AI Structured Summary
Not yet generated for this judgment
Judgment
S.N.H. Zaidi, J
This appeal has been directed against the order dated 14.3.2012 of the DRT-II, Delhi whereby applications filed by respondent No. 6, Phoenix ARC Pvt. Ltd., in S.A. Nos. 62/2010, 63/2010, 63/2010 and 67/2010 for its substitution in place of respondent No. 3 Allahabad Bank and respondent No. 5 Indian Overseas Bank, on the basis of assignment of rights, title and claims by the said banks qua the secured credits sanctioned to respondent No. 1 M/s. Arean Entertainment Zone Ltd. (AEZL) through registered assignment deeds dated 5.4.2011, have been allowed. The facts of the case indicate that a term loan of Rs. 100 crores was sanctioned by a consortium of banks, comprising Allahabad Bank (AB), Bank of Rajasthan (BOR) (now merged in ICICI Bank) and Indian Overseas Bank (IOB), in the proportion of Rs. 35 crores each by AB and BOR and 30 crores by IOB, to the respondent No. 1 AEZL and its Director respondent No. 2 DR. Rajesh J. Arean, for the construction of Multiplex/Shopping Mall, namely, Festival City Mall, on execution of loan documents on 31.7.2006 The sanction letters were, however, issued separately by the constituents of the consortium. With pari-passu charge over the project land, measuring 54903 sq. yds. situate in villages Qadian and Fagguwal, G.T. Road, Ludhiana (Punjab), which was mortgaged with the AB, as leader of the consortium, A tripartite agreement was also executed on 5.8.2006 amongst the AVM Developers Pvt. Ltd., the corporate guarantor and owner of the mortgaged land as the First Part, AEZL, the borrower as the second Part and AB, as the leader of the consortium as the Third Part, whereby it was agreed that 54% of the project land would be leased out and 46% of the commercially exploitable area of the project would be sold out by AEZL to the proposed buyers as and when the same is completed/constructed, for which AB would release its charge, provided that no default or violation of any of the terms of sanction was committed and no instalment remained overdue.
The appellant, M/s. Anjali Leasing Ltd., purchased 11614.50 sq. ft. super area on the third floor of the mall for Rs. 2,70,03,712/- from AEZL, as per sale agreement dated 12.3.2007.
On 17.3.2009 the terms of the loan sanctioned to AEZL were rescheduled and the area of lease was increased from 54% to 70% whereas the area of sale was reduced from 46% to 30% and the repayment schedule was also modified.
AEZL also entered into an agreement with Ahluwalia Contracts India Ltd. (ACIL) for construction of civil work of the mall for a total project cost of Rs. 109.75 crores. It also sold out 28744 sq. ft. Area for Rs. 6,46,74,743/- to ACIL, as peer sale agreement dated 18.5.2009.
The borrowers AEZL, however, could not maintain the financial discipline and defaulted in repayment of instalments to the consortium. Consequently, the loan account was classified as non performing asset (NPA). AB, as lead bank, issued demand notice dated 31.3.2010 to the borrowers under section 13(2) of the Securitisation and Reconstruction of Financial assets and Enforcement of Security Interest Act, 2002, hereinafter referred to as the Act, claiming an outstanding amount of Rs. 67,87,13,213/- as on 28.2.2013, but the borrowers failed to repay the claimed amount within the stipulated period of 60 days. On 1.7.2010, the consortium of banks took symbolic possession of the entire mall. Thereupon, the borrower filed S.A. No. 62/2010, the appellant filed S.A. No. 63/2010 and ACIL Ltd. filed S.A. No. 67/210 before the DRT challenging the measures taken by the banks. On 5.4.2011, respondent No. 3, Allahabad Bank and respondent No. 5, Indian Overseas Bank assigned its rights, title and claims in respect of the loan in question to respondent No. 6, Phoenix ARC Pvt. Ltd., a securitization and asset reconstruction company and trustee of Phoenix Trust FY 11-6. The respondent No. 4, Bank of Rajasthan (merged with ICICI Bank) also assigned its rights and claims to respondent No. 7 M/s. Energee Reality Ventures (P) Ltd., a non-securitisation/reconstruction company.
Respondent No. 6 thereafter filed applications I.A. Nos. 288/2011, 289/2011 and 290/2011 for its substitution in place of AB and IOB in all the three S.As. The learned PO of the DRT-II, Delhi allowed these applications through the impugned order dated 14.3.2012, against which M/s. Anjali Leasing Ltd., the applicant of S.A. No. 63/2010, has filed the present appeal.
I have heard Mr. Sanjeev Sagar, the learned counsel for the appellant, Mr. Sachin Puri, the learned counsel for respondent No. 1, Mr. Saransh Jain, the learned counsel for respondent No. 5 (IOB), Mr. Abhinav Vashisht the learned Sr. Advocate and Mr. Rahul Tyagi for respondent No. 6 and Mr. Akshay Arora, the learned counsel for respondent No. 7.
The contention of Mr. Sagar is that since the combined value of the financial asset financed by respondent Nos. 3 and 5 represents only 65% of the secured credit, which is less than three-fourth in value of the amount outstanding, as envisaged under section 13(9) of the Act, therefore, the assignment of their rights by the said respondents qua the secured assets does not confer any legal right upon respondent No. 6 to enforce the security interest qua the said asset and as such it could not be substituted in place of these respondents. He also contended that by assignment of the debt by two creditors (respondent Nos. 3 and 5) to respondent No. 6 which is a securitization and reconstruction company and by the third creditor (respondent No. 4) to respondent No. 7 which is not a securitization or reconstruction company, the cause of action for the recovery of the entire outstanding amount of debt, as claimed through the demand notice issued under section 13(2) of the Act, has been bifurcated because for the recovery of the amount of debt, assigned to respondent No. 6, the DRT is the competent forum whereas for the recovery of the debt assigned to respondent No. 7, only the Civil Court has the jurisdiction and thus besides the bifurcation of the cause of action, the suit would also be bifurcated, which is not permissible under the Act. He has placed reliance upon the judgment of the Hon'ble Supreme Court in Appeal (C) No. 1174/2002- Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Another, decided on 14.4.2003, in support of his contentions.
Mr. Sachin Puri, supporting the contentions of the appellant, has also contended that under section 13(9) of the Act if financing of a financial asset is done by more than one secured creditor, the power under section 13(4) of the Act can be exercised only if it is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding. According to him, since respondent Nos. 3 and 5 were holding less than three-fourth of the value of outstanding amount, therefore, they could not take the measures under section 13(4) of the Act. He has relied upon the judgment of the Madras High Court in Writ petition No. 10600//2007 M/s. Kanakadhara Spinning Mills (P) Ltd. v. The Registrar, Board of Industrial and Financial Reconstruction (BIFR) rendered on 23.7.2009 and of the Supreme Court in Central Bank of India v. State of Kerala and others, (2009) 4 SCC 94.
Mr. Abhinav Vashisht, the learned senior counsel, however, contended that the learned Tribunal below has rightly allowed the substitution applications with the observation that the substitution of respondent No. 6 would not bring it to any privileged position and if the assignment is void or is against the statutory provisions, as contended by the S.A. applicants, then respondent No. 6 would have all the weaknesses and the S.A. applicants could raise all those issues at the appropriate time. It has also been pointed out by him that respondent No. 6 is a securitization and asset reconstruction company duly registered as per section 3 of the SARFAESI Act and respondent Nos. 3 and 5 had duly assigned their debt in its favour under section 5 of the Act, which is evident from the deed of assignment. He has relied upon the judgment of the Division Bench of the Delhi High Court in IFCL Ltd. v. Bharat Steel Tube Ltd., MANU/DE/031/2011 (sic which according to him, is directly on the point in issue.
I have given my thoughtful consideration to the submissions of the parties counsel. In my opinion of the appellant and respondent No. 1 that since the combined value of the financial assets financed by respondent Nos. 3 and 5 was less than three-fourth of the amount outstanding, as claimed through the demand noticed issued under section 13(2) of the Act, therefore, the assignment of the financial interest by the said respondents to respondent No. 6 was bad in law and on the basis of such assignment it cannot enforce the security qua the secured asset, is not tenable, because this appeal has not been preferred against any action taken under section 13(4) of the Act but against an order allowing the substitution of respondent No. 6 on the basis of the acquisition of right and interest in the financial assets of respondent Nos. 3 and 5 bank. Section 5 of the Act, which provides for the acquisition of the financial assets of the bank or financial institution by a securitisation and reconstruction company, does not lay down any condition that for acquisition of the financial assets of more than one banks or financial institutions, the combined value of their financial assets must not be less than three-fourth of the outstanding amount. The condition of having not less than three-forth in value of the amount outstanding is required to be fulfilled only for agreement by more than one secured creditors for exercising any or all of the rights conferred under section 13(4) of the Act where the financing of a financial asset is done by more than one secured creditors. Section 13(9) of the Act provides that if the financing of a financial asset is done by more than one secured creditors, such creditors can exercise any or all rights under section 13(4) thereof only if the exercise of such right is agreed by the secured creditors representing not less than three-fourth in the value of the outstanding amount of debt. In the instant case when, after issuing the mandatory demand notice under section 13(2) of the Act, the consortium of banks had taken the symbolic possession of the mall, it was representing 100% in value of the amount outstanding and the appellant and others have challenged that action by filing the S.A. and during its pendency the constituents of the consortium have separately assigned by respondent No. 6 from respondent Nos. 3 and 5 banks is not an action or measure contemplated under section 13(4) of the Act. The respondent No. 6 had sought its substitution in the SA only on the basis of acquisition of financial assets from respondent Nos. 3 and 5 through the deed of assignment. As already observed, the act of assignment cannot be challenged on the basis of being hit by section 13(9) of the Act and as such, in my opinion, the question as to what was the representation of respondent Nos. 3 and 5 in the value of the amount outstanding is not relevant for the purposes of considering the question of substitution of the assignee company in the SA.
A perusal of the order impugned shows that it is in accordance with the facts and circumstances of the case. The learned Tribunal below referring to the loan agreement entered into between the borrower and the secured creditors, wherein parties had agreed to include their successors and assigns, has rightly observed that since respondent No. 6 is an assignee of the secured creditors, therefore, it has all right to represent its assignors in the S.A. proceedings. The factum of assignment of debt by respondent Nos. 3 and 5 to respondent No. 6 is not in dispute though its legality has been disputed by the appellant. The deed of assignment has also been produced before the Tribunal below. I Agree with the learned Tribunal below that once there is an assignment of the security interest, the assignor ceases to have any interest in it and it is the assignee which takes care of the security interest and as such in the S.A., which has been filed by the applicants assailing the measures taken by the secured creditors under section 13(4) of the Act, the assignee company becomes a necessary party to be substituted in place of assignors.
The facts and circumstances of the case of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Another (supra) were entirely different than the present case. It was in respect of section 8 of the Arbitration and Conciliation Act, 1996 wherein the question considered by the Apex Court was whether a dispute could be referred to arbitration in part under section 8 of the said Act. In my opinion assignment of the security interest by the secured creditors does not amount to bifurcation of the cause of action and as such the law laid down by the Hon'ble Supreme Court in the said case does not apply to the facts and circumstances of the present case.
As already observed, the question whether or not the assignors were representing Three-fourth in value of the outstanding amount is not relevant for the purposes of deciding the question of substitution of the assignee company in place of the assignors, therefore, the judicial authorities cited by Mr. Puri do not have any application to the question involved in this appeal. The learned Tribunal below is right in its observation that all the pleas qua the validity of the assignment can be raised by the applicants at the relevant time as o observed by the Hon'ble Delhi High Court in IFCL Ltd. v. Bharata Steel Tubes Ltd. (supra) that:
...... Since PNB has assigned the debt and has received consideration, it is obvious that PNB would not be interested in the matter and it is the assignee of the debt who would have an interest to oppose the claim of the debtor that there is not debt which can be assigned. Thus, a simple judicial order required to be passed would be that the assignee should be substituted in place of the assignor with a caveat that the substitution would not be treated as an acceptance of the fact that fact that there existed a debt which was assignable.
In view of the discussion made above, I am of the considered view that the order impugned is not suffering with any infirmity or illegality and as such this appeal, being devoid of any force, is liable to be dismissed. The appeal is accordingly dismissed with no order as to cost. The interim order, if any, stands vacated. Copy of this order be furnished to the parties as per law and be also sent to the DRT concerned.