Housing Development Finance Corporation Ltd. (HDFC LTD.) vs Infrastructure Leasing & Financial Services Ltd. & Anr.

O R D E R

“PRAYER

In view of the facts and circumstances of the case, the Applicants humbly prays that:

(i)

This Hon'ble Tribunal be pleased to hold, declare and direct that Infrastructure Leasing and Financial Services Limited is not entitled to effect sale of the rights, title and interest of the Applicant over the property being The IL&FS Financial Center, situated at Plot No 22, G Block, Bandra Kurla Complex, Bandra East, Mumbai-400 051 to any person; and

(ii)

This Hon'ble Tribunal be pleased to direct Infrastructure Leasing and Financial Services Limited to make necessary disclosures to the intending purchasers of the property, being The IL&FS Financial Center, situated at Plot No 22, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400 051, in respect of the rights, title and interest of the Applicant over the aforesaid property;

(iii)

Pending the hearing of the present Application including Interlocutory Application Nos. 2262 of 2020 and 2264 of 2020, by way of interim and / or ad - interim relief, this Hon'ble Tribunal be pleased to stay the operation and implementation of the advertisement, notice inviting expression of interest along with the expression of interest issued by Infrastructure Leasing and Financial Services Limited in so far as it seeks to sell the right, title and interest of the Applicant in the property being The IL&FS Financial Center, situated at Plot No 22, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400 051 and annexed as Annexure-O- Colly hereto;

(iv)

This Hon'ble Tribunal be pleased to grant ex-parte interim and/or ad-interim relief in terms of Prayer (iii); and

Pass such further or other Order (s) as this Hon’ble Tribunal may deem fit and proper in the facts and circumstances of the case.”

“46.

In view of the foregoing discussions, we dispose of all the above Applications with following directions:-

(i)

The prayer of Applicant- IL&FS seeking direction to lender to reverse the amount of Rs.112,79,18,348/- from the accounts of the IL&FS towards debt service payments, is refused subject to following

(i)

The part of receivables in excess of payment of interest and principal payable which was assigned to the lender after adjusting any shortfall in the amount payable need to be reversed to the borrower.

(ii)

The Escrow Bank shall re-visit all its debits after 15.10.2018 to find out as to whether any amount in excess to the amount payable to cover principal and interest subject to adjustment any shortfall in earlier payment have been debited, and in event, any excess amount has been debited, the same shall be reversed to borrower which exercise shall be completed within the period of one month from today with due intimation in writing to the IL&FS.

(iii)

All Applications being I.A No. 2196 of 2020; 1.A No. 2262- 2263, 2264-2266 of 2020 and I.A No. 2330-2331, 2332-2333 of 2020 are disposed of accordingly.

“10.

We have considered the matter in hand in the background of facts and circumstances stated above; the sale process of the Commercial Premises has also been approved by Justice D.K. Jain former judge of the Hon'ble Supreme Court appointed by the Hon'ble NCLAT to oversee the resolution process of the Applicant Group and to enable a resolution of the Applicant Group in line with the Resolution Framework; and the mandate given by this Tribunal to the New Board. Thus, we approve the Proposed Transaction in the interest of justice.

11.

It is directed that the amounts received by the Applicant pursuant to the Proposed Transaction be paid into a designated bank account and the same be intimated by the Applicant.

12.

It is also directed that the Resolution Process Costs and goods and service tax incurred /to be incurred be permitted to be paid in the manner set out in the Application. Whereas, the remaining amount of consideration be remitted into the designated escrow account as intimated by the Applicant and the same be held in trust for the relevant stakeholders of the Applicant.

13.

Further, the distribution of the consideration received by the Applicant from the Proposed Transaction or withdrawal of any other amounts from the designated bank account be subject to further orders of this Tribunal.

14.

With the aforesaid observation present CA No. 248 of 2021 In C.P (IB) No. 3638/MB/C-I/2018 stands disposed of as allowed in above terms.”

“9.

The next question is whether the parties whose rights are directly affected are the necessary parties to a writ petition to quash the order of a tribunal. As we have seen, a tribunal or authority performs a judicial or quasi- judicial act after hearing parties. Its order affects the right or rights of one or the other of the parties before- it. In a writ of certiorari the defeated party seeks for the quashing of the order issued by the tribunal in favour of the successful party. How can the High Court vacate the said order without the successful party being before it. Without the presence of the successful party the High Court cannot issue a substantial order affecting his right. Any order that may be issued behind the back of such a party can be ignored by the said party, with the result that the tribunal's order would be quashed but the right vested in that party by the wrong order of the tribunal would continue to be effective. Such a party, therefore, is a necessary party and a petition filed for the issue of a writ of certiorari without making him a party or without impleading him subsequently, if allowed by the court, would certainly be incompetent. A party whose interests are directly affected is, therefore, a necessary party.

10.

In addition, there may be parties who may be described as proper parties, that is parties whose presence is not necessary for making an effective order but whose presence may facilitate the settling of all the questions that may- be involved in the controversy. The question of making such a person as a party to a writ proceeding depends upon the judicial discretion of the High Court in the circumstances of each case. Either one of the parties to the proceeding may apply for the impleading of such a party or such a party may suo motu approach the court for being impleaded therein.

11.

The long established English practice, which the High Courts in our country have adopted all along, accepts the said distinction between the necessary and the proper party in a writ of certiorari. The English practice is recorded in Halsbury's Laws of England, Vol. 11, 3rd Edn. (Lord Simonds') thus in paragraph 136 :

“The notice of motion or summons must be served on all persons directly affected, and where it relates to any proceedings in or before a court, and the object is either to compel the court or an officer thereof to do any act in relation to the proceedings or to quash them or any order made therein, the notice of motion or summons must be served on the clerk or registrar of the court, the other parties to the proceedings, and (where any objection to the conduct of the judge is to be made) on the judge.....”. In paragraph 140 it is stated :

“On the hearing of the summons or motion for an order of mandamus, prohibition or certiorari, counsel in support begins and has a right of reply. Any person who desires to be heard in opposition, and appears to the Court or judge to be a proper per-son to be heard, is to be heard not withstanding that he has not been served with the notice or summons, and will be liable to costs in the discretion of the Court or judge if the order should be made......”. So too, the Rules made by the Patna High Court require that a party against whom relief is sought should be named in the petition. The relevant Rules read thus:

Rule 3. Application under Article 226 of the Constitution shall be registered as Miscellaneous judicial Cases or Criminal Miscellaneous Cases as the case may be.

Rule 4. Application shall, soon after it is registered, be posted for orders before a Division Bench as to issue of notice to the respondents. The Court may either direct notice to issue and pass such interim order as it may deem necessary or reject the application.

Rule 5. The notice of the application shall be served on all persons directly affected and on such other persons as the Court may direct.

Both the English rules and the rules framed by the Patna High Court lay down that persons who are directly affected or against whom relief is sought should be named in the petition, that is all necessary parties should be impleaded in the petition and notice served on them. In "The law of Extraordinary Legal Remedies" by Ferris, the procedure in the matter of impleading parties is clearly described at p.201 thus:

“Those parties whose action is to be reviewed and who are interested therein and affected thereby, and in whose possession the record of Such action remains, are not only proper, but necessary parties. It is to such parties that notice to show cause against the issuance of the writ must be given, and they are the only parties who may make return, or who may demur. The omission to make parties those officers whose proceedings it is sought to direct and control, goes to the very right of the relief sought. But in order that the court may do ample and complete justice, and render judgment which will be binding on all persons concerned, all persons who are parties to the record, or who are interested in maintaining the regularity of the proceedings of which a review is sought, should be made parties respondent.”

This passage indicates that both the authority whose order is sought to be quashed and the persons who are interested in maintaining the regularity of the proceeding of which a review is sought should be added as parties in a writ proceeding. A division Bench of the Bombay High Court in Ahmedalli v. M. D. Lalkaka³ laid down the procedure thus :

“I think we should lay down the rule of prac- tice that whenever a writ is sought challenging the order of a Tribunal, the Tribunal must always be a necessary party to the petition. It is difficult to understand how under any circumstances the Tribunal would not be a necessary party when the petitioner wants the order of the Tribunal to be quashed or to be called in question. It is equally clear that all parties affected by that order should also be necessary parties to the petition.”

A Full Bench of the Nagpur High Court in Kanglu Baula v. Chief Executive Officer⁴ held that though the elections to various electoral divisions were void the petition would have to be dismissed on the short ground that per-sons who were declared elected from the various constituencies were not joined as parties to the petition arid had not been given an opportunity to be heard before the order adverse to them was passed. The said decisions also support the view we have expressed.

12.

To summarize: in a writ of certiorari not only the tribunal or authority whose order is sought to be quashed but also parties in whose favour the said order is issued are necessary parties. But it is in the discretion of the court to add or implead proper parties for completely settling all the questions that may be involved in the controversy either suo motu or on the application of a party to the writ or an application filed at the instance of such proper party.”

“2.

At this juncture, the representative of HDFC Limited ("HDFC Representative") mentioned that HDFC Limited has sent a letter to IL&FS and the COC Members, requesting them to postpone the discussion on approval of the Proposed Transaction as the said matter is sub-judice before the Hon'ble National Company Law Appellate Tribunal (NCLAT"). The Resolution Advisor acknowledged the receipt of the said letter and assured that appropriate response will be provided by the legal team of ILFS and stated that any questions that HDFC Limited may have on the agenda item will be taken up at the end of the presentation. While the HDFC Representative re-iterated the request for postponement of the meeting of the COC, Mr. Rakesh Chatterjee (IL&FS, Group General Counsel) explained that the IL&FS group is following the process for asset monetization as approved by the NCLAT vide the order dated March 12, 2020. Further, he explained that even though the aforesaid order has been challenged in Hon'ble Supreme Court, no stay has been granted against the said order by the Hon'ble Supreme Court. He highlighted that the issue that is being raised by HDFC Limited does not impact the process that is being followed by IL&FS, given that there are already multiple challenges against the said order of the NCLAT as well. Hence, he requested the representative of HDFC Limited to allow the meeting of the COC to proceed and suggested that HDFC Limited may abstain from the proceedings/ voting if it so desires. There were no objections raised by any other COC Members.”

“RESOLVED THAT the bid price/consideration of INR 1080,00,00,000 offered by Project Holding Seven (DIFC) Limited (which is an affiliate of Brookfield Private Capital (DIFC) Limited) for the proposed acquisition of all rights, title and interest of Infrastructure Leasing & Financial Services Limited in the land admeasuring 12,651.95 square meters or thereabouts situated at Plot No. C-22, in the "G" Block of Bandra Kurla Complex, Mumbai Suburban District together with the building structure standing thereon known as "The IL&FS Financial Centre" (along with certain assets located therein, as specified in the draft Letter of Intent, but excluding commercial/office space admeasuring 21.644 square feet FSI built-up area in Quadrants "C" and "D" on the 5th Floor of the said building) which shall be paid in the manner stipulated in the agreed form of the Letter of Intent (a copy of each of which has been shared with the members of the Committee of Creditors of IL&FS) be approved by the Committee of Creditors of IL&FS, in accordance with the provisions of the Third Progress Report dated December 17, 2018, the Addendum to the Third Progress Report dated January 15, 2019 and the Second Addendum to the Third Progress Report dated December 5, 2019”

“TIFC

“RESOLVED THAT in accordance with resolution framework for IL&FS Group as approved by Honourable National Company Law Appellate Tribunal ("NCLAT") in its order dated March 12, 2020 (Resolution Framework") and pursuant to the recommendations of the Asset Sale Committee of the Board ("ASC"), approvals of the Board of Directors of IL&FS accorded from time to time and pursuant to the approval dated January 28, 2022 of Committee of Creditors of the Company comprising of its financial creditors (as understood in the context of the Insolvency and Bankruptcy Code, 2016), the Board hereby approves the financial proposal submitted by Project Holdings (DIFC) Limited (an affiliate of the applicant, Brookfield Private Capital (DIFC) Limited) of INR 1080 Cr being the highest bid amount ("H1 Bid"), received pursuant to the process initiated for sale/assignment of the unsold office space/commercial premises in the building known as "The IL&FS Financial Centre", Bandra Kurla Complex, Mumbai, along with certain assets situated therein (together "Commercial Premises") subject to satisfaction/obtainment of any and all compliances and approvals required under applicable laws.

“RESOLVED FURTHER THAT the Board hereby authorizes and approves the submission of the H1 Bid, to Hon'ble Justice D.K. Jain (Retd.) along with proposal regarding the sale/assignment of the Commercial Premises, as may be required for his consideration and evaluation.”

“RESOLVED FURTHER THAT, without affecting the generality of and in addition to the authorities given by the Board to the Asset Sale Committee previously, the Asset Sale Committee of the Company be and are hereby authorized, jointly and/or severally, on behalf of the Company, to do all acts, deeds and things as may be necessary to give effect to the foregoing resolution, including but not limited to, undertake requisite disclosures or related compliances to inform the relevant regulators, stock exchanges, stakeholders as may be required, engage with the respective board of directors of relevant group companies, as may be required, to seek requisite authority and other relevant approvals, including approval from the National Company Law Tribunal, and all other documentation and undertake all actions and deeds as may be required to give effect to the foregoing resolutions”

“RESOLVED FURTHER THAT, the consent of the Board be and is hereby accorded to the Asset Sale Committee of IL&FS, to delegate to, depute and authorise, suitable executives of the Company or group companies of the Company and/or other persons engaged as advisors/ consultants, to do all such acts, deeds, things to give effect to the foregoing resolutions.””

“16.

Referring to the Orders passed by the Hon'ble NCLAT from time to time, ultimately culminating in the final Order dated 12 March 2020, delineating the powers and remit of the CoC, it is pointed out that the role of the IL&FS CoC (of which, HDFC is a Member with a voting percentage of 1.89%) is restricted/limited to only consider and vote on the highest bid and not to determine the distribution of the bid amount. These limitations/restrictions, in effect, enable the IL&FS Resolution in a more structured and orderly manner, without being left to the vagaries of competing interests of the Creditors, and in particular, dissonant attempts at upstaging/impeding the entire Resolution process, being attempted by HDFC.

17.

Though it is candidly pointed out that generally the bids, relating to the real estate transactions, which are below 90% of the Average Fair Market Value are not accepted by the ASC and the Board but in the instant case, considering the fact that eventually only one bid had been received for the Commercial Premises, the multiple rounds of negotiations had been held with the sole bidder and the minor gap of four percent from the general standards, the ASC decided to submit the bid of 1080 Crores, which is approximately 86% of the Average Fair Market Value, to the Board for its approval. It is also highlighted that while recommending the acceptance of the Bid, the real estate deals in the vicinity in the recent past were also taken into account.

18.

I have examined the Proposal in the light of the afore-stated facts and clarifications. Bearing in mind the factors, which have weighed with the ASC and the Board, for coming to the conclusion that the proposed transaction shall be in the interest of the stakeholders of the IL&FS, coupled with the time constraints for achieving the overall resolution of the IL&PS Group, I am inclined to agree with the decision of the Board that the Bid deserves to be accepted.

19.

Nevertheless, without commenting on the merits of the Application filed by HDFC before the Hon'ble NCLAT, in which notice has been accepted on behalf of IL&FS, and time has been sought to file Reply thereto, I am of the view that notwithstanding the fact that the Hon'ble NCLAT has not passed any interim order relating to the sale of the Commercial Premises, in order to allay any kind of impression that the Board is trying to overreach the NCLAT, it would be proper and prudent to await the final decision of the Hon'ble NCLAT on the said Application, before issuing the letter to the H1 Bidder, accepting its Bid. In the meanwhile, the process for obtaining other approvals, including filing of the Application before the Hon'ble NCLT, can be initiated. However, the final decision in this regard is left to the wisdom of the Board.

20.

Consequently, the Proposal is approved, subject to its approval by the Hon'ble NCLT.”

“……While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence.”

“46.

In view of the foregoing discussions, we dispose of all the above Applications with following directions:-

(i)

The prayer of Applicant- IL&FS seeking direction to lender to reverse the amount of Rs.112,79,18,348/- from the accounts of the IL&FS towards debt service payments, is refused subject to following:-

(i)

The part of receivables in excess of payment of interest and principal payable which was assigned to the lender after adjusting any shortfall in the amount payable need to be reversed to the borrower.

(ii)

The Escrow Bank shall re-visit all its debits after 15.10.2018 to find out as to whether any amount in excess to the amount payable to cover principal and interest subject to adjustment any shortfall in earlier payment have been debited; and in event, any excess amount has been debited, the same shall be reversed to borrower which exercise shall be completed within the period of one month from today with due intimation in writing to the IL&FS.

(iii)

All Applications being I.A No. 2196 of 2020; I.A No. 2262- 2263, 2264-2266 of 2020 and I.A No. 2330-2331, 2332-2333 of 2020 are disposed of accordingly.”

“ORDER

Issue notice.

Mr. Pranaya Goyal and Mr. Ashok Mathur, learned Advocates-on-Record, who have entered caveat on behalf of some of the respondents, accept notice.

List the matter for disposal on 02.09.2022.

In the meantime, the respondents shall file their responses within two weeks.

The responses shall indicate the status of the amounts withdrawn from the Escrow Account, if any, pursuant to the judgment and order which is presently under challenge.

Pending further consideration, there shall be ad-interim stay of the judgment and order presently under challenge.”

“13.

Further, the distribution of the consideration received by the Applicant from the Proposed Transaction or withdrawal of any other amounts from the designated bank account be subject to further orders of this Tribunal.”