Aditya Birla Finance Limited vs Presidium Educational And ...
2021 Latest Caselaw 3313 Del

                          $~26
                          *      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                                  Date of Decision: 6th December, 2021

                          +      O.M.P.(I) (COMM.) 418/2019, CCP (O) 41/2020, I.As. 337/2020,
                                 9147-49/2020, 12524/2020, 1708/2021, 5122-23/2021, 8716/2021,
                                 12669/2021, 13380-81/2021 & 13692/2021
                                 ADITYA BIRLA FINANCE LIMITED                            ..... Petitioner
                                                       Through:   Mr. Parag Tripathi, Senior Advocate
                                                                  with Mr. Manmeet Singh,
                                                                  Mr. Shantanu Chaturvedi, Ms. Ria
                                                                  Kohli, Ms. Vishakha Nagraj and
                                                                  Mr. Saket Sikri, Advocates.
                                                       versus
                                 PRESIDIUM EDUCATIONAL AND CHARITABLE TRUST &
                                 ORS.                               ..... Respondents

                                                       Through:   Mr.    Darpan     Wadhwa,     Senior
                                                                  Advocate with Mr. Jai Mohan, Mr.
                                                                  Rohit and Ms. Cauveri, Advocates for
                                                                  R-1 to 4 & R-6 to 12.
                                                                  Ms. Aditi Sharma and Mr. Digvijay
                                                                  Yadav, Advocates for R-20.
                                                                  Mr. Vinay Kumar Garg, Senior
                                                                  Advocate with Mr. P.S. Singhal, Mr.
                                                                  S.P. Malik, Mr. Parv Garg and Mr.
                                                                  K.S. Rekhi, Advocates for R-13 to 17.
                                 CORAM:
                                 HON'BLE MR. JUSTICE SANJEEV NARULA

                                                       JUDGMENT

[VIA HYBRID MODE] SANJEEV NARULA, J. (Oral):

1. The Petitioner [viz. Aditya Birla Finance Ltd.] a company rendering

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06 financing services had extended facilities of Rs. 100 Crores to Respondents No. 1-5 by taking over their liabilities towards Respondent No. 20 [viz. Yes Bank Ltd.] from whom they had initially taken a loan aggregating to Rs. 260 Crores. Respondent No. 1 [viz. Presidium Educational and Charitable Trust] owns and operates schools, in particular Respondents No. 2-4, and Respondent No. 5 provides services to the schools (and students thereof) [collectively referred to as "Contesting Respondents" and they form part of the 'Presidium Group' umbrella]; Respondents No. 6-14 stood as guarantors for repayment of the loans; Respondents No. 15-17 are trusts wherein Presidium Group had purportedly moved certain schools out of the Group at the time of assignment of the original facility; Respondents No. 18 and 19 are entities set up by the Presidium Group.

2. The present petition under Section 9 of the Arbitration and Conciliation Act, 1996 [hereinafter "the Act"] was filed seeking interim reliefs pending constitution of the Arbitral Tribunal. During the pendency of the present proceedings, Arbitral Tribunal stands appointed by this Court vide Order dated 11th October, 2021 in ARB.P. 706/2021, and the Petitioner and Respondents No. 1-9 have been referred to arbitration for adjudication of disputes relating to transaction documents/ Facility Agreements all dated 10th February, 2018 and other finance documents/ security documents.

3. Certain interim Orders, referred to later in the Order, are in force. However, now that the Arbitral Tribunal stands constituted, counsel for the parties' request that present application be considered and decided by the Arbitral Tribunal as one under Section 17 of the Act. Thus, the short

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06 question that arises for consideration is whether the interim mechanism already in place needs to be continued or modified till such time the learned Tribunal decides the application under Section 17 of the Act.

PREVIOUS ORDERS PASSED BY THIS COURT

4. On 15th November, 2019, an interim Order was passed in favour of the Petitioner directing the Respondents No. 1-14 not to "dispose of, alienate, encumber either directly or indirectly or otherwise part with the possession of any assets to the tune of the outstanding amount, except in the ordinary course of business such as payment of salary and statutory dues...". The said Order also notes the submission of the Petitioner that the Respondents had failed to transfer any amount to the escrow account, as required under the Loan Agreements/ Facility Agreements all dated 10th February, 2018 and other finance documents/ security documents [hereinafter "Financing Documents"] and that they were siphoning off the entire outstanding amount by transferring the same to other accounts.

5. Subsequently, on 14th January, 2020, on a statement made by counsel for Respondents No. 1-12 that settlement was being negotiated and that a payment of Rs. 3.62 Crores had been made to the Petitioner, the Court directed that in the event, the matter is not resolved in the ensuing meeting, Contesting Respondents shall "deposit all collections in the escrow account in terms of the agreement between the parties.".

6. Thereafter, on 26th February, 2020, after considering the submission of the parties, Court appointed an independent Chartered Accountant

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06 ["CA"] to oversee and monitor the escrow account maintained by Respondents No. 1-5 in respect of five educational institutions enumerated in para 7 of the said Order.

7. On 22nd December, 2020, with the consent of the parties, the Court appointed Hon'ble Mr. Justice Deepak Gupta (Retd.), former Judge of the Supreme Court, as the Receiver to, inter alia, monitor the operation of escrow accounts maintained by Respondent No. 20 [viz. Yes Bank Ltd.]. Detailed directions with respect to the disbursement of the amount from the escrow accounts, were given as under: -

"4. Accordingly, with the consent of the parties, Justice Deepak Gupta, former Judge of the Hon'ble Supreme Court (+91 9816533333) is appointed as Receiver to henceforth monitor the escrow accounts being maintained by the respondent no. 20 and the deposit of amounts therein as well as application thereof, which includes analysing all past instances of deposits as well and verifying whether the same adhered to the terms of the loan agreements. The leamed Receiver shall inspect whether the amounts being collected by respondent nos. 1 to 5 from their schools by way of fee and other charges are being, and have been, positively deposited in the escrow accounts. Further, all disbursements to be made from the escrow accounts shall be effected only pursuant to an authorisation therefor by the leamed Receiver. It will be open for the leamed Receiver to call for all books and records of respondent nos. 1 to 5, which he may need to discharge his duties under this appointment, and both sides shall render their full assistance to him on all these aspects. The learned Receiver shall be paid a sum of Rs.10 lakhs towards remuneration, which shall be released from the escrow accounts in question and may be increased if the need so arises.

5. However, keeping in view the respondents' urgent requirement for the amounts it would need to satisfy the salaries, wages of its employees, the statutory dues of its schools and the day to day expenses involved in running them, it will be open for them to approach the leamed Receiver with all such requests. Needless to say, the leamed Receiver shall examine all such requests expeditiously."

CONTENTIONS OF THE PARTIES

8. In this background, Mr. Parag P. Tripathi, Senior Counsel for the

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Signing Date:09.12.2021 18:51:06 Petitioner requests that the interim arrangement in place be continued and makes following submissions: -

(i) Contesting Respondents are not complying with the directions issued by this Court and are not depositing monies in the escrow accounts. Non-compliance by the Petitioner has been noted by the learned Receiver vide Reports/ Orders dated 02nd September, 2021 and 29th November, 2021. Therein, the learned Receiver expressed a prima facie opinion that the Contesting Respondents are in violation of orders passed by this Court.

(ii) While a Notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 [hereinafter "SARFAESI Act"] has been issued, securities of the Contesting Respondents could not be liquidated. Petitioners have in fact, called upon the Contesting Respondents to search for a buyer.

(iii) Obligations of the Contesting Respondents under the Loan Agreements/ Financing Documents are continuing. Clause 12.14 of the Loan Agreements stipulates that the same shall be in force till all the monies due and payable under the agreement and other Transaction Documents are fully paid off by the Contesting Respondents. This entitles the Petitioner to make withdrawals from the escrow accounts.

(iv) Respondent No. 20 [viz. Yes Bank Ltd.] has declared the loans taken by the Contesting Respondents as 'fraud' in terms of RBI Circulars.

9. Per Contra, Mr. Darpan Wadhwa, Senior Counsel for the

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Signing Date:09.12.2021 18:51:06 Respondents No. 1-4 and 6-12 makes the following contentions: -

(i) Despite issuing recall notice, Petitioner is in fact seeking specific performance of the Loan Agreements/ Financing Documents, which is unfathomable.

(ii) The loan has been recalled. Notice under Section 13(2) of the SARFAESI Act was issued in June, 2020, yet, till date no steps have been taken against the secured assets. The post-termination conditions contemplated under the Loan Agreements, enable the Petitioner to, inter alia, (a) declare all amounts immediately payable by Contesting Respondents with respect to the facilities outstanding and payable; (b) utilise any amount(s) in the account to service and repay the facilities;

(c) seek freezing of the accounts [in terms of Clause No. 7.4 of the Loan Agreement], but not to make withdrawals from the escrow accounts.

(iii) The financing arrangement under the orders of the Court is causing severe prejudice to the Contesting Respondents, since it is impossible to run the schools with Petitioner objecting to every legitimate withdrawal that is sought to be made from the escrow accounts. The schools cannot function with undue interference of the Petitioner and that would not even serve the cause of the Petitioner.

(iv) Instead of taking recourse against the securities, which are stated to be 1.5x of the loan amount disbursed, the Petitioner, without any contractual remedy, in an unauthorized manner, is withdrawing monies from the escrow accounts.

DIRECTIONS

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06

10. Petitioner advanced Rs. 100 Crores to Contesting Respondents by taking over their liabilities towards Respondent No. 20, from which they had taken loans aggregating to Rs. 260 Crores. The undisputed fact before the Court is that the loan advanced by the Petitioner has not been repaid and there is a default on part of the Contesting Respondents.

11. The default, prima facie has occurred due to financial indiscipline on part of the Contesting Respondents. Petitioner has sought interim measures under Section 9 of the Act to, inter alia, secure the amount in dispute. To achieve this objective, learned Receiver was appointed by consent of the parties. Petitioners contend that Respondents are not depositing the entire amounts collected by them in the escrow accounts. In support of their submission they rely upon the observations of the learned Receiver who has noted that Contesting Respondents are "prima-facie guilty of disobedience or trying to by-pass the order of the Hon'ble High Court of Delhi dated 22.12.2020".

12. The apprehension expressed by the Contesting Respondents is not misconceived. The learned Receiver indeed points out violation of the orders of the Court. Thus, the entire outflow and inflow of the escrow accounts has to be scrutinized and monitored. In view of the foregoing, the appointment of the Receiver ought to continue for present. The directions given to the Contesting Respondents for making deposits in the escrow accounts, in terms of the Order dated 02nd September, 2021 shall remain in force, subject to further directions of the learned Arbitrator.

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06

13. The next question is whether the Petitioner should be permitted to make withdrawals from the said escrow accounts, which admittedly is being done. On this issue, the Contesting Respondents have argued that the recall of the loan amount has led to severance of the contractual relationship amongst the Petitioner and Respondents. The Petitioner can only seek freezing of the escrow accounts but cannot make withdrawals thereunder. On the other hand, the Petitioner has argued that under Clause 12.14 of the Loan Agreements, obligations of the Borrower [viz. the Contesting Respondents] continue till such time, the entire loan amount is fully paid off.

14. The effect of the contractual obligations would require in-depth analysis which will be examined by the learned Tribunal for working out the interim arrangement. Petitioner's right to recover the recall amount cannot be disputed, but if the escrow accounts are being operated under the directions of the Court, withdrawals therefrom, have to be with permission of the Court. Therefore, pending decision of the learned Arbitrator no withdrawals from the escrow accounts should be made by the Petitioner. Likewise, no withdrawals should be made by the Respondents except as already permitted by this Court vide Order dated 22nd December, 2020 and the subsequent Order dated 29th September, 2021.

15. It is clarified that the Court has not expressed any opinion on the contractual rights and obligations of the parties relating to right to operate the escrow accounts and all contentions of the parties are left open. The learned Arbitrator is requested to decide the present petition under Section 17 of the Act within a period of six weeks from today.

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06

16. The Court is further informed that the withdrawals from the escrow accounts have also been carried out by Respondent No. 20 that is not a party to the arbitration agreement. While Respondent No. 20 is free to take recourse to or pursue remedies in accordance with law, which has already been initiated, they would also not operate the escrow accounts without the permission of the learned Arbitrator or direction from the court of competent jurisdiction.

17. It is further clarified that the directions given vide Order dated 15th November, 2019 in para 9 shall also continue to operate along with directions given in the Order dated 14th January, 2021.

18. The learned Arbitrator shall be free to modify, extend, recall, or alter the Order passed by this Court including continuation of the appointment of the learned Receiver and the Chartered Accountant, after considering the submissions of the counsel for the parties on merits. It is further clarified that the views expressed by this Court are only tentative in nature and the learned Arbitrator would consider the application under Section 17 of the Act, uninfluenced by any observations made by this Court in the previous Orders or this Orders.

19. At the request of the parties, it further directed that interim applications, if any, which are in the nature of seeking directions of interim measures, shall also be considered by the learned Arbitrator while considering the application under Section 17 of the Act, in accordance with

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06 law.

20. The counsel for the Chartered Accountant informs that the fees of the CA still unpaid. Mr. Tripathi states that if a written request is received by the Petitioner, the payment shall be made forthwith.

21. Accordingly, the present petition and pending applications are disposed of in the above terms.

SANJEEV NARULA, J DECEMBER 6, 2021 nk

Signature Not Verified Signed By:SAPNA SETHI

Signing Date:09.12.2021 18:51:06