Calcutta High Court
Aditya Birla Finance Limited vs Williamson Financial Services ... on 3 November, 2022
1
OD-7
IA NO. GA/1/2022
GA/2/2022
In CS/227/2022
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
COMMERCIAL DIVISION
ADITYA BIRLA FINANCE LIMITED
Vs.
WILLIAMSON FINANCIAL SERVICES LIMITED AND ORS.
BEFORE :
The Hon'ble JUSTICE KRISHNA RAO
Heard On : 29th September, 2022
Order On : 3rd November, 2022.
Appearance
Mr. Ratnanko Banerjee, Ld. Sr. Adv.
Mr. Sakya Sen, Adv.
Mr. Rohit Das, Adv.
Mr. Dwipayan Basu Mullick, Adv.
Mr. Abhishek Kisku, Adv.
Mr. Subhankar Das, Adv.
...For the petitioner
Mr. Abhrajit Mitra, Ld. Sr. Adv.
Mr. Debnath Ghosh, Adv.
Mr. Ritban Sarkar, Adv.
Mr. Sanjoy Ginodia, Adv.
Mr. Shwetank Ginodia, Adv.
Mr. Sushait Dutt Mazumdar, Adv.
Mr. Bhavesh Garodia, Adv.
...For the Respondent no. 2.
Mr. Jishnu Saha, Ld. Sr. Adv.
Mr. Soumya Roy Chowdhury, Adv.
Mr. Deepak Agarwal, Adv.
2
...For the Respondent No. 6.
Mr. Jay Saha, Ld. Sr. Adv.
...For the Respondent no. 2.
Mr. Satadeep Bhattacharya, Adv.
Mr. Ritban Sarkar, Adv.
Mr. Sanket Sarkar, Adv.
Subhajit Ghosh, Adv.
...For Respondent No. 22
ORDER
The question which arises for consideration is whether the petitioner is
entitled for leave to file the instant suit without exhausting the remedy of pre-
institution mediation as provided under Section 12-A of the Commercial Courts
Act , 2015.
The petitioner has filed the suit praying for a decree of Rs.
132,00,04,279/- along with interest and allied prayers against the
respondents.
The petitioner has also filed an application for grant of ad interim
injunction against the respondents. The petitioner has also filed the instant
application for grant of leave under Section 12-A of the Commercial Courts Act,
2015 for dispense with requirement for pre-institution of mediation and
settlement.
The case of the petitioner in the plaint that in the month of February and
March, 2017 in WM Group through the respondent nos. 2 and 3 and other
entities of the WM Group, including respondent nos. 1 and 4 approached the
petitioner and represented that it was in dire requirement of funds and
proposed to avail of term loan facilities of Rs.150 crores and the same would be
repaid by sale of treasury shares of the respondent no. 6 held by its wholly
owned subsidiary, the respondent no. 15 through its Director and trustees, the
respondent no. 16. At the time of said demand, the defendants have also
handed over the latest available unaudited financial statements of the
respondent no. 15 showing investment in shares of the respondent no. 6
comprising approximately 25 % of the shareholding of the respondent no. 6
having an estimated market value approximate 450 crore as on March, 2017.
The overall financial strength of WM Group, in particular, that of its too
large public State companies, respondent nos. 6 and 34, as reflected in their
audited books of accounts were relied upon by the respondents and create an
impression of a strong financial background upon the petitioner. The petitioner
being satisfied with the credibility of the said representation and relying on the
same as well as assurance given by the respondents including the assurance of
repayment facilities from identified cash flows out of sale of Treasury shares of
respondent no. 6 within the specified period, the petitioner had lent an amount
of Rs. 150 crores by issuance of Credit Agreement Letter dt. 24.03.2017 on the
terms and conditions as mentioned in the said Agreement. The facility
Agreement was executed among others on behalf of the respondent no. 1, by
respondent no. 16, one of the Directors of the respondent no. 1 at the relevant
point of time. On execution of the facility Agreement, the total amount of Rs.
150 crores was advanced to the respondent no. 1 on 30.03.2017.
Subsequently, another separate credit facility/ financial assistance was
availed by the WM Group from the petitioner in the year 2018 by way of
subsequent transaction entered into between the petitioner and MBECL. The
credit facility/ financial assistance was granted by the petitioner by way of
subscription to compulsory convertible different share of Rs. 70 crores in
respect of which the petitioner had entered into Put Option Agreement on
24.03.2018. The parties further agreed by way of execution of certain cross
security/ cross pledge agreement that some of the securities created by the WM
Group in favour of the petitioner for securing in previous facility, which is the
subject-matter of the instant suit, put also the security for securing the
obligation of MBECL under the subsequent Put Option Agreement, which is not
the subject-matter of the instant suit. Such securities common to both the
aforesaid facility has also the Put Option Agreement, inter alia, included pledge
of shares of respondent no. 6 (MRIL) and respondent no. 34.
The respondents particular the respondents nos. 1, 2, 3, 4 and 6 have
not taken any steps for repayment of the facility within June, 2018 as agreed
by way of sale of the MRIL Treasury shares despite express undertaking of the
said respondents recorded in various agreements and which was disclosed the
consideration for grant of the said facility to the said respondents.
The respondent nos. 2, 3, 4 and 6 along with the respondent nos. 15 and
16 had diverted about 25 % share in respondent no. 6 valued at Rs. 450 crores
in express branch of the covenants and undertaking of the said respondents
made at the time of disbursement of the facilities.
The petitioner came across the stock exchange disclosure dt. 30.11.2017
is made by the respondent no. 6 on the basis of when intimation dt.
30.11.2017 for the respondent no. 16 in his capacity as trustee of the
respondent no. 15 intimating that he has sold 1,00,00,000 equity shares of Rs.
5 each, representing share 9.1361% of the paid-up capital of the respondent
no. 6 through market traders at the current market price.
When the petitioner came to know about the said fact, the petitioner had
sent a letter to the respondent nos. 2 and 3 with the copy to the respondent
nos. 1 and 4 regarding the aforesaid sale of 9.1361 % of the MRIL Treasury
holding on 30.11.2017 by the respondent no. 16 contrary to the express
undertaking to the promoters that the proceeds obtained from the sale of MRIL
treasurer holding of 24.5 % are to be utilized to mandatorily repay the facility.
The petitioner requested the promoters to repay the outstanding facilities from
the proceeds obtained from the sale of MRIL shares in compliance with the
terms of the facility. In spite of the request made by the petitioner, the
promoters choose not to issue any reply to the petitioner.
The petitioner further came to know from various disclosures made by
the respondent no. 6 to the stock exchange based on intimations from the
respondent no. 6, Indusind Bank Limited and the respondent nos. 17, 18 and
27, during the period from 07.05.2019 to 01.10.2021, the remaining
1,70,67,500 MRIL Treasury shares comprising 16.3394% of the trade of share
capital of the respondent no. 6, held by respondent no. 15 valued at more than
Rs. 100 crore at that time, have also been diverted by the respondent nos. 2
and 3 and the WM Group.
On committing such illegal and fraudulent act, the respondent no. 16,
having already resigned from the Board of Directors of the respondent no. 6
Company on 19.07.2019 and also resigned from the Board of Directors from
the respondent no. 15 company on 19.06.2020.
The petitioner was misguided on the basis of misrepresentation by the
respondent no. 1 and its group of companies particularly, the respondent no. 6
and wrongfully induced entered into the financial facility Agreement.
The respondent nos. 1 to 34 along with the sell are jointly and severally
liable to pay the amounts due to the petitioner by the respondent no. 1. On
29.04.2022, the National Company Law Tribunal, Kolkata has declared
moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 in
respect of MBECL.
The Counsel for the petitioner submits that as the defendants have
borrowed the said amount from the petitioner and facility Agreement were
executed with the condition that within the stipulated period, the respondents
will return the said amount but inspite of returning the said amount, the
respondents have illegally transfer/ dispose of the MRIL Treasury shares and
divert the proceeds thereof and as such there is an urgency to file the instant
suit without exhausting the remedy of pre-institution mediation as provided
under Section 12-A of the Commercial Courts Act.
The Counsel for the respondents have entered into appearance and
oppose the prayer made by the petitioner for grant of leave to file the suit
without exhausting the remedy of pre-institution mediation.
Counsel for the respondents no. 1 by referring the Provision of Order XI
Rule 1 of the Commercial Courts Act, submits that the petitioner has to file
the list of all documents and photo copies of all documents in its power,
possession, control or custody pertaining to the suit along with the plaint but
in the instant suit, the petitioner has not filed the said documents and filed the
documents in the instant application without any leave from the Court to bring
the said documents on record as part of the plaint and as such the documents
as relied upon by the petitioner in the instant application cannot be taken into
consideration.
Counsel for the respondent no. 1 by referring the page no. 90 to page no.
112 of the instant application (GA 2 of 2022) and submits that the said
documents are not the documents listed along with the plaint. Counsel for the
respondent no. 1 further submits that Annexure - "A", "B" and "C" of the
instant application (GA 2 of 2022) are the pre suit documents but the petitioner
has not disclosed the said documents in the plaint.
Counsel for the respondent no. 1 submits that the cause of action for
filing of the suit arose in the year 2017 onwards as the petitioner came to know
that respondents are not returning the said amount and transferring their
shares but had not filed the suit immediately now, the petitioner cannot claim
urgency in the suit to avoid the Provision of pre-institution mediation as
provided under Section 12-A Of the Commercial Courts Act, 2015.
The Counsel for the respondent no. 2 submits that there is no
application for ad interim relief and no relief can be granted. It is further
contended that it is admitted by the petitioner that the instant suit involves a
Credit Facility Agreement dt. 28.03.2017 and the petitioner has sent various
reminders from time to time including the letters dt. 01.12.2017, 10.12.2017,
22.08.2019, 24.09.2019 and 25.10.2019 and 12.03.2020 and as such there is
no urgency after the lapse of five years as the petitioner came to know that the
respondents have not repaid the said amount and also transferring the shares
in the year 2017 and 2020 itself. It is further contended that in the pleading,
the petitioner has admitted that he has sent the notice on 31.03.2020 and
31.03.2021 but the respondents have not repaid the said loan and thus at this
stage, the petitioner cannot claim urgency.
Learned Counsel for the respondent no. 2 further submits that moratorium
order was passed in the year 2020 which was in the knowledge of the petitioner
but the petitioner has not taken any step for these two years and all of a
sudden after more than two years, the petitioner has came with the urgent
application which cannot be entertained.
Learned Counsel for the respondent no. 2 further pointed out that the
petitioner has also admitted in the pleading that in the month of July, 2022,
the petitioner came to know from the audited financial for the quarter entered
on 31.03.2022 of the respondent no. 1 uploaded on 24.05.2022 which cannot
be relied upon. The Counsel for the respondent no. 2 further submits that the
petitioner has also admitted that the Reserve Bank of India has already
cancelled the license of the respondent no. 4 to operate the non banking
finance company. Counsel for the respondent no. 2 further submits that the
plaintiff has not served the copy of the plaint and also not enclosed any
document to support the ingredients of Order 38 Rule 5 of the Code of Civil
Procedure for grant of injunction.
The Counsel for the respondent no. 2 further submits that the incident
as narrated by the petitioner is prior to the filing of the suit but in the plaint,
the petitioner has not disclosed the said document and the petitioner has
enclosed the said document in the instant application without any prayer for
grant of leave to bring the said document on record and as such the said
document cannot be relied upon.
The Counsel for the respondent no. 2 submits that there is no urgency in
the suit filed by the petitioner and as such the plaintiff has to exhaust the
remedy of pre-institution mediation as provided under Section 12-A of the
Commercial Courts Act, 2015. Counsel for the respondents prays for rejection
of the instant application.
The Counsel for the respondent no. 6 submits that the petitioner has
referred the total plaint in the instant application. The Counsel for the
respondent no. 6 further submits that the petitioner has not filed any
document to prove the urgency to obtain an urgent relief as provided under
Order 38 Rule 5 of the Code of Civil Procedure. Counsel for the respondent no.
6 further submits that the petitioner has not obtained any leave from this
Court to produce further documents in addition to the documents disclosed in
the plaint. Counsel for the respondent no. 6 further contended that the suit
was filed on 05.09.2022 and was presented on 12.09.2022 but no application
is filed to obtain leave to incorporate further documents in the plaint. It is
further contended that the petitioner cannot file suit for secure debts. Counsel
for the respondent no. 6 submits that the petitioner has filed the suit along
with an application for ad interim relief and as such the instant application
being GA 2 of 2022 is not maintainable. Counsel for the respondent no. 6
further submits that there is no urgency appears on the face of record and as
such no leave can be granted for filing the suit without exhausting the remedy
of pre-institution mediation.
Heard, the Learned Counsel for the respective parties, pleadings and the
documents available on record. The petitioner has filed the suit against the
respondents for recovery of money along with interest and allied prayers. At the
time of filing of the suit, the petitioner has also filed an application for grant of
ad interim injunction.
Admittedly, the suit is the commercial suit and none of the parties have
denied regarding the nature of the suit.
The only dispute between the parties is that whether the petitioner is
entitled for leave to file the suit without exhausting the remedy of pre-
institution mediation as provided under Section 12-A of the Commercial Courts
Act.
Section 12-A of the Commercial Courts Act, 2015 reads as follows:-
"12-A : Pre-institution Mediation and Settlement :-
1. A suit, which does not contemplate any urgent interim relief under this
Act, shall not be instituted unless the plaintiff exhausts the remedy of
pre-institution mediation in accordance with such manner and
procedure as may be prescribed by rules made by the Central
Government.
2. The Central Government may, by notification, authorize the Authorities
constituted under the Legal Services Authorities Act, 1987 (39 of
1987), for the purpose of pre institution mediation."
In the case reported in (2022) SCC OnLine SC 1028 (Patil Automation
Private Limited & Ors. Vs. Rakheja Engineers Private Limited), the Hon'ble
Supreme Court held that :
"92. Having regard to all these circumstances, we would dispose of
the matters in the following manner. We declare that Section 12A of the Act
is mandatory and hold that any suit instituted violating the mandate of
Section 12A must be visited with rejection of the plaint under Order VII
Rule 11. This power can be exercised even suo moto by the court as
explained earlier in the judgment. We, however, make this declaration
effective from 20.08.2022 though that concerned stakeholders become
sufficiently informed. Still further, be however direct that in case plaints
have been already rejected and no steps have been taken within the
period of limitation, the matter cannot be reopened on the basis of this
declaration. Still further, if the order of rejection of the plaint has been
acted upon by filing a fresh suit, the declaration of the prospective effect
will not avail the plaintiff. Finally, if the plaint is filed violating Section 12A
after the jurisdictional High Court has declared Section 12A mandatory
also, the plaintiff will not be entitled to the relief."
In the said judgment, the Hon'ble Supreme Court has declared Section 12-
A is mandatory if the suit do not contemplate urgent relief.
The Division Bench of the Delhi High Court in the case of Dinesh Lal
Dabani and Anr. Vs. M/s. DSPC Engineering Private Limited and Ors., dt.
14.10.2022 held that "The words which does not contemplate any urgent
interim relief referred to the contemplation of the plaintiff i.e., whether the
plaintiffs desires to seek any urgent interim relief or not. The language of the
Section does not suggest that it is for the Court to first access, whether a case
for grant of urgent relief ex parte, or otherwise, is made out or not and,
thereafter, on the basis of that prima facie determination, decide the issue
whether exemption from exhaustion of the remedy of pre-institution mediation
should be granted or not."
The Division Bench of the Delhi High Court in the case of Ms. Intense
Fitness and Spa Private Limited vs. M/s. Apnaghar Builders Private Limited dt.
16.02.2022 held that "We are of the view that where a suit contemplates any
urgent interim relief under the Commercial Courts Act, it could be instituted
without exhausting the remedy of pre-institution mediation. The words "which
does not contemplate any urgent interim relief refer to the contemplation of the
plaintiff desires to seek any urgent interim relief, or not."
In the present suit, the petitioner has filed an application for grant of ad
interim relief. The petitioner has also filed the instant application being GA 2 of
2022 praying leave to file the instant suit without exhausting the remedy of
pre-institution mediation. In the plaint as well as in the application, the
plaintiff had made out a case that the plaintiff had lent Rs.150 crores to the
respondents with the assurance that the respondents will return the said
amount within two years by selling the share of respondent no. 6 but
subsequently that the petitioner came to know that the respondents have
fraudulently and illegally transfer/dispose of MRIL Treasury Share and diverted
the proceeds thereof. The main contention of the plaintiff is that if an
injunction is not passed there is every apprehension that if any decree is
passed in favour of the petitioner would merely be in a paper decree which the
petitioner will not be in opposition to execute the same. The respondents and
the caveator have raised their objection that the petitioner came to know about
the transfer of the share by the respondent in the year 2017 itself and
subsequent thereof the petitioner has made several correspondences till 2020
inspite of knowing of the fact in the year 2017 to 2020, the petitioner has not
taken any steps and as such all of a sudden at this stage, it cannot be said
that there is any urgency. The respondents have also raised the contention that
the petitioner has not disclosed all the documents in the plaint and subsequent
by filing the instant application being GA 2 Of 2022, the petitioner has added
some documents which cannot be treated as a part of the documents of the
plaint as the plaintiff has not taken any leave from this Court to bring the said
documents as part of the documents of the plaint. The Counsel for the
respondent no. 6 has relied upon the judgment reported in (2011) 6 SCC 321
(Mahadev Govind Gharge and Ors. Vs. Special Land Acquisition Officer, Upper
Krishna Project Jamkhandi, Karnataka and submits that the law contemplates
that a caveator is to be heard by the Court before any interim order can be
passed against him. In the instant application (GA 2 of 2022), the petitioner
has not prayed for any interim order against any party but the petitioner has
only prayed for leave to file the suit without exhausting the remedy of pre-
institution mediation. The petitioner prays for leave to file the said suit so as to
enable the petitioner to move an application for grant of urgent interim relief
and thus this Court is of the view, the judgment relied by the respondent no. 6
is not applicable in the instant application as the respondent will get an
opportunity of hearing at the time of hearing of application for grant of interim
relief. The petitioner during the argument submits that the petitioner is not
relying upon the documents which are annexed with the instant application
and is only relying upon the documents disclosed in the plaint.
The object of the Act of 2015 is to ensure expeditious and speedy disposal
of a commercial dispute. Expedition and speed in disposing of commercial
dispute is attained, in the wisdom of the legislature, by a pre-institution
mediation. Section 12A(1) of the Act of 2015 distinguishes suits filed under the
Act of 2015 into two categories. It treats the two categories of suits differently.
Suits are categorize into two on the basis of need of the plaintiff to obtain
urgent interim relief. One category is a suit where the plaintiff does not seek
urgent interim relief. In such category Section 12A of the Act of 2015 debars
the plaintiff from instituting a suit unless the plaintiff exhausts the remedy of
the pre-institution mediation. The provisions of sub-Section (1) of Section 12A
of the Act of 2015 are such that, a plaintiff is obligated to approach the
appropriate authority for a pre-institution mediation, unless he seeks urgent
interim relief, in respect of a commercial dispute, to approach the Court for
resolution of the commercial dispute. Section 12A of the Act of 2015 prescribes
an obligation on the plaintiff to undertake the pre-institution mediation and
vests a corresponding right on the defendant. The defendant enjoys the right of
a pre-institution mediation and in the default of the plaintiff not going for pre-
institution mediation, then having a suit against the defendant by such
defaulting plaintiff, being barred by law. Failure of the plaintiff to exhaust pre-
institution mediation, unless, he seeks urgent relief, in a commercial dispute,
gives a corresponding right to the defendants to claim that, such suit could not
have been instituted by the plaintiff. Such failure of the plaintiff will result in
the dismissal of the suit if allowed to be instituted. The other category of suits
under Section 12A of the Act of 2015 is a suit where the plaintiff seeks urgent
interim relief.
The two categories of the suits under Section 12A of the Act of 2015 are
treated differently. In the category of suits where the plaintiff does not seek
urgent relief, the plaintiff is statutorily required to exhaust pre-institution
mediation, whereas a plaintiff seeking urgent interim relief is not required to do
so. In a suit where the plaintiff does not seek urgent reliefs, imitation is
extended or kept in abeyance, as one may perceive it, till the conclusion of the
statutorily mandated period of mediation while in the other category no such
benefit is extended.
Given the nature of the language used in the Section 12A of the Act of
2015, and the two categories of suits being dealt with thereunder, and taking
into consideration the distinction between 'filing' of a suit and its 'institution' in
my view, it requires the Court to apply its mind at the time of the suit being
presented before it, as to whether the plaintiff in a suit which does not
contemplate any urgent interim relief under the Act of 2015 exhausted the
remedy of pre-institution mediation in accordance with the manner and the
procedure prescribed or not. Sub-Section (1) of Section 12A of the Act of 2015
casts a duty upon the Court to ensure that a suit is instituted by a plaintiff in
accordance with procedure laid down therein. The duty is akin to a duty under
Section 3 of the Limitation Act, 1963. A plaintiff may not undertake pre-
institution mediation if the plaintiff is in a position to demonstrate that, the
plaintiff requires urgent interim relief. In order to do so, the plaintiff has to
approach the Court before which the suit is to be instituted and satisfied the
Court that it needs to institute such suit without undertaking a pre-institution
mediation in view of the urgency claimed by the plaintiff.
In view of the above, this Court is of the view that the petitioner has filed
the suit along with an application for grant of urgent relief and this court
satisfied that the petition filed by the petitioner for grant of urgent relief is
required to be heard urgently on the facts and circumstances mentioned in the
plaint and in the application for grant of urgent relief.
In view of the above, GA 2 of 2022 is allowed by granting leave to the
petitioner to file the suit without exhausting the remedy of pre-institution
mediation.
GA 2 of 2022 is thus disposed of.
(KRISHNA RAO, J.)
Later :
Counsel for the respondent No. 1 prays for stay of the order. Prayer is
considered and rejected.
(KRISHNA RAO, J.)
