Dismissed

L and T Finance Ltd. v. Decan Chronicle Holdings Ltd. and Anr. India Bull Housing Finance Ltd. (Applicant)

Bombay HC4 Apr 2013NMS/534/2013

Case brief

AI extract

What is this about?

This judgment disposed of two notices of motion seeking modification of an interim order appointing a Court Receiver in arbitration proceedings. The court held that the appointment did not affect the rights of a third-party applicant with secured claims, as the property remained in custodia legis. The court allowed the applicant to exercise SARFAESI rights pending the outcome of other proceedings.

What did the court decide?

Leave was given to the petitioners to seek leave from the appeal court to modify the order. The interim order remained operative.

L and T Finance Ltd. Vs Decan Chronicle Holdings Ltd. and Anr… — Arbitration | Bombay HC (2013)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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ORDINARY ORIGINAL CIVIL JURISDICTION

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NOTICE OF MOTION NO. 534 OF 2013 IN

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ARBITRATION PETITION NO. 1095 OF 2012

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Indiabulls Housing Finance Limited … Applicant And L & T Finance Limited … Petitioner Versus M/s. Deccan Chronicle Holding Limited and anr. … Respondents

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WITH NOTICE OF MOTION NO. 535 OF 2013 IN

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ARBITRATION PETITION NO. 1321 OF 2012

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Indiabulls Housing Finance Limited … Applicant And Tata Capital Financial Services Limited … Petitioner Versus M/s. Deccan Chronicle Holding Limited and anr. … Respondents

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Mr. Ravi Kadam, Sr. Advocate along with Mr. Ashish Kamat, Deepan Dixit i/by Kartikeya & Associates for applicants in both the notice of motions.

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Dr. Birendra Saraf alongwith Ms. Leena Desai along with Mr. Nilesh Gala i/by M/s. MDP Partners for petitioners in Arbitration Petition No. 1321 of 2012.

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Ms. S.I. Joshi along with Mr. Anand Poojari i/by M/s. S.I. Joshi & Co. for petitioners in Arbitration Petition No. 1095 of 2012.

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Mr. Vaibhav Sugdhare along with Mr.Vivek Deo along with Mr. Samsher Garud i/by M/s. Jaykar & Partners for respondent no. 2.

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Mr. K.K. Trivedi, 1^st Assistant to Court Receiver present.

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CORAM : R.D. DHANUKA,J. DATED : APRIL 04, 2013

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P.C.

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By these notice of motions taken out by the applicants, the applicants seek

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modification and or alteration or setting aside of the order and judgment dated 21st February, 2013 passed in the aforesaid arbitration petitions by which this court has appointed the court receiver in respect of some of the immovable properties which according to the applicants belong to and/or owned by the first respondent and/or second respondent and were mortgaged in favour of the applicant as and by way of security on repayment of the dues of the first respondent. The description of such properties is described in Exh. B-1 to B-3 of the affidavit in support of the motion. The applicant also seeks stay and operation of the order dated 21st February, 2013 in respect of immovable properties described in Exh. B-1 to B-3. As by both the notice of motions, the petitioners seek identical reliefs, both the motions were heard together and are being disposed of by this common order. Some of the facts emerged from the pleadings in the Notice of Motion taken out by the applicants are as under :

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The Petitioners had granted facilities in favour of the first respondents on execution of various documents by first and second respondent in favour of the petitioners. The respondents committed default in making repayment of the installments to the petitioners inspite of the notices of demand issued by the petitioners. M/s. Tata Capital Financial Services Limited filed Arbitration Petition No. 1321 of 2012 and M/s. L & T Finance Limited has filed Arbitration Petition No. 1095 of 2012 under section 9 of the Arbitration & Conciliation Act, 1996 seeking interim measures against respondent nos. 1 and 2 in this court. By the order and judgment dated 21^st February, 2013, this court in addition to other reliefs granted in Arbitration Petition No. 1321 of 2012 filed by M/s. Tata

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Capital Services also appointed Court Receiver, High Court, Bombay as receiver of the properties described in Exh. P and Q. The Petitioner in the said matter had described the immovable property in Exh. Q as “land and building”. It was the case of the petitioner that in the networth certificate issued by the Chartered Accountant of the first respondent, the land and building in the name of the second respondent Mr. T. Venkattaram Reddy, Chairman of the second respondent was valued at Rs.890.37 Crores as on 31^st March, 2010. By the said order, the Court Receiver was directed to appoint respondent as agent of the Court Receiver on usual terms and conditions and on payment of royalty and security and it was further directed that till Court Receiver takes possession of the properties described in Exh. P and Q there shall be injunction in respect of the properties described in Exh. P and Q against the first and second respondent, their employers, servants and agents in terms of prayer clauses (b) and (d). By the said order the respondents were also directed to disclose on affidavit the assets and properties owned by each of them within two weeks from the date of the said order making it clear that in case of failure, proper action under the provisions of the Contempt of Court Act, 1971 shall be initiated against the respondents. The Petitioner was granted liberty to apply for further reliefs, if such disclosure on oath was made by the respondents as directed. In so far as Arbitration Petition No. 1095 of 2012 filed by L & T is concerned, in addition to other reliefs granted by this court in the said petition by the said order, this court appointed Court Receiver as receiver in respect of the properties described in Exh. G to the petition with a direction to appoint the respondents as his agent on usual terms

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and conditions and on payment of royalty and on furnishing security. It was directed that till the Court receiver takes possession of the suit properties, injunction was granted in respect of the properties described in Exh. D and G of the said petition. The respondents were also directed to disclose unencumbered property on oath by filing affidavit within two weeks from the date of the said order. Petitioner was granted liberty to apply for further reliefs after such disclosure on oath was made by the respondents. Exh. G of the said petition provides a list of properties. Sr. No. 1 of the said property described three properties. It is the case of the applicants that out of the said three properties, the property situated at 36, Sarojini Devi Road, Secunderabad 500 003 was mortgaged in favour of the applicants by the first rsepondent. It is the case of the applicants that the said property standing in the name of the first respondent situated at 36, S.D. Road, Secunderabad was admittedly not mortgaged and or secured in favour of any of the petitioners in the present proceedings. It is also case of the applicant that the land and building in Exh. Q referred by the petitioner does not disclose any description of any such immovable property. It is not even the case of the petitioners in Arbitration Petition No. 1321 of 2012 that any of the immovable property mentioned in the Exh. Q or subsequently mentioned by the second respondent in affidavit filed on 6^th March, 2013 pursuant to the order passed by this court, were mortgaged and were forming securities in favour of the petitioner.

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It is the case of the applicants that the first respondent had applied for the loan facility to the applicants and pursuant to such application, the applicants had

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sanctioned loan of about Rs.100 Crores in favour of the first respondent on execution of various documents by the respondent in favour of the applicant. It is the case of the applicant that to secure the loan of Rs. 100 Crores granted by the applicants in favour of the first respondent, various properties were mortgaged in favour of the applicants by the first and second respondent.

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Mr. Kadam, the learned senior counsel appearing on behalf of the applicant invited my attention to notification issued on 19^th September, 2007 by the Central Government under section 2(1)(m)(iv) of the Securitization & Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002 by which the applicant was specified as financial Institution for the purposes of said Act. The learned counsel also invited my attention to notice dated 8^th March, 2013 issued by the applicants to the first respondent under section 13(2) of the said Act calling upon the first respondent to pay Rs.93.04 Crores within sixty days from the date of the said notice making it clear that in case of any such default action under section 13(4) of the said Act would be taken against the first respondent including taking possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realize the secured asset. The learned senior counsel submits that it is not in dispute that the properties which are mortgaged in favour of the applicant by the first and second respondent were not mortgaged in favour of the petitioners in either of the petitions and both the petitioners in so far as those properties are concerned, were unsecured creditors.

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It is submitted that in view of the applicants having been specified as Financial Institution under the provisions of SARFAESI, the applicant in view of the default having been committed by the respondents, have become entitled to exercise their rights under section 13(2) and would be entitled to possession under section 13(4) of the Act on expiry of notice period. It is submitted that the applicant being secured creditor has exclusive rights to take appropriate action in respect of the part of property under mortgage in respect of which this court has appointed receiver. The learned senior counsel submits that though the applicants have filed separate application in the court at Hyderabad against the first and second respondent, in view of this court having appointed Court Receiver in respect of the part of the properties which were mortgaged in favour of the applicant, the court at Hyderabad would not appoint receiver in respect of the same property. It is submitted that the applicant being secured creditor is entitled to get the receiver appointed independently in its own proceedings, get appropriate direction for sale of the mortgaged property and also to apply for the recovery of the royalty amount, and adjustment of the sale proceeds of the mortgaged property, if any, against the due of more than Rs. 100 Crores payable by the first and second respondent to the applicant. It is therefore, submitted that the rights of the applicants are seriously prejudiced by appointment of the Court Receiver in respect of the properties which were subject matter of the mortgage in favour of the applicant by respondent no. 1 and 2 and thus this court shall modify the interim order passed by this court on 21^st February, 2013 in so far as property which were mortgaged in favour of the applicant by the first and second

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respondents are concerned.

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It is lastly submitted by Mr. Kadam, the learned senior counsel that on perusal of the averments made by both the petitioners in Arbitration Petitions, it is clear that no case was made out by the petitioners for appointment of Court Receiver in respect of the mortgaged properties and this court thus shall vacate the interim order appointing Court Receiver in respect of the mortgaged property on this ground alone.

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Dr. Saraf, the learned counsel appearing for the petitioner in Arbitration Petition No. 1321 of 2012 on the other hand submits that as far as the argument of the applicant that no case was made out for appointment of the Court Receiver in respect of the mortgaged property is concerned, this argument cannot be permitted to be advanced by the applicant. It is submitted that this court having prima facie found that the respondents were defaulters in respect of the repayment of the loan advanced by the petitioners and were heavily indebted to various parties and securities furnished in favour of the petitioners were not sufficient, has rightly appointed the Court Receiver even in respect of the properties which were not mortgaged and or secured in favour of the petitioners by the respondents. It is submitted that the property is now custodia Legis. It is submitted that even if the applicant is successful in its proceedings filed at Hyderabad Court or in any other proceedigns, fact remains that this court has merely appointed the Court Receiver with a direction to appoint respondent as agent of the Court Receiver without permitting the petitioner to withdraw any

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such sum or to sell the said properties. It is submitted that the order of the appointment of receiver in respect of such properties thus would not prejudice the rights of the applicants. The learned counsel submits that from perusal of the ad interim order passed by the court at Hyderabad, it appears that the applicants have not even applied for appointment of the Court Receiver in respect of such properties mortgaged, if any, in their favour by the first and second respondent.

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The learned counsel fairly submits that if this court grants leave in favour of the applicant to file proceedings in the appropriate court in respect of any of such property which is mortgaged in their favour by the respondents, the petitioner has no objection for the same. The learned counsel in support of this plea placed reliance upon the judgment of the Supreme Court in the case of Kanyaiyalal Vs. Dr. D.R. Banaji and Ors. AIR 1958 SC 725 and in particular paragraphs 7 and 8 which reads thus :

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“7. So far as the Indian Courts are concerned, it is settled law that a sale held without making attachment of the property, or without duly complying with the provisions of the law relating to attachment of property, is not void but only voidable. Rule 52 of O. 21 of the Code of Civil Procedure, requires that where the property is in the custody of any court or Public Officer, attachment shall be made by a notice to such court or officer. But the absence of such a notice would not render the sale void ab initio, because the jurisdiction of the court or the authority ordering the sale, does not depend upon the issue of the notice of attachment. It is also settled law that proceedings taken in respect of a property which is in the possession and management of a Receiver appointed by Court under O. 40, r. 1 of the Code of Civil Procedure, without the leave of that Court, are illegal in the sense that the party proceeding against the property without the leave of the Court concerned, is liable to be committed for

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contempt of the Court, and that the proceedings so held, do not affect the interest in the hands of the Receiver who holds the property for the benefit of the party who, ultimately, may be adjudged by the Court to be entitled to the same. The learned counsel for the respondent was not able to bring to our notice any ruling of any Court in India, holding that a sale held without notice to the Receiver or without the leave of the Court appointing the Receiver in respect of the property, is void ab initio. In the instant case, we do not think it necessary to go into the question raised by the learned counsel for the respondents that a sale of a property in the hands of the Court through its Receiver, without the leave of the Court, is a nullity. The American Courts appear to have taken the view that such a sale is void. In our opinion, it is enough to point out that the High Court took the view that the sale was voidable and could be declared illegal in a proper proceeding or by suit. We shall assume for the purposes of this case that such a sale is only voidable and not void ab initio.

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On the assumption that the sale held in this case without the leave of the Court and without notice to the Receiver, is only voidable and can be declared illegal on that very ground, the suit had been instituted for the declaration that the sale by the revenue courts was illegal. The plaint was subsequently amended by adding the relief for recovery of possession, because in the meanwhile, the auctionpurchaser had obtained delivery of possession of the property through the revenue authorities, some time in 1940. The general rule that property in custodia legis through its duly appointed Receiver is exempt from judicial process except to the extent that the leave of that court has been obtained, is based on a very sound reason of public policy, namely, that there should be no conflict of jurisdiction between different Courts. If a court has exercised its power to appoint a Receiver of a certain property, it has done so with a view to preserving the property for the benefit of the rightful owner as judicially determined. If other Courts or Tribunals of co-ordinate or exclusive jurisdiction were to permit proceedings to go on independently of the Court which has placed the custody of the property in the hands of the Receiver, there was a likelihood of confusion in the administration of justice and a possible conflict of jurisdiction. The Courts represent the majesty of law, and naturally, therefore, would not do anything to weaken the rule of law, or to permit any proceedings which may have the effect of putting any party

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in jeopardy for contempt of court for taking recourse to unauthorised legal proceedings. It is on that very sound principle that the rule is based. Of course, if any Court which is holding the property in custodia legis through a Receiver or otherwise, is moved to grant permission for taking legal proceedings in respect of that property, the Court ordinarily would grant such permission if considerations of justice require it. Courts of justice, therefore, would not be a party to any interference with that sound rule. On the other hand, all Courts of justice would be only too anxious to see that property in custodia legis is not subjected to uncontrolled attack, while, at the same time, protecting the rights of all persons who may have claims to the property.”

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The learned counsel also placed reliance upon the judgment of the Supreme Court in the case of Everest Coal Company Pvt. Ltd. Vs. State of Bihar and Others, AIR 1977 Supreme Court 2304 and in particular paragraphs 4 and 8 which read thus :

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“4. The laconic affirmance by the High Court of the trial court's order has necessitated the appellant's challenge of its propriety and legality. Instead of leaving the matter 'astrologically' vague and futuristically fluid, we shall state the legal position and settle the proposition governing this and similar situations. When a court puts a Receiver in possession of property, the property comes under court custody, the Receiver being merely an officer or agent of the court. Any obstruction or interference with the court's possession sounds in contempt of that court. Any legal action in respect of that property is in a sense such as interference and invites the contempt penalty of likely invalidation of the suit or other proceedings. But, if either before starting the action or during its continuance, the party takes the leave of the court, the sin is absolved and the proceeding may continue to a conclusion on the merits. In the ordinary course, no court is so'prestige-conscious that it will stand in the way of a legitimate legal proceeding for redressal or relief against its receiver unless the action is totally meritless, frivolous or vexatious or otherwise vitiated by any sinister factor. Grant of leave is the rule, refusal

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the exception. After all, the court is not, in the usual run of cases, affected by a litigation which settles the rights of parties and the Receiver represents neither party, being an officer of the court. For this reason, ordinarily the court accords permission to sue, or to continue. The jurisdiction to grant leave is undoubted and inherent, but not based on black-letter law in the sense of enacted law. Any litigative disturbance of the court's possession without its permission amounts to contempt of its authority; and the wages of contempt of court in this jurisdiction may well be voidability of the whole proceeding. Equally clearly, prior permission of the court appointing the Receiver is not a condition precedent to the enforcement of the cause of action. Nor is it so grave a vice that later leave sought and got before the decree has been passed will not purge it. If, before the suit terminates the relevant court is moved and permission to sue or to prosecute further is granted, the requirement of law is fulfilled. Of course, failure to secure such leave till the end of the Us may prove fatal.

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Since the principle is based on contempt of court, statutory follow-up actions are carved out as exceptions (suits under O.21, O.63). Likewise, where no relief is claimed against the receiver. Similarly, whether the receiver was appointed in a collusive suit or the order itself was unjustified are beside the point. The property being in custodia legis, the court's leave, liberally granted is needed. It is the court appointing the receiver that can grant leave. If a suit prosecuted without such leave culminates in a decree it is liable to be set aside.”

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Ms. Joshi, the learned counsel for the petitioner in Arbitration Petition No. 1095 of 2012 adopts the arguments advanced by Dr. Saraf. In addition to the said arguments, it is submitted that the respondents having committed default in making repayment of the loan amount, this court was justified in appointing the Court Receiver even in respect of the properties which were not mortgaged in favour of the petitioners and the said order does not warrant any modification at the instance of the third party. It is submitted that the applicants having already

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filed independent proceedings in the court at Hyderabad, this court shall not grant any reliefs as sought by the applicants.

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The learned counsel appearing for respondent Nos.1 and 2 also opposes grant of any relief in favour of the applicant on the ground that the respondents have already filed an appeal against the order passed by this court on 21^st February, 2013 and the same is pending. If the applicant desires to oppose the said appeal, the remedy of the applicant would be to seek leave from the appeal court and to seek appropriate relief by way of modification of this order before the appeal court.

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On perusal of the notification dated 19^th September, 2007 issued by the Central Government, it is clear that the applicants have been specified as financial institution under the provisions of SARFAESI. It is not in dispute that the applicants have already issued notice under section 13(2) of the said Act calling upon the first respondent to repay the amount alleged to be due and payable to the applicants by the respondents. It is not in dispute that in respect of the part of the property in respect of which this court has appointed Court Receiver is mortgaged in favour of the applicant by the first and second respondent.

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In my view, the applicant cannot be allowed to agitate the issue that the petitioner had not made out any case for appointment of the Court Receiver by invoking provisions of order 38 Rule 5 of the Code of Civil Procedure for appointment of the Court Receiver in respect of the properties which were not

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mortgaged and or were not securities in favour of the petitioner. In my view, if the applicant was aggrieved by the said order passed by this court, could have filed an appeal after obtaining leave against the said order passed by this court to seek appropriate relief.

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In view of the fact that this court has already appointed court receiver in respect of some of the properties which includes few of the properties which are mortgaged in favour of the applicant, though without hearing the applicants as they were not parties to the proceedings before this court when the said order came to be passed, in my view said properties being custodia legis, rights of the applicants, if any, in respect of any of such properties are not affected and are fully protected. It is not in dispute that the orders passed by this court are passed under section 9 of the Arbitration & Conciliation Act and are passed by way of interim measures. The rights of the petitioners in these two proceedings or of the applicants would have to be determined finally by the arbitral tribunal or by the Civil Court as the case may be. This court has not expressed any views on the merits of the claims made by the petitioners in these petitions or the applicants in the Notice of Motions. By interim order, this court has not permitted the petitioners to withdraw any amount of royalty, if any deposited by the respondents or any such third party who is appointed as agent of the Court Receiver. This court has also not permitted the Court Receiver to effect the sale of the immovable properties, part of which is mortgaged in favour of the applicants. The Court receiver has been appointed only for the purposes of taking custody of the property with a direction to appoint the respondents or such third party who

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are found in possession as agent of the Court Receiver on usual terms and conditions and on payment of royalty and on furnishing security. In the event of the applicants succeeding in their independent proceedings filed at Hyderabad or before any other forum, the interim orders passed by this court would be ultimately subject to the outcome of the adjudication of the respective claims of the petitioners as well as the applicants in the appropriate proceedings.

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In the event of the petitioners seeking any further reliefs in respect of the properties which are mortgaged in favour of the applicant by the first and second respondent by way of sale or any other further interim measures including for withdrawal of royalty amount, the petitioners shall issue advance notice to the applicants. It is made clear that in the event of the applicants seeking any such relief in respect of the property in respect of which this court has appointed court receiver, which are claimed to be the properties having secured in favour of the applicant, the applicant also shall give advance notice to the petitioners before seeking any such relief.

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It is also made clear that in the event of the applicants exercising their rights under section 13(2) read with section 13(4) and 14 of the SARFAESI Act, order dated 21.02.2013would not prevent the applicants from exercising any such rights if they are in law entitled to. It is also made clear that if the applicants seek the appointment of the Receiver of the properties which are mortgaged in favour of the applicant, order passed by this court would not prevent the applicant from

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seeking any such relief before appropriate court or in arbitration proceedings. Both the motions are disposed of in the aforesaid terms. There shall be no order as

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to costs.

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(R.D. DHANUKA,J.)

L and T Finance Ltd. v. Decan Chronicle Holdings Ltd. and Anr. India Bull Housing Finance Ltd. (Applicant)

Case brief

What is this about?

What did the court decide?

L and T Finance Ltd. v. Decan Chronicle Holdings Ltd. and Anr. India Bull Housing Finance Ltd. (Applicant)

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

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