DLF Home Developers Ltd. vs HDFC Bank And Ors

This appeal arises out of a money recovery case filed before DRT by HDFC Bank against its borrower Company by the name of Unitech Ltd. for recovery of outstanding loan amount of over three hundred crores under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act,1993('RDDBFI Act' in short). Besides the said borrower Company the guarantors were also impleaded in the Original Application(O.A.) and additionally one Company by the name of Kolkata International Convention Centre Ltd('KICCL' in short)., respondent no.8 herein, was also impleaded as defendant no. 6. It was pleaded in the O.A. that the said Kolkata Convention Centre Ltd. was floated by Unitech Ltd., as it's fully owned subsidiary. It was prayed before the DRT that there is sufficient material to justify lifting of corporate veil and issuance of recovery certificate against this party as well since it was floated just to siphon off monies taken b Unitech Ltd. from Banks etc.

Around the time when HDFC filed the O.A. against Unitech Ltd. And others the said fully owned subsidiary Company of Unitech Ltd. Had received a payment of Rs. 135 crores odd and the same was deposited in its current account with HDFC Bank itself. HDFC Bank moved an application before the DRT in Its O.A. for a direction to respondent no.8 herein not to deal with that money in any manner. The learned DRT vide its ex parte order dated 18.05.2017 accepted that prayer of HDFC Bank and restrained the said subsidiary Company of Unitech Ltd. (respondent no. 8 herein) from dealing with the money received in its current account with HDFC Bank. That way its bank account stood frozen/attached.

Respondent no.8 herein felt aggrieved with the said freeze order passed by DRT and for getting that restriction lifted it moved one application before the DRT.

The present appellant Company, which claims itself to be part of DLF Group of Companies and which was earlier known as DLF Commercial Developers Ltd. (DCDL), had also felt aggrieved by the order of DRT freezing the account of respondent no. 8 herein though it was not a party in the O.A. Accordingly, it also filed an application for vacation of the aforesaid ex parte order dated 18.05.2017 passed in the O.A of HDFC Bank.

The learned DRT, however, vide its order dated 04.01.2019 rejected the application of respondent no. 8 herein as also the one moved by the present appellant.

Feeling aggrieved the appellant has filed the present appeal.

The case sought to be projected by the appellant was that sometime in the year 2005 West Bengal Housing Infrastructure Development Corporation Ltd.('WBHIDCL' in short)) had awarded a contract to one Company which was one of the Unitech Group of Companies, namely, M/s Bengal Unitech Universal Estate Ltd., which Company subsequently came to be known as M/s Kolkatta International Convention Centre Ltd.(KICCL), respondent no.8 herein, for the construction of an International Convention Centre in Kolkata(West Bengal). Since it was a huge contract there was an understanding arrived at between Unitech Group of Companies and DLF Group of Companies sometime in the year 2008 that they will join hands for the construction of the Convention Centre though the contract awarded was to Bengal Unitech Universal Estate Ltd. DLF Group had also participated in the bid process to get the said contract but had failed to secure it. The appellant Company, which earlier was known as DLF Commercial Developers Ltd.(DCDL) and is a part of the DLF Group of Companies,, claims that it had advanced loans to the tune of over ninety crores of rupees to KICCL during the period 2005 to 2008 for being paid over to WBHIDCL for the construction of the Convention Centre.Before the project could take off the Unitech Group withdrew itself from the scene and instead requested WBHIDCL to replace it with DLF Group through one of its subsidiary Companies. However, WBHIDCL did not accept that request of Unitech and cancelled the contract earlier awarded to Bengal Unitech Universal Estate Ltd. sometime in the year 2017 and after forfeiting 10% of the amounts which had already been received by it WBHIDCL refunded a sum of Rs. 1,35,37,68,188/- to respondent no. 8 herein in April, 2017. That refund amount came to be credited in the current account of respondent no.8 which it was maintaining with HDFC Bank itself.

After this refund amount came to the account of respondent no.8 HDFC Bank had immediately filed an Original Application (O.A.) against Unitech Ltd. as well as respondent o. 8 herein besides others and in that O.A. the Bank had also moved an application for restraining respondent no.8 from dealing with the amount received in its current account with HDFC Bank and the DRT had passed that stay order on 18.05.2017. However, before that a sum of Rs. 8 crores odd stood transferred to the account of Unitech Ltd. Now, the dispute is about the balance amount of Rs. 127 crores odd which remained in the account of respondent no.8 herein.

The O.A. applicant Bank had claimed before the DRT that respondent no.8 herein (impleaded as defendant No.6 in the O.A.) was nothing but a conduit and an extended arm of Unitech Ltd., Bank's borrower, and had only a superficial independent existence with no business activities independent of Unitech Ltd. It was further claimed that Unitech Ltd. had brought into existence this Company as its subsidiary with at least 99.90% shareholding with mala fide intent of avoiding liabilities of Unitech Ltd. Respondent no.8 was thus alleged to be simply a shell Company and an alter ego of Unitech Ltd. and a front put up by Unitech Ltd, borrower of HDFC Bank. It was also claimed by the Bank that respondent no. 8 herein was a conduit of the Unitech Ltd. for fraudulently attempting to transfer and to divert funds from Unitech Ltd. to other entities and third parties in order to defeat the recoveries of its creditors including HDFC Bank. Respondent no.8 was alleged to be facilitator for the inter mingling of funds borrowed by Unitech Ltd. from banks and financial institutions. It was also claimed by the Bank that Unitech Ltd. had lent Rs. 98 crores odd to respondent no.8 and that too without any interest and that money was used to set up the Convention Centre and, therefore, the amount of refund received in the account of respondent no. 8 herein in April, 2017 from WBHIDCL actually belonged to Unitech Ltd. which in turn was payable to HDFC Bank towards liquidation of its huge outstanding dues. For the relief of recovery of its money from respondent no.8 herein also the Bank prayed to the DRT to lift the corporate veil which will support and prove all the aforesaid allegations against Unitech Ltd. and respondent no.8 KICCL.

The ex parte order passed by the learned DRT on 18.5.2017 in respect of the prayer of the applicant Bank for a restrain order in respect of the money lying in the current account of respondent no.8 herein with HDFC Bank reads as under:-

"(iii) So far as prayer at Para 13(c) is concerned, Ld. Counsel for applicant bank submits that perusal of bank statements for the Current Account of defendant no.6 appear to be window dressed/fudged to reflect the maturity value of return on the investment being consistently reflected as loans/advances in the books of accounts of defendant no.6 whereas no real business activities are being undertaken by defendant nno.6. It is apparent that defendant no.6 is a shelf company and an alter ego of defendant no.1 itself. He further submits that it is thus imperative to lift the corporate veil of defendant no.6 and to secure the amount of Rs.127.73 crores lying in the said current account for the purpose of repayment the dues owned by defendant no.1 to the applicant bank. He has also drawn attention to Annexure RR and SS annexed with the O.A. Hence he prayed to allow this prayer.

In the light of submissions of Ld. Counsel for applicant, prayer at Para 13(c) is also allowed and defendant no.6 is restrained from in any manner directly and/or indirectly transferring, alienating creating any third party right, title and/or interest in the amount of Rs.123.73 crores and/or any other amounts lying in Current Account No.00880310000632 maintained by defendant no.6 with the Noida Branch of the applicant bank till further orders of this Tribunal. Further applicant bank is also permitted to maintain this amount in an interest earning/generating fixed deposit with applicant bank till further directions of this Tribunal"

The relevant part of the impugned order dated 04.01.2019 passed by the learned DRT rejecting the application of the appellant herein for vacation of the aforesaid ex parte restrain order reads as under:-

"I.A.No.554/2018

The present IA has been filed on behalf of the intervener/DHDL praying thereon to vacate and set aside the ex-parte interim order dated 18.05.2017 and remove the restraint on current account No.0080310000652.

Ld. Counsel for applicant IA No.554/18 i.e. DHDL/Intervener submitted that the applicant in the present IA has been adversely affected by the interim order dated 18.05.2017 qua the restraint on operation in A/c No.0080310000652 of defendant no.6 maintained with the applicant bank's Noida Branch by defendant no.6, as a sum of Rs.92,52,92,188.00 was advanced by it, to defendant no.6 for participation in development of Kolkata International Convention Centre (hereinafter referred to as 'KICC') as a partner. It was also submitted that the said sum was used for depositing earnest money for the project, the allotment whereof was cancelled by WBHIDCO and an amount of Rs.1,35,37,68,188.00 was refunded by the said Authority after deduction of 10% cancellation charges. Hence, it is submitted that the amount advanced is due and repayable by defendant no.6.

Ld. Senior Counsel for defendant no.6 has submitted that the pleadings in the OA are not enough to warrant an order dated 18.05.2017. He has also submitted that the statement of account filed by the applicant shows that whenever a fresh short term loan facility enjoyed by defendant no.1 was sanctioned, the earlier loan was paid off. Hence, it is submitted that the loan amount disbursed by the applicant was not utilized by defendant no.6. It was further submitted that the amount of Rs.135.0 Crores received by defendantno.6 in its account with the applicant was received pursuant to letter dated 14.03.2017, cancelling the awarded contract. It is also submitted that WBHIDCO cancelled the allotment earlier made to the defendant no.6 for offer of Rs.100 Acres for setting up KICC, pursuant to the said letter. It is submitted by the Ld. Senior Counsel that the reason for cancellation was that defendant no.1 had expressed its inability to execute the said project and that DLF Ltd. (whose earlier bid for award of contract had been rejected by WBHIDCO) had agreed to join the defendant no.1 as a partner, operating through one of its group company DHDL from DLF Ltd's side and defendant no.6 from Unitech Ltd's to execute the project, but WBHIDCO did not accept this. Hence, it is submitted that a substantial portion of the refund of Rs.135.0 Crores, belongs to DLF Ltd.

Per Contra, Ld. Senior Counsel for the applicant bank has submitted that the IA No.554/2018 has been preferred with malafide intentions to thwart the recovery process at a stage when the final hearing in the OA is going to be held. It is also submitted that the intervener can at best be termed as an 'Unsecured Creditor', who has no right of Lien over the accounts of the defendant no.6. Further, it is submitted that the intervener has not initiated any legal proceedings against the defendant no.6 for recovery of the alleged amount advanced which is time-barred and cannot be permitted to sue this platform to make a backstage effort for recovery of the so-called advance, through the present OA. It is also submitted that defendant no.6 is a wholly owned subsidiary of defendant no.1 & a conduit for diversion of funds by defendant no.1 and as per published Balance sheet, has been enjoying interest free loan of up to Rs.98.0 Crores from the parent company, with own capital of Rs.5.0 Lakhs only. It is also submitted that the defendant no.1, through the defendant no.6 has advanced a sum of Rs.149.62 Crores to various third parties for projects/land purchase and defendant no.6, admittedly owed Rs.98.0 Crores as on 31.03.2016, as per the published balance sheet. It is further submitted that a perusal of the bank statement of defendant no.6 shows significant credit entry for a long period and the sudden credit of Rs.135.0 Crore on 11.04.2017 is actually a refund of the money of defendant no.1, utilized by the subsidiary company for the said advances along with returns thereon.

Also, Ld. Senior Counsel for the applicant bank has submitted that defendant no.1 & 6 share the registered and corporate office, have identical business activities, have common control and supervision by the Chandra family and/or their associates with Mr. Ramesh Chandra as a common Director and as per public records have a holding subsidiary company relationship. Defendant no.6 has no other business, no inventory, no separate managerial remuneration and a capital base of a meager Rs.5.0 Lakhs only. It is submitted that defendant no.6 is a mere conduit of defendant no.1 and has been enjoying substantial amounts of interest free loans from defendant no.1, right since its inception, which has increased from year to year. It is further submitted that even out of the only substantial credit of Rs.135.0 Crores received in their account, defendant no.6 has already paid a sum of Rs.8.0 Crores to defendant no.1, till the time, debit freeze/right to set-off was exercised by the applicant.

I have heard both the parties on these IAs and perused the records.

Record reveals that defendant no.6 is a subsidiary company of defendant no.1 as per Company Master Data in ROC records and the balance sheets of both the companies reflect a loan by defendant no.1 to defendant no.6 for substantial sums. The refund of Rs.135,37,68,188.00 into the account of defendant no.6 is admittedly on account of cancellation of an allotment by WBHIDCO. The intervener/DHDL has no locus standi, as regards this amount, as they have failed to establish any direct involvement in deposit of the said amount with the said WBHIDCO. Even if they had made any credit transactions into the account of defendant no.6 earlier, they cannot have a claim on this refunded amount for want of any active participation, on record, in the project. They may initiate separate legal proceedings for recovery of any advances made by them in the ordinary course of business to the defendant no.6.

In this appeal the stand taken by the appellant is that the DRT had passed the ex parte order dated 18.05.2017 accepting the allegation of HDFC Bank that respondent no.8 herein(KICCL) was a wholly owned subsidiary of its defaulting borrower, Unitech Ltd. Before this Tribunal also it has been stated in the memorandum of appeal that in fact respondent no.8 herein (KICCL) was at one time a subsidiary of Unitech Ltd. but from September, 2011 inwards it had ceased to be the subsidiary of Unitech Ltd. since its entire shareholding was purchased by another Company of DLF Group of Companies, namely M/s Americus Real Estate Private Ltd. which was a subsidiary of appellant herein and in that regard an agreement dated 05.09.2011 was executed. So, treating respondent no.8 herein (KICCL) as a subsidiary of Unitech Ltd. in 2017 the DRT could not have passed the impugned restrain order. It was not disputed during the course of lengthy hearing in this appeal from the side of HDFC Bank that this issue was agitated before the DRT also. However, Mr. Mehra, learned senior counsel for the respondent Bank had strongly argued before this Tribunal that KICCL had not ceased to be a subsidiary of Unitech Ltd. since in the financial documents of Unitech Ltd. KICCL was being continued to be shown as its subsidiary fir the period ending 31.03.2016.

Arguing for the appellant Mr. Rajiv Nayyar, learned senior counsel had submitted that the learned DRT was not justified in returning a final finding that respondent no.8 was a shell Company of Unitech Ltd. when it was being claimed before DRT that from September, 2011 onwards respondent no.8 had ceased to be a subsidiary of Unitech Ltd. Pursuant to a share purchase agreement dated 05.09.2011 entered into between the then shareholders of KICCL, which were all part of Unitech Group of Companies, and one of the Group Companies of DLF Ltd. in whose favour the entire shareholding of KICCL was agreed to be transferred and share certificates and share transfer forms were also handed over to KICCL on 05/09/2011 itself.

I have considered the rival submissions made by the learned senior counsel appearing from the side of appellant and HDFC Bank and gone through the voluminous records.

Surprisingly, the learned DRT has decided the application of the appellant only by referring to the stand of the Bank that KICCL was a wholly owned subsidiary Company of Unitech Ltd. but has not even adverted to the question that that from September, 2011 onwards KICCL had ceased to be the subsidiary of Unitech Ltd. and has rejected the stay vacation application moved by the appellant herein without dealing with the case projected from the other side. This failure on the part of the DRT to deal with this aspect of the matter by itself is sufficient reason to remand the matter to DRT, without going into the merits of rival cases on this aspect by this Tribunal, for a fresh disposal of the stay vacation application of the appellant being I.A.No.554/2018.

This appeal is accordingly disposed of by remanding the matter back to the DRT for a fresh disposal of the application no. 554/2018 filed by the appellant for vacation of the ex parte stay order dated 18.05.2017 restraining the appellant from withdrawing any money from its current account with HDFC Bank keeping in mind the observations made hereinabove.

Mr. Rajiv Nayyar, learned senior counsel for the appellant before winding up his submissions had also submitted that during the period the investigation into the rival claims goes on at least the money in question over which parties are fighting this legal battle should be kept either with the DRT or with this tribunal and should not remain with the HDF C Bank. Mr. Rajeev Mehra, however, was not agreeable to this kind of a direction being passed. This tribunal is, however, of the view that since matter is being sent back to the DRT for fresh disposal of appellant's application for vacation of the restriction imposed on the operation of the current account of KICCL in HDFC Bank it will be open to the appellant to seek this relief also from the DRT and if claimed the DRT shall deal with that prayer in accordance with law uninfluenced by its earlier made observations.

The DRT shall now take up the O.A. on 18.01.2020 at 10.30 a.m. for fixing date for arguments in I.A. No. 554/2018.