Coastal Projects Ltd. vs Bajaj Finance Ltd.
2014 Latest Caselaw 1856 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                         FAO No. 71/2014
%                                                          4th April, 2014

COASTAL PROJECTS LTD.                                      ......Appellant
                  Through:               Mr. Raj Shekhar Rao, Ms. Mani
                                         Gupta, Mr. Bipin Aggarwal and Mr.
                                         Anurag Dwivedi, Advoctes.


                          VERSUS

BAJAJ FINANCE LTD.                                          ..... Respondent

                          Through:       Mr. Sudhanshu Batra, Sr. adv. with
                                         Mr. Rajesh Jangra, Advocate.

CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

To be referred to the Reporter or not?


VALMIKI J. MEHTA, J (ORAL)

CM NO. 6329/2014 (Exemption)

      Exemption allowed subject to just exceptions.

      CM stand disposed of.

FAO 71/2014 & CM No. 6328/2014 (U/s 151 CPC for recalling of order)

1. The main appeal was filed impugning the order of the court below

passed under Section 9 of the Arbitration and Conciliation Act,1996

whereby the hypothecated plant/machinery/vehicle was directed to be

repossessed by the creditor/respondent herein.

2. Challenge was laid to the order of the court below dated

6.11.2013 and this Court on 10.3.2014 stayed the operation of the impugned

order by making the following observations:-

C.M. No.4557/2014 (exemption)

1. Exemption allowed subject to just exceptions.

C.M. stands disposed of.

C.M. No.4558/2014 (condonation of delay)

2. For the reasons stated in the application, delay of 28 days in filing the appeal is condoned reserving liberty to the respondent, if it so thinks fit, to apply for variation.

C.M. stands disposed of.

+ FAO No.71/2014 and C.M. No.4556/2014 (stay)

3. Correct certified copy of the impugned order be filed within one week.

4. Learned counsel for the appellant argues that even as per the case of the respondent, appellant has regularly paid all the instalments except about four instalments. It is argued that appellant has no intention whatsoever to transfer the hypothecated machinery/vehicles. It is argued that the appellant has certain financial difficulties as a result of which it is negotiating with various creditors, and even assuming there are some defaults, orders of appointment of a receiver amount to, in the facts of the present case, execution after a decree is obtained. It is further argued that the appellant does not have any malafide intention and would either arrive at a settlement with its creditors or would ensure that the dues as claimed payable in law would be cleared. Counsel for the appellant also argues that there is a single agreement for grant of a loan of Rs.5.32 crores, however, surprisingly as many as about 24 separate petitions have been filed under Section 9 of Arbitration & Conciliation Act, 1996 and the purpose of which can only be malafide because petitions would have listed before different Courts, and in fact have been listed before different Courts. The last

argument urged it is stated has manifestation with respect to pecuniary jurisdiction of the Court also.

5. In view of the arguments urged on behalf of the appellant and subject to the appellant filing an undertaking in the Court below that hypothecated machinery/goods/vehicles will not be in any manner transferred or encumbered, till further orders unless varied by the Court, there shall be stay of operation of the impugned order dated 6.11.2013.

6. Notice be issued to respondent No.1 as also its counsel, on filing of process fee, both in the ordinary method as well as by registered post AD, returnable on 14th July, 2014. Dasti."

3. The aforesaid order clearly records that the appellant has

regularly paid all installments except about four installments. It is on this

understanding of the fact that the operation of the impugned order of the

court below was stayed by this Court.

4. Respondent who has filed the fresh application being CM

No.6328/2014 has brought to the attention of the Court that appellant firstly

misrepresented at the time of seeking interim orders on 10.3.2014 that only

four installments were due whereas on that date itself about 8 installments

were due. It is argued on behalf of the applicant/respondent that in fact as of

today, further installments have fallen due and approximately over 10

installments were not paid by the appellant who continues to take benefit of

the machinery/vehicle which was purchased from the loan amount given by

the respondent, but at the same time is refusing to pay the installments of

loan. Effectively, what is happening is that the appellant by virtue of the ex

parte order passed by this Court on 10.3.2014, is using this interim order not

to even pay future installments which are payable as per the agreement.

5. Counsel for the appellant very strenuously sought to argue

before this Court that RBI has issued a notification dated 23.01.2014 in

exercise of powers under Section 45JA of the RBI Act, 1934 which provides

that once CDR scheme is approved by formulating the corporate debts

restructuring mechanism, and that this mechanism by means of an agreement

has already been entered into in this case, there is now holding over the

entitlement of the creditors to claim their dues. Reliance is placed upon

Clause 5.3.1 to 5.3.4 of the CDR Scheme and which read as under:-

"5.3.1 CDR is a non-statutory mechanism which is a voluntary system based on Debtor-Creditor Agreement (DCA) and Inter- Creditor Agreement (ICA). The Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA) shall provide the legal basis to the CDR mechanism. The debtors shall have to accede to the DCA, either at the time of original loan documentation (for future cases) or at the time of reference to Corporate Debt Reconstructing Cell. Similarly, all participants in the CDR mechanism through their membership of the Standing Forum shall have to enter into a legally binding agreement, with necessary enforcement and penal clauses, to operate the System through laid-down policies and guidelines. The ICA signed by the creditors will be initially valid for a period of 3 years and subject to renewal for further periods of 3 years thereafter. The lenders in foreign currency outside the country are not a part of CDR system. Such creditors and also creditors like GIC, LIC, UTI, etc., who have not joined the CDR system, could join CDR mechanism of a particular corporate by signing transaction to transaction ICA, wherever they have exposure to such corporate.

5.3.2 The Inter-Creditor Agreement would be a legally binding agreement amongst the creditors, with necessary enforcement and penal clauses, wherein the creditors would commit themselves to abide by the various elements of CDR system. Further, the creditors shall agree that if 75 per cent of creditors by value and 60 per cent of the creditors by number, agree to a reconstructuring package of an existing debt (i.e., debt outstanding), the same would be binding on the remaining creditors. Since Category 1 CDR Scheme covers only standard and sub-standard accounts, which in the opinion of 75 per cent of the creditors by value and 60 per cent of creditors by number, are likely to become performing after introduction of the CDR package, it is expected to become performing after introduction of the CDR package, it is expected that all other creditors (i.e, those outside the minimum 75 per cent by value and 60 per cent by number) would be willing to participate in the entire CDR package, including the agreed additional financing.

5.5.3 In order to improve effectiveness of the CDR mechanism a clause may be incorporated in the loan agreements involving consortium/syndicate accounts whereby all creditors, including those which are not members of the CDR mechanism, agree to be bound by the terms of the restructuring package that may be approved under the CDR mechanism, as and when restructuring may become necessary. 5.3.4 One of the most important elements of Debtor-Creditor Agreement would be 'stand still'agreement bining for 90 days, or 180 days by both sides. Under this clause, both the debtor and creditor(s) shall agree to a legally binding 'stand still' whereby both the parties commit themselves not to take recourse to any other legal action during the 'stand-still' period, this would be necessary for enabling the CDR System to undertake the necessary debt restructuring exercise without any outside intervention, judicial or otherwise. However, the stand-still clause will be applicable only to any civil action either by the borrower or any lender against the other party and will not cover any criminal action. Further, during the stand-still period, outstanding foreign exchange forward contracts, derivative products, etc., can be crystallised, provided the borrower is aggreable to such crysallisation. The borrower will additionally undertake that during the stand-still period the documents will stand extended for the purpose of limitation and also that it will not approach any other

authority for any relief and the directors of the borrowing company will not resign from the Board of Directors during the stand-still period."

6. Reliance is also placed upon the observations made by this

Court while passing interim order dated 10.3.2014 that appellant is

endeavoring to settle all the dues of its creditors.

7. In my opinion, the arguments urged on behalf of the appellant

are wholly misconceived. In fact the arguments urged amount to seeking not

only to over-reach the respondent, but even over-reach the court process.

This I observe because if there is an observation in the order dated 10.3.2014

that appellant will make endeavour to pay the dues of its creditors such as

the respondent, the same cannot mean that there is a licence granted by the

order dated 10.3.2014 to keep on using the hypothecated equipment/vehicle

but not to make payment of the dues which are in fact payable as various

future installments have become due and payable.

8. If I accept the argument urged by the counsel for the appellant,

it would lead to incongruous position that the creditors who have lent

monies enabling the appellant to purchase a hypothecated machinery/vehicle

will simply have to sit idly and watch the debtor use the hypothecated

machinery/vehicle although the debtor would not pay any of the installments

which have fallen due under the agreement between the parties.

9. I also do not agree with the argument urged on behalf of the

appellant with respect to the clauses of the CDR mechanism of RBI

notification dated 23.1.2014 because I do not find that before me, there is a

finalized CDR mechanism in terms of the CDR mechanism provided by

means of notification dated 23.1.2014. Till the CDR mechanism in terms of

the notification dated 23.1.2014 is finalized and that also as per the

mandatory requirements of the CDR scheme, no benefit can be derived by

the appellant of the CDR scheme.

10. In view of the aforesaid observations, not only the interim

application filed by the applicant/respondent being CM No. 6328/2014

is allowed by vacating the order dated 10.3.2014, but the appeal itself is

dismissed because the appellant has not only refused to pay installments due

under the agreement, including future instalments, to the respondent but also

appellant has not shown any bonafides because on a query being put by the

Court whether the appellant is ready to pay at least 50% of the amount due

to the respondent as of date, counsel for the appellant states that he has no

such instructions.

11. I may also state that this is an isolated case because this appeal

is only one of the appeals in the batch of appeals filed by the present

appellant against the respondent, and if we total the dues payable to the

respondent, learned senior counsel for the respondent informs me that over 7

crores under the principal agreement is due to the respondent, but the

appellant is though using the hypothecated equipment/machinery it is

refusing to pay the installments which have fallen due under the principal

agreement. It needs to be noted that under one principal agreement between

the parties herein as many as 90 equipments/vehicles were financed by the

respondent to the appellant, and disputes with respect to non-payment exists

between the parties for the entire machineries/vehicles including with

respect to the vehicle which is a subject matter of Section 9 of the arbitration

petition filed in the court below with respect to which the court below passed

the impugned order dated 6.11.2013 which is challenged in this appeal.

12. In view of the above, CM No. 6328/2014 is allowed and the

appeal No. FAO 71/2014 itself is dismissed. The next date fixed i.e

14.7.2014 stands cancelled.

APRIL, 04, 2014                               VALMIKI J. MEHTA, J.
ib