Karnataka High Court

Mr. Harry Inder Dhaul vs Yes Bank Ltd on 25 January, 2022

Bench: P S Kumar, Rajendra Badamikar

                            1




     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 25TH DAY OF JANUARY, 2022

                        PRESENT

       THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR

                          AND
     THE HON'BLE MR. JUSTICE RAJENDRA BADAMIKAR

                  COMAP NO.254 OF 2021

BETWEEN :
MR. HARRY INDER DHAUL
S/O LATE MAJOR INDER MOHAN DHAUL (RETD.)
AGED ABOUT 66 YEARS
RESIDENT OF NO.22, RAKHI MAHAL
DINSHWA WACHA ROAD
MUMBAI-400 020                             ...APPELLANT

(BY SHRI. SAJJAN POOVAYYA, SENIOR ADVOCATE OFR
   SHRI. C. MOHANA, ADVOCATE)

AND :

1.     YES BANK LTD
       GROUND FLOOR
       PRESTIGE OBELISK
       MUNICIPAL NO.3
       KASTURBA ROAD
       BENGALURU-560 001
       REPRESENTED BY ITS MANGER

2.     BANGALORE ELECTRICITY SUPPLY
       COMPANY LIMITED
       K.R.CIRCLE, BENGALURU-560 001
       REPRESENTED BY ITS
       GENERAL MANAGER (EL).
       POWER PROCUREMENT
                              2




3.   GLOBAL ENERGY PRIVATE LIMITED
     A COMPANY INCORPORATED UNDER
     THE COMPANIES ACT 1956
     HAVING ITS HEAD OFFICE AT NO.2
     PANCHSHEEL COMMUNITY CENTRE
     NEW DELHI-110 017
     REPRESENTED BY ITS
     MANAGING DIRECTOR                   ...RESPONDENTS

(BY SHRI. B.N. HARISH FOR
    SMT. POORNIMA HATTI, ADVOCATES FO R1)


       THIS APPEAL IS FILED U/S 13(1A) OF THE COMMERCIAL
COURTS ACT, 2015 READ WITH ORDER 41 AND SECTION 96 OF
THE CPC PRAYING TO I) CALL FOR RECORDS ON THE FILE OF
LXXXV ADDITIONAL CITY CIVIL AND SESSIONS JUDGE
(COMMERCIAL COURT, CCH-86) AT BEGALURU IN COM.O.S.
NO.421/2021 II) REJECT THE INTERLOCUTORY APPLICATION
(I.A. NO.4) FILED BY THE DEFENDANT NO.1/RESPONDENT NO.1
UNDER ORDER 7 RULE 11 READ WITH SECTION 151 OF CPC
SEEKING FOR REJECTION OF PLAINT AS PER ANNEXURE-D IN
COM.O.S. NO.421/2021 BY ALLOW THE INSTANT APPEAL.

      THIS APPEAL COMING ON FOR ADMISSION THIS DAY,
P.S. DINESH KUMAR J, DELIVERED THE FOLLOWING:-


                      JUDGMENT

Appellant has challenged Judgment and Decree

dated October 18, 2021 in Company

O.S. No.421/2021, rejecting the plaint with costs.

2. For the sake of convenience, parties shall

be referred as per their status in the suit.

3. Brief facts of the case are, at the instance

of third respondent (Global Energy Pvt Ltd., herein

after referred as 'Global Energy'), Yes Bank1 had

furnished Bank Guarantees for a total sum of

Rs.6,00,00,000/- in favour of Bangalore Electricity

Supply Company Ltd., ('BESCOM' for short). BESCOM

invoked the Bank Guarantee and the Bank made the

payment.

4. Plaintiff, claiming to be a promoter of

Global Energy having 85% share holding, has filed the

instant suit with prayers inter alia to declare

invocation and honouring of the Bank Guarantee as

illegal and for payment of damages. Yes Bank filed

I.A. No.4 under Order VII Rule 11 of CPC and the

same has been allowed rejecting the plaint with cost

of Rs.50,000/-. Hence, this appeal.

First respondent

5. Shri. Sajjan Poovayya, learned Senior

Advocate for the plaintiff-appellant submitted that

plaintiff is a major share holder in M/s. Global

Energy, engaged in the business of trading electricity

through out India. The Company had entered into

Power Purchase Agreement with BESCOM for supply of

Power to Karnataka from Maharashtra. M/s.Global

Energy had raised Invoices claiming `61,26,62,262/-

towards supply of electricity payable at contractual

rates at `4.85 ps. per unit and charges towards

withdrawal at `12.82 ps. per unit. BESCOM did not

honour the Invoices. Global Energy had given Bank

Guarantees and BESCOM illegally invoked the Bank

Guarantees and the Bank has made the payment.

Insolvency proceedings are pending against Global

Energy and the same was brought to the notice of the

Bank vide letter dated March 30, 2021. Even then,

the Bank has made the payment. The illegal and

arbitrary actions on the part of BESCOM and the Bank

has caused adverse effects on plaintiff's credit rating

and also that of the third defendant. As a

consequence, plaintiff is likely to face severe legal

challenges giving raise to civil and commercial

liabilities which will affect his reputation and goodwill.

6. Shri. Poovayya argued that the learned

Commercial Court has misdirected itself with regard to

application of Section 14(3)(b) of the Insolvency and

Bankrupcy Code, 2016 ("Code" for short) and

erroneously held that the suit is not only contrary to

the said provision, but also without any cause of

action. Therefore, the rejection of plaint is bad in law.

7. In reply, Shri. B.N. Harish, learned

Advocate for first respondent, submitted that the

aggrieved party in this case is, the Company and

Plaintiff had no cause of action; and the Commercial

Court has rightly dismissed the suit.

8. We have carefully considered rival

contentions and perused the records.

9. Undisputed facts of the case are, Yes Bank

had issued Bank Guarantee at the instance of Global

Energy. It is a Private Limited Company and a legal

entity. The entire case of the plaintiff is summarized in

paras 24 and 25 of the plaint and they read as

follows:

"24. It is submitted that the plaintiff is inclined to seek damages from the Defendant No.1 & 2 on account of deliberate, illegal and arbitrary actions done by it which has hampered and severally prejudiced the Plaintiff and his company i.e. GEPL and on account of the same, being the promoter of the company, his personal stakes have been questioned and burdened. The plaintiff and his company's reputation have been severally hampered and also it has caused the hindrance in the functioning of the company.

25. As stated above, it is further submitted that the unilateral and arbitral conduct of the Defendant No.1 &

2 has caused severe hit on the credit ratings of the Plaintiff herein and also the GEPL Company. It is submitted that the Defendant No.1 Yes Bank has allowed the illegal invocation of Bank Guarantee by the Defendant No.2 BESCOM despite knowing that the said Bank Guarantees were not supposed to be invoked but extended as had been agreed by the bank and called upon at that point of time, on which Bank Guarantees were invoked and encashed. Given the same, the Plaintiff is likely to face severe legal challenges against him and possible consequences giving rise to other civil and commercial liabilities which will affect his reputation and goodwill and have an adverse effect on his credit rating, thereby resulting in effecting his credit worthiness and reputation in the financial market."

10. The cause of action is described as follows

in the plaint:

"26. The cause of action for the above suit arose on 30.03.2021 when the Defendant No.1 requested not to honour the Bank Guarantee for Rs.6 Crores. The cause of action also arose on 31.03.2021 when the Defendant No.1 honored the Bank Guarantee in favour of the Defendant No.2. The cause of action also arose on various dates wherein the actions of the Defendant No.1 & 2 have caused financial loss and damage to the reputation and goodwill of the plaintiff. The cause of action also arose on all such other dates as described above. The suit is well within the period of limitation."

11. The first prayer in the plaint is to declare

the invocation and honouring of the Bank Guarantee

for Rs.6 Crores as illegal. The second prayer is to

direct the Bank and the BESCOM to jointly and

severally pay a sum of `20 Crores as damages.

12. Shri. Harish is right in his submission that

Bank Guarantee was given at the instance of the

Global Energy which is a private limited Company and

a legal entity. Therefore, the aggrieved party, if any,

is the Company. Admittedly, it has not challenged the

invocation of Bank Guarantee and the payment made

by the Bank.

13. The learned Judge of the Commercial

Court, in our opinion has rightly recorded that the

cause of action mentioned at para 26 is vague and

vexatious and such acts of the plaintiff are required to

be nipped at the bud.

14. The next contention is with regard to

Section 14(3)(b). Section 14 reads as follows:

"14. Moratorium.- (1) Subject to provisions of sub- sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:--

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of

such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.

(3) The provisions of sub-section (1) shall not apply to -

(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority

(b) a surety in a contract of guarantee to a corporate debtor.

(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be."

15. A plain reading of the above provision

shows that the moratorium is not made applicable to a

'surety' in a contract of guarantee to a Corporate

Debtor. 'Corporate Debtor' is defined in Section 3(8)

of the Code as, a Corporate person who owes a debt

to any person. According to Shri. Poovayya,

Insolvency proceedings were in progress against the

Global Energy. Admittedly, the Bank has given surety

of payment to the BESCOM on behalf of the Company.

16. The language employed in Section 14(3)(b)

is unambiguous and clearly states that moratorium

shall not apply to a surety in Contract of guarantee.