Allowed

Idbi Bank v. Raghuram Shetty

DRT12 Nov 2024OA/1/2024

Case brief

AI extract

What is this about?

The Tribunal allowed an application for recovery under the RDB Act. The applicant bank sought recovery of USD 5.49 crores and interest from the defendant as a personal guarantor for a loan facility extended to a borrower. The court held the defendant liable based on the enforceable personal guarantee and inter-clubbed jurisdiction clause.

What did the court decide?

Recovery of USD 54,997,477.19 plus interest from 02.01.2023 and issuance of Recovery Certificate.

Idbi Bank versus Raghuram Shetty — Company and Corporate | DRT (2024)

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IN THE DEBTS RECOVERY TRIBUNAL –I AT CHENNAI

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Dated this 12^th Day of November, 2024

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PRESENT: SHRI A.S.JAYACHANDRA Presiding Officer

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O.A. No.1 of 2024

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IDBI Bank Limited, IBU GIFT Branch, Unit No.1402, 14^th Floor, Signature Tower, Block 13, Road – 1C, Zone-1, GIFT SEZ, Gift City, Gandhi Nagar, Gujarat – 382 355. [By Ld. Counsel M/s. SHIVA KUMAR AND SURESH]

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. . . APPLICANT

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Versus

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Dr. Bavaguthu Raghuram Shetty S/o.Late Shambhu Shetty Roshini, Kadri Road, Kadri, Mangalore, Karnataka – 575 003. [Exparte Dated 22.03.2024]

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. . . DEFENDANT

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: - O R D E R - :

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The Applicant in the present OA under Section 19(1) of the Recovery of Debts and Bankruptcy Act, 1993 seeks recovery against the Defendant to pay a sum of USD 54,997,477.19 (Fifty Four Million Nine Hundred Ninety Seven Thousand Four Hundred Seventy Seven and Nineteen Cents Only) as on 22.11.2023 equivalent to Rs.457,88,14,963.45 (Rupees Four Hundred Fifty Seven Crore Eighty Eight Lacs Fourteen Thousand Nine Hundred Sixty Three and Forty Five Paise only) converted at USD 1 = Rs.83.255 as on 01.11.2023 together with further interest at the contractual rate of 9.33% p.a on the said amount from date of filing the OA till the date of realization with costs.

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FACTS OF THE CASE:-

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1.0 The Applicant bank submits that it is established under the Companies Act and is also Banking Company having its head office at Mumbai and a Branch at the Gujarat Address as noted in the cause title.

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1.1 It is pleaded that M/s.UAE Exchange Center LLC, (UECL) a limited liability company incorporated under the laws of United Arab Emirates, Abu Dhabi, is promoted by the defendant hereinafter referred to as the “Borrower”. The Borrower had approached the applicant bank at its DIFC Branch, Dubai for the Credit facilities of USD 50.00 Million for the purpose of participating in the syndication deal of arranging USD 200 Million for UECL by way of consortium arrangement among 11 lenders namely Barclays Bank Plc, VTB (Europe) Se, Doha Bank QSC, Abu Dhabi Commercial Bank PJSC, Punjab National Bank, Bank of Baroda, Commercial Bank Intl, PSC, Axis Bank Limited Gift City, National Bank of Fujairah and Goldman Sachs Bank USA and the applicant herein. In addition to the facility to the Borrower, the said consortium lender excluding the applicant had also agreed to lend to another company by name UX Holdings Limited for combined financial assistance of USD 475 Million being arranged by Goldman Sachs Bank.

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1.2 The present Application is filed for recovery of its dues against Personal Guarantor with respect to the financial assistance granted by the Applicant to the Borrower. The Defendant has unconditionally and irrevocably guaranteed the dues of the Applicant payable by the Borrower by executing guarantee in favour of the Applicant.

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1.3 It is pleaded that at the request of the borrower, the applicant had sanctioned a Term Loan of USD 50.00 million to the borrower as per the said consortium arrangement among the lenders equivalent to 10.15% of the total lending as per the terms and conditions vice Sanction letter dated 13.03.2016. The Borrower had accepted the terms and conditions of the said sanction letter. It is submitted that, in terms of the said sanction letter, the loan provided to the borrower was repayable over 7 yearly installments in ballooning manner with repayment starting after one year from signing of the loan agreement. The Borrower along with UX Holdings Limited had

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jointly executed Facility Agreement dated 25.03.2016 in favour of all the lenders including the applicant. The Corporate Guarantee provided by UX Holdings Limited, BRS Global Investments Limited, United Global Holdings LLC, UAE Exchange International Holdings Limited and UAE Exchange UK Limited were also made parties to the said Facility Agreement and they agreed to provide corporate guarantee for the said over all facilities including the facility sanctioned by the applicant. The said parties had also entered into a Security Sharing Agreement dated 25.03.2016 and agreed to share the Transaction Security in proportion to the respective lenders’ lending ratio. Further National Bank of Fujairah had agreed to act as Facility Agent and Security Agent for the said consortium facilities.

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1.4 It is submitted that in terms of the said Sanction letter issued by the applicant, the defendant had also undertaken to provide personal guarantee in favour of the applicant over and above the Transaction Security as an additional security to the applicant in the Supplemental Agreement dated 31.03.2016. This supplemental agreement and the facility agreement dated 25.03.2016, collectively termed as Facility Agreement for the applicant and the facility agreement has become integral part of the supplemental agreement.

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1.5 The applicant had additionally collateralized the loan facility by way of Personal Guarantee of the defendant to the tune of USD 54,997,477.19 (Fifty Four Million Nine Hundred Ninety Seven Thousand and Four Hundred Seventy Seven and Nineteen Cents only) and on crystallization of liability in Rs.457,88,963.45 as on 22.11.2023 converted at USD 1 = Rs.83.255 as on 01.11.2023.

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1.6 It is submitted that the borrower had executed a Supplemental Agreement dated 31.03.2016 in favour of the applicant to avail the loan facility of USD 50 Million. This supplemental agreement and the facility agreement dated 25.03.2016, collectively termed as Facility Agreement for the applicant and the facility agreement becomes integral part of the supplemental agreement. The borrower company had agreed to provide the required securities to secure the above said facility. The defendant also agreed to provide personal guarantee in favour of the applicant over and above the transaction security created under the Facilities Agreement as an additional security to the applicant.

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1.7 In terms of Clause No.4 Enforcement and Governing Law of the said supplemental agreement, the applicable law and jurisdiction is mentioned as under:

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a. This letter and contractual obligations arising out of or in connection are governed by English law and courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this letter.

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b. IDBI shall not be prevented from taking proceedings relating to a dispute arising out of or in connection with this Letter in Dubai International Financial Centre according to English laws or in Indian courts according to Indian laws or any other courts with jurisdiction, to the extent allowed by law, IDBI may take concurrent proceedings in any number of jurisdictions.

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It is submitted that in terms of the said facility agreement, in the absence of Majority lenders approval for enforcement of securities, only demand notice and notice of acceleration has been issued by the Facility / Security Agent National Bank of Fujairah (NBF) on behalf of the lenders.

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1.8 It is submitted that as per the Sanction letter dated 13.03.2016 the defendant had executed an unconditional and irrevocable Deed of Guarantee dated 31.03.2016 at Abu Dhabi, UAE in favour of the applicant, guaranteeing the due repayment of Term loan facility amounting to USD 50 Million availed by the borrower. The Defendant had executed an irrevocable Undertaking dated 31.03.2016 in favour of the applicant, undertaken to repay the outstanding dues of the Term Loan facility of USD 50 Million availed by the borrower company on demand in the event of default committed by the borrower. In the said Undertaking, the defendant has submitted to jurisdiction of Indian Courts of competent jurisdiction.

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1.9 It is also averred that the above said Facility Agreement and Security Sharing Agreement, both dated 25.03.2016 was thereafter amended vide an Amendment and Restatement Agreement 11.01.2017, 06.03.2017, 31.05.2017, 04.10.2017, 21.03.2019 and 12.01.2020.

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1.10 It is submitted that in middle of March 2020, the Borrower was placed under supervision of the Central Bank of UAE and activities/operations of its stores/branches were stopped. Further, senior management of the Borrower Company stopped

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responding to the lenders including the applicant. The said loan account has become NPA with effect from 31.03.2020. The defendant had also resigned from the Board of the Borrower Company on 17.08.2020 and shifted his residence to Mangalore, India. Based on the request made by the lenders, the Security Agent had also initiated action to enforce the securities by issuing the demand notice on 16.02.2021 and notice of acceleration on 23.02.2021 calling upon them to pay the entire dues payable by the Borrower and also UX Holdings Limited. However, the said Borrowers had failed to clear the outstanding dues of the lenders. In the process of enforcement of securities, the applicant had not realized any amount till date towards its share of dues.

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1.11 In view of the above default committed, the Applicant Bank herein who is the IFSC Branch in India as per internal arrangement of the Bank had invoked the Personal Guarantee given by the Defendant in respect of the above said facility vide demand notice dated 02.01.2023 and called upon the defendant to pay the outstanding dues of USD 48,645,134.99 (Rs. 402,41,68,792.05 as on 26.12.2022) together with further interest from 26.12.2022. Even though the said demand notice was received, the defendant has failed and neglected to pay the outstanding dues to the applicant.

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1.12 It is submitted that in terms of the Supplementary Agreement dated 31.03.2016, the applicant shall not be prevented from taking proceedings relating to a dispute arising out of or in connection with this Letter in Dubai International Financial Centre according to English laws or in Indian courts according to Indian laws or any other courts with jurisdiction and to the extent allowed by law, IDBI may take concurrent proceedings in any number of jurisdictions. Further, in the Undertaking dated 31.03.2016 given by the defendant has submitted to jurisdiction of Indian Courts of competent jurisdiction. The present OA is filed only against the defendant in terms of the deed of guarantee dated 31.03.2016 executed by the defendant to recover the outstanding dues payable by the defendant in the capacity as guarantor for the Term Loan facility of USD 50 million given exclusively and the applicant reserves its rights to initiate appropriate legal action against the Borrower jointly with other lenders and enforcement of the balance valuable securities. It is also made clear in the pleadings that the other lenders are not made parties to the OA.

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1.13 It is alleged that as on 22.11.2023 the following amounts are due and payable by the defendant in the capacity as Guarantor in respect of facility availed by the borrower to the Applicant:-

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TERM LOAN FACILITY (in USD)

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i. Principal amount : 39,568,007.52 ii. Interest : 15,429,469.67 iii. Other Charges : -- -------------------TOTAL 54,997,477.19 --------------------

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USD 54,997,477.19 (Fifty Four Million Nine Hundred Ninety Seven Thousand and Four Hundred Seventy Seven and Nineteen Cents Only) as on 22.11.2023 equivalent to Rs.457,88,14,963.45 (Rupees Four Fifty Seven Crore Eighty Eight Lacs Fourteen Thousand Nine Hundred Sixty Three and Forty Five Paise Only as on 22.11.2023) converted at USD 1 = Rs.83.255 as on 01.11.2023 together with interest at the contractual rate and other charges from date of filing the OA (Applicable RBI exchange rate as on the date on payment is to be utilized for conversion). The statement of dues along with the detailed Ledger extract and Certificate of Interest duly certified under the Bankers’ Books of Evidence Act, 1891 along with the Certificate under Section 2A is filed. In accordance with the express provisions in the Loan Agreements, the Applicant is entitled to charge Interest with quarterly rests and upon non-payment to capitalise the same and treat it as principal. The Applicant has filed a detailed statement of accounts of the claim giving particulars of debit entries, with rate of interest, period for it has been charged and capitalisation of the same. The applicant has not capitalized the penal interest.

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1.14 The Applicant submits that the cause of action to the present arose on 13.03.2016, when the sanction letter was issued at Dubai and on 25.03.2016 and 31.03.2016, when the facility and the supplemental agreements were executed and particularly on 31.03.2016, where the irrevocable guarantee agreement is executed by the Defendant and on all subsequent dates when the facility agreement and restatement agreements were executed from time to time between 11.01.2017 to 12.01.2020. The cause of action also arose on the last payment made i.e. 30.12.2019. The cause of action

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further arose on 02.01.2023 when a demand was made invoking the personal guarantee and this Tribunal has the jurisdiction.

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2.0 Upon notice issued on the OA, the notices sent through postal covers indicated that the intimation is posted and the addressee remained absent. The Defendant was placed exparte on 22.03.2024.

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3.0 Thereafter the Bank examined AW1 Mr.Anand Saluja, the Assistant General Manager and marked 20 documents at Exh.A1 to A20. Since the Defendant remained exparte, there is no version of the Defendant nor the evidence.

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4.0 Heard the Ld. Counsel for the Applicant Bank. The written arguments are also filed. It is argued that in terms of Clause No. 4 of Enforcement and Governing Law of the supplemental agreement dated 31.03.2016 (Exhibit No A-5) (Page No.347 in OA), the applicable law and jurisdiction are mentioned as under:

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a) This letter and contractual obligations arising out of or in connection are governed by English law and courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this letter.

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b) IDBI shall not be prevented from taking proceedings relating to a dispute arising out of or in connection with this Letter in Dubai International Financial Centre according to English laws or in Indian courts according to Indian laws or any other courts with jurisdiction. To the extent allowed by law, IDBI may take concurrent proceedings in any number of jurisdictions.

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Therefore it argued by the Ld. Counsel that the Jurisdiction of this Tribunal is not ousted and is competent to try the present OA.

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4.1 It is also argued that Exh.A2 and A6 binds the Defendant which are the sanction letter and the irrevocable deed of guarantee dated 13.03.2016 & 31.03.2016 respectively. As per clause 10 and 19 of the Deed of Guarantee, the liability of the Defendant is proved and the account statement produced reflects the true claim amount remained unpaid despite invocation of the guarantee.

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4.2 The Ld. Counsel further relied on the ruling of the Hon'ble Supreme Court in Syndicate Bank Vs. Channaveerappa Beleri and Ors reported in (2006) 11 SCC 506 to urge that the claim against the guarantor being within the period of three years is within the limitation as per Article 113 of the Limitation Act. The liability of the guarantor is co-extensive under Section 128 of the Contract Act. Therefore the Ld. Counsel prays for the recovery certificate.

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5.0 In the above context of the pleadings and the material available on record, the only point that arises for determination before this Tribunal is whether the Defendant is liable to the Applicant Bank, the recovery of the sums as prayed for in the OA.

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6.0 To answer this point this Tribunal has perused the pleadings and the material evidence available on record. In the proof affidavit of AW1 Mr.Ananda Saluja, had reiterated the averments made in the OA. He had also relied on the documentary evidence.

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6.1 After careful scrutiny of the documents, Exh,A2 shows that the Applicant Bank had approved the credit facilities sanctioned vide its letter dated 31.03.2016 in favour of M/s.UAE Exchange Centre LLC. Exh. A3 is the facility agreement dated 25.03.2016 for M/s.UX Holdings Ltd. and UAE Exchange Centre LLC arranged by various banks and the present Applicant with the National Bank of Fujairah, PJSC as the acting agent. The same is dated 25.03.2016 duly signed by the parties. The Applicant is also a party to the said agreement at Page 260 of the Proof Affidavit. The executions of these documents are unrebutted. Joint facility agreement at Exh.A3 is also relied by the Applicant.

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6.2 The allegation that the Defendant had in addition to the guarantees had also executed the personal guarantee to the tune of US$ 54,997,477.19 is not disputed. The same is dated 31.03.2016, which is at Exh.A6 and an undertaking by the Defendant dated 31.03.2016 are at Exh.A7. Perused the same.

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6.3 Exh.A7 is an exclusive document of guarantee deed executed by the Defendant in favour of the Applicant Bank with regard to the borrower M/s.UAE Exchange Centre LLC. The same is a continuing one and is enforceable against the guarantors notwithstanding any dispute between the Applicant bank and the borrower.

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6.4 In a separate letter by way of undertaking at Exh.A7, this Defendant had made it clear subjecting himself to the jurisdiction of Indian courts of competent jurisdiction as well as enforceability of the Judgement / Order by such order passed in India against the Defendant. The same is produced by the Applicant at Exh.A7. Therefore, after perusal of the said document dated 31.03.2016, the jurisdiction of this Court in so far as the enforcement of the personal guarantee cannot be doubted.

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6.5 AW1 had further produced the copy of the demand notice dated 16.02.2021issued by the National Bank of Fujairah PJSC on behalf of all the lenders addressed to the borrowers. Exh. A18 dated 23.02.2021 is the notice of acceleration issued by the Security Agent which includes the claim of the present Applicant.

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6.6 Exh.A19 shows the demand notice issued by the Bank calling upon the Defendant to pay the sum of the dues under the personal guarantee agreement dated 31.03.2016. The said notice is delivered to the Defendant.

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6.7 The ledger extract of the accounts duly certified under the Bankers Book Evidence Act is at Exh.A20. The amount due as on 23.11.2023 is reflected.

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7.0 The above oral and documentary evidence goes unrebutted. The ruling of the Hon'ble Supreme Court in Syndicate Bank (Supra) is relied by the Ld. Counsel for the Applicant, which reads as under:-

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“13. What then is the meaning of the said words used in the guarantee bonds in question? The guarantee bond states that the guarantors agree to pay and satisfy the Bank 'on demand'. It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the Bank for payment. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guarantors only when a demand is made. Article 55 provides that the time will begin to run when the contract is 'broken'. Even if Article 113 is to be applied, the time begins to run only when the right to sue accrues. In this case, the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to sue accrues, when the demand is served on the guarantor.”

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In view of the above, this Tribunal has no hesitation to hold that the Defendant is liable to pay the Applicant Bank the sums claimed in the present application. Accordingly the following:

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: - O R D E R - :

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The OA is allowed along with costs.

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i. The defendant is directed to pay a sum of USD 54,997,477.19 (Fifty Four Million Nine Hundred Ninety Seven Thousand Four Hundred Seventy Seven and Nineteen Cents Only) as on 22.11.2023 equivalent to Rs.457,88,14,963.45 (Rupees Four Hundred Fifty Seven Crore Eighty Eight Lacs Fourteen Thousand Nine Hundred Sixty Three and Forty Five Paise only) converted at USD 1 = Rs.83.255 as on 01.11.2023 together with further interest at the contractual rate of 9.33% p.a on the said amount from date of filing the OA in respect of the above said Term Loan Facility; (Applicable RBI exchange rate as on the date on payment is to be utilized for conversion) till the date of realization.

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ii. The amounts realized if any through the enforcing security agent through the courts outside India or by way of any other mode of recovery as against the principal borrower be adjusted towards the present OA claim along with the proportionate rates of interest.

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iii. Any amounts realized through the corporate guarantee be also adjusted towards the present recovery ordered.

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iv. Recovery Certificate be issued accordingly.

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Communicate a copy of this order to the parties concerned as per Rules.

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Sd/- (A.S.JAYACHANDRA)

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PRESIDING OFFICER DRT-I, CHENNAI

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(Dictated to PS, typed in the system corrected, signed and pronounced by me on this 12^th Day of November, 2024)

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Idbi Bank v. Raghuram Shetty

Case brief

What is this about?

What did the court decide?

Idbi Bank v. Raghuram Shetty

Case brief

What is this about?

What did the court decide?

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