Shivam Agrioils Pvt. Ltd. And Ors vs State Bank Of India And Ors

P.K. Bhasin, J

The appellants are aggrieved by the order dated 9th February, 2017 passed by the Debts Recovery Tribunal (DRT) rejecting the appellants' Securitisation Application (S.A.) filed under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) in January, 2017 at the threshold upon preliminary objections having been raised about its maintainability by the Bank (respondent No. 1) as well as its borrowers/guarantors (respondent Nos. 2 to 5) on the ground that the remedy of the appellants/security applicants to ventilate their grievances against the respondent No. 1 State Bank of India and respondent Nos. 2 to 5 herein was to go for Arbitration and not to invoke, Section 17(1) of SARFAESI Act. The relevant portions from that order which describe the facts leading to the filing of the S.A., submissions of the parties, discussion by the Presiding Officer and the conclusion, need to be noticed before proceeding further and are being reproduced below:

"The file has been put up today for passing order on Preliminary Objections raised by the respondent No. 1 Bank and respondent Nos. 2 to 5, both dated 8.2.2017. According to respondents the Securitization Application filed by the applicants is not maintainable. In support of Preliminary Objection the respondent No. 1 Bank has filed affidavit.

.........The applicants have instituted the Securitization Application against the recovery proceedings launched by the respondent No. 1 Bank against the respondent Nos. 2 to 5. Respondent Nos. 2 to 5 had entered into alleged Memorandum of Understanding dated 25.11.2014 with applicant. According to said Memorandum of Understanding the respondent Nos. 2 to 5 have sold the factory to the applicants and have also entered into Agreement to Sell dated 19.3.2016. It may be observed from the Memorandum of Understanding, enclosed at Annexure No. SA-4 of the Securitization Application that the same has been entered in between M/s. Shree Krishna Vanaspati Industries Pvt. Ltd., through its Director Smt. Kavita Agarwal and M/s. Shivam Agrioils Pvt. Ltd. through its Director Shri Punit Agarwal. The respondent No. 1 Bank is not a party in the said Memorandum of Understanding. The Memorandum of Understanding was subject to condition that respondent No. 1 Bank will issue No Objection Certificate for transfer of Unit to buyer. The respondent No. 1 Bank has obtained possession of the secured asset in accordance with the provision of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short SARFAESI Act, 2002). After payment of initial consideration the balance sale consideration was to be paid within 240 days after obtaining approval from the SIDCUL and respondent No. 1 Bank. The buyer was supposed to pay Rs. 20.00 crores to the seller. The same was supposed to be deposited directly into the account of State Bank of India. The said facts reveal that the applicants were aware that the secured asset is mortgaged with the respondent No. 1 Bank. Yet the applicants entered into Memorandum of Understanding as well as Agreement to Sell with the respondent Nos. 2 to 5 to siphon off the Bank dues. The private treaty between respondent Nos. 2 to 5 and applicants without the consent of respondent No. 1 Bank is not sustainable in the eyes of law and is void ab-initio. There is an arbitration clause in the Memorandum of Understanding indicating that if any dispute or differences arise between the parties during the subsistence of Memorandum of Understanding, such dispute shall be referred to Arbitration. It may be observed from the Securitization Application that there is dispute in between the applicants and respondent Nos. 2 to 5 with respect to the Memorandum of Understanding. The remedy available to applicants is arbitration as provided under Clause 16 of the Memorandum of Understanding. According to respondent No. 1 Bank the Securitization Application is not maintainable before the Tribunal.

The respondent Nos. 2 to 5 have brought out that respondent No. 1 Bank took the physical possession of the property belonging to respondent No. 2 in the month of May, 2016. The applicants claimed their right and title over the secured asset on the basis of Memorandum of Understanding dated 25.11.2014. Respondent No. 2 through its Director had agreed to sell and transfer the Unit against the consideration of Rs. 27.16 crores. The applicants have paid Rs. 10.46 crores only. Hence, on the basis of Memorandum of Understanding dated 25.11.2014 the applicants cannot claim any right or interest over the secured asset. The Memorandum of Understanding is an agreement under the provision of Indian Contract Act, 1872. Hence, the same is exempted under the provision of Section 31(a) of the SARFAESI Act, 2002, as the noncompliance of Memorandum of Understanding dated 25.11.2014 come under the ambit of Indian Contract Act, 1872. Hence, the Tribunal is not proper forum to decide the contractual matter under Section 17 of the SARFAESI Act, 2002. The applicants are neither owner not tenant of respondent No. 2. Hence, no-relief can be claimed under Section 17 of the SARFAESI Act, 2002

In reply to the Preliminary Objection raised by the respondent No. 1 Bank and respondent Nos. 2 to 5 the learned Counsel for the applicants relied upon the Memorandum of Understanding entered by applicants with respondent No. 2 which is enclosed at Annexure SA-4 of Securitization Application. The learned Counsel for the applicant also relied upon Agreement to Sell entered between them. The learned Counsel for the applicants also claimed that the physical possession of secured asset was handed over to applicants through respondent No. 2 and applicants were running the business of M/s. Shree Krishna Vanaspati Industries Pvt. Ltd. for two years. The applicants also referred to Annexure SA-5 and Annexure SA-7 of Securitization Application submitted by respondent No. 2 to respondent No. 1 Bank and reply thereon by the respondent No. 1 Bank stating therein the compromise proposal entered between applicants and respondent Nos. 2 to 5 is acceptable to respondent No. 1 Bank....... The learned Counsel for the applicants argued that applicants have invested around Rs. 13.00 crores. Yet the respondent No. 1 Bank in connivance with respondent Nos. 2 to 5 want to dispose of the property and it amounts to extortion. The applicants are willing to pay the remaining amount as agreed with respondent Nos. 2 to 5.

The learned Counsel for the respondent No. 1 Bank argued in reply that at present total dues of respondent No. 1 Bank including interest amounts to Rs. 41.00 crores approximately. If the applicants are willing to pay Rs. 41.00 crores, the respondent No. 1 Bank will not proceed with the Sale.

The learned Counsel for the respondent Nos. 2 to 5 submitted that the deal between the applicants and respondent Nos. 2 to 5 was finalized in Rs. 27.16 crores. The remaining amount is Rs. 16.70 crores to respondent Nos. 2 to 5, the respondent Nos. 2 to 5 will join the applicants and will try to settle the matter through meditation with the respondent No. 1 Bank.

xxx xxx xxx

Heard the learned Counsel for all the parties and perused the record.

It is observed from the Annexures enclosed with the Securitization Application that the applicants and respondent No. 2 Company has entered into Memorandum of Understanding on 25.11.2014. They have also entered into Agreement to Sell on 12.2.2015. It is observed from Agreement to Sell dated 12.2.2015 that the said document is on E-Stamp of Rs. 100 only. According to it consideration price is zero. The Agreement to Sell is not a registered document, whereas, the document relates to the sale of immovable property including land, building constructed over it and plant and machinery installed in the factory. The Agreement to Sell for purchase of immovable property involving sale consideration of Rs. 27.16 crores has to be a registered document. Since the Agreement to Sell is not a registered document, hence it is not legally enforceable. It is also observed from the Memorandum of Understanding enclosed at SA-4 of the Securitization Application that parties had agreed that Memorandum of Understanding shall be governed in accordance with the laws of India and in case any dispute or differences arise between the parties with regard to any provision of Memorandum of Understanding, such dispute shall be referred to arbitration? The parties shall mutually appoint a Sole Arbitrator to resolve the dispute or difference. In case parties are unable to agree upon a Sole Arbitrator the Arbitrator would be appointed in accordance with the Arbitration and Conciliation Act. 1996. Instead of resolving the matter through Arbitrator the applicants have instituted Securitization Application under the provision or Section 17 of the SARFAESI Act, 2002. The provisions of Memorandum of Understanding cannot be resolved under the provision of SARFAESI Act, 2002, more so when the secured creditor was neither a party in Memorandum of Understanding nor in Agreement to Sell. It is also observed that being a secured creditor the respondent No. 1 Bank has first charge over the secured asset and in order to recover the public dues the respondent No. 1 Bank can proceed under the provisions of SARFAESI Act, 2002. The applicants can resolve their disputes with respondent Nos. 2 to 5 by referring the matter to Arbitrator according to Memorandum of Understanding. Prima facie in this matter there is a valid Arbitration Agreement between the appellants and respondent Nos. 2 to 5. Hence, the Securitization Application is not maintainable under Section 17 of the SARFAESI Act, 2002.

The learned Counsel for the applicants relied upon the law laid down by the Hon'ble Apex Court in the case of Madras Petrochem Ltd. and Others v. BIFR and Others . In view of the provisions discussed above the law laid down by the Hon'ble Apex Court does not apply in this case.

ORDER

Preliminary objection raised by respondent No. 1 Bank through application and Preliminary Objection raised by respondent Nos. 2 to 5 through application, both dated 8.2.2017, are allowed, Securitization Application is not maintainable.

Applicants may resolve their dispute relating to Memorandum of Understanding dated 25.11.2014 enclosed at SA-4 of Securitization Application through arbitration.

Let the file be consigned to record.

(Dr. Rajiv Vikrarn Singh Gautam)

Presiding Officer"

From this impugned order of the DRT and the submissions made by the Counsel for all the parties the factual position which emerges is that the respondent No. 1 Bank had advanced loan to respondent No. 2 and its repayment of loan was secured by way of equitable mortgage of some immovable property of the borrower Company. The borrower Company defaulted in repayment of the loan amount to the Bank and its account was declared Non-Performing Asset and then the Bank took steps under Sections 13(2) and (4) and 14 of SARFAESI Act. In order to save the mortgaged property from being sold by the Bank by public auction the borrower Company entered into some Memorandum of Understanding and one Agreement with the appellant No. 1 Company with the appellant whereby the appellant No. 1 Company agreed to purchase the mortgaged property after getting no objection from the mortgagee Bank. There was exchange of letters between the borrower Company and the Bank regarding One-Time Settlement and the Bank was duly informed that the appellant No. 1 Company had agreed to buy the mortgaged property and the Bank's dues will be cleared off with the sale consideration to be received from the said prospective buyer Company. These facts are clear from the highlighted portions of the impugned order as well as the documents placed on record by the appellants and were not disputed also by anyone at the time of hearing of the appeal. The Bank's case however has been that the appellant had no right to start any legal battle against it under the SARFAESI Act and if they have any disputes with the borrower Company arising out of the alleged MoU and agreement to sell in respect of Bank's secured asset lying mortgaged with it can always have recourse to any other remedy including arbitration relying upon the arbitration clause in the agreement between the two. Same has been the stand of the borrower Company and the learned Presiding Officer of the DRT was also of the same view while dismissing the appellants' S.A. at the threshold.

However, I am of the view that all the respondents as also the Presiding Officer of the DRT have misread the case of the appellants' in their S.A. as if they were enforcing the agreement with the borrower Company through this S.A. while it does not appear to be actually so and accordingly wrong conclusion has been arrived at by the DRT that the remedy of the appellants was to have recourse to arbitration if they had any dispute with the borrower Company for the enforcement of the alleged agreement to sell with it.

The case of the appellants based upon the correspondence exchanged between the parties as was being sought to be projected by the appellants before the DRT was that there was in fact some kind of tripartite understanding between the Bank, borrower Company and the appellant No. 1 Company according to which understanding the Bank had agreed to release the mortgaged property in question from its charge on receipt of its entire dues as per the OTS submitted by the borrower Company and approved by it. Even though there is no letter written by the Bank to the appellant Company regarding its acceptance of this Company having been recognized by the Bank as any contracting party which could claim any relief from the Bank but the case of the appellants is that in fact that was the situation and they will be able to establish their case by adducing necessary evidence. In my view, in the absence of any evidence having been permitted by the DRT to be adduced by the appellants their S.A. could not have been thrown out by accepting the separate applications moved by the respondent Bank and the borrower Company for deciding the issue of maintainability of the S.A. as a preliminary issue. On the basis of the averments made in the S.A. and documents placed on record by the appellants, which alone had to be considered and to be accepted as correct also while deciding the preliminary objections it cannot be said that there is no prima facie case made out to the effect that the appellants are the aggrieved persons entitled to maintain the S.A. on the ground that there was a tripartite agreement/understanding between the Bank, borrower Company and the appellant No. 1 Company. Whether or not they will be able to establish this or not will be matter to be seen and appreciated by the DRT on the basis of the defence which the respondents might take and during evidence to be adduced at the trial.

The appellants have placed on record copy of the letter dated 11th December, 2014 written by the borrower Company to the respondent Bank giving their proposal for settlement and it was mentioned that in case the proposal is accepted the appellant No. 1 herein will be clearing the Bank's dues and token money of Rs. 2.50 crores was also tendered with that letter by way of cheques which undisputedly were from the account of the appellant No. 1 Company. The appellants have also placed on record Bank's reply letter dated 12.1.2015 whereby the proposal of settlement conveyed to it by the borrower Company vide its said letter dated 11th December, 2014 was accepted and in that letter the Bank never stated that it had nothing to do with appellant No. 1 Company or that it will not accept any money from the account of appellant No. 1. It was not disputed during the hearing by the learned Counsel for the Bank that it had accepted the payment so tendered to it along with borrower's letter dated 11th December, 2014. All these facts also, placed on record by the appellants and which alone had to be considered by the DRT at the stage when the impugned order was passed, were sufficient to give a locus to the appellants to at least file a petition under Section 17(1) of SARFAESI Act.

The learned Presiding Officer was not at all justifying in rejecting the S.A. as not maintainable and relegating the appellants to arbitration when they are not seeking specific performance of the MoU and agreement to sell with the borrower Company. Their case is that in the facts and circumstances the Bank had agreed to release the mortgaged property in question to them on receiving full money under the OTS with the borrower and which money had actually to be paid by the appellant No. 1 Company to the knowledge of the Bank. In fact, the Bank itself had agreed to accept the money from the appellant even now as recorded by the DRT itself in the impugned order and which observation has been highlighted by me which reproducing the impugned order at the beginning of this order. This appeal is accordingly allowed. The impugned order dated 9th February, 2017 passed by the DRT is set aside and consequently the S.A. of the appellants stands revived to be decided on merits. It shall now be considered by the DRT on merits after completion of pleadings and recording of evidence of the parties. It is, however, made clear that this order will not be construed as an acceptance of the appellants' case or an expression of any final view about the appellants' case pleaded in their S.A. since all that has been decided by this Tribunal is that the S. A. could not be rejected at the threshold as being not maintainable. It will be now for the DRT to take any decision on merits in accordance with law after trial is over and all the parties are heard. It is further clarified that in case the appellants seek any interim relief from the DRT that prayer will also be considered on its own merits uninfluenced by any of the observations made hereinabove.

Parties shall now appear before the DRT at Lucknow on 15.6.2017 at 2.00 p.m. for receiving further directions.

Copies of this order shall be sent to the parties/Counsel.