Delhi High Court: In a batch of applications filed in regard to a suit instituted by the Asian Hotels (North) Ltd. (plaintiff) for performance of the Agreements by the lender banks, a Single Judge Bench of Chandra Dhari Singh, J. allowed Asian Hotels to amend the plaint instituted by it and dismissed the application seeking rejection of the plaint. The Court said that the jurisdiction of Civil Courts is not barred from adjudicating a contractual dispute and held that the contentions advanced for vacation of the order dated 03-03-2023 were misconceived and not cogent enough.
Background
In the present matter, Asian Hotels (North) Ltd. (‘Asian Hotels’) (plaintiff) was engaged in the hospitality business and owned various hotels in the country. Yes bank (defendant 1) had advanced loan and overdraft facilities to Asian Hotels for Rs. 55 crores under the loan agreement dated 11-07-2015, Rs. 125 crores and had also entered into a Master Facility Agreement dated 09-05-2016 for the issuance of an overdraft facility of Rs. 32 crores in favor of Asian Hotels.
In 2020, the Reserve Bank of India (‘RBI’) issued a circular dated 06-08-2020 which contained a Resolution Framework for the borrowers who were stressed due to the pandemic. After the invocation of the One-Time restructuring arrangement (OTR Arrangement) under the RBI Resolution Framework, and Inter-Creditors Agreement (‘ICA’) dated 23-12-2020 was executed by the consortium of lenders of Asian Hotels and Bank of Maharashtra was appointed as the lead bank of the consortium.
On 24-06-2021, Asian Hotels and Yes Bank executed the Master Amendment Agreement through which, it was decided that there shall be a moratorium on ‘any instalments due and payable’ by Asian Hotels to Yes Bank and any other lender from the consortium for the period between 01-09-2020 till 30-03-2022.
In furtherance to the OTR arrangement, two additional agreements namely Trust and Retention Account Agreement (‘TRA Agreement’) and Funded Interest Term Loan Agreement (‘FITL’) were also executed by Asian Hotels and the consortium of lenders whereby the interest liability on current running term loans during the moratorium period was determined.
The OTR resolution plan of Asian Hotels was approved by the Bank of Maharashtra on 07-06-2021 and all other lenders were requested to implement the same. On 24-09-2021, a Joint Lenders Meeting (‘JLM’) took place where it was unequivocally decided that a further extension of 9 months shall be granted to Asian Hotels for the execution of the necessary documents towards the OTR. During the JLM, Yes Bank also reported that the OTR resolution in respect of the loan facilities extended to Asian Hotels was duly approved and implemented.
It was stated that finalization of security and other documentation did not happen due to failure on the part of Yes Bank to give comments and suggestions for settlement of the document. However, Yes Bank issued a notice dated 27-10-2021 under Section 176 of Contracts Act, 1872 (‘ICA’) to Asian Hotels which stated that Asian Hotels had committed certain defaults in payment and therefore raised a demand of Rs. 4,13,21,939.69/-.
Thereafter, Yes Bank sent an email dated 08-11-2011 to Asian Hotels informing the encashment of fixed deposits amounting to Rs. 50,00,00,000/- and invoked the Deed of Pledge and acquired a total of 14,02,991 equity shares which approximately amounted to 7.21% of the total equity in Asian Hotels.
On 17-02-2022, Yes Bank issued a notice for recalling of the entire loan facility on the alleged default in implementation of the documents under the aforementioned Master Amendment Agreement. Aggrieved by this, Asian Hotels filed the present suit.
On 24-02-2022, i.e. the first date of hearing, the Court issued a notice to Yes Bank and granted an interim stay on the operation of the notice dated 17-02-2022. During the pendency of the present suit, the lenders conducted JLM on various occasions to discuss the future course of action. In a JLM conducted on 23-01-2023, the lender banks decided to take recovery action against Asian Hotels.
Aggrieved by this, Asian Hotels filed an application under Order 39 rule 1 and 2 of the Code of Civil Procedure, 1908 on 25-02-2023, seeking a stay on the decision taken by the joint lenders in the meeting held on 23-01-2023.
In the meantime, another application as filed by JC Flowers Assets Construction Ltd. (‘JC Flowers’) (defendant 5) under Order 1 Rule 10 of the CPC for impleadment due to alleged illegal and erroneous assignment of the Asian Hotel’s loan facility to them. Another application was filed by Exclusive Capital Ltd. (defendant 9) for impleadment of Bank of Maharashtra, Axis Bank, Punjab National Bank, and itself.
The Court felt that Exclusive Capital Ltd., Bank of Maharashtra, Axis Bank, and Punjab National Bank were necessary and felt that they should be duly impleaded in the suit, and allowed the prayer for impleadment of JC Flowers in place of Yes Bank as the credit facility extended by Yes bank had been taken over by them. Thereafter, multiple applications were filed by the parties to the suit.
Analysis and Decision
While dealing with the first application filed by Asian Hotels seeking amendment of the plaint under Order 6 Rule 17 of the CPC, the Court noted that the defendants objected to the amendment because it would change the nature of the suit, the amendments were based on new cause of action, and that the said amendments are barred by law under Sections 34 and 35 of SARFAESI Act.
The Court perused various decisions and said that the Courts are duty bound to allow amendment of plaint is essential for dispensation of justice to the parties and that an application seeking amendment could also be rejected if the amendment sought would materially change the entire suit.
Further, the Court said that the position of law was clear that the application filed for amendment of plaint is required to be adjudicated before any application filed by the parties to prevent multiplicity of litigation.
While discerning whether the amendment sought by Asian Hotels changed the nature of the suit or not, the Court said that through the amendment, Asian Hotels deemed it important to seek relief against the defendant banks and not only Yes Bank. It was also noted that the prayer had also been amended whereby relief for specific performance of the agreement was sought against defendants 6-8.
After perusal of the contents of amendments, the Court stated that the need for amendment arose due to the impleadment of defendants 6-8 and extension of the stay order and that the amendment neither alters the cause of action, nor changes the basic structure of the original plaint. The Court also said that no prejudice would be caused to the respondents and thus, allowed the same. Thus, the application for amendment of plaint was allowed.
While dealing with the second application filed for rejection of the original plaint under Order 7 Rule 11 of the CPC by Punjab National Bank (defendant 7), the Court said that rejection of the present plaint was being sought since the question for adjudication was related to SARFAESI Act and therefore, the appropriate forum for resolving the dispute would be Debt Recovery Tribunal (‘DRT’).
The Court discussed various cases and said that the clear position of law was that a plaint is liable to be rejected if the defendant is able to prove the test provided under Order 7 Rule 11 and that the Courts are duty bound, as per Clause (d) of the said provision, to look into the plaint as a whole and determine whether it is barred by law.
The Court said that for adjudicating the applications in the present suit, the relevant provisions were Sections 13, 17, and 34 of the SARFAESI Act. After perusal of the provisions, the Court said that the DRT is empowered to nullify the actions taken by a secured creditor if it is established that there had been any error or wrongful use of the powers.
Further, the Court said that a mere claim by the borrower regarding the existence of fraud, only to overcome the bar undersection 34 of the SARFAESI Act, would not lead to the invocation of jurisdiction of a Civil Court and the borrower would need to mention the particulars in pleading to overcome the said bar that is imposed.
The Court observed that it had been decided in other cases that the Civil Courts are not only barred from entertaining any suit or proceeding but also barred from granting any injunction in matters where the DRT has power to exercise its jurisdiction under special legislations. Thus, the Court said that the settled position of law was that no Civil Court can exercise its jurisdiction or interfere in matters where DRT had been granted the jurisdiction to adjudicate the dispute under the SARFAESI Act and the Recovery of Debts and Bankruptcy Act, 1993 (‘RDB Act’).
Thus, the issue framed by the Court in this application was:
‘Whether the suit filed by Asian Hotels was non-maintainable due to the bar imposed by the special legislations and whether the Plaint was liable to be rejected despite rejection was sought only qua the defendant No.7/Punjab National Bank? If not, can the suit filed for specific performance continue without an embargo upon the actions taken by a party under the special legislations, i.e., SARFAESI Act and RDB Act?’
The Court stated that the issue of exclusion of jurisdiction of the Civil Courts had been dealt by the Supreme Court and it was held that a mere connectivity with a matter pertaining to special legislation does not impose a bar upon the jurisdiction of Civil Courts. Further, the Court said that the admission of implementation of the Agreements and OTR scheme by defendant banks in the said JLMs compelled the Court to prima facie believe that non-implementation of the said Agreements was not due to the fault of Asian Hotels.
Therefore, the Court was of the view that Asian Hotels was well within its right to file the suit for specific performance of the Agreements. The Court said that the dispute regarding performance of contract entered between the parties was not under the scope of powers conferred to DRT and therefore, the role of Civil Court comes into play.
Further, the Court opined that no case for rejection of plaint was made out as the plaint merely addressed the breach of Agreements committed by the defendants which Asian Hotels was seeking performance of. The Court considered that since Punjab National Bank was also part of the consortium of lenders, making it a party to the Agreement, the suit was maintainable in the eyes of law as the same had been filed for the limited purpose of specific performance.
The Court said that the disputes in the suit were not covered within the ambit of the SARFAESI Act or the RDB Act and that the reliefs sought by Asian Hotels could only be granted by this Court by way of decree.
The Court said that Punjab National Bank was unable to show how the suit was non-maintainable and could not be adjudicated by the Court since the bar upon Civil Courts is only with respect to the interference in the recovery proceedings initiated under the SARFAESI Act and since the suit was filed for limited purpose of seeking specific performance, it does not oust the jurisdiction of the Court. Thus, the Court dismissed the said application for being devoid of any merit.
While dealing with applications filed by Bank of Maharashtra (defendant 6) and Punjab National Bank (defendant 7), for seeking vacation of order dated 03-03-2023 to the extent that it had extended the stay passed against Yes Bank to the newly impleaded defendants, the Court noted that the basis for these applications was that Asian Hotels had allegedly suppressed the action initiated by the defendants against them under the SARFAESI Act and therefore, the order dated 03-03-2023 must be recalled.
The Court noted that during the JLM on 23-01-2023, the consortium resolved to take over possession of the immovable assets of Asian Hotels. Aggrieved, Asian Hotels filed a stay application praying for stay on the said decision. The decision of the consortium was stayed vide order dated 02-03-2023 and vide order dated 03-03-2023, the lenders of the plaintiff including Bank of Maharashtra and Punjab National Bank were impleaded. The directions issued in the stay order were also extended to the newly impleaded defendants.
The Court noted that as per settled principles, there are two classes of cases where the Courts are duty bound to exercise its discretion to vacate the injunction granted earlier. Firstly, when an urgent ex-parte order has been passed under Rule 3 & 4 will allow the party against whom it has been passed to apply it be discharged or varied or set aside and secondly, owing to fresh circumstances, when an injunction order already in force, has become unduly harsh or unnecessary or unworkable, it would open either party to apply under Rule 4.
The Court perused the material on record and said that Bank of Maharashtra, being the leader of the consortium was duty bound to ensure compliance with necessary procedures and it failed to ensure effective implementation of the Agreements entered into by the parties. Further, the Court said that there was no basis to contend that the grant of stay by the Court was under challenge by way of the instant applications.
The Court said that the arguments of the jurisdiction of the Court being barred under Section 34 of the SARFAESI Act was misconceived as the Court was adjudicating the dispute of non-performance of the contractual agreement.
The Court noted that the predecessor bench had already granted a stay on the notice issued by Yes Bank and the other lender banks were duty bound to adhere to the said order. However, the issuance of similar notices issued to Asian Hotels were in teeth of the interim stay and were ought to be stayed by the Court.
The Court said the action as agreed to be taken by the defendants were decided in the JLM held on 23-01-2023 and that non-challenge to the stay order would mean that the defendants had failed to challenge the original order by which the stay came into existence. It was said that the challenge made only to the order dated 03-03-2023 did not serve any purpose and the said order merely extended the stay granted vide order dated 24-02-2022.
Thus, the Court held that no case was made out for recall of the said order and that the parties had failed to establish that the jurisdictional bar imposed upon Civil Courts under Section 34 of the SARFAESI Act was applicable to the suit filed for specific performance and it was also said that reliefs sought by the applicants could not be granted without a challenge made to the original order. Thus, both the applications were dismissed for being devoid of merit.
[Asian Hotels (North) Ltd. v. Yes Bank Ltd., 2024 SCC OnLine Del 7078, Decided on 07-10-2024]
Advocates who appeared in this case :
For Plaintiff —Sr Advocate Vikram Nankani, Advocate Sidhant Kumar, Advocate Anushka Shah, Advocate Manyaa Chandok, Advocate Akshit Mago, Advocate Sarthak Sareen, Advocate Dr. Joginder Singh, Advocate Molly Agarwal, Advocate Harshal Kumar, Advocate Rajeshwar Singh
For Defendants — Advocate Raunak Dhillon, Advocate Madhavi Khanna, Advocate Nihaad Diwan, Advocate Isha Malik, Advocate Jeezan Riyaz, Sr. Advocate Sudhir Makkar, Advocate Nishant Awana, Advocate Rini Badoni, Advocate Nitya Sharma, Advocate Ratnesh Sharma, Advocate GS Awana, Advocate Mayank Chaudhary, Advocate Rajesh Rattan, Advocate Madhur Dhingra, Advocate Sanyam Khetarpal
