Clearwater Capital Partners ... vs Punjab National Bank & Anr
2012 Latest Caselaw 3702 Del

*             HIGH COURT OF DELHI: NEW DELHI

%                                        Judgment decided on: 01.06.2012

+             I.A. Nos.5371/2012, 6836/2012 & 6679/2012 in
              CS(OS) No.709/2012

CLEARWATER CAPITAL PARTNERS INDIA PVT. LTD.
                                             .......Plaintiff
              Through Mr. Rajiv Nayar, Sr. Adv. with
                      Mr. Amit Sethi, Adv. with Mr. Aman
                      Gandhi, Adv.

                         Versus

PUNJAB NATIONAL BANK & ANR                ......Defendants
               Through Mr. Dhruv Mehta, Sr. Adv. with
                       Mr. Pallav Saxena, Adv. for D-1.
                       Mr. A.S. Chandhiok, ASG & Sr. Adv.
                       with Ms. Maneesha Dhir, Adv. for D-2.

CORAM:
HON'BLE MR. JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

Facts in CS(OS) No.709/2012

1. The plaintiff has filed the present suit for declaration seeking declaration that Pari Passu Deed dated 29.11.2011 entered into between the plaintiff and defendant No.1 and defendant No.2 is valid and subsisting and also seeking consequential relief of injunction.

2. The prayers made in the suit reads as under:

"a. declare the Pari Passu Deed dated November, 29, 2011 executed by and between the plaintiff, defendant No.1 and defendant No.2 as valid, subsisting and binding on both defendants herein;

b. pass an order and preliminary decree directing defendant No.1 to disclose on affidavit the Lender B Debt (as defined under the Pari Passu Deed dated November 29, 2011) i.e. monies accruing in favour of defendant No.1 under the Lender B Finance Documents entered into by and between defendant Nos.1 and 2 from time to time for the facilities set out in Schedule 2 of the Pari Passu Deed dated November, 29, 2011 on February 7, 2012 being the Calculation Date; c. pass an order and preliminary decree to disclose on affidavit the amounts received by defendant No.1 under the Lender B Finance Documents entered into by and between defendant No.1 and 2 from time to time for the facilities set out in Schedule 2 of the Pari Passu deed dated November, 29, 2011, on and from February 7, 2012 being the Calculation Deed till the date of the passing of the decree; d. pass an order and decree directing defendant No.1 to disclose on affidavit and/or to the plaintiff the amounts received by defendant No.1 under the Lender B Finance Documents entered into by and between defendant Nos.1 and 2 from time to time for the facilities set out in Schedule 2 of the Pari Passu Deed dated November 29, 2011 subsequent to the date of the passing of the decree under prayer clause (c), within 7 days of receipt of the said amounts by defendant No.1;

e. pass an order and decree directing defendant No.1 to pay to the plaintiff monies in accordance with Clause 5 of the Pari Passu Deed dated November 29, 2011 from and out of the amounts received by defendant No.1 under the Lender B Finance Documents entered into by and between defendants No.1 and 2 from time to time for the facilities set out in Schedule 2 of the Pari Passu Deed dated November 29, 2011, on and from February 7, 2012, being the Calculation Date, till date of the passing of this decree together with interest thereon @ 15% per annum till the date of payment thereof; f. pass an order and decree directing defendant No.1 to pay to the plaintiff monies in accordance with Clause 5 of the Pari Passu Deed dated November 29, 2011, from and out of the amounts that are received by defendant No.1 under the Lender B Finance Documents entered into by and between defendant Nos.1 and 2 from time to time for the facilities set out in Schedule 2 of the Pari Passu Deed dated November 29, 2011, subsequent to the date of passing of the decree under prayer clause (e) within 7 days of receipt of the said amounts by defendant No.1 together with interest thereon @15 % per annum till the date of payment thereof;

g. pass an order and decree of perpetual injunction permanently restraining defendant No.2 from paying any monies to defendant No.1 under the Lender B Finance Documents entered into by and between defendant Nos.1 and 2 from time to time for the facilities set out in Schedule 2 of the Pari Passu Deed dated November, 29, 2011, save and except in accordance with Clause 7 of the Pari Passu Deed dated November 29, 2011;

h. pass an order and decree declaring that the credit facilities disbursed or granted or extended by defendant no.1 to defendant No.2 after the February 7, 2012, being the Calculation Date, which are not listed in Schedule 2 of the Pari Passu Deed dated November 29, 2012 as non-binding, illegal and void;

i. pass an order and decree of perpetual injunction permanently restraining defendant No.1 from granting or disbursing or extending any credit facility of any nature to defendant No.2 without the specific written consent of plaintiff;

j. pass an order and decree of perpetual injunction permanently restraining defendant No.2 from either creating any further security interest, charge, mortgage, hypothecation, interest, lien or any other encumbrance of any nature whatsoever on its assets whether movable or immovable in favour of defendant No.1 beyond what has been set out in Schedule 1 of the Pari Passu Deed dated November 29, 2011; k. pass an order and decree of perpetual injunction of perpetual injunction permanently restraining defendant No.2 from paying any monies to defendant No.1 under the credit facility disbursed or granted or extended after February 7, 2012 being the Calculation Deed, to defendant No.2 which are not listed in Schedule 2 of the Pari Passu Deed dated November 29, 2011;

l. allow the costs of the suit in favour of the plaintiff and against the defendants."

3. The brief facts of the case leading to hearing of the present applications are enunciated as under:

3.1 It is stated in the plaint that loan agreement dated 17.05.2007 of Rs.75 crores between the plaintiff and defendant No.2, namely, Saraya Sugar Mills Limited was executed. The supplementary agreement for further loan of sum of Rs.15 crores of loan was executed dated 25.07.2008.

Confirmations/certificates of loan were issued by defendant No.2 in favour of the plaintiff on 18.06.2009, 19.06.2010, 21.04.2011, 07.09.2011 and 25.11.2011. Similarly, the defendant no. 2 had taken loan from the defendant no. 1 bank for the sum which has been charged against number of the assets mentioned in the schedule of loan agreement with the defendant no. 1.

4. Subsequently, a tri-partite agreement in the form of the Pari Passu Deed between the plaintiff and defendants No.1 & 2 was executed on 29.11.2011 wherein it has been stated that upon the enforcement of the security and the realization of the money arising out thereto towards the debt, the same shall be distributed amongst the lenders on pari passu or proportionate basis as per the clause of the Pari Passu Deed.

5. On the basis of the said agreement, the present suit has been filed. The plaintiff‟s case is that as on 07.02.2012, a liquidated amount for the sum of Rs.128,92,82,040/- (Rupees One Hundred and Twenty Eight Crore Ninety Two Lac Eighty Two Thousand and Forty Only) is due and payable by defendant No.2 to the plaintiff.

6. The plaintiff has stated in the suit that it has been learnt that the defendant No.1 is providing some credit facilities to the defendant No. 2 and the defendant No. 2 is making the continuous payments to the defendant No. 1 which the defendant No. 1 is adjusting towards the interest amount as well as the principle debt which are the subject matter of the present proceedings.

7. It is the case of the plaintiff in the suit that by way of the said Pari Passu Deed (hereinafter referred to as PPD), the payments paid by the defendant No. 2 to defendant No. 1 or for that matter the payment received/realized by the defendant No. 1 shall be distributed amongst the

defendant No. 1 as well as the plaintiff on pari passu basis as per the deed entered into between the parties. The plaintiff states and argues that the plaintiff case is confined to the enforcement of the said agreement towards payment of the debt and agrees that no security as per the loan agreement has been enforced or realized amongst which the said amount is derived.

8. Prior to the present suit, there is an earlier litigation between the plaintiff and defendant No.2 i.e. winding up proceeding of defendant No.2 is pending and another litigation i.e. civil suit being CS(OS) No.549/2012 filed by the plaintiff against defendant No.2 under Order XXXVII CPC is pending for recovery of the loan amount, wherein the pleading of defendant No.2‟s application for leave to defend is yet to be completed. In fact, one of the objections raised by defendant No.1 in its present application is that the present suit is not maintainable under provision of Order II, Rule 2 CPC as plaintiff has omitted his right to sue on the basis of Pari Passu Deed and relinquishes its claim, now plaintiff cannot be permitted to sue in respect of the omitted/relinquished claim.

9. It is further stated that the plaintiff has invoked clause 5 of the agreement whereby the plaintiff by way of letter dated 07.02.2012 called upon the defendant No. 1 to decide amongst the both the lenders as to how to go about in relation to pari passu arrangement. The reminder was also issued to this respect dated 07.03.2012. On failing to hear either from the defendants, the plaintiff has filed the present suit before this court.

10. Along with suit, the plaintiff‟s interim application being I.A. No.5371/2012 (under Order XXXIX, Rules 1 & 2 CPC) came up before Court on 23.03.2012. Summons and notices were issued to the defendants and partly interim order was passed. The operative part of the interim order passed reads as under:-

"I.A. No.5371/2012 (u/O. XXXIX, R. 1 & 2 CPC) Issue notice for the date fixed, i.e., 17.04.2012.

In view of the statement made by the plaintiff in the plaint, documents placed on record and also various clauses mentioned by the learned Senior counsel appearing on behalf of the plaintiff, the plaintiff is entitled to following limited relief at this stage:

(a) The defendant No.1 is directed to disclose on affidavit the monies received by it from defendant No.2 till 07.02.2012 under all the facilities as per Pari Passu Deed dated 29.112011 within two weeks from the date service of summons and notice,

(b) The defendant No.1 is also directed to deposit all the monies to be received from the defendant No.2 from the date hereof, i.e., 23.03.2012 in a separate account „No Lien Account‟ and not to appropriate the same till the next date of hearing.

(c) The defendant No.1 is also restrained from granting/disbursing or extending any credit facilities to the defendant No.2 over and above the facilities which have been set out in Schedule No.2 of Pari Passu dated 29.11.2012."

11. Upon service, the defendants in terms of point (b) of the interim order filed affidavits. Both defendants have filed applications under the provisions of Order XXXIX, Rule 4 read with Section 151 CPC (being I.A. No.6336/2012 by defendant No.1 on 12.04.2012) and (I.A. No.6679/2012 by defendant No.2 on 13.04.2012) for vacation/modification of order dated 23.03.2012. They are pressing immediate orders for vacation, though pleadings in the main suit are yet to complete.

12. In compliance of order dated 23.03.2012, two affidavits dated13.04.2012 and 24.04.2012 of Mr. Arun Kumar Nijhawan, Chief Manager of defendant No.1 have been filed. The relevant extract of affidavit dated 13.04.2012 reads as under :

"3. I say that defendant No.1 has since received from defendant No.2 a sum of Rs.16,05,44,541.00 in the Working Capital Account w.e.f. 29.11.2011 till 07.02.2012.

4. I say that out of the aforesaid sum of Rs.16,05,44,541.00 a sum of Rs.1,60,29,279.00 has been appropriated towards recovery of interest and a sum of Rs.1,15,14,564.00 has been appropriated towards payment of installments under the Term Loan Facility.

5. I say that No Lien Account was opened on 30.03.2012 and the subsequently received sum of Rs.25 lac has been credited to the No Lien Account.

6. I say that defendant No.1 enhanced Working Capital Limit from Rs.12.60 crores to Rs.18.35 crores and Repair Demand Loan of Rs.2.60 crores was granted on 29.12.2011. Pursuant to the aforesaid enhancement, the disbursement thereunder has been made on 08.02.2012 and 07.02.2012 respectively."

In para 4 of abovementioned affidavit, it is not specifically disclosed by the defendant No.1 that as to when the amount of Rs.2,75,43,843/- was appropriated. Defendant No.1 has not disclosed the date.

13. Extract of second affidavit dated 24.04.2012 reads as under :

"4. I say that by virtue of ad interim ex parte injunction order dated 23.03.2012, the defendant No.1 is unable to make payments under the letters of credit, which it has since issued at the request of defendant No.2. I am filing herewith the statement/details of letters of credit, the same may kindly be treated as an integral part of this affidavit.

5. I say that, as on date, the defendant No.1 requires a sum of Rs.1,26,70,041.95 for making payment of the letters of credit, which have since fallen due. The beneficiaries of the letters of credit are pressing for expeditious payment of their respective amounts. However, the payments have not been made by defendant No.1 under the letters of credit for want of funds to be furnished by defendant No.2.

6. I say that in the aforesaid circumstances, if the defendant No.1 is not provided with adequate funds, it shall have to make payments under the letters of credit from out of its own funds, leading to development of the letters of credit. This shall result into classification of all the loan accounts as irregular and render defendant No.2 to pay penal interest on the overdue/outstanding amount. Further, if such irregular status continues for 90 days, the credit facilities shall have to be classified as Non-Performing Asset, leading to serious contractual and statutory consequences."

14. Mr. Rajeev Nayar, learned Senior counsel appearing on behalf of the plaintiff has made his submissions which can be outlined as under:

 Firstly, Mr. Nayar argued that the Pari Passu Deed is an arrangement whereby the recovery of debts between the plaintiffs and defendant No. 1 as lenders are to be shared on the proportionate basis. Mr. Nayar has read the definition clause of the Pari Passu Deed and clause 2.2, 4, 5 and 6 of the deed and submits that both the defendants in connivance with each other are violating the terms of the tripartite agreement which has been signed between the parties. This is due to the reason that the defendant No. 2 is paying the defendant No. 1 the sums singularly and the defendant No. 1 is being benefited fully with the deprivation of proportionate sums to the plaintiff as per the Pari Passu Deed.

 Mr. Nayar argued that clause 5 of the Pari Passu Deed relating to recovery is stand alone clause and thus the enforcement of security is not condition precedent for distribution of the recovery. The fact that the defendant No.1 bank has appropriated the sum given by the defendant No. 2 towards interest of the debts due to the bank, the said fact by itself suggest that the debts can be suitably adjusted by not even enforcing the securities or charges as per the loan agreement.

 Mr. Nayar submitted that the stand of the defendant No. 1 bank is unreasonable as it suits the bank in as much as by resorting to the same, the bank is able to reap the sums from the defendant No. 2 without even payment of the same to the plaintiff proportionately. Therefore, the defendant No. 1 bank will not come to aid of the plaintiff despite being the lender as in this situation of money crises, the person who is able to recover the maximum is the beneficiary.

 Mr. Nayar concluded his arguments by suggesting the order passed earlier may be confirmed and the defendant No. 1 may not be allowed to appropriate the said sum of Rs.2,75,43,843/- as directed.

15. Mr. Dhruv Mehta, learned Senior counsel appearing on behalf of defendant No.1‟s Bank submits that relief (b) granted by this court is liable to be vacated on the following reasons :

(i) The credit facilities granted by defendant No.1 to defendant No.2 are presently classified as „Standard‟. If the interim order dated 23.03.2012 is not vacated, the credit facilities granted by defendant No.1 shall slip into the category of „Non-Performing Asset‟ which would be prejudicial to defendant No.1.

(ii) It has been deposed in para-4 of the affidavit dated 13.04.2012 that out of the total receipt of Rs.16,05,44,541/- credited in the Working Capital Account w.e.f. 29.11.2011 till 07.02.2012, the defendant No.1 has appropriated a sum of Rs.2,75,43,843/- towards interest and installments under the Term Loan Facility while the remaining substantial amount has been ploughed back in the Working Capital Account for utilization thereof by defendant No.2. The amounts received by defendant No.1 have been kept in „No Lien Account‟ and the said amount is neither available to

defendant No.1, nor to defendant No.2.

(iii) In Additional affidavit of Mr. Arun Kumar Nijhawan dated 24.04.2012, it is stated that it is obliged to make payments to the beneficiaries under the letters of credit but it is unable to do so because defendant No.2 cannot, by virtue of interim orders deposit any money in its loan accounts including the working capital accounts and if defendant No.1 is constrained to make payments under the letters of credit from out of its own funds, the credit facilities would immediately become irregular for the reason of development of the letters of credit. If such irregular status continues for a period of 90 days, the credit facilities shall have to be classified as „Non Performing Asset‟, leading to serious contractual and statutory consequences.

16. It is also the submission of Mr. Dhruv Mehta, learned Senior counsel appearing on behalf of defendant No.1 that the credit facilities availed by defendant No.2 as set out in Schedule 2 of the PPD are „standard‟ and under the prescribed norms and guidelines with respect to income recognition the credit facilities granted by defendant No.1 to defendant No.2 are healthy and therefore, there is no occasion or reason to extend cooperation to the plaintiff as contemplated in clause 4.1 of the PPD. Defendant No.1 is a public sector bank governed by the provisions of various special enactments governing the creditor borrower relationship viz. the SARFAESI Act and other such allied laws/enactments, the implementation of Clause 4.1 of the PPD is an impossibility. Thus, the defendant No.1 has till the date not concurred with the plaintiff‟s decision to proceed under Clause 4.1 of the PPD. The plaintiff therefore, cannot be forced/compelled to enforce the securities in its favour.

It is stated that in view of order dated March 23, 2012, defendant No.1 is unable to make payments under the Letters of Credit issued at the request of defendant No.2. Incase defendant No.1 is not permitted to appropriate the amounts received from defendant No.2 it shall have to make payments under the Letters of Credit and classification of all the loan accounts of defendant No.2 as irregular, rendering defendant No.2 to pay penal interest on the overdue/outstanding amount.

17. Next submission of defendant No.1 is that the Clause-5 of Pari Passu document has to be read alongwith Clause 4 which would show the real intent for entering the agreement only with a view to enforcement of the securities on pro rata basis created by defendant No.2 in favour of the plaintiff and defendant No.1 and not otherwise as alleged by the plaintiff. The PPD was executed only to confirm by way of a formal document that the credit facilities sanctioned by the plaintiff and defendant No.1 in favour of defendant No.2 as also the securities executed are mutually exclusive without any confluence and commonality and securities held by the plaintiff and defendant No.1 are absolutely different and exclusive. Therefore, the question of pro rata distribution of recovery would arise only after liquidation of the securities held by the respective creditors.

18. Defendant No.2 has also made the similar submission as that of defendant No.1, except few additional submissions which are outlined as under :

(i) The plaintiff is misinterpreting the terms of the Deed by contending that pursuant to service of a notice on the defendant No.1 on 07.02.2012, it is entitled to receive a share from the monies received by defendant No.1 from defendant No.2 in their business transactions which are entirely separate and distinct

from the plaintiff as this was not at all the intent and object of the Deed.

(ii) A similar Pari Passu Deed dated 22.08.2011 was also entered between the plaintiff, ICICI, it strengthens the contention of defendant No.2 that the entire intent and object of entering into the Pari Passu Deeds either with defendant No.1 or ICICI was to enter into an arrangement for enforcement of securities by mutual consent for sale or otherwise enforce any of the charges. It is further evident from Clause 8.2 of the said Deed (same provision is also in the Pari Passu Deed entered with ICICI) wherein the plaintiff has admitted and acknowledged that the defendant No.2 was already in default on the date of execution of the said Deed. It shows that recoveries as intended under the said Deed is from the enforcement of security on pro-rata basis and not otherwise as alleged by the plaintiff.

(iii) No loss, hardship or prejudice would be caused to the plaintiff in terms of money if the order dated 23.03.2012 is vacated by this Court. On the contrary, if the order is not vacated, defendant No.2 which is a running company may be shut/closed for want of working capital and attachment of its account by defendant No.1 in terms of direction (b) of the order dated 23.03.2012 as the interest of the plaintiff is adequately safeguarded in view of the restraint order dated 14.02.2012 passed by the winding up petition filed by the plaintiff against defendant No.2 herein whereby defendant No.2-company and its directors are restrained from selling, transferring, alienating or parting with possession of any of its fixed assets till further orders. Furthermore, the

parent company of the plaintiff is a shareholder in defendant No.2-company holding 26% shareholding and also having a charge over the assets of the company.

(iv) Defendant No.1 is providing working capital facilities to defendant No.2 which is a running company and employing more than 1700 workers. Thus, the order dated 23.03.2012 is causing grave prejudice to defendant No.2 and is impacting its day to day operations and livelihood of 1700 workers who are dependent on the operations of the defendant No.2. By virtue of the order dated 23.03.2012, in the event defendant No.1 is not permitted to appropriate the amounts received from defendant No.2 it shall lead to the loan accounts of defendant No.2 becoming irregular and the credit facilities shall be classified as non-performing asset, leading to serious contractual and statutory consequences.

19. The defendant No.2 has also made averments with regard to the BIFR proceedings and the present suit being barred by the provisions of Section 22 (1) of Sick Industrial Companies (Special Provisions) Act, 1985. It is also alleged by the defendant No.2 has in the application that the modified scheme for revival of Saraya Sugar Mill Limited and its merger with defendant No.2 which was sanctioned by the BIFR vide its order dated August 5, 2008.

20. Firstly, I would deal with the submission of the defendant no. 2 that the suit is not maintainable in view of the rehabilitation policy of BIFR. the suit is not maintainable in view of order passed by BIFR dated 05.08.2008 alongwith its annexures (modified scheme). However, Clause 14 (viii) and 14 (xiii) of the General Conditions of the modified scheme for

revival of Saraya Sugar Mill Limited and its merger with defendant No.2 which was sanctioned by the BIFR vide its order dated August 5, 2008 speaks for itself that all dues arising after the cut off date of 31.12.2007, would be paid in the normal course, protection under Sick Industrial Companies (Special Provisions) Act, 1985 would not be available. Hence, the plea of defendant No.2 in this regard is not sustainable and is rejected.

21. Let me now refer the relevant clauses of the Pari Passu Deed dated 29.11.2011 (herein referred to as PPD), have been reproduced herein below:-

1. DEFINITIONAND INTERPRETATION

1.1 Definitions

"Calculation Date" means the date either of the Lenders, i.e. Lender A or Lender B gives notice to the other Lender of the occurrence of an event of default under a Loan Agreement. "Charges" means collectively, the Lender A Charges and the Lender B Charges, and "Charge" means any of them. "Debts" means collectively, the Lender A Debt and the Lender B Debt, and "Debt" means any of them.

"Lender A Charges" means any security created or to be created by the Company (subsisting security being listed in Part 1 of Schedule 1 (the Existing Charges) together with all collateral, additional or substituted securities which Lender A may now or in the future have or obtain from the Company in respect of all or any part of the Lender A Debt.

"Lender B Charges" means any security created or to be created by the Company (subsisting security being listed in Part 2 of Schedule 1 (the Existing Charges) together with all collateral, additional or substituted securities which Lender B may now or in the future have or obtain from the Company in respect of all or any part of the Lender B Debt.

"Lender A Debt" means the indebtedness of the Company to Lender A under the Lender A Loan Agreement plus all accrued

but unpaid interest thereon, and fees, costs, insurance premium and expenses payable by the Company to Lender A pursuant to Lender A Loan Agreement as at the Calculation Date, being indebtedness secured by all or any of the Lender A Charges. "Lender B Debt" means the indebtedness of the Company under the Lender B Loan Agreement plus all accrued but unpaid interest thereon, and fees, costs, insurance premium and expenses payable by the Company to Lender B pursuant to the terms of the Lender B Loan Agreement as at the Calculation Date, being indebtedness secured by all or any of the Lender B Charges.

"Pari Passu" means, in relation to the Lender A Debt and the Lender B Debt, that the repayment of such Debts on or after the Calculation Date shall be made pro rata in the proportions which the amount of each such Debt bears to the aggregate thereof as art Calculation Date.

"Recoveries" means the amount received by any Lender under or pursuant to the Finance Documents on or after the Calculation Date and includes any other amount paid to or received by a Lender in respect of the indebtedness of the Company under Finance Documents.

2. PRIORITY 2.1 Ranking The Charges shall, as between themselves, rank pari passu for the payment of the Lender A Debt and Lender B Debt, as set out in the Schedule.

2.2 Failure of Security If all or any of the Charges in favour of either Lender shall be released or be or become wholly or partly invalid or unenforceable, such Lender shall itself bear the loss resulting and shall not be entitled to share in moneys derived from assets over which it has no effective security but the Lenders shall not themselves challenge or question the validity or enforceability of any of the Charges.

2.3 Moneys Wrongly received If any sum is received by either Lender after the Calculation Date whether pursuant to any realization, distribution or enforcement

of the Charges or otherwise, that Lender agrees to forthwith make such payment to the other Lender as will ensure that the order of application referred to in this Clause 2 and in Clause 5.1 (Order of Application) is observed. Till such time as the Lender who has received the amounts abovementioned does not make payment to the other Lender, such Lender shall hold any payments received in trust for the other Lender.

3. Deeds and Documents Each Lender undertakes that, on satisfaction of its Charges, it will deliver all such deeds and documents promptly then held by it to the other Lender if the other‟s Charges are still subsisting.

              4.         ENFORCEMENT OF SECURITY
              4.1        Enforcement

If either lender wishes to exercise its powers of sale or otherwise enforce any of the Charges it shall forthwith inform the other Lender of its intention. The lenders shall consult together with a view to agreeing upon the method of enforcement and shall co-operate with each other in realizing the assets charged to them and in ensuring that the net proceeds after deduction of the expenses of realization are applied in accordance with the provisions of this Deed.

              5.         APPLICATION OF RECOVERIES
              5.1        Order of Application

All Recoveries shall be applied by the Lenders in the following manner, subject only to the rights of any person ranking in priority as a matter of law :

(a) First, in or towards all of the outgoing costs, charges, expenses and liabilities (and all interest thereon as provided in the Charges) reasonably incurred by or in connection with the Recoveries otherwise.

(b) Second, to the Lenders so that the Lender A Debt and the Lender B Debt shall be reduced pro rata.

5.2 Method of Application Recoveries available in accordance with each paragraph of Clause 5.1 (Order of Application) shall be applied pro rata among the persons entitled thereto under each such paragraph,

and no amounts will be applied under any paragraph of that Clause until all amounts specified in the preceding paragraph

(s) of that Clause have been paid.

5.3 Payments between Lenders The Lenders shall, within 7 days of the Calculation Date notify each other in writing of the amount of their respective Debts. If either Lender receives any amount from the Company or otherwise in payment of its Debt it shall immediately notify the other Lender in writing of the amount so received, and shall within 7 days pay to the other Lender such amount as is required to ensure that the order of application of Recoveries in Clause 5.1 (Order of Application) is complied with. Amounts required to be paid under this agreement that remain outstanding shall accrue interest at the rate of 15% per annum from the date such payment was due until paid.

6. Acknowledgements 6.1 Consent to Security Lender A consents to the creation and subsistence of the Lender B Charges. Lender B consents to the creation and subsistence of the Lender A Charges.

7. COVENANTS 7.1 The Parties covenant and undertake that, so long as any part of the Recoveries remain outstanding and until the full and final payment of all money owning under the Finance Documents to the Lenders, the Parties will comply with the provisions of this Deed.

7.2 The Company further covenants to ensure that the understanding between the Lenders as set out in Clause 5 is given effect to and the Company shall in this regard provide all necessary cooperation to the Lenders including making simultaneous payment to the Lenders in the ratio as agreed to between the Lenders.

22. It is now well settled that the agreement is to be read in its entirety in order to discern the real intention of the parties at the time of entering into such an agreement. The court should avoid reading any clause of the agreement in isolation and rather should read the agreement clause by

clause in order to give meaning to each and every clause to determine the intent of the parties.

23. I have given the careful consideration to the submission advanced by the learned counsel for the defendant but the same cannot be acceded to due to the following reasons:

a) Indeed, it is correct that the clause 1.1 defines calculation date which states the lender should inform the occurrence of the default and his intention to enforce the security. But it is inconceivable as to how the notice dated 7.2.2012 should not be qualifying the said requirement. On careful reading of the contents of the notice, it becomes clear that the plaintiff informs the defendant No.1 categorically that the said date of the notice shall be treated as calculation date and also informs the defendant no. 1 is occurrence of event of default. In addition to that it was also called upon the defendant No. 1 to take steps to invite such meeting of the lenders as per clause 4 and also enforcement of charges. the contents of the said notice reads as under:

"There has been an event of default under the Lender A Loan Agreements. We hereby notify you that the date of this letter shall be the Calculation Date for the purposes of the Pari Passu Deed. Any Recoveries by Punjab National Bank after the Calculation Date must be applied in the order specified in Clause 5 read with clause 2 of the Pari Passu Deed."

"We also advise you in accordance with clause 4.1 of the Pari Passu Deed that we wish to enforce our Charges and are desirous to meet you as soon as possible in that regard. Pursuant to clause 4.1 of the Pari Passu Deed you are required to cooperate with us in realizing the assets charged to us. Please advise us when you are free this week to discuss the same."

24. Admittedly, in the present case the plaintiff in terms of Clause 1.1 served a notice dated 07.02.2012 to the defendant No.1 alongwith two reminders, no response was given by defendant No.1. Extracts of said notice reads as under :

"we refer to the pari passu deed. Words defined in the pari passu deed shall have the same meanings when used herein.

There has been an event of default under the Lender A Loan Agreements. We hereby notify you that the date of this letter shall be the Calculation Date for the purposes of the Pari Passu Deed. Any Recoveries by Punjab National Bank after the Calculation Date must be applied in the order specified in Clause 5 read with clause 2 of the Pari Passu Deed.

Pursuant to clause 5.3 of the Pari Passu Deed both Lenders are to notify the other within 7 days of the Calculation Date of the amount of their respective Debts. The Lender A Debt as at the Calculation Date is Rs.1,303,742,432 (Rupees One Billion Three Hundred Three Million Seven Hundred Forty Two Thousand Four Hundred Thirty Two Only). This amount includes outgoing costs/charges/expenses and liabilities of Rs.14,460,392 (Rupees Fourteen Million Four Hundred Sixty Thousand Three Hundred Ninety Two Only) incurred in connection with the Recoveries till date. Please advise us of the Lender B Debt within 7 days from the date hereof.

Should you receive any payments from the Company after the Calculation Date please inform us immediately so we can agree with you on the amount to be paid by you to us in accordance with clause 5.3 read with clause 5.1 of the Pari Passu Deed. Until such time as the required payment is made to us you are reminded that under the Pari Passu Deed such money received by you shall accrue interest thereon in accordance with clause 5.3 of the Pari Passu Deed.

We also advise you in accordance with clause 4.1 of the Pari Passu Deed that we wish to enforce our Charges and are desirous to meet you as soon as possible in that regard. Pursuant

to clause 4.1 of the Pari Passu Deed you are required to cooperate with us in realizing the assets charged to us. Please advise us when you are free this week to discuss the same."

24.1 The another reason which persuades me to take this view is that clause 1.1 cannot be read in isolation but has to be read with clause 2.3, clause 5.1 and 5.3 which I have interpreted later to find that they provide that "any sum" towards debt shall be divided proportionately amongst the lenders after calculation date. Thus, the calculation date has a relevance in the agreement and the same is the cut off date where after even the money received from "otherwise" modes from the defendant no.2 other than the enforcement of securities shall be divided amongst the lenders as per clause 5 which shall be treated as money wrongfully received. Thus, the calculation date is cut off date for realizing the money by different modes of realization described in the agreement and is not confined to a single mode of enforcement of security.

Thus, to allow clause 2.3, 5.1 to operate in its field properly, it is essential that the calculation date should commence prior to the actual decision to enforce the security is taken by the lenders as the reading of the clause 2.3 also connects it with the commencement of the calculation date. Therefore, if the lender like plaintiff if informs the defendant no. 1 as a co- lender the event of default in the loan agreement and remedial measures to be undertaken along with the explicit statement to realize the charges, then the same is sufficient compliance of the said calculation date.

24.2 Let me now also evaluate clause 2.3, 4 and 5 in order to discern as to whether the agreement permits other modes of the payment or realization of money other than the enforcement of the security which may lead to proportionate distribution of the money and if so to what extent and effect. The answer to this can be traced by looking at the clauses of the

agreement closely.

25. A conjoint reading of clause 2.3, clause 4 and clause 5 would reveal that when clause 5 talks about "all recoveries", the same may encompass different mode of recoveries of the amount which can be either by way of "distribution or enforcement of securities" or " any realization" or "otherwise ". The clause 5 of the agreement is not confined to mode of recovery only relating to preceding clause 4 which talks about the enforcement of the security or charges which is one of the mode of recoveries in the agreement. This construction of the agreement makes the clause 5, clause 2.2 and 4 workable in their respective fields and giving narrow construction to the clause 5 would lead to shutting the other modes of recoveries when clause 2 specifically provides for the same. The following are the reasons for adopting such construction of the agreement:

a) Clause 2.3 itself is an unqualified terms provides that " if any sum" received by the lender "whether pursuant to any realization....." "or otherwise", the lender shall forthwith pay the same in respect of the order laid down in clause 5. The use of the words "any sum" coupled with an unqualified language which reads "whether pursuant to any realization, enforcement or distribution of charges" and coupled with an exception which reads "or otherwise" makes this clause wider enough to cover within its sweep not merely the modes of recovery of the amount by way of doing anything with the charges but otherwise also.

The said clause 2.3 therefore would cover within its ambit and realm the case where "any sum" is wrongfully received by the lender "by otherwise mode" other than

relating to security or charge which affects the debt of the one lender and the said adjustment if done would proportionately be shared by the lender receiving such money wrongfully with that of another lender in the same order as laid down in clause 5. Therefore, the immediate connection of clause 2.3 and clause 5 would make the clause 5 wider as the same relates to "All recoveries" and not merely recoveries relating to clause 4.

b) The said clause 5 cannot be given narrow construction due to the reason that the wordings of clause 5 talks about "All recoveries" and reading it together would include recovery of money "otherwise". Therefore, the said clause 5 would operate it widely and not narrowly.

c) The wordings used in clause 2.3 which is "or otherwise" cannot also be interpreted as ejusdem generis or given narrow construction with the accompanying words like "realization or distribution or enforcement of charges" so as to read "otherwise" narrowly relating to similar kind of modes of realization. Such interpretation of clause 2.3 is not possible due to the clear accompanying contextual indicators which are "if any sum" "whether pursuant to realization" "or otherwise" all these indicators themselves reveal the clear intention of the parties who are two lenders and one creditor is to divide any sum of moneys received by the lenders affecting debt whether by realization of charges or otherwise as per clause 5. Thus, the intention of the parties and unqualified language of clause 2.3 makes it wider in ambit.

For all these reasons, it is seen after reading the agreement clause by clause and giving meaningful reading that clause 5 would operate not only the recoveries which are made alongside the realization of charge but the receipt of the wrongful moneys also.

26. Thus, the submission of the learned counsel for the defendants cannot be acceded to that clause 5 of the agreement would operate in the limited field and there cannot be any recovery towards the loan without enforcement of security of the charge. Rather, the intention of the parties as emerging from the reading of the agreement is that the agreement does a special kind of pari passu arrangement between two creditors and one debtor over and above what has been provided by the statute by giving an extra cover protection to the lender to enforce or realize or distribute the charges proportionately on their own without the aid of the court as laid down in the companies act as well as adjust the moneys received by way of "otherwise modes" and divide them proportionately. Had there been any intention to just do pari passu adjustments simplicitor, then the agreement could not have been warranted as the entire scheme of winding up as per section 510 of the Companies Act is premised on pari passu distribution of the assets in satisfaction of liabilities.

27. At this stage, it is relevant to examine the submission of Mr. Nayar as he says that the entire money of Rs. 16,05,44,541.00 which has been received by the Defendant no. 1 banker should be a subject matter of pari passu deed and the banker may not be allowed to deal with such money unilaterally as the same has been received from the Defendant No. 2. Such contention has been refuted by the Learned counsel for the defendant no. 1 as he urges that the plaintiff cannot claim the right to the entire sum which may include the working capital of the defendant No. 2 as well as which has

been received by the defendant No. 1 in lieu of the other facilities undertaken by the defendant No. 1. Mr. Nayar has substantiated his argument by stating that clause 2.3 of the agreement is wide enough to put such embargo on the bank to deal with any receipt of the sum by the defendant no. 1 bank and thus the same principle of pari passu sharing would be applicable irrespective of the fact that the defendant No. 1 banker actually appropriates the said sum or not.

28. I find the submission of Mr. Nayar on this count unmeritorious. This is due to the reason that no doubt the language of the clause 2.3 is broad enough to cover the cases where "any sum" has been received by the Bank as a matter of satisfaction debt. But the said clause cannot be read dehors the agreement. The pari passu deed has been made by the two lenders and one borrower so that the debts realized by the lenders can be shared by various modes of recovery of such debts. The wrongful receipt of money or recovery by way payment and appropriation thereof is one of the mode of the recovery of the said loan. Therefore, the word "any sum" and interpretation of "otherwise" has to be broader as interpreted above but cannot be read without its co-relation with the debt. What follows from the same is that the bank as a lender is entitled to share a sum of money which the defendant no. 1 receives it as lender towards the subject debt or for that matter receives it and appropriates it towards that debt and not the sum which the defendant no. 1 bank receives it for other transaction. The interpretation canvassed by Mr. Nayar if would be accepted would make the clause so much wider which will preclude any business person or the debtor to even do the day to day banking transaction with the banker.

Such cannot be the intent or spirit behind the entering of the pari passu agreement so that the defendant bank would sign such an agreement

whereby the defendant bank as a banker would be precluded to even receive any money and in the event any money is brought to the bank, the bank becomes liable to share the same with the plaintiff. Thus, it is only the money which either lender receives it in lieu of the loan or debt which is entitled to be shared proportionately and not otherwise.

29. This aspect further becomes clear once clause 5.3 is read carefully which reads under:

"The Lenders shall, within 7 days of the Calculation Date, notify each other in writing of the amount of their respective Debts. If either Lender receives any amount from the Company or otherwise in payment of its Debt it shall immediately notify the other Lender in writing of the amount so received, and shall within 7 days pay to the other Lender such amount as is required to ensure that the order of application of Recoveries in Clause 5.1 (Order of Application) is complied with. Amounts required to be paid under this agreement that remain outstanding shall accrue interest at the rate of 15% per annum from the date such payment was due until paid."

The use of the expression "in payment of its debt" makes the clause amply clear and qualified to the extent that only when the money is received in payment of the payment of the debt, only then the lender is entitled to follow the order of application laid down in clause 5 and not in all the cases.

30. It cannot also not be lost sight of that the winding up court is in seisen of the dispute between the parties and the suit for recovery is also pending. The defendant No. 2 company is still working and the interests of other creditors are required to be safeguarded by the winding up court as well this court so that the business of the company should not be obstructed which may affect the debts of the other creditors as well.

31. It is also noteworthy that the defendant No. 1 as a banker can

provide other credit facility to the defendant No. 2 which can be used as a matter of working capital or carrying out day to day affairs of normal banker. But certainly, being a banker, the defendant No. 1 on receipt of the money from defendant No. 2 can‟t appropriate the said money towards the debt and if done then the said receipt of money by the defendant No. 1 and consequential adjustments made thereto either recovery of interest installment under the term loan facility or to principal amount it shall be subject to fetters envisaged under clause 2.3 of the Pari Passu agreement.

32. Considering the competing interests of the parties as lenders as well as the interest of the other secured or unsecured creditors which is to be looked after by the winding up court and also respecting the covenants entered into by the parties, a balance has to be struck whereby the business of the defendant No. 2 company may be allowed to carry by availing such working capital and other facilities from the banker defendant No. 1 and at the same time not enabling the defendant No. 1 and defendant No. 2 to evade the covenants entered into between the parties and consequently deprive the plaintiff from its legitimate dues. Accordingly the following directions are made modifying the earlier order dated 23.03.2012 passed by this court by disposing of applications mentioned above :

a) The defendant No. 1 shall not be entitled to appropriate the sums received from that of the defendant No. 2 unilaterally towards the term loans which are the subject matter of loan agreement of Pari Passu Deed dated 29.11.2011. Upon receiving money from the defendant No.2, when the defendant No. 1 intends to make an adjustment towards the said loan or debt due from the defendant No. 2, the said defendant No.1 shall do the same after the intimation of the same to this court

and following the due procedure provided in clause 5.1 under Pari Passu Deed dated 29.11.2011 and consequently dividing the same proportionately. It is further clarified that the defendant No.1 shall not appropriate the said sum either in respect of the interest or the principle as payment towards anyone of them is payment towards debt unless due compliance of clause 5.1 is made out by the defendant No.1 in future also.

b) As regards the sum of Rs.2,75,43,843/- already adjusted after the calculation date towards recovery of interest of the loan and installment under term loan facility which is subject matter of the pari passu deed, incase the said amount is appropriated by defendant No.1 after 07.02.2012, the said amount to the extent of proportionate value as per the pari passu deed which may inure to the plaintiff in the "no lien" account and the same shall be continued to remain in the said account until further orders are made to this effect. Defendant No.1 is directed to file the specific affidavit within two weeks from today as to whether the amount mentioned above has been appropriated before or after the calculation date i.e. 07.02.2012 and shall also disclose about the amount of Rs.25 lac lying in „Non Lien Account‟ which was opened on 30.03.2012 as mentioned in the affidavit dated 13.04.2012 in terms of order dated 23.03.2012. Incase, the said is likely to be adjusted by the defendant No.1 towards loan, the defendant No.1 directed to follow the same procedure prescribed in clause 5 of the agreement.

c) The defendant No. 1 is permitted to carry out and provide the

working capital facilities, banking facilities in relation to day to day affairs and other future credit facilities to the defendant No. 2 (other than the ones charged in the Pari Passu Deed) and is entitled to receive such money as the case may be due from defendant No. 2 to the extent of discharging the functions of working capital, banking and other credit facilities and new kind of facilities to be provided by the defendant No.1. However, it is clarified that if from such money if any adjustment is carried out either of interest or principal sum of loan which is the subject matter of loan agreement and the Pari Passu Deed dated 29.11.2011, then the direction (a) shall operate and the appropriation shall be done accordingly.

d) It is further directed that the defendant No. 1 shall keep full accounts separately towards carrying out such working capital facilities and other credit facilities which are in addition to the term loans which are the subject matter of the present proceedings. The said accounts shall be furnished along with the statements before the court every month till further orders. Further, if it is discovered after seeing the accounts that anyway that the said amount is still utilized towards the subject term loans, then the same shall be suitably adjusted by putting the liability on the defendant No. 1 on the proportionate basis as laid down in the Pari Passu Deed.

33. All above mentioned applications are disposed of.

CS(OS) No.709/2012

34. List the matter before the Joint Registrar on 13.08.2012 for admission/denial of the documents. In the meanwhile, the plaintiff is

granted four weeks time to file replication if any.

MANMOHAN SINGH, J.

JUNE 01, 2012