by or in the
possession of the corporate debtor.
Explanation - ......
35. Before construing the nature of the bar envisaged by
clauses (a) and (c) of sub section (1), it is necessary to note the
object of IBC and especially the mechanism of moratorium under
Vishal Parekar, PS 17 of 30
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section 14. The avowed object of IBC is to ensure revival and
continuation of the corporate debtor, by protecting the corporate
debtor from its own management and from a corporate death by
liquidation. IBC is not envisaged as a mere recovery legislation for
creditors but its primary focus is revival of the corporate debtor
as a going concern and to put the corporate debtor back on its feet.
The moratorium imposed by section 14 is in the interest of
corporate debtor itself, thereby preserving the assets of corporate
debtor during the resolution process for a successful insolvency
resolution.
36. The Report of Insolvency Law Committee of February, 2020
reads, inter alia, as under:-
"8.2 The moratorium under section 14 is
intended to keep 'the corporate debtor's assets
together during the insolvency resolution process
and facilitating orderly completion of the process
envisaged during the insolvency resolution process
and ensuring that the Company may continue as a
going concern while the creditors take a view on
resolution of default.
Referring to the aforesaid report, in the case of P. Mohanraj
(supra), the object of section 14 of IBC was expounded, inter alia,
as under:-
30. ... .....However, paragraph 8.2 is important in that
the object of a moratorium provision such as Section 14
is to see that there is no depletion of a corporate
debtor's assets during the insolvency resolution process
so that it can be kept running as a going concern during
this time, thus maximizing value for all stakeholders.
The idea is that it facilitates the continued operation of
the business of the corporate debtor to allow it
Vishal Parekar, PS 18 of 30
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breathing space to organize its affairs so that a new
management may ultimately take over and bring the
corporate debtor out of financial sickness, thus
benefiting all stakeholders, which would include
workmen of the corporate debtor.
37. It would be contextually relevant to note, in the case of P.
Mohanraj (supra) the Supreme Court enunciated in clear and
explicit terms that the moratorium contained in section 14 of IBC
would apply to corporate debtor and not the natural persons who
are liable to be prosecuted by invoking section 141 of the NI Act,
1881. The observations of the Supreme Court in paragraph 102 in
the case of P. Mohanraj (supra) are instructive and hence
extracted below.
102 Since the corporate debtor would be
covered by the moratorium provision contained in
Section 14 of the IBC, by which continuation of
Section 138/141 proceedings against the corporate
debtor and initiation of Section 138/141 proceedings
against the said debtor during the corporate
insolvency resolution process are interdicted, what
is stated in paragraphs 51 and 59 in Aneeta Hada
(supra) would then become applicable. The legal
impediment contained in Section 14 of the IBC
would make it impossible for such proceeding to
continue or be instituted against the corporate
debtor. Thus, for the period of moratorium, since no
Section 138/141 proceeding can continue or be
initiated against the corporate debtor because of a
statutory bar, such proceedings can be initiated or
continued against the persons mentioned in Section
141(1) and (2) of the Negotiable Instruments Act.
This being the case, it is clear that the moratorium
provision contained in Section 14 of the IBC would
apply only to the corporate debtor, the natural
persons mentioned in Section 141 continuing to be
statutorily liable under Chapter XVII of the
Negotiable Instruments Act.
(emphasis supplied)
38. In the case of Anjali Rathi (supra) following the aforesaid
Vishal Parekar, PS 19 of 30
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decision in the case of P. Mohanraj (supra), the Supreme Court
ruled that the petitioners therein, would not be prevented by the
moratorium under section 14 of IBC from initiating the
proceedings against the promoters of corporate debtor. The
observations in paragraphs 17 and 18 read as under:-
17] At this juncture, we must however clarify the
right of the petitioners to move against the
promoters of the first respondent Corporate Debtor,
even though a moratorium has been declared under
Section 14 of the IBC. In the judgment in P.
Mohanraj v. Shah Bros. Ispat (P) Ltd., a three judge
Bench of this Court held that proceedings under
Section 138 and 141 of the Negotiable Instruments
Act 1881 against the Corporate Debtor would be
covered by the moratorium provision under Section
14 of the IBC. However, it clarified that the
moratorium was only in relation to the Corporate
Debtor (as highlighted above) and not in respect of
the directors/management of the Corporate Debtor,
against whom proceedings could continue.
18] We thus clarify that the petitioners would not be
prevented by the moratorium under Section 14 of
the IBC from initiating proceedings against the
promoters of the first respondent Corporate Debtor
in relation to honoring the settlements reached
before this Court. However, as indicated earlier, this
Court cannot issue such a direction relying on a
Resolution Plan which is still pending approval
before an Adjudicating Authority.
(emphasis supplied)
39. In the case of Ansal Crown Heights (supra), the Supreme
Court referred to the decisions in the cases of P. Mohanraj (supra)
and Anjali Rathi (supra) and reiterated that the protection of
moratorium would not be available to the Directors/ Officers of the
company.
40. It is in the light of the aforesaid object of IBC, in general, and
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section 14, in particular, the import of the bar envisaged by
clauses (a) and (c) of sub section 14(1) of IBC deserves to be
appreciated. From the text of section 14(1)(1)(a) it becomes
evident that the institution of the suits or continuation of pending
suits or proceedings against corporate debtor, is barred once the
adjudicating authority orders the moratorium upon admission of
insolvency resolution Petition. The bar contained in clause (c) of
sub section (1) of section 14 is, however, against the action to
foreclose, recover or enforce any security interest created by the
corporate debtor. If the provisions of clauses (a) and (c) of sub-
section (1) of section 14 (extracted above) are compared and
contrasted, the following position emerges:
First, the bar under clause (a) is to the institution of suits or
continuation of suits or proceedings against the corporate debtor.
Second, the bar is envisaged to insulate the corporate debtor
from suits or proceedings, so as to ensure that the assets of the
corporate debtor are preserved for successful insolvency
resolution.
Third, the prohibition under clause (c), on the other hand, is
against any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its property.
Fourth, the bar under clause (a) is for proceeding against the
corporate debtor whereas under clause (c), it is against
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enforcement of security interest created by the corporate debtor.
Fifth, the focus under clause (a) is on the suit or proceedings
against the corporate debtor but under clause (c) any action to
foreclose, recover or enforce any security interest created by the
corporate debtor over its property is prohibited.
Sixth, though there is an element of continuity and action
against the corporate debtor may fall both under clause (a) and
(c), a situation, governed by clause (c), is not inconceivable where
the corporate debtor may not be necessarily involved as a party.
Seventh, the prohibition contained in clause (c) appears to
be of wide amplitude than the bar to the suit or proceedings
against the corporate debtor under clause (a).
41. Keeping in view, the aforesaid construct of the provisions
contained in clauses (a) and (c) of sub section (1) of section 14 of
IBC, reverting to the facts of the case, it is pertinent to note that
there is not much controversy over the fact that under the
development agreement executed by the Society (D6) in favour of
Meeti (D1), the latter was empowered to create charge or
encumbrance on the free sale component only. The agreement
clearly stipulated that Meeti (D1) had no authority to create any
charge or encumbrance on the property of the Society (D6).
42. Mr. Joshi, learned senior Advocate for the plaintiff,
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submitted that once it is conceded that the Meeti (D1) was
empowered to create security interest over the free sale
component and Society (D6) had given its consent for the creation
of the mortgage and first charge, the rights of the plaintiff as a
mortgagee cannot be defeated by a unilateral termination of the
development agreement by the Society (D6). Once a mortgage
always a mortgage, until the mortgage is lawfully redeemed,
submitted Mr. Joshi.
43. An endeavour was also made to urge that the amount which
was advanced by the plaintiff was utilized for the purposes
envisaged under the development agreement between the Society
(D6) and Meeti (D1).
44. On the aforesaid premise, Mr. Joshi made strenuous effort to
draw home the point that the proposed amendment is not in the
nature of jeopardizing the property of the corporate debtor.
Therefore, the interdict contained in section 14 would not operate.
A very strong reliance was placed by Mr. Joshi on the decision of
the Delhi High Court in the case of SSMP Industries Limited
(supra).
45. In the aforesaid case, Delhi High Court, was confronted with
the question as to whether the adjudication of the counter claim
would be liable to be stayed in view of section 14 of IBC as the
plaintiff who had instituted the suit was under Insolvency
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Resolution Process. After adverting to its another judgment in the
case of Power Grid Corporation of India vs. Jyoti Structures
Limited13, the Delhi High Court held that until and unless the
proceeding has the effect of endangering, diminishing, dissipating
or adversely impacting the assets of corporate debtor, it would not
be prohibited under Section 14(1)(a) of the Code. In the facts of
the said case, the Delhi High Court, found that the counter claim
did not deserve to be stayed under section 14 of the IBC and both
the suits and counter claim ought to proceed to trial.
46. Reliance was also placed on a decision of the Allahabad High
Court in the case of Trading Engineers (supra) wherein the
aforesaid decision of the Delhi High Court in the case of Power Grid
(supra), was followed with approval.
47. I have carefully considered the aforesaid decisions. I find
substance in the submission of Mr. Andhyarujina that the
aforesaid decisions primarily deal with the prohibition contained
in clause (a) of section 14(1) of the IBC. These decisions did not
deal with a situation covered by clause (c) of section 14(1).
48. In the facts of the instant case, the pivotal question that
wrenches to the fore is, whether the proposed amendment falls
within the dragnet of the prohibition contained in clause (c). If the
proposed amendment takes the character of enforcement security
13 (2018) 246 DLT 485.
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interest created by the corporate debtor over its property, it can
not be allowed till the moratorium operates.
49. I am afraid to accede to the submission of Mr. Joshi that the
proposed amendment to the extent the plaintiff proposes to
restrain the defendants from selling, transferring, encumbering,
alienating or disposing, creating third party rights and dealing in
any manner whatsoever with the free sale area of 74226 sq.ft. in
the redevelopment project of the Society (D6), it does not pertain
to the security interest created by Meeti (D1) in favour of the
plaintiff, in respect of Meeti (D1)'s property. In fact, the very
foundation of the plaintiff's claim is that Meeti (D1) had created
the first charge and mortgage in favour of the plaintiff to secure
the advance of Rs. 55 Crores under the DTD. Otherwise, there is
no privity of contract between the plaintiff and the Society (D6).
50. If the averments in the schedule of proposed amendment are
considered on the touchstone as to whether they are in the nature
of enforcing the security interest created by the corporate debtor
over its aforesaid property i.e. the free sale area of 74226 sq.ft in
the redevelopment project, to which Meeti (D1) was entitled to,
under the development agreement between the Society (D6) and
Meeti (D1), then, in my considered view, to the extent the plaintiff
proposes to enforce the security interest, the bar under clause (c)
of section 14(1) operates with full force.
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51. Indisputably, by way of proposed amendment, the plaintiff
seeks to incorporate averments regarding collusion between the
defendant Nos. 1 and 5 to 7 and assail the execution of the
subsequent development agreement between the Society (D6) and
Ajmera Luxe (R7) which is stated to be a wholly owned subsidiary
of Ajmera Realty (D5). Those averments and the relief founded
thereon may not strictly fall within the ambit of enforcement of
security interest. Therefore, the principle of severability would be
required to be applied. Such part of the proposed amendment
which does not fall within the ambit of the prohibition under
clause (c) of section 14(1) of IBC can be permitted to be
incorporated.
52. At this juncture, the challenge on the ground that the
proposed amendment changes the nature and character of the suit
fundamentally, deserves consideration. It is true the plaintiff has
prayed for a decree against the defendant Nos. 1 to 4 in the sum of
Rs.197,82,83,441/- and, in the event of default, a direction for sale
of assets secured and mortgaged in favour of the plaintiff and the
adjustment of proceeds of the sale towards the debt owed by
defendant Nos. 1 to 4 to the plaintiff. It could be urged that,
primarily the suit is for recovery of debt under the DTD. At the
same time, it is necessary to note that, the plaintiff has claimed a
declaration that the plaintiff has a subsisting and valid mortgage
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on the assets over which the first charge and mortgage has been
created by Meeti (D1) and that the resolution dated 23 rd February,
2023 passed by the Society (D6), as recorded in the letter dated
13th October, 2023, is invalid, illegal and not binding on the
plaintiff.
53. Viewed through aforesaid prism, the additional prayer
sought to be made by way of the proposed amendment, seeking a
further declaration that the development agreement dated 21 st
October, 2023 entered between the Society (D6) and Ajmera Luxe
(R7), is illegal, unlawful, bad in law, non est and in any event not
binding upon the plaintiff, is but a facet of assertion of rights
which form the cause of action in the suit. The additional relief
under prayer clause (B-1) sought to be added by way of
amendment appears to be in continuation of the relief claimed in
original prayer clause (B) in the plaint.
54. I am unable to persuade myself to agree with the submission
of Mr. Andhyarujina that the proposed amendment to the extent it
seeks to assail the transaction between the Society (D6) and
Ajmera Luxe (R7) constitutionally alters the nature and character
of the suit. Reliance placed by Mr.Andhyarujina on the decision of
the Supreme Court, in the case of Asian Hotels (supra) does not
advance the cause of the submission on behalf of Ajmera Luxe
(R7). In that suit, the licensees had sought to amend the plaint so
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as to assail the mortgages executed by the licenser in respect of
the entire hotel premises, while the licenses were granted for
individual shops. In that context, the Supreme Court held that by
permitting plaintiffs to amend the plaint to incorporate a prayer
clause to declare the charges/ mortgages on the entire premises as
void-ab-initio , the nature of the suit would be completely changed.
55. The aforesaid decision does not govern the facts of the case
at hand, even remotely. As noted above, the challenge to the
subsequent development agreement flows from the rights asserted
by the plaintiff on the strength of the security created by Meeti
(D1) in accordance with the development agreement executed by
the Society (D6) with Meeti (D1), the erstwhile developer. It is an
altogether different matter, whether the plaintiff will ultimately
succeed in such a challenge.
56. It is trite law that, at the stage of considering the prayer for
amendment in the pleadings, the merits of the case, sought to be
incorporated by way of amendment, are not required to be delved
into. Yet, by way of abundant caution, it is clarified that this Court
may not be construed to have delved into the merits of the claim of
the plaintiff that it is entitled to seek a declaration as to the
validity of the subsequent development agreement by the Society
(D6) in favour of Ajmera Luxe (R7).
57. The conspectus of the aforesaid consideration is that the
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application deserves to be partly allowed. The proposed
amendment to the extent it partakes the character of enforcement
the security interest created by Meeti (D1) in favour of the
plaintiff, cannot be allowed. The amendment to incorporate the
rest of the averments in the schedule of amendment (Exh.A), can
be permitted.
Hence, the following order.
ORDER
1] The application stands partly allowed.
2] The plaintiff is permitted to amend the plaint and
interim application so as to incorporate the contents in
Clauses I, II, III, IV, V (excluding contents marked X i.e.
part of paragraph 59A, 59B, 59C part and 59D), VI, VII
(excluding the contents marked X i.e. part of paragraph
55A, 55B, 55C part, 55D) and VIII only.
3] The prayer to amend the plaint so as to incorporate the
contents at Clauses IX, X and part of clauses V and VII
excluded and marked X above, stands rejected.
4] Necessary amendment be carried out within a period
of three weeks.
5] Amended copy of the plaint and interim application be
served on defendant Nos. 1 to 6 and newly impleaded
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defendant No. 7 within a period of three weeks thereafter.
6] Costs in cause.
(N. J. JAMADAR, J.)
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