Delhi High Court

Metro Buildtech Pvt Ltd vs Standard Chartered Bank on 20 April, 2012

Author: Veena Birbal

*     IN THE HIGH COURT OF DELHI AT NEW DELHI


+     FAO 159/2012

%                                        Date of Decision: 20.04.2012


METRO BUILDTECH PVT LTD                        ..... Appellant
                Through : Mr. Ravinder Sethi, Sr. Advocate
                          with Mr. Ashish Mohan and
                          Mr. Puneet Sharma, Advocates

                   versus

STANDARD CHARTERED BANK                    ..... Respondent
               Through : Mr. Neeraj Kishan Kaul, Sr. Advocate
                         with Mr. Nakul Mohta, Advocate

CORAM:
HON'BLE MS. JUSTICE VEENA BIRBAL


VEENA BIRBAL, J. (ORAL)

1. Present is an appeal under section 37(2)(a) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as „the Act‟) against the

impugned order dated 16th March 2012 passed by the learned Arbitrator

under Section 17 of the Act in an arbitration matter between the parties.

2. The relevant factual background is as under:-

The State Bank of India had extended loan facility to one M/s

Vishal Global Ltd. An equitable mortgage was created by the aforesaid

borrower by deposit of title deeds of property bearing No. C-4, West End,

New Delhi. On default of non-payment, the recovery proceedings were

initiated by the State Bank of India against borrower M/s Vishal Global

Ltd before the D.R.T-I, Delhi. On 5th June, 2002, recovery certificate in

the sum of Rs.7,37,84,093.13 along with pendent lite interest @ 17% p.a.

with quarterly interest was issued in favour of SBI with liberty to recover

the certificate amount inter alia by sale of the suit property. The State

Bank of India assigned the said debt to respondent bank on 29.03.2006

acquired by way of a registered Assignment Deed. In view of the

Assignment Deed dated 29.3.2006, respondent was substituted in place

of State Bank of India in R.C.No.263/2002 and respondent started

pursuing the matter for recovery of outstanding amount pending before

D.R.T-I, Delhi from the borrower and its guarantors. During the

pendency of the proceedings, a Memorandum of Understanding

(hereinafter referred to as the MOU) dated 29th September, 2008 was

executed between the appellant and the respondent wherein all the rights,

title, interest acquired by respondent under the assignment deed dated

29.03.2006 were transferred in favour of appellant and for the said

purpose appellant was required to pay Rs. 18 crores to respondent in the

following manner:-

(i) Rs.4 crore at the time of signing and execution of the MOU vide draft/cheque no.254362 drawn in favour of Standard Chartered Bank a/c Vishal Global Ltd.

(ii) Rs.1 crore on or before 29th December, 2008;

(iii) Rs.2 crores on or before 29th January, 2009

(iv) Rs.2 crores on or before 29th February, 2009

(v) Rs.9 crores on or before 29th March, 2009.

3. The second instalment of Rs.1 crore which was given by way of

cheque was honoured. Two cheques of Rs. 2 crore each were

dishonoured on account of insufficient funds and cheque of Rs.9 crore

was not presented by the respondent at the request of the appellant. It is

stated that on 3rd April, 2009, appellant approached respondent for

rescheduling the payment of balance consideration due to economic

recession. It is stated that on 16th April, 2009, appellant came to know of

the judgment in Kotak Mahindra Bank Ltd Vs O.L. of APS Star Ind.Ltd.

(2009) 3 Comp LJ (Guj) wherein it is held that an assignment deed

whereby a debt is assigned by a bank to a private third party along with

the underlying security is not a valid instrument. Accordingly, appellant

got worried as they had already made huge payment and appellant

immediately sent a letter dated 16th April, 2009 to the respondent bringing

to its notice the aforesaid facts.

4. It is alleged that the MOU was permitting extension of time.

Despite that, respondent did not extend the time and rather sent a letter

dated 15.04.2009 which was received by the appellant on 18.04.2009

whereby it was intimated that the respondent had terminated the MOU

and also informed having forfeited Rs. 5 crores. It is alleged that the

respondent refused to accept the request of the appellant vide letter dated

16.04.2009 and again reiterated its stand of forfeiture of Rs. 5 crores. On

12.05.2009, appellant sent a notice for referring the dispute to Arbitration

in accordance with Clause 9 of MOU. Thereafter, appellant filed a

petition before this court under Section 9 of the Act seeking interim

injunction. On 14.12.2009, the counsel for respondent stated before this

court that as the talks for settlement between the parties were going on

before Mediation and Conciliation Centre, respondent would maintain

status quo as regards alienation/parting with possession of property in

question. Thereafter, the petition under Section 9 was disposed of with

liberty to respondent to file an application under Section 17 of the Act in

respect of the status quo order. Thereupon, respondent filed an

application under Section 17 of the Act before the learned Arbitrator

seeking an order vacating the status quo order dated 14.12.2009. The

learned Arbitrator vide impugned order dated 16.03.2012 vacated the

status quo order and directed that the respondent is free to sell the

property in question subject to deposit of Rs. 5 crores with the Registrar

to be deposited within four weeks of the sale.

5. Aggrieved with the said order, present appeal is filed.

6. The learned counsel for the appellant has contended that when the

main claim of specific performance of MOU dated 29.09.2008 is pending

consideration before the learned Arbitrator, the learned Arbitrator ought

not have ordered that the bank is free to sell the property in question. It is

contended that if the status quo order as was granted earlier, is not

restored, third party interest would be created and it will complicate the

matter further. It is further contended that in any event the impugned

order does not fully protect the interest of respondent. It is contended that

the learned Arbitrator ought to have ordered for the deposit of interest

also which has accrued on Rs.5 crores which is admittedly lying with the

respondent. It is contended that by not securing the accrued interest on

the aforesaid amount, a great prejudice has been caused to the appellant.

7. On the other hand, the stand of the respondent is that vide MOU

dated 29.09.2008, the appellant was supposed to pay Rs.18 crores in the

manner provided under clause 2.1 of the MOU and the last payment of

Rs.9 crores was to be paid on 29.03.2009. It is contended that extension

of time under clause 5.1 was permissible, however, the same was subject

to payment of interest @ 24% per annum on the delayed amount, with the

limitation that the extension of time under no circumstances could exceed

beyond 29.03.2009. It is further contended that clauses 5.2 and 5.3 of

MOU dated 29.09.2008 clearly provide the right to the respondent to

terminate or rescind the MOU and also for forfeiture of amount in case of

violation of terms of MOU. It is contended that in the present case the

appellant has sought initially extension of time on the ground of

economic recession which was not a valid ground. It is contended that

the letter dated 16.04.2009 was sent by the appellant rescinding the MOU

when the time for payment under MOU had already elapsed. It is further

contended that even the grounds stated therein are also not valid grounds.

8. I have heard the learned senior counsel for the parties.

9. The challenge in this appeal has been made to the impugned order

dated 16.03.2012 wherein it is ordered that interim relief continuing the

order of status quo in respect of the property in question cannot be

granted. The learned Arbitrator has further noted that whether the

forfeiture of Rs.5 crores by the bank is justified and is in the nature of

penalty is one of the issues that is to be determined in the arbitration

proceedings and as such as an interim measure, out of sale proceeds, Rs.5

crores were directed to be deposited by the respondent bank with the

Registrar of this court.

10. It is admitted position that the parties have entered into MOU dated

29.09.2008. The mode of payment under the MOU under the clause 2.1

is as under:

"(a) Rs.40 million at the time of signing and execution of the MOU vide cheque no.254362 drawn in favour of Standard Chartered Bank a/c Vishal Global Ltd.

(b) Rs.10 million on or before 29th December, 2008;

(c) Rs.20 million on or before 29th January, 2009.

(d) Rs.20 million on or before 29th February, 2009.

(e) Rs.90 million on or before 29th March, 2009."

11. The clause 2.3 of the MOU clearly provides that time is the essence

of the agreement. It is clearly provided therein that the agreement

remains in force till 29.03.2009. The clause 5.1 provides that extension

of time for payment under no circumstances will exceed 29.03.2009. The

right to terminate MOU and forfeiture of amount paid by Assignee is

provided under Clause 5.2 of MOU. The relevant clauses of MOU are

reproduced as under:-

"2.3 That the parties have agreed that the present MOU shall remain valid and in force till 29th March 2009. It is agreed and understood by the parties that the time is the essence of this Agreement and the payment schedule as specified hereinabove shall be strictly adhered to by the Assignee. Unless entire amount is paid by the Assignee in terms of this MOU, the Assignee waives all of its right to claim specific performance of this MOU.

                xxxxx        xxxxx             xxxxx           xxxxx
               xxxxx        xxxxx             xxxxx           xxxxx

5.1. That the Assignee assures the Assignor that it shall make all efforts to ensure the payment of the consideration strictly as per the details and schedule agreed under clause 2 (supra) of this MOU. However, in the event of any delay being caused and a request being made in writing by the Assignee to the Assignor for extending the time for payment of any installment, except the last installment, the Assignor may SOLELY at its discretion agree to such extension, however, subject to the payment of interest @ 24% per annum on the delayed amount and with limitation that the extension of time under no circumstances will exceed 29.03.2009. The Assignor will not be obliged to provide an explanation of any kind for refusal in granting extension.

5.2 That in case the Assignee fails to make the payment of the consideration in terms of clause 2 (Supra) of this MOU or the Assignor refuses to grant extension in terms of clause 5.1 (Supra) of this MOU or any of the cheque tendered by the Assignee is dishonoured upon presentation, the Assignor shall have the exclusive right to terminate and rescind the present MOU and to forfeit the amount which the Assignee has paid up till that date."

12. The terms of MOU as noted above are very clear. Perusal of

record shows that earlier appellant had requested for rescheduling the

payment of balance consideration and thereafter vide its letter dated

16.4.2012, it had recalled the offer. Even extension of time for making

balance payment was sought after the time limit for payment under the

MOU had already expired. After considering the relevant material on

record, the learned Arbitrator had modified the status quo order and has

observed that default has undeniably occurred on the part of the appellant

and for the said reason, continuing of the status order cannot be granted.

The learned Arbitrator had exercised his discretion in modifying the

interim order. Nothing has been placed to show that discretion has been

exercised in arbitrary, capricious or in perverse manner. Further the same