Ramee Hotels Private Ltd. vs Ifci And Others
2008 Latest Caselaw 934 Del

         THE HIGH COURT OF DELHI AT NEW DELHI
%                                            Judgment delivered on: 04.07.2008

+               WP(C) 1005/2007

Ramee Hotels Private Ltd.                         ...        Petitioner.

                                     --versus--

IFCI and Others                                   ...       Respondents.

Advocates who appeared in this case:-

For the Petitioner Mr Dushyant Dave and Mr Parag Tripathi Sr Advocates with Ms Jayashree Shukla and Mr Punish Arora For the Respondents Dr A.M. Singhvi Sr Advocate with Mr Rajiv Nayar Sr Advocate Mr Dinkar Singh, Mr Neeraj Sharma and Ms Roopali Singh.

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED

1. Whether Reporters of local papers may be allowed to see the judgment ? Yes

2. To be referred to the Reporter or not ? Yes

3. Whether the judgment should be reported in Digest? Yes

BADAR DURREZ AHMED, J

1. This writ petition seeks the setting aside of the alleged

assignment in favour of respondent No.3 made by respondent No.1

with respect to the financial assets of Balaji Hotels Enterprises

(Private) Limited which in turn owned property at Mount Road,

Chennai. The petition also seeks the issuance of directions to

respondents 1 and 2 to consider the purported bid of the petitioner in a

transparent manner and in line with the CVC guidelines after holding

that the process by which the financial assets have been assigned to

respondent No 3 was illegal and invalid.

2. The facts are that the respondent No.1 (IFCI) and

Respondent No. 2 (TFCI) had extended financial assistance of a total

amount of approximately Rs 187.3 crores and Rs 29.9 crores

respectively to Balaji Hotels and Enterprises (Private) Limited

(hereinafter referred to as `Balaji Hotels'). Apart from the principal

amount of the financial assistance, substantial interest had also

accumulated on those amounts. Balaji Hotels defaulted in making the

re-payment and consequently, the financial assistance, which was in the

shape of loan and debentures, came to be, declared as non-performing

assets.

3. The respondent No.1 gave Balaji Hotels several

opportunities to make the repayments and to revive the assets. An offer

for a one time settlement of dues was made by the respondent No.1 on

6.11.2000 but that was not accepted by Balaji Hotels. Several options

for recovery of the amount due under the said financial assistance were

considered from time to time by the Board of Directors of respondent

No.1. Apparently, sometime in May, 2005, the Asset Reconstruction

Company (India) Ltd. (ARCIL), which had also extended financial

assistance to Balaji Hotels, entered into an agreement to assign its debt

in favour of the petitioner and the said debt was cleared by the

commercial area of the property which was belonging to Balaji Hotels.

4. Thereafter, the petitioner became interested in taking over

and reviving the assets of Balaji Hotels. Formal communications in

this regard were sent by the petitioner on 19.12.2005 and 3.3.2006 to

the respondents 1 and 2 submitting its proposal for reviving the assets

of Balaji Hotels by offering a sum of Rs 175 crores to respondent No.1

and Rs 32 crores to respondent No. 2.

5. However, independent of this, on 16.3.2006, the respondent

No 1 issued a memorandum to the Board of Directors for the meeting

to be held on 25.3.2006. In that memorandum, under the head

―background‖, it was stated that in order to increase the options

available to banks/FIs/NBFCs for resolving their non-performing assets

(NPAs) and to develop a healthy secondary market for NPAs, where

securitization companies and reconstruction companies are not

involved, Reserve Bank of India (RBI) had issued guidelines to

banks/FIs/NBFCs on purchase/sale of NPAs vide circular No.

RBI/2005-06/54, DBOD No.BP.BC.16/21.04.048/2005-2006 dated

13.7.2005. The memorandum further indicated that the guidelines were

applicable to banks, FIs and NBFCs in respect of purchase/sales of

NPAs from other banks/FIs/NBFCs (excluding

Securitization/Reconstruction Companies). It was recommended that

the Board of Directors may approve the policy and procedure to be

followed for sale of Non-Performing Assets of IFCI to

Banks/FIs/NBFCs. Thereafter, in the meeting held on 25.3.2006 the

Board of Directors of respondent No.1 approved the policy and

procedure for sale of Non-Performing assets based on the said RBI

Circular dated 13.7.2005 as applicable for the sale of NPAs. It must be

mentioned that in the meanwhile, the Board of Directors of respondent

No.1 held a meeting on 20.3.2006 and considered the one time

settlement proposal, proposed by Balaji Hotels for the discharge of the

debt of respondents 1 and 2 and passed a resolution accepting the

proposal. But that proposal fell through inasmuch as Balaji Hotels

failed to honour its commitment.

6. On 28.3.2006 the Board of Directors of respondent No. 1

gave another opportunity to Balaji Hotels for settlement of dues. This

time also, Balaji Hotels failed to honour its commitment. On 4.9.2006

the respondent No. 2 in its Board meeting passed a resolution that

Balaji hotels could be given time for payment under the one-time-

settlement scheme till 30.9.2006 and that in case the payment was not

received by then, steps would be taken against Balaji Hotels under the

Securitization and Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002 (hereinafter referred to as ―the

Securitization Act‖) would be considered in line with the steps that

might be taken by the IFCI. On 28.9.2006 the Board of Directors of

respondent No. 1 granted approval for realization of the loan amount

by way of assignment of non-performing assets as per the policy

approved by it on 25.3.2006. On 31.10.2006 an advertisement was

published by the respondent No.1 in major Metro Cities to the

following effect:-

―IFCI Ltd. has decided to put on sale certain non- performing financial assets including projects in textile hotel, chemical and edible oil sectors etc., in terms of RBI Guidelines issued vide Circular No.DBOD No. PB.BC.16/21.04.048/2005-06 dated 13.7.2005 to eligible purchaser(s), i.e., Banks/FIs/NBFCs registered with RBI. The sale process would also be open for participation by Registered Securitization/Reconstruction Companies. Parties interested for purchasing the assets may express their interest in writing to the General Manager DRO/LNRC, IFCI Ltd., 61, Nehru Place, New Delhi - 110019 (Telephone No.011-26230200/26230466) by 10th November, 2006. The interested parties will have to execute a Confidentiality Agreement with IFCI and to agree with the General Terms & Conditions stipulated in this regard after which the details of the assets will be disclosed and inspection of documents will be allowed for the purpose of due diligence. Offer(s) may be submitted for purchase of one/more number of assets in cash and should be accompanied by stipulated non-interest bearing Earnest Money Deposit, which would be refundable to unsuccessful bidders. However, offer(s) will be evaluated for each asset / loan separately. IFCI reserves the right to reject any offer or to withdraw any asset / loan from the list of assets on sale without assigning any reason thereof and the decision of IFCI's Competent Authority in all matters in respect of the offers would be final.

Interested parties may contact the undersigned before the due date at the above address.

        Place: New Delhi         Sd/-                        Sd/-
                  st
        Dated: 31 October,   ( S. Lahiri )           (Sujit K. Mandal)
        2006               General                   General Manager
                           Manager‖

It is pertinent to note that the above advertisement was not limited to

the non-performing assets of Balaji Hotels but related other projects

also. This is apparent from the first line of the advertisement which

indicates that ―IFCI Ltd. has decided to put on sale certain non-

performing financial assets including projects in textile, hotel, chemical

and edible oil sectors etc.......‖ The second important aspect of the

said advertisement is that the respondent No.1 had decided to sell the

said non-performing financial assets in terms of the RBI Guidelines of

13.7.2005 to ―eligible purchaser(s) i.e., Banks/FIs/NBFCs registered

with RBI.‖ The sale process was also opened for participation by

―Registered Securitization/Reconstruction Companies.‖ The third

important aspect of the said advertisement is that the parties interested

in purchasing the assets were required to express their interest in

writing by 10.11.2006 and that such parties would have to execute

Confidentiality Agreements with respondent No.1 to agree with the

general terms and conditions stipulated with regard to the sale, after

which the details of the assets would be disclosed and inspection of

documents etc. would be allowed.

7. Consequent upon the said advertisement, the respondent

No.1 received two written expressions of interest before 10.11.2006 in

respect of Balaji Hotels. One was from the respondent No.3 and the

other was from ARCIL. It is important to note that the petitioner did

not respond to this advertisement.

8. Pursuant to the expression of interest by the parties the

respondent No.3 made its offer on 26.12.2006 of Rs 198 crores to IFCI

and a sum of Rs 30 crores to TFCI for the transfer of the non-

performing assets along with the securities and/or the hotels free from

any encumbrance and full and final settlement of Balaji Hotels' dues.

The said amount was agreed to be paid in the form of an advance

amount of Rs 3 crores and the balance amount (Rs 225 crores) before

the cut-off date specified therein. On the other hand ARCIL had made

an offer of Rs 187.29 crores to FCI plus Rs 30 crores to respondent

No.2. ARCIL had also offered that a substantial portion of the amount

would be paid after subscription to securities receipts by IFCI.

Consequently, in the Board meeting of respondent No.1 held on

28.12.2006, the proposal for settlement of IFCIs loan in respect of

Balaji Hotels by way of assignment in favour of respondent No.3 for a

minimum amount of Rs 198 crores was approved. It was so approved

because respondent No. 3's proposal for purchase of the respondent

No.1's loans was preferable in view of the higher amount offered as

well as the payment terms envisaging cash payment by 24.1.2007

rather than issuance of securities receipts envisaged by ARCIL.

9. Thereafter, on 3.1.2007 respondent No.1 confirmed that it

had received a sum of Rs 3 crores towards advance from respondent No

3. By a letter dated 15.1.2007 ARCIL revised its offer from Rs 187.29

crores to Rs 205 crores. On 22.1.2007 the petitioner wrote to Citibank

(Respondent No.3) objecting to the purchase of financial assets by

respondent No.1 in relation to Balaji Hotels on the ground that the

petitioner owned certain debentures which were secured by the

commercial complex which was the ground floor and the first floor of

the hotel property and that there was no demarcation of common

facilities in building. On 24.1.2007 the respondent No.3 and its

nominee Robust Hotels (Private) Ltd. jointly wrote a letter to

respondents 1 and 2 that they are agreeable to pay a total sum of Rs 235

crores out of which Rs 205 crores would be paid to respondent No.1

and the balance Rs 30 crores to respondent No.2. On 24.1.2007 itself,

the petitioner sent another communication to respondent No.1 wherein

it indicated that it had been vigorously pursuing the purchase of the

subject assets from respondent No.1 through its letters dated 3.3.2005,

26.11.2005, 10.12.2005 and 19.12.2005 and various personal visits. In

the said letter it is further stated:-

―We have now been informed that you are in the process of finalization of sale of the subject assets to another party without having invited us for negotiations despite the fact that you know that we have repeatedly expressed keen interest in the assets and are the most logical bidders for it as we are holding a part of the asset which by its nature is indivisible due to common utilities, common areas, undivided public areas, and undivided interest in the land.

We once again confirm our keen interest in purchasing the subject assets from your company and would like to make a firm offer of Rs 205 crores for the same. We confirm that if our bid is accepted then we would immediately make a deposit of 20% of the bid amount in a no lien account pending finalization of bid documentation. We further confirm that we will make entire payment and conclude the deal as finalized within 21 days of the same. We are bidding separately for Tourism Finance Corporation of India Limited (`TFCI') assets in the same property.

We once again urge you to give our repeated bids for the subject assets serious consideration and invite us for negotiations at the earliest. This would only be the fair and just way to finalise the bid and to maximize the value to be received by your organization.‖

10. The petitioner then sent a legal notice through its advocate

on 25.1.2007 to the respondent No.1 indicating that the petitioner had

Secured Redeemable and Non-Convertible Debentures in Balaji Hotels

and that any attempt to take any enforcement action against the hotel

property or to demarcate any common areas and facilities entrances

may affect the commercial property thus violating the rights, interests

and security of the petitioner. It was suggested that, therefore, it would

be equitable that the ownership of the entire property is vested in a

single owner. It was also mentioned in the said notice that it had come

to the knowledge of the petitioner that Citibank (respondent No.3) was

in the process of acquiring the secured debt of respondent (IFCI) in

Balaji Hotels and that this had come as a shock inasmuch as the

petitioner had all along been interested in the purchase of the said asset

but the petitioner had not even been called for negotiations. It was

alleged that the respondent No.1 was in default of its various

obligations as a public financial institution by not adhering to the

principles of transparency and fair play in its dealings. The respondent

No.1 was put to notice that on account of the failure to offer the

secured debt of Balaji Hotels through the bidding route would amount

to default on the part of the respondent No.1 and that the petitioner

would be constrained to resort to legal action in this regard.

11. Again, on 27.1.2007, the petitioner sent a letter to respondent

No.1 to consider its offer for Rs 208 crores and its willingness to

deposit a sum of Rs 7.25 crores as earnest money to substantiate the

offer. The petitioner requested respondent No.1 to invite it for

negotiations at the earliest. On 29.1.2007 the respondents 1 and 2

approved the proposal of respondent No.3 to pay the higher price of Rs

240 crores as offered by it on 24.1.2007. Thereafter, this writ petition

is filed.

12. In the background of the above facts, the decision to sell the

said non-performing Assets has been challenged by the petitioner

primarily on the ground that it submitted offers since 2005 and while it

was ready to give a higher offer of Rs 240 crores (Rs 208 crores to

IFCI and Rs 32 crores to TFCI), it had not been called for negotiation

and the deal was sought to be settled in a non-transparent manner and

through private negotiations with the respondent No.3 and/or its

nominee Robust Hotels (Private) Ltd. It was also contended on behalf

of the petitioner that the impugned actions of respondents 1 and 2 are

clearly arbitrary and violative of Article 14 of the Constitution of India.

It was also contended that the Reserve Bank of India Guidelines stood

violated because the sale of the non-performing asset is not to a bank

but to a private party i.e., Robust Hotels (Private) Ltd. It is the

petitioner's case that if the offer of Robust Hotel (Private) Ltd. could be

considered, and then the petitioner also ought to have been invited for

negotiations inasmuch as it was willing to offer a higher price. It was

also contended that though both the respondents say that the contract

stood concluded on 27.12.2006 and on 24.1.2007, the respondent No.1

issued a notice under Section 13 (2) of the Securitization Act on

7.2.2007 in respect of the said assets. It was contended that if the

contract stood concluded on 27.12.2006 and 24.1.2007, how could the

respondent No.1 issue a notice under the Securitization Act. This

circumstance, according to the learned counsel for the petitioner, meant

that the contract had not been concluded. If that were to be the case

then, it was contended, the petitioner's offer of 24.1.2007 and further

offer of 27.1.2007 also ought to have been considered by the

respondents 1 and 2 before finalization of the sale transaction.

13. In response Dr Singhvi, who appeared on behalf of the

respondents 1 and 2, after going through the sequence of events in

detail, submitted that the petitioner did not participate in the invitation

for offer extended by the respondents by virtue of their advertisement

dated 31.10.2006. It was also contended that the eligibility criteria set

out in the advertisement was based on the RBI Guidelines and that

there was a rationale behind the scheme of limiting the eligibility to a

species namely, banks, FIs and NBFCs registered with Reserve Bank of

India as well as registered securitization/reconstruction companies. It

was contended that since the petitioner did not express its interest in

writing in response to the said advertisement, there is no question of

the petitioner's offer, which has been made outside the said

advertisement, being considered or the petitioner being called for

negotiations. It was also contended by Dr Singhvi that the petitioner

was ineligible to offer because it did not fall in any of the categories of

eligible institutions. Therefore, its offer made in late January, 2007 is

of no consequence. He also indicated that the petitioner's letter dated

3.3.2006 was the last communication by it before the advertisement,

the expression of interest on the part of the respondent No.3 and

ARCIL, and the acceptance of respondent No. 3's offer. The next letter

which was written by the petitioner was only of 22.1.2007, after the bid

was over. It was then followed by the letter of 24.1.2007, the legal

notice of 25.1.2007 and the reminder of 27.1.2007. It was contended

that the petitioner remained dormant and silent from 3.3.2006 and

suddenly woke up to a frenetic activity ten months later on 22.1.2007.

According to Dr Singhvi, the petitioner was nothing but a spoiler. He

submitted that the petition deserves to be dismissed inasmuch as the

petitioner is seeking a change in the rules of the game. The petitioner

has not alleged any mala fides, nor have the Reserve Bank of India

Guidelines or the terms of the advertisement dated 31.10.2006 been

challenged. It was contended that in fact, the Reserve Bank of India

Guidelines restricting sales of NPAs to species of institutions had been

upheld by this Court in Haryana Steel and Alloys Ltd. v. FCI Ltd and

Another: 137 (2007) DLT 554 (DB).

14. Mr Rajiv Nayyar, the learned senior counsel appearing on

behalf of the respondent No.3 submitted that the petitioner had no locus

standi inasmuch as the petitioner did not fall within the category of

―eligible purchasers‖ in terms of the advertisement of 31.10.2006. The

petitioner was not eligible and, therefore, did not submit any written

expression of interest within the stipulated date, i.e. 10.11.2006. Only

two entities, responded - respondent No.3 and ARCIL. The respondent

No 3's offer was accepted, being the higher of the two as also

providing for better payment terms. He submitted that there was no bar

to a bank or a financial institution reselling the assets and, therefore,

the transaction with Robust Hotels (Private) Ltd cannot be faulted. He

submitted that it is not true that respondent No.3 had been set up by the

private party for the purchase of the said assets.

15. Considering the facts and circumstances of the case as also

the arguments of counsel for the parties, I am of the view that the

question of locus standi is itself an insurmountable hurdle for the

petitioner. It is an admitted position that the Reserve Bank of India

Guidelines circulated on 13.7.2005 is not under challenge. Also not

under challenge is the advertisement dated 31.10.2006. Consequently,

when the respondent No.1 had decided to put its non-performing

financial assets on sale and had specified the category of eligible

purchasers, which has not been challenged by the petitioner, then, the

petitioner, not belonging to the category of eligible purchasers, cannot

make any grievance with regard to the sale finalized pursuant to the

said advertisement to an eligible purchaser. The respondent No.3 and

ARCIL were the only two entities which expressed interest in the

purchase of the non-performing assets relating to Balaji Hotels. Their

offers were considered. The respondent No. 3's offer was higher as

well as on better payment terms and, therefore, it was accepted.

Subsequently, revised offers were made both by ARCIL and

respondent No.3 and the highest offer of Rs 240 crores of respondent

No.3 was accepted by the respondents 1 and 2. The entire amount of

Rs 240 crores also stood paid by the respondent No.3 on 24.01.2007. It

is clear that the petitioner was in-eligible to participate in the sale

process. The petitioner has not challenged the Reserve Bank of India

Guidelines or the eligibility criteria set out in the said advertisement

dated 31.10.2006. That being the case, the petitioner has no locus

standi to challenge the sale which has been finalized in favour of the

respondent No. 3.

16. It is also pertinent to note that the petitioner had shown some

interest in purchasing the assets of Balaji Hotels but this was in late

2005 and early 2006 as evidenced by the said letters dated 19.12.2005

and 3.3.2006. After that there was a complete silence on the part of the

petitioner right upto 22.1.2007 when the sale process was over. It is

impermissible for a party who does not fit within the rules to side step

the same and to make offers at the final stages when everything is over

and the highest offer has already been accepted. If that was to be

permitted, it would amount to negating the rules for the bidding process

and that, too, when the eligible purchasers have already participated

and submitted their offers. Such a course of action would lead to

highly unfair results.

17. It must also be noted that when Balaji Hotels was repeatedly

given opportunities for entering into a one-time settlement and when

the petitioner was making offers for acquiring the assets, the

respondent No.1 was also simultaneously considering the question of

selling non-performing assets of not just Balaji Hotels but of other

projects in keeping with the Reserve Bank of India Circular of

13.7.2005. It is, therefore, clear that if the respondent No.1 was not

able to work out a specific proposal through one-time settlement or

otherwise in respect of a project, such as Balaji Hotels, the respondent

No. 1 was also simultaneously contemplating the sale of all non-

performing financial assets generally, involving several projects. Had

the specific proposal for one-time settlement with Balaji Hotels, with or

without the petitioner, succeeded, then, the question of putting the non-

performing financial assets in relation to Balaji Hotels to sale would

not have arisen. It is, therefore, clear that the earlier offers which the

petitioner had been making in 2005 and early 2006 were with regard to

a specific sale in relation to Balaji Hotels. Unfortunately, that did not

materialize. Consequently, the non-performing financial assets relating

to Balaji Hotels were put up for sale along with respondent No.1's

other non-performing financial assets involving other projects by virtue

of the said advertisement dated 31.10.2006. The petitioner's offers of

2005 and early 2006 must be seen in this light. Considered in this

manner, it is apparent that the petitioner's said offers had no bearing on

or connection with the offers made by respondent No.3 and ARCIL

consequent upon the said advertisement of 31.10.2006.

18. Lastly, as regards the issuance of the notice under Section 13

(2) of the Securitisation Act, the petitioner cannot make much capital

out of this inasmuch as the actual assignment of the debt took place in

favour of the respondent No.3 in July 2007 and till then, the

respondents 1 and 2 retained their rights to employ measures available

under the Securitization Act for realization of their debts. Therefore,

the issuance of the notice under Section 13 (2) to Balaji Hotels on

7.2.2007 would not be of any help to the petitioner's case.

19. In view of the foregoing discussion, the writ petition is

dismissed. No orders as to costs.

July 04, 2008                          ( BADAR DURREZ AHMED )
J.                                            JUDGE