Bombay High Court
Ms Vijaylaxmi Alias Vijayalaxmi … vs River Residency Developers on 14 August, 2024
IAL-10152-2024 08-25-F.DOC
Shephali
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
INTERIM APPLICATION (L) NO. 10152 OF 2024
IN
COMMERCIAL SUIT (L) NO. 33787 OF 2023
M/s. Vijaylaxmi alias Vijayalaxmi Developers & Anr ...Applicants
IN THE MATTER BETWEEN
M/s. Vijaylaxmi alias Vijayalaxmi Developers & Anr ...Plaintiffs
Versus
River Residency Developers & Ors ...Respondents/
SHEPHALI
Defendants
SANJAY
MORMARE
Digitally signed by
SHEPHALI
SANJAY
MORMARE
Date: 2024.08.26
Mr Sharan Jagtiani, Senior Advocate,with Ankit Lohia, Krushi N
17:02:15 +0530
Barfiwala, Rima Desai, Shraddha Achliya, Shlok Bodas & Jyotika
Raichandani, i/b Parinam Law Associates, for the Applicants/
Plaintiffs.
Mr Mayur Khandeparkar, Mr Aman Kacheria, with Neel Kothari,
Rishabh Dhanuka, Sakshi Dube & Mahima Shah, i/b Agarwal &
Dhanuka Legal, for Respondents/ Defendants Nos. 2 and 3.
Mr Shyam Kapadia, with Aayush Dhrupad Vaghani & Gaurav Jain, for
Respondent/Defendant No. 4.
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CORAM: ARIF S. DOCTOR, J
DATED: 14th August 2024
PC:-
1. This order will dispose of an application for ad-interim relief.
2. At the outset, I must note that the present Application was argued
in part over a few days and the Respondents though granted an
opportunity to file their Affidavits in Reply specifically chose not to do
so and instead have chosen to oppose the application for ad interim
reliefs on the basis of a demurer, thus at this stage, accepting the case of
the Applicant as pleaded. The Respondents have chosen to at this stage
oppose the application for ad interim reliefs solely on the basis of
submissions on law. It is therefore in this context that I have to consider
the present application for ad interim reliefs.
3. Mr Jagtiani, Learned Senior Counsel appearing on behalf of the
Applicants submits that the Applicants had been constrained to file the
present Suit on account of various fraudulent and collusive acts on the
part of the Respondents, particularly Respondent Nos. 2 to 4. He submits
that Applicant No. 1 is admittedly the owner of a plot of land
admeasuring 23 Hectares 10 Acres situated in Village Chikhli, Taluka
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Haveli, Pune ("the said land"). He submits that the Applicants had
entered into a Joint Venture Agreement ("JVA") dated 11th May 2010
with Respondents Nos. 2 and 3 ("JV Partners") for development of a
portion of the said land admeasuring 14 Hectares 40 Acres (project
land) in a phase-wise manner ("the said Project") in the name of 'River
Residency' ("JV Entity"). He submitted that Phase I to III of the said
project was completed between the years 2010 to 2016 and it was only
Phase IV of the development which was being carried out on a portion
of project land.
4. Simply put, it is the case of the Applicants that the JV partners
have fraudulently and in collusion with Respondent No. 4 (LIC) raised
finance in the name of Respondent No. 1, i.e., River Residency De-
velopers which is an Association of Persons ("AOP") comprising of the
JV Partners and its directors with a deceptively similar name to that of
the JV Entity. Further and crucially, the JV Partners had taken a loan
from LIC in the name of the AOP by inter alia mortgaging a portion of
the project land i.e. land admeasuring 14,960.51 sq. mt. as also by cre-
ating security in favour of LIC of 75% of the receivables from Phase IV
of the said project and the FSI availed from Phase I to IV of the said Pro-
ject All of this, he submitted, was done without the knowledge and
consent of the Applicants and contrary to the terms of the JV
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Agreement. He submitted that LIC had now initiated proceedings under
Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") against
the JV Partners in view of the defaults committed by them in repayment
of the said loan. It was thus he submitted that the project land which is
owned by the Applicants has been dealt with by the JV Partners without
the knowledge and consent of the Applicants and could now potentially
be sold along with other assets of the Applicants in respect of which the
Applicants had unfettered rights, to repay the collusive and fraudulent
loan taken by the JV Partners from LIC.
5. Mr Jagtiani then in support of his contention that the conduct of
the JV Partners, in mortgaging a portion of the Phase IV Land along
with the other assets, was fraudulent and collusive invited my attention
to the JVA from which he placed reliance upon the following clauses,
viz.:
i. Clause 4(b)(u)1 which he pointed out enabled the JV
1 4(B)(u) The Developer shall be entitled to raise bridge finance for the present
project by mortgaging the phase of the property under their possession for
construction. However, the entire responsibility of the repayment of the said project
loan shall be of the Developer alone. The tenement/unit purchasers shall also be
entitled to mortgage their rights and their respective tenements/units/plots/flats/s
hops/showroom/ offices/row-houses/bungalow etc. However the finance so raised by
the developer shall not exceed the balance refundable security deposit with the
owners as on that date and it if does then owners shall have a lien on the constructed
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Partners to raise bridge finance by mortgaging the project
land only to the extent of the refundable security deposit
placed with the Applicants which was Rs. 11 Crores.
ii. Clauses 2(f)2 and 3(e)3 which inter alia provided that the
JV Partners were to develop the project land at their cost
and that both parties could use the credits and assets of
the JV Entity solely for the benefit of the JV Entity i.e. River
Residency and no asset was to be transferred or
encumbered for payment of any individual obligation.
iii. Clause 28 which provided that the Applicant had
executed a General Power of Attorney ("GPA") in favour of
JV Partners to represent them before all authorities to do
all the acts and deeds for the purpose of development of
portion of the developers share."
2 2(f) PAYMENTS OF INDIVIDUAL OBLIGATIONS:
The parties shall use the Joint Venture's credit and assets solely for the benefit of the
Joint Venture. No asset of the Joint Venture shall be transferred or encumbered for or
in payment of any individual obligation of a party.
3 3(e) The Developer shall develop the said phases at its own costs
including arranging for security of the entire said property and payment of property
taxes and outgoings of hereof.
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project land.
6. Mr Jagtiani then pointed out that the GPA executed by the
Applicants in favour of the JV Partners made clear that (i) the Project
land was to be developed in the name of JV Entity, i.e., 'River Residency'
(ii) the JV Partners could raise finance only upto the extent of the
refundable security deposit i.e. 11 crores and (iii) the responsibility to
repay these funds was that of the JV Partners.
7. Mr Jagtiani then submitted that the Applicants had on 3rd
August 2017 executed a Special Power of Attorney ("SPA") in favour of
the JV Partners by which the Applicants inter alia authorized the JV
Partners to raise finance for the said project and to sign and register the
documents with the concerned bank or financial institution. He pointed
out that the SPA specifically provided that (i) the JV Partners could avail
the finance in the name of only the Promoter i.e. JV Entity (ii) such
finance would be repaid by the JV Partners and (iii) the SPA dated 3rd
August 2017 was to be read with the JVA and GPA dated 11th May
2010. He additionally pointed out that the Directors of the JV Partners
had on 4th August 2017 also executed a declaration cum indemnity in
favour of the Applicants by which they had expressly undertaken as
follows, viz.:
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"We hereby declare and confirm that the Joint Venture
shall be availing construction finance from time to time for
development of the said property which may be secured
against the said property and mortgage our collateral
property and premises constructed to be constructed
thereon. We agree and undertakes that the construction
finance so availed by the joint venture shall be solely
deployed for development of he said property and shall not
to deployed for any other purpose, without the express
written consent of M/s. Vijayalaxmi Developers. we hereby
agree and undertake to repay the construction finance so
availed by the Joint Venture along with interest and
charges thereon, 1 solely out of the project cash flows
allocable to the Joint Venture (excluding the revenue share
of M/s. Vijayalaxmi Developers). In the event, the project
cash flows allocable to the joint Venture are insufficient for
repayment and servicing of the construction finance
availed by the Joint Venture, 1 for any reason whatsoever,
then we further agree and undertake that the deficit shall
be solely met by us and that neither the Joint venture nor
M/s. Vijayalaxmi Developers shall be personally liable for
the same."
(emphasis supplied)
8. Mr Jagtiani then pointed out that the Applicants became aware
that the JV Partners had availed of finance to the tune of Rs. 80 crores
from L&T Housing Finance Limited ("L&T"). He submitted that it was
thus that the Applicants made several inquiries with the JV Partners
pursuant to which the JV Partners on 16th August 2017 sent the
Applicants an email attached with an Indenture of Mortgage dated 26th
April 2017 executed with L&T which named the JV Partners and
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Respondent Nos. 5, 7 and 8 as the Borrowers. He submitted that though
the Indenture of Mortgage dated 26th April 2017 stated that the same
was signed by the Applicants the Applicants had denied this on
Affidavit dated 3rd September 2018.
9. Mr Jagtiani also pointed out that the Indenture of Mortgage
dated 26th April 2017 executed between L&T and the JV Partners and
Respondents Nos. 5, 7 and 8 showed that the disbursement of money
was to be in the name of the AOP, i.e., 'M/s River Residency Developers',
and not the JV Entity, i.e., River Residency. It was thus, he submitted that
the JV Partners had acted fraudulently in availing of this loan since the
same was (i) without the knowledge and consent of the Applicants; (ii)
in violation of the terms of the JVA; (iii) not in the name of JV Entity;
and (iv) was advanced to an AOP of which the Applicants were not
members.
10. Mr Jagtiani further pointed out that the Applicants had, when
conducting an online search in respect of the project land, came across
a registered deed of re-conveyance dated 12th October 2018, executed
between L&T and the AOP, i.e., M/s River Residency Developers and the
JV Partners. He pointed out that the sanction letter revealed that out of
the total loan of Rs. 80 Crores availed from L&T, Rs. 31 Crores were
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utilized to pay off earlier debts of JV Partners, 15 Crores for capital
requirements of JV Partners and remaining 34 Crores though stated to
be utilized towards the project of JV Entity, i.e., River Residency, but no
supporting documents were provided by the JV Partners to the
Applicants. He submitted that the JV Partners had then entered into a
Deed of Re-conveyance on 12th November 2018 in which L&T
provided a No Dues Certificate to the AOP i.e. M/s River Residency
Developers and not the JV Partners and their directors in whose name
the loan was sanctioned. He submitted that though the L&T loan was
obtained in the name of JV Partners and their directors, the No Due
Certificate was granted in the name of the AOP.
11. Mr Jagtiani then pointed out that the Applicants had thereafter
became aware that JV Partners had availed a loan from LIC in the name
of the AOP by making use of the No Due Certificate issued by L&T. He
submitted that LIC had vide a sanction letter dated 18th September
2018 sanctioned a loan for an amount of Rs. 95 Crores in favour of the
AOP which was inter alia secured by the mortgage of a portion of the
project land, the FSI availed from Phase I to IV of the said Project as also
75% receivables from Phase IV of the said project. He took pains to
point out that none of this was done with the Applicants' consent or
knowledge.
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12. He then invited my attention to Loan Agreement dated 5th
October 2018 to submit that out of loan amount of Rs. 95 Crores, an
amount of Rs. 46.64 Crores was to be utilized for taking over the earlier
loan from L&T and the balance was to be used for construction and
completion of the Phase IV of said project. He submitted that in the said
Loan Agreement Respondents Nos. 5, 7 and 8 were shown as the
Promoters of the AOP and the same made no mention of the Applicants.
He then pointed out that in the Article 3.2 of the Loan Agreement dated
5th October 2018 Respondent No.1 and the JV Partners had stated that
they had an absolute, clear and marketable title inter alia to the Phase
IV land as also to the FSI of 15,00,000 sq. ft. which he took pains to
point out was not only false but also pertained to all four phases of the
said project and not just the Phase IV.
13. Mr Jagtiani then invited my attention to the Indenture of
Mortgage dated 25th October 2018, which was executed between the
AOP, the JV Partners, Respondent Nos. 5 and 6 as mortgagors and
Respondent No.9 as Security Trustee. He pointed out that Article 2.1 of
the Indenture of Mortgage provided that the AOP was to have the first
and exclusive charge over the said Assets. He then invited my attention
to Article 7.1.3 of Indenture of Mortgage to submit that same granted
Respondent No.9 the liberty to sell the mortgaged property without the
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consent of the AOP, the JV Partners, Respondents Nos. 5 and 6 and most
importantly, without the consent of the Applicants.
14. Basis the above he submitted that it was ex facie evident that the
JV Partners had fraudulently created the mortgage in respect of a
portion of the Phase IV land and other Assets in favour of LIC since,
(a) The JVA and SPA only permitted the JV Partners to raise
finance for the project in the name of JV Entity i.e. 'River
Residency' neither the JVA nor SPA permitted the JV
Partners to raise finance in the name of the JV Partners or
any AOP of which the Applicants were not part of.
(b) Admittedly the loan sanctioned by LIC was not in the
name of the JV Entity and only the AOP, JV Partners, and
Respondents Nos. 5, 7 and 8 were shown as the Borrowers
in the Indenture of Mortgage dated 25th April 2017.
(c) The JVA did not permit the JV Partners to transfer or
encumber any of the assets for the payment of any
individual object of the parties.
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(d) The JV Partners had utilized the finance raised for objects
which had nothing to do with construction of Phase IV of
the said project;
15. He then pointed out that the fact that LIC had either colluded
with the JV Partners or then had acted in a completely negligent
manner in creating the said mortgage was also evident and beyond the
pale of doubt since, viz.
(a) Admittedly, the Applicants was the owner of the project
land and had never consented to the creation of any
mortgage of any portion thereof in favour of LIC.
(b) LIC had made an incorrect reporting to Central Registry of
Securitization Asset and Reconstruction and Security
Interest of India (CERSAI) by stating that the AOP and JV
Partners were the owners of the mortgaged land.
(c) Even the most basic due diligence would have reflected
that the Applicants were the owner of the project land.
(d) Though the Sanction Letter specifically required
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inspection of the original documents, no inspection was
ever done since the original documents of title to the
project land were in the Applicants' custody and
possession.
(e) LIC had sanctioned the amount in favour of the AOP
solely on the basis of the undertakings given by JV
Partners.
(f) LIC had ignored the fact that the SPA specifically
mentioned that same was to be read with JVA and GPA
and hence JV Partners could only avail of the loan (i) in
the name of the JV Entity and (ii) not in excess an amount
of Rs. 11 Crores.
(g) LIC ignored the fact that the No Due Certificate issued by
L&T was infact for the loan taken in the name the JV
Partners and not the Respondent No.1.
(h) LIC had created a first and exclusive charge over not only
on the portion of the project land but also FSI 15,00,000
Sq. ft., i.e., FSI of all 4 Phases and 75% receivables from
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Phase IV of said project.
16. Mr Jagtiani then submitted that given the above conduct of the
JV Partners and LIC, the Applicants had vide its letters dated 5th July
2019 and 19th July 2019 informed the LIC that Indenture of Mortgage
dated 25th October 2018 was executed fraudulently and without the
consent of the Applicants. It was thus that the Applicants called upon
LIC to execute a Cancellation Deed in respect of the said mortgage. He
submitted that LIC vide letter dated 5th August 2019 responded to the
Applicants stating that the loan was sanctioned after considering the
information provided by JV Partners and SPA hence denied the request
of the Applicants.
17. Mr Jagtiani then submitted that the Applicants had thereafter
terminated inter alia the JVA on 6th January 2023 after which LIC had
filed proceedings against JV Partners under Section 7 Insolvency and
Bankruptcy Code, 2016 (IBC) on 23rd January 2023 and 13th March
2023 before National Company Law Tribunal, Mumbai (NCLT). He
submitted that it was thus that the Applicants was constrained to file
the present Suit for a declaration that the said mortgage was void ab
initio and non-binding on the Applicants. He pointed out that absent
the grant of any interim relief the effect of the admission of the Petitions
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filed by LIC in the NCLT would potentially cause the said land to be
sold. It was thus that he submitted that the Applicants were entitled to
ad interim reliefs inter alia from taking any coercive steps in
furtherance of the said mortgage as also certain disclosures seeking
details of the disbursements made by LIC.
18. Mr Jagtiani then placed reliance upon a judgement of this Court
in the case of Paresh Gokuldas Suru and Ors vs. M/s Metalica Industries
Ltd. and Ors.4 to submit that where a mortgage was fraudulently and
collusively created, it would only be the Civil Court which would have
jurisdiction to grant the necessary relief and not the NCLT. He pointed
out that the facts in the case of Paresh Gokuldas Suru (supra) were very
similar to the facts of the present case as the same was also a case where
the flats of the Plaintiffs in that case had also been fraudulently and
collusively mortgaged by the developer and the Bank, the effect of
which to deprive the Plaintiffs in that case of their respective flats. From
the said judgement, Mr Jagtinai, pointed out that this Court had granted
the Plaintiffs in that case interim relief after recording as follows:
"22. Thus, in a case such as in the present case, a collusive
mortgage would put a party such as the SBI not only in a
4 Order of this court dated 11th April 2018 in Notice of Motion (L) 861 of
2018 in Commercial Suit (L) No. 453 of 2018.
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position superior to all other creditors / stake holders but
would also enable it to take advantage of its own wrong.
23. In the circumstances, as submitted by the Plaintiffs the
Mortgage created by Defendant No. 1 and SBI cannot prima
facie be construed as a mortgage in the eyes of law and that
the said Mortgage is null, void ab initio so as to prevail over
the rights of the Plaintiffs. Consequently, prima facie, no
rights of any nature could be conferred upon SBI by
Defendant No. 1. I am also in agreement with the Plaintiffs
that given the facts and circumstances of the present case and
the nature of the relief sought this Court being a Civil Court,
alone would have the jurisdiction in dealing with the lis as set
up in the plaint. The National Company Law Tribunal
exercising powers as conferred under the I. & B. Code would
not be the appropriate Tribunal due to the lack of power as
conferred under the I. & B. Code. The bar of jurisdiction as
contemplated under section 231 of the I. & B. Code on a plain
reading also postulates that the bar would not apply in cases
wherein the relief sought is beyond the scope of the said I. &
B. Code. The I and B. Code has been promulgated with a view
to cater to and adjudicate disputes with regard to non-
payment of dues of creditors i.e. operational and/or financial
creditors and the inability of the Debtor to pay the amounts
as claimed. The jurisdiction of the NCLT does not empower or
permit it to adjudicate upon issues regarding fraud such as in
the present case wherein the fundamental challenge is to the
validity of the creation of the mortgage or disbursement itself
forming the underlining issue of the collusion as between the
Debtor and the financial creditor. This is more so when the
issues are being raised by affecting third parties who are
neither the Debtor nor the Creditor.
24. In the case of Padma Ashok Bhatt vs. M/s Orbit
Corporation Ltd. & Ors. (2018)1 Bom CR 275: 2017 SCC
Online Bom 7740. ) in a similar situation, which arose under
the SARFESI Act, a Single Judge of this Court upheld the
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jurisdiction of this Court to entertain civil suits that allege
fraud in the transaction between the Developer and the Bank.
This is despite the provision of section 34 and 35 of the
SARFESI Act, which oust the jurisdiction of the Civil Court. I
am told that Appeal has been preferred from that Judgment
but the Judgment has not been set aside as the Appeal is
pending.
25. The latter part of Section 231 deals with the restrictive
interference of civil courts in passing injunctions against the
NCLT only with respect to any action taken or to be taken in
pursuance of any order passed by such Adjudicating
Authority. Admittedly no order (of admission) has been
passed by the NCLT as of date.
26. Therefore, in my view the entire application filed by SBI
before the NCLT, is on the footing that they are financial
creditors of the Defendant No.1 and have created a valid
mortgage as a security in their favour. If SBI is allowed to
proceed in the manner as they attempt, and exercise their
right against the suit property in order to recover their loan
the same would leave the Plaintiffs remediless despite having
made very substantial payments towards their individual
units (to the tune of Rs.65 Crore).
27. Under the above circumstances, the Plaintiffs have made
out a prime facie case and as such Defendant No. 6 - SBI is
restrained by an order of injunction from in any manner
seeking to exercise any right in their favour with respect to
the alleged mortgage created by Defendant No. 1 in favour of
Defendant No. 6 - SBI. preferred from that Judgment but the
Judgment has not been set aside as the Appeal is pending. 25.
The latter part of Section 231 deals with the restrictive
interference of civil courts in passing injunctions against the
NCLT only with respect to any action taken or to be taken in
pursuance of any order passed by such Adjudicating
Authority. Admittedly no order (of admission) has been
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passed by the NCLT as of date. 26. Therefore, in my view the
entire application filed by SBI before the NCLT, is on the
footing that they are financial creditors of the Defendant
No.1 and have created a valid mortgage as a security in their
favour. If SBI is allowed to proceed in the manner as they
attempt, and exercise their right against the suit property in
order to recover their loan the same would leave the Plaintiffs
remediless despite having made very substantial payments
towards their individual units (to the tune of Rs.65 Crore). 27.
Under the above circumstances, the Plaintiffs have made out
a prime facie case and as such Defendant No. 6 - SBI is
restrained by an order of injunction from in any manner
seeking to exercise any right in their favour with respect to
the alleged mortgage created by Defendant No. 1 in favour of
Defendant No. 6 - SBI."
Mr Jagtiani then submitted that the aforesaid would squarely apply on
all fours to the facts of the present case. He also in support of the same
proposition placed reliance upon a judgement of this Court in the case
of Padma Ashok Bhatt vs. Orbit Corporation Ltd. and others 5 and a
judgment of the Delhi High Court in the case of Tajunissa and another
Vs. Vishal Sharma and others6 from which he pointed out that in case
which involved fraud, the jurisdiction of the Civil Court could not be
ousted.
5 2017 (6) Mh.L.J. 102.
6 2022 SCC OnLine Del 18.
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19. Mr Jagtiani then placed reliance upon a judgement of this Court
in the case of Bharat Kishormal Shah vs. Yes Bank Ltd. and others 7 to
submit that the jurisdiction of the Civil Court could never be barred
since the jurisdiction of the NCLT was restricted and did not encompass
the grant of the declaratory reliefs which the Applicants had sought for
in the present Suit. It was thus he submitted that this Court would have
jurisdiction to entertain the present Suit and the same would not be
excluded under the provisions of the IBC etc.
20. It was basis the above that Mr Jagtiani submitted that the
Applicants had made out a case for the grant of interim relief and
absent such grant, grave prejudice and irreparable loss and injury
would be caused to the Applicants.
21. Curiously the application for grant of ad interim relief was
opposed by Respondent No. 2 and 3 i.e., the JV Partners against whom
proceedings had been filed by LIC under Section 7 of the IBC. Mr
Khandeparkar Learned Counsel appearing on behalf of the JV Partners
submitted that he would be confining his submissions only to law,
accepting the case as pleaded by the Applicants as being true.
7 2021 SCC OnLine Bom 12078
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22. Mr Khandeparkar submitted that the SPA executed between the
Applicants and JV Partners specifically permitted the JV Partner to
mortgage the project lands and structures standing thereon. He
submitted that there was no fictitious parallel JV Entity. He submitted
that there was mere a misdescription of the JV Partners as 'Mortgagor'
instead of 'Donee' in the Indenture of Mortgage dated 26th April 2017.
He however submitted that such misdescription would not render the
said Indenture of Mortgage invalid as the power conferred by SPA was
subsisting while JV Partners executed said Indenture of Mortgage.
23. Mr Khandeparkar then submitted that as per Section 226 8 of
Indian Contract Act, 1872 that the JV Partners being the agents of the
Applicants were therefore bound by the contracts entered into by it as
an agent of the Applicants since the same were done under the SPA. Mr
Khandeparkar then submitted that Section 41 9 of Transfer of Property
8 226. Enforcement and consequences of agent's contracts.
Contracts entered into through an agent, and obligations arising from acts done by
an agent, may be enforced in the same manner, and will have the same legal
consequences, as if the contracts had been entered into and the acts done by the
principal in person.
9 41. Transfer by ostensible owner.--
Where, with the consent, express or implied, of the persons interested in immoveable
property, a person is the ostensible owner of such property and transfers the same
for consideration, the transfer shall not be violable on the ground that the transferor
was not authorised to make it:
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Act provided that mortgages created by an ostensible owner or donee,
i.e., JV Partners in this case, having authority to mortgage are binding
on the real owners i.e. the Applicants. Basis this he submitted that none
of the acts of JV Partners as claimed by the Applicants were in breach of
JVA and SPA.
24. Mr Khandeparkar then invited my attention to paragraph 38 of
the Plaint to submit that the JV Partners were aware of the mortgages
since, December 2018. He submitted that the Applicants were aware of
the fact that loan facilities were availed by Respondent No.1 and that
the said fact was acknowledged by the Applicants in various documents
executed by it with allottees. Basis this he submitted that the Applicants
having knowledge and notice of mortgages from December 2018 had
acquiesced to the acts of JV Partners and was thus estopped from
raising objections regarding the same at this stage.
25. Mr Khandeparkar submitted that the Applicants' contention that
there was no valid mortgage, could not be a ground to seek an
injunction against proceedings filed before NCLT for the initiation of
Corporate Insolvency Resolution Process (CIRP) under Section 7 of the
Provided that the transferee, after taking reasonable care to ascertain that the
transferor had power to make the transfer, has acted in good faith.
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IBC. In support of his contention that a Civil Court cannot grant an
injunction in context of IBC proceedings he placed reliance upon a
judgment of this Court in the case of PSL Limited vs Jotun India Private
Limited.10
26. Mr Khandeparkar then submitted that the Applicants had an
alternate and efficacious remedy under Section 60(5) 11 of the IBC. He
pointed out that the Applicants could raise all the contentions that had
been raised in the present Suit in an appropriate Application filed under
Section 60(5) of the IBC which would then be decided by the NCLT. He
also invited my attention to Section 18(f) 12 of the IBC and pointed out
10 2018 SCC OnLine Bom 36.
11 Section 60: Adjudicating Authority for corporate persons
....
(5) Notwithstanding anything to the contrary contained in any other law for the
time being in force, the National Company Law Tribunal shall have jurisdiction to
entertain or dispose of–
(a) any application or proceeding by or against the corporate debtor or corporate
person;
(b) any claim made by or against the corporate debtor or corporate person, including
claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in
relation to the insolvency resolution or liquidation proceedings of the corporate
debtor or corporate person under this Code.
12 Section 18 Duties of interim resolution professional.
(1) The Interim Resolution Professional shall perform the following duties
namely
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that the same expressly contemplated that the Insolvency Resolution
Professional (IRP) could only take control and custody of any asset over
which the Corporate Debtor has ownership rights. He then pointed out
that the explanation to the said Section made it clear that the definition
of “assets” for the purpose of Section 18 of the IBC expressly clarified
that the same would not include assets owned by a third party in
possession of the corporate debtor. He thus submitted that the
Applicants’ contention that JV Partners’ financial creditors did not have
any rights in relation to mortgaged land and other mortgaged assets
and, consequently, could not have executed a valid mortgage, could
always be adjudicated before the NCLT in the proceedings which had
been initiated by LIC. He submitted that the IRP would also have to
make a determination of this factual aspect before proceeding to take
……
(f) take control and custody of any asset over which the corporate debtor
has ownership rights as recorded in the balance sheet of the corporate
debtor, or with information utility or the depository of securities or any other
registry that records the ownership of assets including–(i) assets over which
the corporate debtor has ownership rights which may be located in a foreign
country;(ii) assets that may or may not be in possession of the corporate
debtor;(iii) tangible assets, whether movable or immovable;(iv) intangible
assets including intellectual property;(v) securities including shares held in
any subsidiary of the corporate debtor, financial instruments, insurance
policies;(vi) assets subject to the determination of ownership by a court or
authority;
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into custody and control of the mortgaged land and other mortgaged
assets.
27. Mr Khandeparkar then pointed out that the proceedings initiated
by LIC were not to enforce a mortgage but were on account of the
defaults stated to have been committed by the JV Partners in making
payment of a financial debt. He pointed out that the nature of the
proceedings under Section 7 of the IBC were such that the NCLT would
have exclusive jurisdiction in respect thereof. He thus submitted that
the Applicants having a remedy under the IBC could therefore not
arrest or pre-empt the hearing of the proceedings filed by LIC under
Section 7 of the IBC by filing of the present Suit.
28. Mr Khandeparkar also pointed out that granting of an injunction
at the instance of a joint venture partner to arrest a proceeding which
was in rem, initiated by a Financial Creditor, would indeed set a wrong
precedent. He pointed out that it was not the case of the Applicants that
LIC had not granted the said facilities to the JV Partners. He therefore
submitted that the issue as to whether there in fact was a debt and a
consequential default was best left to the wisdom of the NCLT.
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29. Mr Khandeparkar submitted that JV Partners were contesting the
proceedings filed by LIC before the NCLT and were confident that the
same would be dismissed. He however clarified that the reason the
present application was being opposed by the JV Partners was because
(a) the pendency of proceedings in the NCLT was prejudicial to the
interest of the JV Partners as the same was creating an impediment for
procuring further finance; (b) the prayer sought for by the Applicants
would necessary entail a definitive finding of fraud against the JV
Partners, which finding would impact both the pending civil and
criminal proceedings; and (c) that the Applicants had despite attempts
to amicably resolve the matter, initiated various applications against JV
Partners before Economic Offences Wing which had led to arrest of the
directors of the JV Partners.
30. Mr Khandeparkar submitted that the Plaint was bereft of the
necessary details of fraud, without prejudice, to this contention he
pointed out that after the Applicants’ discovery of this alleged fraud, the
Applicants had acquiesced to the creation of the mortgage and JV
Partners authority to execute such mortgage and hence there was no
question of the Applicants now alleging fraud and/or collusion on the
part of the JV Partners and LIC
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31. Mr Khandeparkar then submitted that proceedings filed under
the provisions of Section 7 of the IBC were materially different from
proceedings under the provisions of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act 2002 (“SARFAESI Act”). He pointed out that under the provisions of
the SARFAESI Act a Secured Creditor is in fact enforcing its mortgage
unlike in a Petition filed under Section 7 of the IBC where the only issue
was whether there had been a default of a financial debt. He therefore
submitted that the judgments in the context of the SARFAESI Act would
have no application to the facts of the present case. He reiterated that
the Applicants in this case had alternate efficacious remedy under
Section 60(5) of the IBC for adjudication of the grievances. It was thus
he submitted that no ad-interim relief ought to be granted to the
Applicants.
32. Mr Kapadia, Learned Counsel appearing on behalf of LIC
supplementing the submission made by Mr Khandeparkar first
submitted that the jurisdiction of this Court was barred under Section
6313 of the IBC. He submitted that Section 63 of the IBC expressly
13 Section 63. Civil Court Not to have Jurisdiction: No civil court or authority
shall have jurisdiction to entertain any suit or proceedings in respect of any matter
on which National Company Law Tribunal or the National Company Law Appellate
Tribunal has jurisdiction under this Code. Civil court not to have jurisdiction.
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barred all Civil Courts from entertaining any Suit or Proceeding in
respect of any matter on which the NCLT has jurisdiction under the
IBC. He submitted that what was sought for by prayer clause (a) of the
Interim Application was infact a bar on the Petitions filed under Section
7 of the IBC filed by LIC. He then submitted that any orders passed in
the present Interim Application would, therefore, impinge upon the
jurisdiction of the NCLT and would therefore be in the teeth of Section
63 of the IBC. Mr Kapadia also placed reliance upon the judgement of
this Court in the case of PSL limited (supra) which he pointed out was
upheld by the Division Bench of this Court in Jotun India Vs. PSL
Limited14and was approved by the Hon’ble Supreme Court in the case of
Forech India Limited vs Edelweiss ARC Limited & Anr. 15 It was thus he
submitted that the jurisdiction of the Civil Court being expressly barred,
no injunction or order of any kind which would affect the NCLT in
proceedings with the Petitions filed by LIC under Section 7 of the IBC
could be passed.
33. Mr Kapadia then in furtherance of the submissions made by Mr
Khandeparkar that the Applicants remedy lay under the provisions of
Section 60(5) of the IBC, placed reliance upon the case of Alliance
14 2018 SCC OnLine Bom 1952.
15 (2019) 18 SCC 549.
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Broaddband Service Pvt Ltd vs Manthan Broadband Services Pvt Ltd 16
from which he pointed out that the Petitioner in that case who was a
pledgee of certain shares had approached the Calcutta High Court on
the apprehension that the Liquidator would wrest control and take
possession of the pledged shares thereby making them a part of the
liquidation assets of the Company in liquidation. He pointed out that in
this context, the Calcutta High Court had held as follows:
“28. … as per the provisions of 60(5) of IBC, 2016 the
petitioner can approach the NCLT instead of filing the instant
application before this Court.
29. As per Section 238 of the IBC, 2016 is having override
effect in any other law for the time being in force. In view of
my prima facie findings that this Court cannot pass any
interim order at this stage. This Court is of the view that the
matter in issue in the suit can be more appropriately and
effectively decided and adjudicated by the NCLT.”
It was thus he submitted that the Applicants ought to have filed an
Application under Section 60(5) of the IBC, since the NCLT had the
necessary jurisdiction to decide issues of law and fact as had arisen in
the present case.
34. He then pointed out that the Petitions under Section 7 of the IBC
had been filed on 23rd January 2023 and 13th March 2023
16 2022 SCC OnLine Cal 4114.
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respectively which was well prior to the filing of the present Suit which
was filed only on 4th December 2023. He submitted that the moot
question which fell for consideration was whether the mortgage
property was the property of the Applicants and thus could not have
been mortgaged by the JV Partners and was one which in fact could be
agitated before and decided by the NCLT. In support of his contention,
that the NCLT was competent to decide this issue he placed reliance
upon a judgement of the NCLAT in the case of Ramesh Singh Rawat vs.
SPG Global Distribution Pvt Ltd.17 He pointed out that the said decision
had also been followed by the NCLT, Mumbai in the case of Shaikh
Mahboob Subani & Ors vs Liquidator of K.K. Welding Limited 18 wherein
the NCLT, Mumbai had after considering two conflicting submissions
on ownership of certain immovable properties of the Corporate Debtor
had directed the Liquidator to keep the subject property outside the
liquidation estate of the Corporate Debtor. It was thus he submitted that
the proper course of action was for the Applicants to approach the
NCLT under Section 60(5) and seek protective orders.
17 MANU/NL/0143/2024.
18 MANU/NC/0871/2024.
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35. Mr Kapadia, then pointed out that Section 231 19 of the IBC also
created a bar against all Civil Courts from having jurisdiction in respect
of any matter, which the Adjudicating Authority was empowered under
the IBC to pass any order. He pointed out that under section 7(5) of the
IBC, the NCLT was specifically empowered to pass orders, admitting, or
rejecting an application under Section 7(1) of the IBC as well as any
application filed under Section 60(5) of the IBC. He also pointed out
that Section 231 of the IBC also barred all Courts from granting any
injunction in respect of any action taken or to be taken in pursuance of
any order passed by the NCLT under the IBC. It was thus his submission
that this Court by virtue of Section 231 of the IBC was specifically
barred from granting any injunction over the actions to be taken by the
NCLT in the proceedings filed by LIC.
36. Mr Kapadia then additionally submitted that the jurisdiction of
this Court would also be barred under Section 64(2) 20 of the IBC from
19 231. Bar of jurisdiction. No civil court shall have jurisdiction in respect of
any matter in which the Adjudicating Authority or Board is empowered by, or under,
this Code to pass any order and no injunction shall be granted by any court or other
authority in respect of any action taken or to be taken in pursuance of any order
passed by such Adjudicating Authority or Board under this Code.
20 Section 64 – Expeditious disposal of applications.
(2) No injunction shall be granted by any court, tribunal or authority in respect
of any action taken, or to be taken, in pursuance of any power conferred on the
National Company Law Tribunal or the National Company Law Appellate Tribunal
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granting any injunction in respect of any action taken or to be taken in
pursuance of any power conferred on the NCLT under the IBC. He
pointed out that Section 43021 of the Companies Act 2013 similarly
barred the jurisdiction of the Civil Court from granting an injunction in
respect of any action taken or to be taken in pursuance of any power
conferred under the Companies Act on the NCLT.
37. Mr Kapadia placed reliance upon a judgement of the Hon’ble
Supreme Court in the case of Ghanshyam Sarda vs Shiv Shankar
Trading Company22 in which the Hon’ble Supreme Court had when
considering the bar of jurisdiction under the provisions of the Sick
Industrial Companies Act 1985 (SICA) had held that so long as the
jurisdiction of the BIFR (the relevant Tribunal under the provisions of
SICA) had correctly been exercised, the jurisdiction of the Civil Court to
grant even temporary injunctive relief was completely excluded. He
under this Code
21 Section 430 – Civil court not to have jurisdiction.
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of
any matter which the Tribunal or the Appellate Tribunal is empowered to determine
by or under this Act or any other law for the time being in force and no injunction
shall be granted by any court or other authority in respect of any action taken or to
be taken in pursuance of any power conferred by or under this Act or any other law
for the time being in force, by the Tribunal or the Appellate Tribunal.
22 (2015) 1 SCC 298.
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also placed reliance upon the judgement of the Hon’ble Supreme Court
in the case of Mardia Chemicals Ltd vs Union of India23 to point out that
the Hon’ble Supreme Court had in that case considered the provisions
of Section 34 of the SICA, which not only barred the Civil Court’s
jurisdiction with respect to matters over which cognizance had already
been taken by the DRT (the relevant Tribunal under the provisions of
SARFAESI) but also over matters of which cognizance could be taken by
the DRT in the future. He thus submitted that whether or not an
application under Section 7 of the IBC of the IBC was to be admitted or
not was purely a question which was within the power and jurisdiction
of the NCLT. He therefore submitted that any order injuncting the NCLT
from acting in pursuance of these powers would fall foul under Section
64(2) of the IBC as also Section 430 of the Companies Act as held in the
judgement of this Court in the case of PSL Limited (supra) as also a
judgement of the Calcutta High Court in the case of Alliance
Broaddband Service Pvt Ltd (supra).
38. Mr Kapadia then pointed out that Section 238 of the IBC which
provided for a non-obstante clause by which the provisions of IBC
would override any law which was contrary thereto. He pointed out
that the facts of the present case, the Applicants had not sufficiently
23 (2004) 4 SCC 311.
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explained as to why this Court and not the NCLT had jurisdiction to
entertain the present proceeding and/or under which legal provisions
the relief was sought for. He submitted that in any view of the matter
even assuming the Applicants had placed reliance upon such provision,
the same would be superseded/overridden by Section 238 of the IBC.
39. Mr Kapadia then placed reliance upon the judgement of the
Hon’ble Supreme Court in the case of Nahar Industrial Enterprises vs
Hong Kong and Shanghai Banking Corporation 24 and the judgement of
this Court in the case of Rentworks India Pvt. Ltd. Small Industries
Development Bank of India25 and PSL Limited (supra) to submit that it
was now well settled that the NCLT was not a Court subordinate to the
High Court. He then placed reliance upon the provisions of Section
41(b)26 of the Specific Relief act 1963 to submit that this Court could
not therefore grant an injunction on the institution or prosecution of
any proceedings before the NCLT. In support of his contention, he
24 (2009) 8 SCC 646.
25 2014 SCC OnLine Bom 258
26 Section 41. Injunction when refused.
An injunction cannot be granted–
…
(b) to restrain any person from instituting or prosecuting any proceeding in
a court not subordinate to that from which the injunction is sought;
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placed reliance upon the decision of the Hon’ble Supreme Court in the
case of Cotton Corporation of India Limited vs United Industrial Bank
Limited.27 Mr Kapadia also clarified that this Hon’ble Court while
entertaining a Suit under its Ordinary Original Civil Jurisdiction did not
unlike in proceedings under Article 226 and 227 of the Constitution of
India have supervisory jurisdiction over the NCLT. It was thus he
submitted that this Court could not pass any order of injunction or
restraint in LIC prosecuting the Petitions filed under Section 7 of the
IBC before the NCLT, Mumbai as the same would fall foul of the
provisions of Section 41(b) of the Specific Relief Act.
40. Mr Kapadia then placed reliance upon a judgement of the
NCLAT in the case of Ashmeet Singh Bhatia vs Pragati Impex India Pvt
Ltd28 to submit that the NCLAT had therein observed that the
adjudicating authority was fully entitled to while exercising jurisdiction
under Section 65 of the IBC to close the CIRP process and pass
consequential orders and the fact that an application under Section 7 of
the IBC had been admitted, did not denude the jurisdiction of the
adjudicating authority to examine the application under Section 65 of
the IBC. He submitted that even the approval of a resolution plan would
27 (1983) 4 SCC 625.
28 2024 SCC OnLine NCLAT 462.
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not ipso facto extinguish any legitimate right of a party with regards to
title of a property, particularly one that was disputed and subject to civil
proceedings.
41. He then placed reliance upon a Judgement of the NCLT in
Shubham Mercantile Pvt Ltd vs Bank of Baroda, 29 from which he
pointed out that NCLT, Mumbai had held as follows:
“…since this Authority does not have the requisite jurisdiction
to decide title ownership of the property in question which
consists of land and building erected thereupon, the same
should not be considered as an asset of the Corporate Debtor
merely on account of the approval of the resolution plan
under the Code. However, the parties shall be at liberty to
approach appropriate Civil Court/ Authority/ Forum having
jurisdiction over the matter for getting ascertained the
ownership rights in the properties in question and the
approval of the resolution plan in this case would not affect
the rights of the respective parties in the aforementioned
properties, if any, so far as the question of title is concerned.”
Basis the above, he submitted that the question material to the
captioned Suit and consequently to the Interim Application including
whether the Indenture of Mortgage dated 25 th October 2018 was
valid and binding insofar as it concerned, the subject assets were all
questions which could be decided by the Civil Court, Tribunal or
29 Order dated 8th September 2023 of National Company Law Tribunal,
Mumbai in IA (I.B.C.) 3124 of 2022
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Authority independent of the CIRP and therefore mere admission of
the Application filed by LIC and the initiation of the CIRP in respect of
JV Partners or even the approval of the resolution plan would not
ipso-facto extinguish any legitimate rights of the Applicants.
42. He then submitted that the grant of injunction would be in the
teeth of settled law regarding IBC proceedings. He pointed out that it
was well settled that Application under Section 7 of the IBC was
required to be admitted when there was a default of a financial debt. He
placed reliance upon the Judgment of the Hon’ble Supreme Court in the
case of Innovative Industries Ltd vs ICICI Bank Ltd, 30 In support of his
contention that the moment the adjudicating authority is satisfied that a
default has occurred, the Application must be admitted. He also placed
reliance upon a Judgement of the Hon’ble Supreme Court in the case of
M. Suresh Kumar Reddy vs Canara Bank & Ors 31 in which the Hon’ble
Supreme Court reiterated what was laid down in the case of Innovative
Industries Ltd (Supra) held as follows:
“11. Thus, once NCLT is satisfied that the default has
occurred, there is hardly a discretion left with NCLT to refuse
admission of the application under Section 7, … If NCLT finds
that there is a debt, but it has not become due and payable,30 (2018) 1 SCC 407.
31 (2023) 8 SCC 387.
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the application under Section 7 can be rejected. Otherwise,
there is no ground available to reject the application.
12. ………
13. ………
14. …the view taken in Innovative Industries still holds
good.”
Basis the above, he submitted that there is no question of granting of
any relief.
43. Mr Jagtiani, in Rejoinder firstly reiterated that the Respondents
had not disputed any part of the case pleaded by the Applicants on
merits and had thus inter alia accepted that the mortgage was a
fraudulent one. He then took pains to point out that though the
Respondents had sought to draw a distinction between the judgements
cited in the context of the SARFAESI Act, there was no answer
forthcoming to in any manner distinguishing the judgment of this
Court in the case of Paresh Gokuldas (Supra) in which this Court had
specifically stated that in cases where a mortgage was fraudulently and
collusively created, it would only be the Civil Court which would have
jurisdiction to grant the necessary relief and not the NCLT. He also
pointed out from the judgment of this Court in the case of Bank of
Baroda through its Branch Manager vs Gopal Shriram Panda and
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Another32 that this court had noticed that special tribunals were created
to enforce specific rights arising in the context of insolvency etc. of the
corporate debtor and the same therefore were not meant to seize the
jurisdiction of civil courts or redress any common law rights of citizens
which have been infringed.
44. Mr Jagtiani then in dealing with the judgements relied upon by
Mr Kapadia in the case of Alliance Broadband Services (supra) and
Ramesh Singh Rawat (supra) submitted that the same in fact do not
further the case of LIC at all since the same clarify/distinguish that in
proceedings that arise de hors the insolvency resolution process, the
Civil Courts would have jurisdiction. He pointed out from the
judgement of the NCLT in the case of Ramesh Singh Rawat (supra) that
the NCLT, Mumbai had specifically held as follows, viz.:
“18. In so far as the decision rendered in the case of
Embassy Property Developments Pvt. Ltd. (Supra) is
concerned, it was a case where the corporate debtor was
holding a mining lease granted by the Government of
Karnataka which was to expire on 25.05.2018. A notice for
premature termination of the lease was issued on
09.08.2017, on the allegation of violation of statutory rules
and the terms and conditions of the lease deed, no order of
termination had been passed till the date of initiation of the
CIRP. The IRP therein addressed a letter dated 14.03.2018 to32 2021 SCC OnLine Bom 466.
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the Chairman of the monitoring committee as well as the
director of mines and geology informing them of the
commencement of CIRP. He also wrote a letter dated
21.04.2018 to the director for seeking the benefit of deemed
extension of the Company Appeal (AT) (Insolvency) No. 872
of 2023 lease beyond 25.05.2018 upto 31.03.2020 in terms
of Section 8-A (6) of the mines and minerals (development
and regulation) Act, 1957. Since, no response was found,
therefore, RP filed a writ petition seeking a declaration that
the mining lease should be deemed to be valid upto
31.03.2020 but during the pendency of the writ petition,
Government of Karnataka passed an order dated 26.09.2018,
rejecting the proposal for deemed extension. The RP moved
an application before the NCLT for setting aside the order of
the Government of Karnataka and seeking a declaration that
the lease should be deemed to be valid upto 31.03.2020
which was allowed by the NCLT and ultimately the
Adjudicating Authority directed the Government of
Karnataka to execute the supplement lease deed. In the
background of these facts, the Hon’ble Supreme Court has
held that “therefore, in the light of the statutory scheme as
culled out from various provisions of the IBC, 2016 it is clear
that wherever the corporate debtor has to exercise a right
that falls outside the purview of the IBC, 2016 especially in
the realm of the public law, they cannot through the RP, take
a bypass and go before NCLT for the enforcement of such a
right” However, facts of the present case are altogether
different from the aforesaid case. In so far as the decision in
the case of Tata Consultancy Service Limited (Supra) is
concerned, the Hon’ble Supreme Court has reiterated that the
RP can approach the NCLT for adjudication of disputes which
relate to the insolvency resolution process, but when the
dispute arises dehors the insolvency of the corporate debtor,
the RP must approach the relevant competent authority.
Similar view has been expressed by this Court in the case of
Sicom Ltd. (Supra).”
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He also placed reliance upon the judgement of this Court in the case of
Rajendra Bansal vs Reliance Communication 33 which in turn refers to
judgments of the Hon’ble Supreme Court in the case of Embassy
Property Developments Pvt. Ltd. Vs. State of Karantaka 34 and Gujrat urja
Vikas Nigam Ltd. Vs. Amit Gupta,35, and has held as follows,
“(e) In Embassy Property (Supra) after underscoring that
the NCLT does not have general jurisdiction like that of a Civil
Court, the Hobn’ble Supreme Court held that under Section
60(5)(c) of the IBC, the NCLT cannot exercise jurisdiction over
any and every issue con cerning the corporate debtor. The
Court held as follows:
“37. …The only provision which can probably throw light on
this question would be sub-section (5) of Section 60, as it
speaks about the jurisdiction of the NCLT. Clause (c) of sub-
section (5) of Section 60 is very broad in its sweep, in that it
speaks about any question of law or fact, arising out of or in
relation to insolvency resolution. But a decision taken by the
Government or a statutory authority in relation to a matter
which is in the realm of public law, cannot, by any stretch of
imagination, be brought within the fold of the phrase “arising
out of or in relation to the insolvency resolution” appearing in
clause (c) of sub-section (5). Let us take for instance a case
where a corporate debtor had suffered an order at the hands
of the Income Tax Appellate Tribunal, at the time of initiation
of CIRP. If Section 60(5)(c) of the IBC is interpreted to include
all questions of law or facts under the sky, an Interim33 Order dated 4th January 2023 of this court in Interim Application No. 1161
of 2020 in First Appeal No. 1539 of 2012.
34 (2020) 13 SCC 308.
35 (2021) 7 SCC 209.
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Resolution Professional/Resolution Professional will then claim
a right to challenge the order of the Income Tax Appellate
Tribunal before the NCLT, instead of moving a statutory
appeal under Section 260-A of the Income Tax Act, 1961.
Therefore the jurisdiction of the NCLT delineated in Section
60(5) cannot be stretched so far as to bring absurd results. [It
will be a different matter, if proceedings under statutes like
Income Tax Act had attained finality, fastening a liability upon
the corporate debtor, since, in such cases, the dues payable to
the Government would come within the meaning of the
expression “operational debt” under Section 5(21), making the
Government an “operational creditor” in terms of Section
5(20). The moment the dues to the Government are
crystallised and what remains is only payment, the claim of
the Government will have to be adjudicated and paid only in a
manner prescribed in the resolution plan as approved by the
adjudicating authority, namely, the NCLT.]……
40. If NCLT has been conferred with jurisdiction to decide
all types of claims to property, of the corporate debtor, Section
18(1)(f)(vi) would not have made the task of the interim
resolution professional in taking control and custody of an
asset over which the corporate debtor has ownership rights,
subject to the determination of ownership by a court or other
authority. In fact an asset owned by a third party, but which is
in the possession of the corporate debtor under contractual
arrangements, is specifically kept out of the definition of the
term “assets” under the Explanation to Section 18. This
assumes significance in view of the language used in Sections
18 and 25 in contrast to the language employed in Section 20.
Section 18 speaks about the duties of the interim resolution
professional and Section 25 speaks about the duties of
resolution professional. These two provisions use the word
“assets”, while Section 20(1) uses the word “property” together
with the word “value”. Sections 18 and 25 do not use thePage 41 of 50
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IAL-10152-2024 08-25-F.DOCexpression “property”. Another important aspect is that under
Section 25(2)(b) of the IBC, 2016, the resolution professional
is obliged to represent and act on behalf of the corporate
debtor with third parties and exercise rights for the benefit of
the corporate debtor in judicial, quasi-judicial and arbitration
proceedings. Sections 25(1) and 25(2)(b) reads as follows…
This shows that wherever the corporate debtor has to exercise
rights in judicial, quasi-judicial proceedings, the resolution
professional cannot short-circuit the same and bring a claim
before NCLT taking advantage of Section 60(5).
41. Therefore in the light of the statutory scheme as culled
out from various provisions of the IBC, 2016 it is clear that
wherever the corporate debtor has to exercise a right that falls
outside the purview of the IBC, 2016 especially in the realm of
the public law, they cannot, through the resolution
professional, take a bypass and go before NCLT for the
enforcement of such a right.”
(emphasis supplied)
(f) In Gujarat Urja (Supra) the Hon’ble Supreme Court
laid down the test to ascertain the matters which can be
adjudicated upon by the NCLT under Section 60(5)(c) and
held that only those disputes which arise solely from the
insolvency of the corporate debtor can be entertained by the
NCLT under this provision. The Court observed as follows:
“69. … Therefore, considering the text of Section 60(5)(c) and
the interpretation of similar provisions in other insolvency
related statutes, NCLT has jurisdiction to adjudicate disputes,
which arise solely from or which relate to the insolvency of
the corporate debtor. However, in doing so, we issue a note of
caution to NCLT and Nclat to ensure that they do not usurp
the legitimate jurisdiction of other courts, tribunals and fora
when the dispute is one which does not arise solely from orPage 42 of 50
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IAL-10152-2024 08-25-F.DOCrelate to the insolvency of the corporate debtor. The nexus
with the insolvency of the corporate debtor must exist.”
(emphasis supplied)
Basis this, Mr Jagtiani submitted that if the case of fraud is mae out,
then the NCLT will not have jurisdiction to adjudicate upon such
matters.
45. On the aspect of delay, Mr Jagtiani denied that there was in fact
any delay by pointing out the steps taken by the Applicants as set out in
the Plaint. He then submitted that even assuming there was delay on the
part of the Applicants the same would not by itself be a ground to deny
the Applicants reliefs if a case for the grant of such relief was otherwise
made out. In support of his contention, he placed reliance upon a
judgement of this Court in the case of Rajiv Sanghvi Vs Pradip
Kamdar.36
46. After having heard Learned Counsel of the Parties, considering
their rival contentions as also the case law cited, I find that the
Applicants had made out a case for the grant of limited ad interim
reliefs for the following reasons, viz.
36 Order dated 30th June 2022 of this court in Interim Application No.571 of
2022 in Suit No. 44 of 2021.
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A. The Respondents by proceeding on the basis of a demurer, have
inter alia accepted that the mortgage created by the JV Partners
in favour of LIC is both fraudulent and collusive. The question
therefore which immediately falls for consideration is that in
such a fact scenario in whose favour would the balance of con-
venience lie, (i) the party affected/likely to be affected by such
fraudulent and collusive acts or (ii)the parties who have collu-
sively or otherwise committed such fraud. To my mind, there can
only be one answer to this question i.e. the balance of conve-
nience would be wholly in favour of the party affected/likely to
be affected by the fraudulent and/or collusive act. To hold other-
wise would be putting a premium on dishonesty. Thus, in such a
fact scenario, the jurisdiction of the Civil Court cannot be said to
have been ousted. Additionally, I find that the Applicants’ re-
liance upon the finding of this Court in the case of Paresh
Gokuldas (supra) to be entirely apposite to the facts of the
present case. Since however, extensive arguments were advanced
on the exclusion of jurisdiction of this Court, I must deal with the
same.
B. The primary contention of the Respondents was that the Appli-
cants ought to file an Application under Section 60 (5) of the IBC
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IAL-10152-2024 08-25-F.DOC
wherein the Petitioner would have the liberty raise all the con-
tentions which have been raised in the Suit. This contention to
my mind on the face of it in the facts of the present case is un-
tenable. A plain reading of Section 60 of the IBC makes clear that
the jurisdiction of the Adjudicating Authority is, in relation to in-
solvency resolution and liquidation for corporate persons in-
cluding corporate debtors. Thus, any application made under
Section 60(5) would necessarily have to be one which arises
from or in relation to the insolvency resolution or liquidation
process of a corporate debtor and would not include an indepen-
dent claim against the corporate debtor or like in this case, even
the financial creditor in which the relief which has been sought
for could infact never be granted by the NCLT
C. The aforesaid was made clear in a judgement of this Court in the
case of Rajendra Prasad Bansal (supra)in which it was held that
the NCLT would have jurisdiction only on those issues which
arise solely out of the insolvency of the corporate debtor and that
can be adjudicated upon by the NCLT under Section 60(5) of the
IBC. Clearly, the issue which arises for determination in the
present Suit neither arises solely out of the insolvency of the Cor-
porate Debtor and is also not one which can be adjudicated upon
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IAL-10152-2024 08-25-F.DOC
by the Corporate Debtor. Hence in my view the judgments of the
NCLT in the case of Alliance Broadband Services Private Limited
(supra) and Ramesh Singh Rawat (supra) upon which reliance
was placed by Mr Kapadia would be of no assistance in the facts
of the present case since the issue in the present Suit is de hors
the Petition filed by LIC.
D. I cannot also, at this stage, accept the contention of Mr Khande-
parkar that the mortgage was validly created by virtue of the
SPA. Even assuming the SPA permitted the creation of such a
mortgage, the same could only have been used for completion of
the said project and not on any other objects as has been done by
the JV Partners in the present case. The contention of Mr
Khandeparkar that there has been a misdescription in the deed
of mortgage to describe the JV Partners as “Mortgagors” instead
of “Donee” is far too simplistic a contention, especially absent any
pleading to that effect. Also, the fact that LIC has in its filing be-
fore CERSAI described the JV Partners as owners of the mort-
gaged land which militates against the JV Partners’ contention
that this was a misdescription. Also, absent any pleading to this
effect, I am unable to accept the contention that the Applicants
had in any manner acquiesced to the said loan.
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IAL-10152-2024 08-25-F.DOC
E. Equally, the contention of delay in the facts of the present case
would not in my view deny the Applicants the grant of ad in-
terim reliefs. It is well settled that delay by itself would not de-
prive a party to the grant of interim relief but is a factor to be
considered when balancing the equities. In my view, given the
Respondents have today accepted that the said mortgage had
been fraudulently entered into, the delay if any, would certainly
not deprive the Applicants to the grant of limited ad interim re-
lief that I propose to pass.
F. There is no dispute to the fact that the jurisdiction of the NCLT is
not subordinate to that of the High Court and that under Section
7 of the IBC, it is only the NCLT which would have the jurisdic-
tion to decide the issue of debt and default. Also, there is no dis-
pute about the bar of jurisdiction of the Civil Court under Sec-
tion 63 and also 231 of the IBC. However, such bar would only
apply in cases where the NCLT would have exclusive jurisdic-
tion over the subject matter of the dispute/issues. It is not as
though the Civil Courts jurisdiction would be denuded in all
cases, especially when it is ex facie clear that the dispute is one in
respect of which the NCLT could never grant relief. Thus, the ex-
clusion of jurisdiction has to be the qua subject matter and if the
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subject matter/issue in dispute is one which falls outside the ex-
clusive jurisdiction of the NCLT, the Civil Courts will have juris-
diction. Thus, provisions which exclude the Civil Courts’ juris-
diction cannot be read so widely as to expand the scope of the
jurisdiction of the NCLT over civil disputes which fall outside the
four corners of the IBC in the manner suggested by the Respon-
dents. I find that the judgement in the case of PSL Limited
(supra)also have no application in the facts of the present case as
the issue which arose for determination in that case pertained to
jurisdiction of NCLT after an order of admission or appointment
of provisional liquidator by company court and was not one of
fraud as in the present case. In any view of the matter, I do not
propose to stay the proceedings before the NCLT.
47. Hence, for the reasons mentioned hereinabove I deem it fit to
grant ad interim relief in terms of prayer clauses (a), (b) and (c), which
read as follows:
“(a) That pending the hearing and final disposal of the
present Suit, the Respondents by themselves or through their
servants, agents, employees and representatives be restrained
by an order and injunction of this Hon’ble Court from directly
or indirectly taking any coercive steps or other measures
and/or acting in furtherance of the Loan Agreement dated 5th
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IAL-10152-2024 08-25-F.DOCOctober 2018 in so far as they concern the Project and/or the
Phase IV Property, including but not limited to coercive steps
or other measures under the Securitization and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 and/or in the Company Petition
No. 336 of 2023 and Company Petition No. 468 of 2023
before the NCLT;
(b) That pending the hearing and final disposal of the
present Suit, Respondent No. 4 be directed to disclose on oath
the following in a time bound manner:
i. details of all disbursement of funds made by
Respondent No. 4 pursuant to the LIC Sanction Letter,
the Loan Agreement, the amended LIC Sanction Letter
and the Modification to Loan Agreement;
ii. details of all repayments made jointly or
severally by Respondent Nos. 1 to 3, 5 and 6 under the
Loan Agreement and/or the Modification to Loan
Agreement and the manner in which such repayments
have been apportioned/ adjusted by Respondent No.4
in their books of accounts;
(c) That pending the hearing and final disposal of the Suit,
the Respondents by themselves, their servants, agents,
employees and representatives be restrained by an order and
injunction of this Hon’ble Court from directly or indirectly
selling, disposing, alienating, transferring, mortgaging,
encumbering or parting with possession of, dealing with or
creating any third-party rights whatsoever or holding
themselves out to be owners/ charge holders/ mortgagors/
mortgagees of the Phase IV Property.”
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48. It is clarified that the disclosure in terms of prayer clause (b) as
reproduced above is to be made within a period of two weeks from the
date on which this order is uploaded.
49. I make it clear that this order shall not in any manner act as an
injunction against NCLT from proceeding with Company Petition No.
336 of 2023 and Company Petition No. 468 of 2023.
50. Affidavit in Reply, if any, to be filed and served on or before 9th
September 2024. Affidavit in Rejoinder, if any, to be filed and served on
or before 20th September 2024.
51. List the matter for hearing on 3rd October 2024.
(ARIF S. DOCTOR, J)
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