Aspective Vanijya Pvt. Ltd. And ... vs Industrial Financial ...
2014 Latest Caselaw 580 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                     Order delivered on: January 30, 2014

+                    I.A. No.1771/2014 in CS(OS) No.260/2014

      ASPECTIVE VANIJYA PVT LTD AND ANR           ..... Plaintiffs
                   Through   Mr.Sumit Bansal, Adv. with
                             Mr.Ateev Mathur, Ms.Richa Oberoi
                             & Ms.Jagriti Ahuja, Advs.

                            versus

      INDUSTRIAL FINANCIAL CORPORATION OF INDIA (IFCI)
      LTD                                       ..... Defendant
                    Through Mr.P.S.Bindra, Adv.

      CORAM:
      HON'BLE MR. JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

1. The abovementioned suit for permanent injunction has been filed by five plaintiffs, namely, Aspective Vanijya Pvt. Ltd., Subhchintak Vancom Pvt. Ltd., Snehpushp Barter Pvt. Ltd., REI Steel and Timber Pvt. Ltd. and REI Agro Limited, against the defendant, namely, Industrial Financial Corporation of India Ltd.

2. The facts of the matter are that the plaintiff No.5 by letter dated 11th June, 2012 approached the defendant with a request to avail financial assistance. After considering the said request, the defendant by letter dated 27th June, 2012 agreed in principal to sanction a Corporate Loan of an amount not exceeding Rs.100 crores to plaintiff No.5 on the terms and conditions set out in the said letter. In view of the same, plaintiff No.5 and the defendant entered into a Corporate Loan Agreement dated 12th July,

2012 whereby a corporate loan of an amount not exceeding Rs.100 crores was extended by the defendant to plaintiff No.5. The said loan was provided at an interest rate of 14.5% per annum which was payable monthly on reducing balance. In terms of the said loan agreement, the interest was payable on 15th of each month as set out in Schedule II of the loan agreement. The loan was repayable in terms of Clause 1.8 of the Corporate Loan in 5 equal quarterly installments of Rs.20 crores which was to commence after a moratorium period of 12 months from the date of first disbursement. Thus, the tenure of the loan was 27 months including 12 months moratorium period as was specified in Clause 1.15 of the Loan Agreement.

3. Article II of the Loan Agreement provided the provision of security cover of minimum of 2.25 times of the loan amount. Out of the aforesaid security by way of pledge of shares equivalent to the loan amount was to be created and a minimum cover of 1.25 times of the loan amount was to be provided by creating first pari pasu charge on the fixed asset of plaintiff No.5 (Rice Division). The plaintiff No.5 created a first charge in respect of its immovable properties in terms of the details given below:-

 Particulars     Area in sq. Location
                 mtr.
 Unit I          22,253.00     Plot No.691-696, Sector II, Industrial
                               Growth Centre, Bawal, Distt. Rewari,
                               Haryana
 Unit II         29,706.00     Plot No.180D to 180J & 181A, Sector III,
                               Industrial Growth Centre, Bawal, Distt.
                               Rewari, Haryana
 Unit III        22,426.00     Plot No.126, Sector VI, Industrial Growth
                               Centre, Bawal, Distt. Rewari, Haryana

4. For the purpose of creating security by way of pledge of shares, the plaintiffs No.1 to 4 which are the promoter companies of plaintiff No.5 pledged their respective shares of plaintiff No.5 with the defendant and in that respect, the said plaintiffs, i.e. plaintiffs No.1 to 4 individually entered into Share Purchase Agreements dated 12th July, 2012. In terms of the said agreement for pledge of shares, the shares were pledged as per the following details:-

 S.No. Name of Promoter Company                        No. of pledged shares
 1.         Aspective Vanijay Pvt. Ltd.                            6,00,00,000
 2.         Subh Chintak Vancom Pvt. Ltd.                          2,84,49,655
 3.         Snehapushp Barter Pvt. Ltd.                            4,17,78,800
 4.         REI Steel & Timber Pvt. Ltd.                           2,25,00,000

5. The said plaintiffs No.1 to 4 also executed respective undertakings for non-disposal of shares and power of attorney in favour of the defendant for the purpose of completing the pledge of shares. Similarly, for the purpose of creating hypothecation of shares, plaintiff No.5 executed a Deed of Hypothecation thereby hypothecating its movable properties as described in Schedule II of the said Deed of Hypothecation in consideration of availing loan from the defendant.

6. It is further the case of the plaintiffs that plaintiff No.5 made payment of monthly interest, which was approximately Rs.1.05 crores, to the defendant since August, 2012. The moratorium period of 12 months for repayment of principal amount of the loan expired in July, 2013 and the first quarterly payment fell due in October, 2013 when the plaintiff No.5 was to pay Rs.20 crores in terms of the repayment schedule as contained in the Loan Agreement. The plaintiff No.5 paid the first installment of Rs.20

crores on 15th October, 2013 and has also paid the interest till December, 2013. The second quarterly installment towards repayment of the principal amount fell due on 15th January, 2014.

7. The case of the plaintiff No.5 is that the said quarterly installment of Rs.20 crores could not be paid due to market crunch. The plaintiff No.5 issued a letter dated 14th January, 2014 to the defendant, inter-alia, explaining that there has been an inordinate delay in realization of the receivables by plaintiff No.5 resulting into temporary mismatch of its cash availability position and also tried to explain its inability to pay the principal and interest due on 15th January, 2014. The request was made by plaintiff No.5 to the defendant to give an extension till end of March, 2014 to pay the same. The defendant by e-mail dated 15th January, 2014 informed the plaintiff No.5 about the non-payment on the due date and that they would present the post-dated cheques to the Bank. Another e-mail dated 16th January, 2014 was sent by the defendant whereby plaintiff No.5 was called upon to clear all the dues within three business days. However, on the same date, plaintiff No.5 again requested the defendant for extension of time till March, 2014.

8. The defendant on 22nd January, 2014 addressed a letter to all the plaintiffs by way of notice under Section 176 of the Indian Contract Act, 1872 (in short, called the "Act") advising all the plaintiffs to clear the dues within three days from the date of notice, failing which the defendant sought to sell the security/shares pledged by plaintiffs No.1 to 4 with the defendant to clear the outstanding. It was specifically mentioned in the said letter that the same be treated as a notice under Section 176 of the Act.

9. When the suit as well as the interim application was listed before Court on 28th January, 2014, the learned counsel for the plaintiffs pressed for an ad-interim injunction order. The same was not issued except the summons and notice were issued to the defendant for the next day, i.e. for 29th January, 2014. At that time, the learned counsel for the plaintiffs informed the Court that the defendant has sold the shares for more than Rs.90 lacs on 28th January, 2014 and they may sell the same further in case a short date is not given. Therefore, one day notice was issued to the defendant.

10. When the matter was taken up on 29th January, 2014, the learned counsel for the plaintiff again pressed for an interim order. Since there was hardly any time to file the reply on behalf of the defendant, Mr.P.S.Bindra, learned counsel for the defendant strongly opposed the interim prayer made in the application and made his submissions on the basis of material/documents placed on record by the plaintiffs. Left with no option to the Court, but to hear the submissions of the parties as the interim prayer sought by the plaintiffs was opposed by the defendant.

11. In order to appreciate the arguments of Mr.Sumit Bansal, learned counsel for the plaintiffs, the relevant clauses of the Corporate Loan Agreement dated 12th July, 2012 are reproduced hereunder:-

"1.1 AMOUNT AND TERMS OF LOAN:

The Borrower agrees to borrow from the Lender and the Lender agrees to lend to the Borrower, on the terms and conditions contained herein in this Agreement executed between the parties on the date set hereinabove (hereinafter referred to as the "Loan Agreement"), Corporate Loan not exceeding Rs.100.00 crore (Rupees

One hundred Crore Only) (hereinafter referred to as "the Loan") for the purpose set forth in Schedule I hereto.

1.2 INTEREST:

The Borrower shall pay to the Lender interest at the rate of 14.50% per annum payable monthly, linked to repo rate after the date of sanction (but never below the interest at the rate of 14.50% per annum payable monthly), on the principal amount of the Loan outstanding from time to time. The said interest shall be payable monthly on 15th of each month ("Interest Payment Date"), more particularly set out in Schedule II hereto. However in no case, the interest rate shall be below the stipulated rate of interest of 14.50% per annum during the currency of the loan.

1.4 DEFAULT INTEREST:

(i) In case of default in the payment of installment(s) of principal, and/or interest and/or all other monies on their respective due dates, the defaulted amount shall carry interest at the rate of top of the interest band rate (presently 18.50% per annum) over and above the rate of interest, on compound basis, payable under this Loan Agreement as may be amended from time to time as also liquidated damages of 2.00% per annum over and above the default rate of interest.

(ii) All interest, principal and other monies which shall accrue under the provisions of the Loan Agreement, shall also be payable in the manner and on the date as mentioned in the Loan Agreement, for payment of interest on the principal amount of the loans.

1.5 LIQUIDATED DAMAGES:

In case of default in payment of installment of principal, interest, upfront fee and all other monies

(except liquidated damages) on their respective due dates, the Borrower shall pay on the defaulted amounts, liquidated damages @ 2% per annum for the period of default. Liquidated damages shall be payable in the manner and on the dates as specified in the Loan Agreement for payment of interest. Arrears of Liquidated damages shall carry interest at the rate of top of the interest band rate (presently 18/50% per annum) on the Loan as applicable on the date of default or at the applicable rate under the Loan Agreement, whichever is higher.

1.8. REPAYMENT

The Borrower undertakers to repay the Loan in 5 (five) equal quarterly installments of Rs.20.00 crore (Rupees Twenty Crore) each, after a moratorium of 12 (twelve) months from the date of first disbursement.

The Borrower undertakes to repay the principal amount of the Loan in accordance with the Amortization Schedule set forth in Schedule III hereto.

However, the Lender shall have the right to reset the repayment-schedule in its absolute discretion, if the circumstances so warrant. In that event the Borrower shall repay the Loan in accordance with the repayment schedule as may be stipulated by the Lender which repayment schedule shall be final and binding on the Borrower."

12. Mr.Bansal referred to the Default Interest Clause 1.4 which stipulates that in case of default in paying the installment of principal and/or interest on the due dates, the defaulted amount shall carry interest at the rate of top of the interest band rate (presently 18.50% per annum) over and above the rate of interest, on compound basis, payable under the Loan Agreement. His argument is that the plaintiffs may pay the second installment of Rs.20

crores along with interest by 31st March, 2014 instead of the due date, i.e. 15th January, 2014 with interest at band rate and plaintiffs would also pay rest of the three installments of Rs.20 crores each as per the schedule. It is prayed that an interim order against the defendant be passed restraining it from selling the shares of plaintiffs No.1 to 4, otherwise, a great prejudice would be caused to the plaintiffs, as the Default Interest clause 1.4 could apply in the present circumstances. On the other hand, no harm would cause to the defendant who ultimately would get the amount along with interest of band rate as per the clause referred.

13. Mr.Bansal has also relied upon Clause 1.8, i.e. Repayment, and argued that the said clause grants the right to the defendant to reset the repayment schedule and the plaintiff No.5 shall under this clause definitely repay the loan in terms of the repayment schedule as may be stipulated by the defendant and the said repayment schedule shall be final and binding upon the plaintiffs. He submits that the defendant should agree with the suggestion of repayment schedule.

14. Lastly, it is argued by him that the alleged notice under Section 176 of the Act issued by the defendant on 22nd January, 2014 to the plaintiffs is in a complete arbitrary and highhanded manner which is contrary to the spirit of Section 176 of the Act. In support of this submission, learned counsel has mainly relied upon the two decisions; one given by the Calcutta High Court in a case of Co-operative Hindusthan Bank Ltd. and another vs. Surendra Nath Dey and others, AIR 1932 Calcutta 524, and the second decision of this Court in the case of GTL Limited vs. IFCI Ltd. & Ors., reported as 182 (2011) Delhi Law Times 696.

15. Mr.Bansal states that in view of the above said circumstances as well as the relevant clauses mentioned in the Loan Agreement, the discretion should be exercised in favour of the plaintiffs who may ultimately pay the interest @ 18.5% per annum for the delayed period. The balance of convenience also lies in favour of the plaintiffs and against the defendant. This Court should pass the interim order in favour of the plaintiffs and against the defendant.

16. Mr.P.S.Bindra, learned counsel appearing on behalf of the defendant has refuted all the submissions of the learned counsel for the plaintiffs. He states that as far as the Clause 1.8 is concerned, under the said clause, it is absolutely the discretion of the defendant to reset the repayment schedule. However, in the present case, his client is not agreeable to exercise such discretion. As far as the Clause 1.4 is concerned, he argues that the said clause is applicable only when the loan is rescheduled and under those circumstances, the defendant is to charge the interest at the band rate of 18.50% per annum. He further states that Clause 1.8 for reschedule of repayment has been exercised with many other borrowers who ultimately failed to make the repayment despite of postponement of the installments and the defendant had to suffer a great loss.

17. Mr.Bindra states that the defendant is a financial institution; the entire business is of rotation of money and it survives on interest and receipt of money in time. The defendant has a huge staff and expenditures and in case, the money is blocked in this manner, the business of the defendant will come to a stand-still. He states that the defendant has rightly exercised its discretion under Clause 1.8 by not rescheduling the loan as per the Article VI, Clause 6.1, i.e. Events of Default and Remedies. He has referred the Clause 6.1, (a) & (b) which read as under:-

"ARTICLE - VI EVENTS OF DEFAULT AND REMEDIES 6.1 If one or more of the events specified in this Section (hereinafter called "Events of Default") happen(s), the Lender may, by a notice in writing to the Borrower, declare the principal and all accrued interest on the Loan to be due and payable forthwith and the security created in terms of Article - II of this Agreement shall become enforceable.

EVENTS OF DEFAULT

(a) DEFAULT IN PAYMENT OF PRINCIPAL SUM OF THE LOAN Default has occurred in the payment of principal sum of the Loan on the due dates.

(b) DEFAULT IN PAYMENT OF INTEREST Default has been committed by the Borrower in payment of any installment of interest on the loan on the due dates."

18. Mr.Bindra has also referred four agreements for pledge of shares, executed by plaintiffs No.1 to 4, dated 12th July, 2012 wherein as per Clause 15, the plaintiffs No.1 to 4 have agreed that in case of default in principal or interest by the plaintiff No.5, the defendant would have right to sell the pledged shares in the market after giving a notice of the same and without any intervention of Court. The said Clause 15, which is the common clause in all the agreements for pledge of shares, reads as under:-

"15. That in case of default in principal or interest by the Borrower, or non top-up of shares the Lender shall have inter-alia unqualified right to sell the pledged shares in the market after giving a notice of the same and without any intervention of court."

19. He argues that Clauses 6.1 and 1.8 are to be read together in the present case. The value of shares of the plaintiffs is increasing day-by-day.

The defendant intends to sell the shares up to the amount due which would be about 5% of the total shares. As far as charge of immovable properties is concerned, the said properties have also been under the charge of various financial institutions. If law of pari pasu would apply, the defendant would get hardly any amount. Thus, the defendant has no intention to exercise its discretion for repayment schedule under Clause 1.8 of the Loan Agreement.

20. It appears from the statement made in the plaint and the documents filed that on 14th January, 2014, plaintiff No.5 has issued a letter to the defendant admitting that due to an inordinate delay with regard to receivable amount, plaintiff No.5 is not in a position to repay the installment amount and interest due on 15th January, 2014. Thus, an extension of time till end of March, 2014 was sought. On 14th January, 2014 itself, the defendant informed the plaintiff No.5 that the defendant is not agreeable to the proposed time extension and requested the said plaintiff to clear the dues on time. On 14th January, 2014, again a request was sent for extension of time. However, the defendant did not agree, rather on 15th January, 2014, the defendant sent an e-mail to the plaintiff No.5 which reads as under:-

"Dear Sir, Please refer to the trailing mail below. The principal and interest dues amounting to Rs. 21,05,77,301/- are due for payment today i.e. 15/01/2014. This is to inform you that in case of non payment of the same by end of day today, we shall present the Post Dated Cheque submitted by you tomorrow (i.e. 16/01/2014), to our bankers for collection. Please ensure to maintain sufficient balance in your account to honour the said payment.

Regards, Trishya Shukla Manager"

21. On 16th January, 2014, a letter was issued by the defendant addressed to plaintiff No.5, the relevant extracts of the same read as under:-

"Re: Corporate Loans of Rs.100 crore - Notice of Event of Default This has reference to the loan facility of Rs.100 crore sanctioned to you vide our LOI dated June 27, 2012. In this connection, please refer to the correspondence resting with our E-mail dated January 09, 2014 and January 15, 2014 advising you to ensure timely payment of dues amounting to Rs.21,05,77,301/- which were to be paid on 15/01/2013.

2. In this connection, we regret to observe that REIAL is in default in payment of dues of IFCI to the tune of Rs.21,05,77,301/- as under:

 Principal Installment: Rs.20 crore  Interest Installment: Rs.1.06 crore

3. Please note than an "Event of Default" as per Article VI, Clause (a) and clause (b) of the Loan Agreement dated July 12th, 2013 executed by you in respect of the captioned loan has occurred on account of non-payment of our above mentioned dues. You are, therefore, advised to immediately clear all dues within three business days, failing which, IFCI shall be constrained to take necessary action as per the Financing Documents, by enforcing all or any of the securities available to IFCI in terms of the financing documents which are in the form of pledge and mortgage."

22. Mr.Bindra, learned counsel for the defendant has informed the Court that the plaintiffs have deliberately not filed the second page of the said letter which shows that copies of the same was sent to plaintiffs No.1 to 4 also. He states that the plaintiffs have made incorrect statement in para 18 of the plaint. His argument is that in the said letter, the event of default as per Article VI, Clause 6.1, (a) & (b) of the Loan Agreement dated 12 th July,

2013 was specifically indicated to all the plaintiffs. Thus, the plaintiffs cannot say that the defendant cannot enforce the securities available in terms of the financial documents which are in the form of pledge and mortgage.

23. With regard to the argument addressed by Mr.Bansal in respect of the notice under Section 176 of the Act, Mr.Bindra states that there is a full compliance of the said provision, as the said notice under Section 176 of the Act was sent to all the plaintiffs. He states that the said notice dated 22 nd January, 2014 has to be read with earlier notice dated 16 th January, 2014 in which the events of default were communicated to all the plaintiffs as well as invoking the securities.

24. After having gone through both the letters dated 16 th January, 2014 and 22nd January, 2014, I am of the considered view that there is a complete compliance of Section 176 of the Act before selling the pledged shares by the defendant. In case, both the letters are read together, it appears that the complete information was given to the plaintiffs and reasonable time was also granted by the defendant to the plaintiffs. However, the interest amount with the installment due was not paid by the plaintiffs. Therefore, in the letter dated 22nd January, 2014, it was specifically mentioned that the defendant would be constrained to sell the shares pledged by the plaintiffs No.1 to 4.

25. As far as the decisions referred by the learned counsel for the plaintiffs are concerned, both are distinguishable on the following reasons:-

(i) In the case of Co-operative Hindusthan Bank Ltd. (supra), there was only an intimation given by the lender to the borrower that arrangement would be made for a sale but it was not specific notice for sale of shares. However, in the present

case, if both letters dated 16th January, 2014 and 22nd January, 2014 are read, it is clear that the letter dated 16th January, 2014 was issued to the plaintiffs to invoke the securities and the second letter dated 22nd January, 2014, specifically informed the plaintiffs that in case of failure to clear all dues, the defendant would be constrained to sell the shares pledged by the plaintiffs. Thus, I am of the view that firstly, the notice is mandatory and secondly, reasonable notice of sale has to be given. Both requirements in the present case are fulfilled. Thus, the submissions of the plaintiffs on this issue are rejected.

(ii) So far as the second decision in the case of GTL Limited (supra) is concerned, no notice for sale was given, thus, the Court had come to the conclusion that shares may be sold after the issuance of valid notice required under Section 176 of the Act.

26. Under these circumstances, it appears that plaintiff No.5 has failed to pay the second installment which was due on 15th January, 2014. The said amount due was even not paid after the expiry of 12 days. The plaintiffs are fully aware about the stipulated clause 6.1, (a) & (b) of the agreement. The defendant as per the agreement has invoked the securities and issued the letter dated 16th January, 2014. Thereafter, another notice dated 22nd January, 2014 under Section 176 of the Act was issued by the defendant before selling the shares. Thus, I am not inclined to issue an interim injunction in the above said matter otherwise it would amount to modifying the relevant clauses of the agreement which is not permissible in law unless both parties are agreeable.

27. The application being I.A. No.1771/2014 is accordingly dismissed.

(MANMOHAN SINGH) JUDGE JANUARY 30, 2014