Allowed

Idbi Trusteeship Services Ltd. v. Kiri Industries Ltd. and 2 Ors.

Bombay HC20 Mar 2013ARBP/1334/2012

Case brief

AI extract

What is this about?

A debenture trustee sought protection following repayment defaults and competing claims over mortgaged security. The court upheld the trust deed's arbitration clause and permitted interim protection over FCCB proceeds. It continued the restraint on disbursement through arbitration and four weeks thereafter, and directed expeditious constitution of the tribunal.

What did the court decide?

Restraint on disbursement of FCCB proceeds to the extent of the claim continued until disposal of arbitration and four weeks thereafter; tribunal constitution directed within one month.

Idbi Trusteeship Services Ltd. Vs Kiri… — Securities and Capital Markets | Bombay HC (2013)

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ARBP-1334/12

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY .

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ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION PETITION NO.1334 OF 2012

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IDBI TRUSTEESHIP SERVICES LIMITED

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Asian Building, Gound Floor, 17, Kamani Marg, Ballard Estate, Mumbai-400 001.

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... Petitioner.

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V/s.

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1. KIRI INDUSTRIES LIMITED

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a company incorporated under the provisions of the Companies Act, 1956 and having its registered office at 7^th Floor, Hasubhai Chambers, Opp. Town Hall, Ellisbridge, Ahmedabad – 380 006

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2. MANISH KIRI

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Adult, Indian Inhabitant

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Residing at-53, Manekbaug Society, Satellite Road, Ambawadi, Ahmedabad, Gujrat 380015

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3. PRAVIN KIRI

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Adult, Indian Inhabitant Residing at -53, Manekbaug Society, Satellite Road, Ambawadi, Ahmedabad, Gujrat 380015.

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... Respondents.

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Mr S.U.Kamdar, Senior Advocate along with Chirag Mody i/b M/s DSK Legal for Petitioner.

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Mr Sunip Sen along with Kamal Khatta and Ajay Dhawale i/b Akhsay Wani for Respondents.

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CORAM : R.D.DHANUKA J.

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JUDGMENT RESERVED ON : FEBRUARY 22, 2013. JUDGMENT PRONOUNCED ON : MARCH 20, 2013 .

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JUDGMENT :

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By this petition filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as 'the Act' for short), petitioner seeks an order and direction against the respondent to deposit in this Court an amount to the extent of Rs.43,63,0149/- with liberty to the petitioner to withdraw and/or furnishing the bank guarantee in the like amount, injunction against the respondents in respect of the mortgaged properties described in Exhibit-A to the petition and for appointment of Court Receive. Some of the relevant facts for the purposes of deciding this petition are as under.

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The first respondent wanted to raise a debt for the purposes of repayment of long term loans, general corporate purposes and long term working capital requirements. Vide two letters dated 28^th July 2011, the petitioner gave its consent to the first respondent for acting as the Debenture Trustee for such fees and on the terms and conditions mentioned in the said two letter. The first respondent accepted the said two letter by countersigning the same thereby according its

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a000000000000000000000000000000000000000000000000000000000000000 000cceptance of the contents.

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On 10^th August 2011, the petitioner and the first respondent entered into the Debenture Trustee agreement and also Information Memorandum on 4^th August 2011 by which the petitioner agreed to act as Debenture Trustee for the debentures issued under the Trust Deed for and on behalf of debenture holders. On 1^st August 2011, the Chartered Accountants (CA) of the first respondent issued a certificate stating that the first respondent's proposed issue of debentures was within the borrowing limits of Rs.1000 crores as approved by the share holders of the first respondent.

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On 9^th August 2011, the second respondent, in his cap00acity as Managing Director of the first respondent, issued a letter to the petitioner confirming that the total borrowings of the first respondent and issue of the debentures was as per the Information Memorandum dated 4^th August 2011. The Chartered Accountant of the first respondent issued certificate on 25^th August 2011 stating that the first respondent had utilized the proceeds of its Series A Debentures of Rs. 25 crores towards repayment of Term Loans, Long Term Working Capital Requirement and to meet expenses up to 25^th August 2011. The

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said Chartered Accountant also issued a certificate on 10^th November 2011 stating that the first respondent had utilized the proceeds of Series B Debentures of Rs. 15 crores in terms of certificate dated 25^th August 2011.

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On 9^th November 2011, the petitioner and the first respondent entered into a Debenture Trust Deed by which, the petitioner was appointed as Debenture Trustee. It was provided in the said agreement that the first respondent will be issuing 1000 Rated, Listed, Secured, Redeemable Non Convertible Debentures each bearing a face value of Rs.10,00,000/- (10 lacs) of the aggregate nominal value of Rs.100,00,00,000/- (100 crores) only. issued/to be issued for cash, at part. Relevant clauses of the Deed dated 9^th November 2011 are extracted as under.

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E. (a) By a first mortgage and charge in favour of the Debenture Trustee acting for the benefit of the Debentureholders over the said immovable properties and more particularly mentioned in Part A of the First Schedule hereunder written;

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(b) By a first charge in favour of the Debenture Trustee acting for the benefit of the Debentureholders over the said Assets and more particularly mentioned in Part B of the First Schedule hereunder written.

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(J) The Debenture Trustee and the Company have entered into a Debenture Trustee Agreement dated 10^th August, 2011 (as defined hereinafter) whereby the Company has appointed the Debenture Trustee and the Debenture Trustee has agreed to be appointed as the debenture trustee for the benefit of the Debentureholders and to hold the security to be created by the Company in favour of the Debenture Trustee to secure

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the payment and other obligations of the Company in respect of the Debentures, for the benefit of the Debentureholders.

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3.1 The Debentures constituted and issued hereunder are of the aggregate nominal value of Rs.100,00,00,000/- represented 1000 Fixed Rate Taxable, Secured, Rated, Listed, Redeemable Non-Convertible Debentures (NCDs) of the face value of Rs.10,00,000/- (Rupees Ten Lakhs only) each of the aggregate nominal value of Rs.100,00,00,000/(Rupees One Hundred Crores) only) privately placed for the time being with the Beneficial Owner (s) thereof, for cash at par in Demat Form on the terms and conditions contained in the Information Memorandum and the subsequent addendums thereto for the issue of each series of Debenture.

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4.3 The Financial Covenants and Conditions shall be binding on the Company and the Debenture holders/the Beneficial Owners and all Persons claiming by, through or under it and shall ensure for the benefit of the Debenture Trustee and all persons claiming by, through or under them. The Debenture Trustee shall be entitled to enforce the obligations of the Company under or pursuant to the Financial Covenants and Conditions as if the same were set out and contained in these presents which shall be read and construed as one document.

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6.1 (i) for the consideration aforesaid and as Security for the redemption and payment of the principal amount of the Debentures, interest, Debenture Trustee's remuneration, liquidated damages and all other monies hereby secured or intended to be hereby secured, the Company doth hereby grant, convey, assure, and transfer unto the Debenture Trustee by way of a first mortgage and charge on the said Immovable Property being all and singular, the freehold non-agricultural land more particularly described in Part A of the First Schedule hereunder written TOGETHER WITH undivided, impartible joint ownership right, share and interest and use in the internal approach road etc. all permanent attached facilities to the land or any part thereof in common and of every description which now are or shall at any time hereafter during the continuance of the security hereby constituted, be erected and standing or attached to the aforesaid land and/or premises or any part thereof and all trees, fences, hedges, ditches, way sewerage's drains, watercourses/liberties, privileges, easements and appurtenances whatsoever to

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the aforesaid land or any part thereof belonging to or in anyway appurtenant or usually held, occupied, enjoyed therewith or reputed to belong, or be appurtenant thereto and all the estate, right, title, interest, property, claim and demand whatsoever of the company in TO HAVE AND TO HOLD all singular object also to the use of the Debenture Trustee absolutely UPON TRUST and subject to the powers and provisions herein contained and subject also to the provisions for Redemption hereinafter mentioned;

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6.2 The Company shall, within a period of six months from the expiry of its every financial year, intimate in writing to the Debenture Trustee and shall forthwith thereafter at its own expense without any demand from the Debenture Trustee grant, convey, transfer, assure and assign unto to Debenture Trustee all lands and hereditaments which may hereafter be acquired by the Company UPON AND FOR THE TRUSTS and for the presents contained and the Company shall at its own costs forthwith vest the same in the Debenture Trustee in such form and manner as may be determined by the Debenture Trustee.

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10.1 Upon the occurrence of one or more of the events specified herein (hereinafter called “the Event(s) of default”), the Debenture Trustee may, in their discretion, and shall, upon request in writing of the Majority Debentureholders/Beneficial Owners or by a Special Resolution duly passed at the meeting of the Debentureholders/the Beneficial Owners by a notice in writing to the Company declare the principal amount of the Debentures, all interest and all other monies to be due and payable forthwith and the security created hereunder shall become enforceable and the Debenture Trustee shall exercise all or any of the following rights namely :

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(a) Subject to Section 69 of the Transfer of Property Act and Clause 11 hereinbelow, to sell, assign or otherwise liquidate or direct the company to sell, assign or otherwise liquidate any or all of the Mortgaged Premises, in such manner, at such time, at such place or places and on such terms as the Debenture Trustee may, in compliance with the requirements of law, determine in its absolute discretion and to take possession of the proceeds of any such sale or liquidation;

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(b) to enter upon and take possession of the Mortgaged

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Premises and/or Assets of the Company; and in which event the Company shall, at its own expense;

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10.3 EVENTS OF DEFAULT :

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(a) Default shall have occurred in the redemption of the Debentures as and when the same shall have become due and payable.

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(b) Default shall have been committed by the Company in the payment of any installment of interest on the Debentures and such default shall have continued for a period of thirty days.

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( c) Default shall have occurred in the performance of any other convenants, conditions or agreements on the part of the Company under this Agreement or any other deed between the Company and the Debentureholder(s)/Beneficial Owner(s)/Debenture Trustee and such default shall have continued for a period of thirty days after notice in writing thereof has been given to the Company by the Debentureholder(s)/Beneficial Owner(s)/Debenture Trustee.

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(d) Any indebtedness of the Company for borrowed monies i.e. indebtedness for an in respect of monies borrowed or raised (whether or not for cash consideration) by whatsoever means (including acceptance, credits, deposits and leasing) becomes due prior to its stated maturity by reason of default of the terms thereof or any such indebtedness is not paid at its stated maturity or there is a default in making payments due under any financial guarantee or of amalgamation or reconstruction previously approved in writing by the Debenture Trustee and duly carried into effect;

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(u) If the Company creates any mortgage, charge, lien or other encumbrance over or assigns or transfers or attempts to assign or transfer the Specifically Mortgaged Premises/said Assets or other securities created in favour of Debenture Trustee, without the prior consent in writing of the Debenture Trustee.

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11. TRUST OF THE MORTGAGED PREMISES/ASSETS

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The Mortgaged Premises and the Assets shall be and remain security to the Debenture Trustee for the due repayment of the principal amount of the Debentures, interest, Debentures Trustee's remuneration and all other monies payable under the Debentures and these presents intended to be hereby secured and the Debenture Trustee shall permit the Company, until the happening of one or more of the events upon the happening of which the security hereby constituted shall become enforceable as herein provided, to hold and enjoy the Specifically Mortgaged Premises and Assets and to carry on therein and therewith the business authorised by the Memorandum of Association of the Company and upon the happening of any such event the Debenture Trustee may (but subject to the provisions as applicable) in their discretion, and shall, upon request in writing by the Debentureholders/Beneficial Owners, enter upon or take possession of and/or receive the rents, profits and income of the Specifically Mortgaged Premises and Assets or any of them or any part thereof and subject to and with the rights conferred on them under this Deed may at their discretion and shall upon request of the Debentureholders/Beneficial Owners as mentioned above (subject to the provisions of section 69 of the Transfer of Property Act, 1882) sell, call in, collect and convert into monies the same or any part thereof with full power to sell any of the Specifically Mortgaged Premises and Assets either by public auction or private contract and either for a lump sum or a sum payable by instalments or for a sum on account and a mortgage or charge for the balance and with full power upon every such sale tomake any special or other stipulations as to title or evidence or commencement of title or as to the removal of any property which may be sold separately or otherwise as the Debenture Trustee shall think proper and with full power to buy in or rescind or vary any contract for sale of the Specifically Mortgaged Premises and Assets or any part thereof and to re-sell the same without being responsible for any loss which may be occasioned thereby and with full power to compromise and effect compositions and for the purposes aforesaid or any of them to execute and do all such acts, assurances and things as they shall think fit PROVIDED ALWAYS that before making any such entry or taking possession as aforesaid or making any sale, calling in, collection or conversion under the aforesaid power in that behalf (hereinafter referred to as the “Power of Sale”) the Debenture

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Trustee shall give written notice of their intention to the Company. But the Debenture Trustee shall not be bound to give any such notice in any case where they shall certify, either before or after entry, that int heir opinion further delay would imperil the interests of the Debentureholders/Beneficial Owners, or in any case where an order or resolution for the winding up of the Company as mentioned in this Deed shall have been made or passed.

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The Debenture Trustee shall not exercise the Power of Sale if in the case of suchpower arising by reason of any default inpayment of anymonies due in respect of the principal or interest, the Company shall prove to the Debenture Trustee the payment of monies so in arrears within 7(seven) days next after the notice has been given or if in the case of such power arising by reason of any provision as herein stated the Company shall, within 7(seven) days of the receipt of a notice, remove, discharge or pay out any distress, execution or process or fully perform the covenants, conditions or provisions breached, if capable of being performed, or make good the breach thereof, or pay adequate compensation for such breach to the satisfaction of the Debenture Trustee and any compensation so paid to the Debenture Trustee shall be deemed to be part of the Specifically Mortgaged Premises and Assets.

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56.1 Termination

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This Debenture Trust Deed shall terminate when all the Debentures constituted hereby have been redeemed or repaid to the extent required under the Debenture Documents.

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56.2 Actions by Debenture Trustee on Termination

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Upon termination pursuant to sub-clause (a) above or retirement or removal of the Debenture Trustee in accordance with this Debenture Trust Deed, the Debenture Trustee shall take such action as may be requested by the company, to release the Security, or any part thereof then held in trust by the Debenture Trustee, to the Company or such Person designated by the Company, including the execution of any documents, if required for the purpose of such release.

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Financial covenant and conditions recorded under second schedule of the said document provides for “Security” which reads as under :

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Security :

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The repayment of debentures together with interest, further interest by way of liquidated damages, commitment fee/front end fees, premium on prepayment or on Redemption, remuneration of the Debenture Trustee and all costs, charges, expenses and other monies payable by the Company in respect of the debentures will be secured by :

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a) Initial Security :

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(i) First legal mortgage over the said Immovable Property under this registered Debenture Trust Deed,

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(ii) First charge over the said Assets.

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(iii) Unconditional & Irrecoverable personal guarantee of the Guarantor i.e. Mr Pravin Kiri and Mr Manish Kiri

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(iv) Post Dated Cheques, for the payment of principal amount, coupon and the Redemption Premium

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The Security mentioned in (iii) shall be created before the allotment of the Debentures.

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The remaining security shall be created within a period of 90 days from the Deemed Date of Allotment of the Series A Debentures and shall at all times during the tenure of the Debentures be equivalent or more than 1.25 times the Outstanding Amount.

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Clause (ix) of the second schedule provides for further borrowings which reads as under :

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(ix) Further Borrowings :

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The Company shall be entitled to make further issue of Debentures and/or raise further loans and/or avail of further deferred payment/guarantee facilities from time to time for such amounts and from such persons/public financial institutions/bank or any other financial corporations or body corporate to be secured on a pari passu basis with

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the security created/to be created in favour of the Trustees for the Debentures, on such terms as may be mutually acceptable to the Company, the Trustees and the Investment Institutions participating in the Debenture issue. However, until the Debentures are fully redeemed, the Company shall not create any mortgage or charge on the aforesaid property or assets without obtaining prior written approval of the Debentureholders and the Trustees. Provided that at the time of raising such further issue of Debentures and/or further term loans and/or availing deferred payment credit/guarantee facilities the Company maintains the security cover stipulated in Financial Covenants and Conditions No.(v).

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The Tata Capital Financial Services Ltd. (TCFSL) is carrying on

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business as non-banking finance company and was the sole Debenture Holder of the Debentures under the said Trust Deed. Respondent Nos.2 and 3 are guarantors vide a Deed of Guarantee executed in the month of August 2011 in favour of the petitioner.

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The first respondent availed of the long term debt by issuing Debentures under the Trust Deed to the said TCFSL aggregating to Rs.40 crores (Series A: Rs. 25 crores and Series B: Rs.15 crores). Under clause 6 of the Trust Deed, as a security for repayment of the Debentures, first respondent created a first charge on its fixed assets/immovable properties in favour of the petitioner to Debenture Trustee being for the benefit of such TCFSL. The first respondent also agreed and undertook to notify the Debenture Holders and Debenture

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Trustee in writing of all its acquisitions of immovable properties and as soon as practicable thereafter to make out a marketable title to the satisfaction of the Debenture Trustee and charge the same in heir favour in such form and manner as may be determined by the Debenture Trustee, in order to satisfy the requirement of the Security Cover. The first respondent agreed to pay the Debenture Holders the principal amount on certain dates and also interest on the Debentures. The first respondent also agreed to pay interest at the rate mentioned in second schedule. It is the case of the petitioner that from February 2012, the first respondent failed to make a regular requisite interest payments to the TCFSL and the payment was highly delayed and irregular. The first respondent also did not service the interest payments from the month of May 2012. Under Clause 10.3(b) of the Trust Deed, if default continued for a period of 30 days, the petitioner became entitled to demand the entire amount. It is the case of the petitioner that the officials of TCFSL met the representative of the respondents for payments of instalment of interest, however, no such payment was made.

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TCFSL vide its letter dated 29^th May 2012 informed the petitioner that

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an event of default had taken place and called upon the petitioner being Debenture Trustee, to proceed with the demand of immediate repayment of the

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principal amount as well as interest, costs, charges and monies due and also to liquidate the mortgaged premises and to present the cheques issued by the first respondents towards the discharge of debt.

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Vide letter dated 26^th June 2012, petitioner called upon the first respondent to act in accordance with letter dated 29^th May 2012 and called upon to notify the Securities & Exchange Board of India (SEBI), the Credit Information Bureau (India) Limited (CIBIL), The Bomay Stock Exchange (BSE) and any other statutory government body that an event of default under the Trust Deed had taken place. Petitioner also presented the cheques issued by the first respondent which on presentation were returned dishonoured with the endorsement 'Insufficient Funds'. On 1^st August 2012, petitioner issued a notice under Section 138 read with 141 of the Negotiable Instruments Act, 1881 (NI Act), to the first respondent and its concerned directors and officers for payment. The first respondent did not comply with the said notice. The petitioner has filed a complaint against the first respondent under the provisions of Negotiable Instruments Act.

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Vide their letter dated 16th July 2012, the first respondent contended that the TCFSL would have to syndicate the mandate of Rs.100 crores on a best

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effort basis. It is contended that an amount of Rs.40 crores was arranged by TCFSL by applying for Non Convertible Debentures (NCD) in September 2011, however, inspite of repeated requests, remaining amount could not be arranged by TCFSL. It was contended that the said Deed was entered with a specific purpose for arranging long-term working capital and as the remaining amount was not arranged by TCFSL, the first respondent went into severe liquidity shortage and as a result thereof it was unable to pay its suppliers in time. The first respondent informed the petitioner that a request had been also made to TCFSL to provide some more time for the payment of outstanding amount or to restructure NCD of Rs.40 crores.

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It is the case of the petitioner that the petitioner came to know that the first respondent has raised further funds by way of issuing Foreign Currency Convertible Bonds (FCCBs). It is the case of the petitioner that under clause 35D (vii) of the Trust Deed, the first respondent was prohibited from doing so without obtaining permission of the petitioner prior to making any further issue of Secured Debentures and/or raise Term Loans and/or avail of deferred payment facilities from any persons/banks/financial institutions or bodies corporate or any other agency. The closing date in respect of receipt of funds by way of the said FCCBs was 21^st November 2012. It is the case of the petitioner

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that the petitioner also learned that the first respondent had further created a pari passu charge on the mortgaged premises over which the petitioner had first charge by way of of security for the Debentures issued by the first respondent.

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The petitioner vide their letter dated 25^th September 2012 provided an opportunity to the first respondent to remove the illegal charge purported to be created on the mortgaged premises within seven days. The petitioner vide their letter dated 15^th November 2012 called upon the respondents to clear the outstanding amounts on account of events of default committed by the first respondent within 15 days making it clear that in case of failure, the petitioner would refer the dispute and differences to arbitration. According to the petitioner, as on 9^th November 2012, the respondents were liable to pay to the petitioner Rs.43,63,01,149/- .

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By an ad-interim order dated 21^st November 2012 passed by this Court, this Court recorded statement made by the respondents through their learned counsel that respondents would not disburse the amount of Rs.43,63,01,149/- from the amounts received from FCCB till the next date of hearing. By an order dated 24^th January 2013, this Court directed the respondents not to disburse amount of Rs.43,63,01,149/- from FCCB. The said

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order is continued from time to time and is in force.

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Mr Kamdar, the learned senior counsel invited my attention to various clauses of the Debenture Trust agreement as referred to aforesaid and submits as under :

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(a) The petitioner being a Trustee, is entitled to recover on behalf of the beneficiaries under the provisions of the said Deed. There is no dispute that the first respondent has committed default in payment of interest and that it has created additional security. The first respondent has created charge in respect of the property mortgaged in favour of the petitioner by creating charge in favour of other banks and institutions. The first respondent was under obligation not to create any encumbrance on such properties mortgaged in favour of the petitioner. It is submitted that the first respondent could not have issued further bond such as FCCB or otherwise which was contrary to Clause (vii). It is submitted that as the first respondent has committed default in payment of interest, the entire payment became due and payable by the respondents to the petitioner. In their reply dated 16^th July 2012, the first respondent has admitted its liability and default. It is submitted that though TCFSL vide its letter dated 27^th September 2012 to first respondent had given an opportunity to rectify further charge created by the first respondent and to

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remove such charge, the first respondent failed to rectify and/or remove the same. The learned senior counsel invited my attention to the Annual Report of the first respondent which is annexed to page 308 and also the Balance-Sheet of the respondents in which such charge is admitted by the respondents. The learned senior counsel points out that on 8^th October 2010, charge was created in favour of State Bank of India by the first respondent. On 18^th March 2011, charge was modified after the Trust Deed was entered into with the petitioner. On 3^rd September 2011, charge of State Bank of India was satisfied. The learned counsel submits that petitioner is entitled to invoke arbitration clause recorded in the Trust Deed and has been rightly invoked. The learned senior counsel submits that in view of the State Bank of India claiming charge in respect of the properties mortgaged to the petitioner, the property mortgaged in favour of the petitioner is not sufficient to protect the claim of the petitioner and thus, amount collected by the first respondent from FCCB to the extent of claim made by the petitioner, be not allowed to be utilized by the first respondent.

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Mr Sen, the learned counsel for the respondent on the other hand submits that by the present petition, the petitioner seeks to enforce the mortgage of property created in favour of the petitioner which is in the aid of final relief. It is submitted that the dispute regarding mortgage can not be

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referred to arbitration and only to be decided by the civil Court. The learned counsel placed reliance upon the judgment of the Supreme Court in the case of Booz Allen & Hamilton Inc. Vs. SBI Home Finance Ltd. (2011) 5 SCC 532 in support of this proposition. The learned counsel submits that the petitioner was fully aware that the first respondent has already recovered money from the public by issuing FCC bond. It is submitted that though the petitioner was fully aware and had attended the meeting,no protest was raised by the petitioner. The Petitioner was also aware that the said issue was to be closed on 21^st November, 2012. Petitioner lodged this petition on 19^th November, 2012 and moved for ad interim relief on 21^st November, 2012 after closure of the said issue. The learned counsel submits that in view of such delay on the part of the petitioner in filing the present proceedings, no relief can be granted in favour of the petitioner. The learned counsel submits that the petitioners who claim to be the trustees in the Debentrue Trustee's Agreement has no right beyond the property mortgaged in favour of the petitioner. It is submitted that the petitioner cannot seek any relief in respect of FCC bond which is unsecured. The learned counsel submits that under section 36 of the Indian Trust Act, the petitioner can exercise its right as trustee on behalf of the beneficiaries only if the beneficiary is not competent to contract. The learned counsel relied upon schedule IV of the

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Said Act in support of his plea that the petitioners have exceeded their rights

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provided to trustees by filing the present proceedings. The learned counsel submits that under clause IX, the first respondent is entitled to make issue debentures and or raise further loans and/or avail of further deferred payment/guarantee facilities from time to time from any such persons/public financial institutions/banks or any other financial corporations or body corporate to be secured on pari passu basis with the security created/to be created in favour of the Trustees for the Debentures. It is submitted that the FCC Bond issued by the first respondent is in the nature of borrowings permitted under clause IX. The learned counsel submits that the restructuring of the first respondent is in ordinary course of business which is permitted under the provisions of the contract. It is submitted that clause VII would not apply to the facts of this case but clause IX would apply as the respondent no. 1 has borrowed in the ordinary course of business and the said borrowing is unsecured. The learned counsel submits that the petitioner seeks to secure the claim of financers by seeking relief not against the trust property, but against the private property. The entire action is thus beyond the powers and rights of the petitioner.

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The learned counsel submits that as the reliefs claimed by the petitioner in terms of prayer clause (f) and (g) pertains to the mortgage

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property, State Bank of India and Tata Capital Finance Services Limited also would be necessary parties. The learned counsel submits that the entire action on the part of the petitioner indicates malafides against the first respondent.

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The learned counsel then submits that there is no arbitration clause in the agreement. It is submitted that conditions of section 7 of the Arbitration & Conciliation Act, are not satisfied in this case. The learned counsel submits that the trust action is a representative action and thus under order 31 of Code of Civil Procedure read with order 23 rule 3(b), any suit or proceeding can be only in respect of the property vested in the trust and not outside property. It is submitted that TCFSL failed to disburse the balance amount of Rs. 60 Crores which created liquidity problems for the first respondent. It is submitted that though the said TCFSL subscribed to the extent of Rs. 40 Crores, the petitioner obtained security worth more than 125 Crores from the first respondent. The learned counsel submits that proceeds of the FCC bonds shall be coming into escrow account held by the State Bank of India and not the respondent.

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Mr Sen the learned counsel submits that the State Bank of India which

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had already mortgage of the same immovable properties had agreed to release their lien from the properties conditionally vide letter dated 15^th February, 2012

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in favour of the petitioner. As the said TCSFL did not arrange for the remaining portion of NCB of Rs. 60 Crores, State Bank of India became the first charge holder and petitioner would have second charge. The petitioner thus would have to proceed subject to mortgage/charge of SBI on behalf of consortium banks. The learned counsel submits that the petitioner did not take any steps to create first charge by collecting original deeds from SBI and also failed to comply with the conditions stated by the State Bank of India. The State Bank of India, therefore, did not give any release letter for filing form 17 or form 8 or form 10 so as to effect or alter the existing charge. It is submitted that the petitioners are solely responsible for the same. It is submitted that in view of the TCFSL not having released the balance amount of Rs. 60 Crores, it affected the liquidity of the first respondent by virtue of which the first respondent committed default in making payments to TCFSL resulting in huge loss to the first respondent. The respondent submits that the trust deed is not a contract and thus no arbitration clause if any, relied in the said trust deed would not fall under section 7 of the Arbitration & Conciliation Act, 1996. The learned counsel submits that under order 23 of the Code of Civil Procedure such dispute cannot be referred to arbitration. The learned counsel placed reliance upon letter dated 15^th February, 2012 from State Bank of India to the petitioner giving their conditional no objection certificate for creation of the first charge which was not

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satisfied by the TCSFL.

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In rejoinder, Mr Kamdar the learned counsel appearing on behalf of the petitioner submits that it is not in dispute that the first respondent has committed default in making payment of the interest amount. The respondents themselves had in various correspondence stated that they were facing liquidity crunch and unable to service its best to financial institutions and other lenders. The learned counsel invited my attention to letter dated 30^th April, 2012 addressed by the first respondent to Tata Capital Limited narrating the liquidity crunch faced by the first respondent and its inability to serve its debts to the banks, financial institutions and other such lenders and the respondent requested the petitioner to provide for some more time for repayment of the outstanding amount.

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The learned senior counsel submits that the arbitration clause is recorded in the agreement dated 10^th August, 2011 between the petitioner and the first respondent. It is submitted that pursuant to the said letter dated 10th August, 2011, the trust deed came to be executed on 9^th November, 2011. The arbitration clause contained in the trust deed. The learned counsel submits that

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the trust deed is also species of a contract. The learned counsel submits that

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under section 7 of the Arbitration Act, the agreement can be recorded in any document which is signed by both the parties. It is submitted that the trust deed is also a document which incorporates arbitration agreement between the parties duly signed by both the parties. The learned counsel invited my attention to clause 4.3 of the deed which records rights of trustees. It is submitted that the financial covenants form part of the trust deed and the trustees have power to make such application. It is submitted that the petitioner being trustees are entitled to enforce all the rights and obligations of the TCSFL against the respondents and are entitled to exercise right to recover the amount due to the beneficiaries including enforcement of mortgaged property. It is submitted that under Order 31 rule 1 of the Code of Civil Procedure, all rights of TCSFL vested in the petitioner and thus joining of any third party in the present proceeding is not necessary. It is submitted that the beneficiaries is not necessary party to the present proceeding. The trust can always file proceedings on behalf of the beneficiaries. It is submitted that if the trustees failed to file proceedings, even the beneficiaries can also file such proceedings. The learned counsel submits that the property vests in the trust. The trustees are entitled to seek redemption of mortgaged property of the trust and are entitled to enforce all obligations and rights of the beneficiaries. The learned counsel invited my attention to the

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fact that the first respondent had clear pari passu charge of the State Bank of

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India over the amounts received from the TCSFL. The learned counsel submits that the property described at page 134 Part I of which the petitioner has first charge. The learned counsel submits that the petitioner was required to file this petition in view of the fact that the SBI is claiming first charge in respect of the same property which is mortgaged in favour of the petitioner. It is submitted that since the first respondent also now claims that State Bank of India has first charge over the said mortgaged property, it became necessary to safeguard the claim of the petitioner by filing this petition under section 9 for interim measures.

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The learned counsel submits that in view of the fact that the default is already committed by the respondent and therefore, even in ordinary course of business, the respondent could not have borrowed any amount by issuing further bonds. The learned counsel submits that unless the debentures were fully redeemed, the respondents could not have created mortgage or charge without prior approval of the petitioner.

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Mr Kamdar, the learned senior counsel submits that the petitioner

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would not make any claim for enforcement of the mortgage in the arbitration proceedings but would follow any other proceedings for enforcement of the

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mortgage as would be permissible in law. The learned counsel distinguished the judgment of the Supreme Court in the case of Booz Allen (supra) and submits that in view of the stand taken by the respondents that the SBI continues to have first charge over the property mortgaged to the petitioner, such property mortgaged in favour of the petitioner is not sufficient security so as to secure the substantial claim of the petitioner. It is submitted that on merits, respondents have no defences. The learned counsel submits that ad interim order passed by this court shall be continued till disposal of the arbitration proceedings.

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As far as the issue raised by the respondent that in this proceedings and/or in arbitration, the petitioner cannot seek to enforce the mortgage of the property in view of the judgment of the Supreme Court in case of Booz Allen & Hamilton Inc. (supra) is concerned, Mr.Kamdar, the learned senior counsel submits that the petitioner would not make any claim for enforcement of the mortgage in arbitration proceedings and would adopt such other proceedings in respect of the said properties which are permissible in law and thus judgment of the Supreme Court in case of Booz Allen & Hamilton Inc. (supra) would not apply to the facts of this case and this court can grant interim measures under section 9 of the Arbitration and Conciliation Act, 1996. In view of the submission

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made by the petitioner that the petitioner would not make any claim for enforcement of mortgage in the arbitration proceedings against the respondent and would adopt such other proceedings as would be permissible in law, in my view, the judgment of the Supreme Court in case of Booz Allen & Hamilton Inc. (supra) would be distinguishable in the facts of this case. This court (R.D.Dhanuka, J.) has already dealt with a similar issue in order and judgment in case of Tata Capital Financial Services Ltd. vs. M/s.Deccan Chronicle Holdings Ltd. and Anr. in Arbitration Petition No. 1321 of 2012 with Arbitration Petition No. 1095 of 2012, L & T Finance Ltd. vs. M/s.Deccan Chronicle Holdings Ltd. and Anr. delivered on 21^st February, 2013.

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In so far as the submission of the respondent that the Trust Deed is not a contract and no arbitration clause exists that could fall under section 7 of the Arbitration Act, 1996 is concerned, perusal of the trust deed indicates that the arbitration clause is recorded therein is duly signed by both parties. In my view, trust deed is also a species of a contract executed between the parties. On perusal of section 7 of the Arbitration Act, 1996, it is clear that any arbitration agreement in writing if contained in the documents signed by the parties would be arbitration agreement. In my view, the trust Deed which records the arbitration agreement between the parties is duly signed by both parties and thus

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satisfies the condition of section 7 of the Arbitration Act, 1996. In my view, arbitration agreement exist between the parties. There is no substance in the submission made by the respondent that the trust deed is not a contract and the arbitration agreement contained therein does not satisfy the condition of section 7 of the Arbitration Act, 1996.

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In so far as the submission of the respondent that the prayer clauses (f) and (g) of the petition pertains to the mortgage property and therefore the State Bank of India and Tata Capital Finance Services Limited would be necessary parties is concerned, in view of the submission made by Mr.Kamdar, the learned senior counsel that the petitioner would not make any claim for enforcement of mortgage in the arbitration proceedings and in view of the fact that this court does not propose to pass any order in respect of the mortgage property as prayed in prayer clauses (f) and (g), State Bank of India is neither necessary nor a proper party to the present proceedings. In so far as Tata Capital Finance Services Limited is concerned, the beneficiary is not required to be added as a necessary party as no relief is sought by the petitioner against the said beneficiary but the reliefs are claimed for and on behalf of the beneficiary. The petitioner being a trustee are entitled to file the present proceedings even without joining the beneficiary as party to the proceedings. There is no

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substance in the submission made by Mr.Sen that either the State Bank of India or Tata Capital Finance Services Limited shall be joined as a party respondents before passing any interim measures in the present proceedings.

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In so far as submission of the respondent that the petitioner being trustee has no right to seek any interim measures in respect of the properties other than properties mortgaged in favour of the petitioner is concerned, in my view, the security given in favour of the petitioner is not sufficient to protect the claim of the petitioner, under section 9 (d) and (e) of the Arbitration Act, 1996, the petitioner is entitled to apply for receiver and for such interim measures as may appear to the Court be just and convenient. In my view there is no bar against the petitioner trustee from seeking injunction and/or the receiver in respect of the properties other than the properties mortgaged in favour of the petitioner so as to secure its claim.

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The next submission of Mr Sen, the learned counsel appearing for the respondent is that under Clause IX of the deed, the 1^st respondent was entitled to issue further debenture and/or raise further loans and the same would be in the ordinary course of business and is permitted under clause IX is concerned, in my view unless the debentures were fully re-deemed by the respondent, the

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respondent could not have created mortgage or charge without prior approval of the petitioner and/or borrowed any money without prior consent of the petitioner. In my view, even if the issue of FCCB is unsecured as claimed by the respondent, it is not in dispute and on the contrary it is claimed by the respondent themselves that the property which was mortgage in favour of the petitioner, the State Bank of India claims to have first charge thereon, in my view, petitioner is entitled to apply for interim measures even in respect of the amount recovered by the respondent from such FCCB which would be by way of additional borrowing by the respondent.

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The next submission of Mr Sen, the learned counsel appearing for the respondent is that the State Bank of India had issued their no objection in mortgaging the said property in favour of the petitioner was on the condition that the entire amount of Rs.100 crores was to be released by the beneficiary towards NCB whereas the TCSFL did not release balance Rs.60 crores and thus the State Bank of India claims to be the first charge holder in respect of the said property. In my view the record prima facie does not indicates that the beneficiary was liable to release Rs.100 crores in favour of the 1^st respondent towards NCB. The terms and conditions prima facie indicates that the said investment was to be on best effort basis. The record also indicates that the

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respondents have accepted the default having been committed by the respondents and had sought indulgence and extension of time to redeem the debentures. In view of the fact that it is clear stand of the respondent that in view of the alleged default committed by the beneficiary, State Bank of India is first charge-holder in respect of the mortgage property, in my view petitioners are right in making an application for interim measures in respect of the amounts recovered by the respondent from FCCB so as to secure the claims of the petitioner. On their own showing that the said property mortgaged in favour of the petitioner has first charge of the State Bank of India and second charge of the petitioner, in my view it would be in the interest of justice that the respondent not having obtained any prior consent of the petitioner in issuing FCCB and not re-deeming the debentures, the claim of the petitioner is required to be protected.

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In my prima facie view, the respondents have committed default in refusing to re-deem the debentures issued in favour of the beneficiary and have created charge in respect of the property mortgaged to the petitioner without its prior consent and not rectifying the said charge inspite of an opportunity having been given by the petitioner, the petitioner has made out a case for grant of interim measures.

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In so far as the submission of the respondent that the trust action is a representative action and under Order 31 of the Code of Civil Procedure read with Order 23 Rule 3(b), the suit or proceeding could be only in respect of the property vested in the trust and not outside property is concerned, in my view, there is no merit in the submission made by the respondent. Under section 9(d) and (e) of the Arbitration Act, 1996, the petitioner is entitled to apply for such reliefs even in respect of the property which may not be subject matter of the dispute in arbitration.

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The next submission of Mr Sen is that there is deliberate attempt on the part of the petitioner to file the present proceedings with a view to hamper the recovery of the amount of FCCB by filing the present proceedings one day prior to the closing of the date of the application and application for ad-interim relief one day after closer of the application is concerned, in my view there is no delay attributable on the part of the petitioner in applying for ad-interim reliefs and/or to file the proceedings.

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On perusal of the clause 4.3 of the Deed, it is clear that the trustees are empowered to enforce all the rights and obligation of the beneficiary against

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the respondent and/or entitled to exercise rights to recover the amount due to the beneficiaries. In my view, the petitioner has made out a case for interim measures. I, therefore, pass the following order :-

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(a) The petition is made absolute in terms of ad-

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interim order dated 24^th January, 2013 passed by this

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Court. It is made clear that this order would remain in

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force till the disposal of the arbitration proceedings and for a period of four weeks thereafter.

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(b) Parties are directed to take steps to constitute the Arbitral Tribunal in accordance with the arbitration clause expeditiously and not later than one

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month from the date of this order.

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(d) No order as to costs.

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( R.D.DHANUKA, J.)

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