2018 (2) TMI 2082 - HC - VAT and Sales Tax

Court rectifies errors, exposes fraud in creditor rights case, orders eviction, emphasizes integrity

The court identified errors in a previous order and addressed issues of commercial fraud, secured creditor rights, and legitimacy of an arbitral award. It ... Fraud on the Court - collusive arbitral award - appointment and discharge of court receiver - vacation of attachment and delivery of possession - contempt of court (suo motu notice) - recommendation to Bar Council for striking off - police assistance to court receiver - undertaking accepted as undertaking to the Court - SARFAESI Act enforcement obstructed by collusion - fraudulent transfer ineffectual to defeat secured creditorClerical correction of court order - Deletion of the words 'no party' from paragraph 1 of the order dated 5th February 2018. - HELD THAT: - The Court identified an error in its earlier order dated 5th February 2018 and directed that in paragraph 1, line 2 the words 'no party' be deleted. This is a simple correction of the record to remove the erroneous wording and does not affect the substantive directions of the order. [Paras 1]The words 'no party' in paragraph 1 of the order dated 5th February 2018 are deleted.Collusive arbitral award - fraud on the Court - fraudulent transfer ineffectual to defeat secured creditor - Validity and effect of the arbitral award and related execution proceedings were vitiated by collusion and constituted a fraud on the Court. - HELD THAT: - The Court found that the award obtained by the Claimant in rapid, pre-planned proceedings (reference, hearing and award within days) was collusive with the Respondent and intended solely to obstruct the secured creditor, Fullerton, from enforcing its security. The award's terms and the sequence of events demonstrated a concerted effort to manufacture title and place the property in custodia legis to defeat Fullerton's rights under its registered mortgage and SARFAESI remedies. Having regard to the collusive and fraudulent nature of the proceedings, the Court concluded that the process and its fruits could not be allowed to prevail. [Paras 6, 7, 8, 11, 12]The Court held that the arbitral award and the execution proceedings based on it were tainted by collusion and fraud on the Court and could not be allowed to stand.Appointment and discharge of court receiver - vacation of attachment and delivery of possession - Relief sought by Fullerton to raise the attachment, discharge the Court Receiver (subject to payment of charges), and have possession delivered to Fullerton was allowed. - HELD THAT: - On the basis that the execution and receivership arose from a collusive and fraudulent award used to obstruct Fullerton's enforcement, the Court allowed the Chamber Summons in terms of prayers (a), (b) and (c), directing that the warrant of attachment be raised, the Court Receiver be discharged without passing accounts (but subject to payment of applicable charges), and that the Court Receiver hand over possession of the mortgaged property to the applicants. The Court considered that continued custody under the impugned execution would perpetuate the fraud and frustrate the secured creditor's rights. [Paras 15, 18]The Court ordered the attachment to be raised, the Court Receiver discharged (subject to payment of applicable charges), and possession of the property delivered to the applicants (Fullerton).Contempt of court (suo motu notice) - recommendation to Bar Council for striking off - Suo motu contempt proceedings were directed against the Claimant, the Respondent and the Advocate who procured the award, and a show-cause was directed to be issued seeking reasons for punishment and for recommending disciplinary action to the Bar Council. - HELD THAT: - Concluding that the award and subsequent execution were part of an orchestrated scheme amounting to interference with the administration of justice, the Court directed the Registry to issue Suo Motu Notices under Rule 9(1) of the Contempt of Courts (Bombay High Court) Rules, 1994 returnable on the specified date, to the Claimant, the Respondent and the Advocate concerned, requiring each to show cause why contempt proceedings should not follow. The Court further directed that the Advocate be required to show cause why a recommendation should not be made to the Bar Council for striking his name off the roll on account of publishing and acting upon a fraudulent and collusive award. [Paras 16, 17, 22, 23]Suo motu contempt notices issued to the Claimant, Respondent and Advocate; Advocate to show cause why Bar Council recommendation for striking off should not be made.Police assistance to court receiver - undertaking accepted as undertaking to the Court - Directions for immediate eviction, timeline for vacation, police assistance and acceptance of the Respondent's undertaking were ordered. - HELD THAT: - The Court directed the Court Receiver to deliver vacant possession and eject the Respondent within 48 hours, with local police to assist on production of an authenticated copy of the order. The Respondent gave an undertaking to vacate the flat by the specified date, which the Court accepted as an undertaking to the Court; the Receiver was directed to stay action until the date and to proceed if possession was not delivered. These directions were a necessary and proportionate means to restore the secured creditor's possession and to prevent further abuse of process. [Paras 19, 20]Receiver to deliver vacant possession and eject the Respondent within the prescribed timeline; police to assist; Respondent's undertaking accepted and Receiver to act if possession not delivered.Registry inquiry into possible criminal action - Registrar directed to place a report on possible criminal action arising from the collusive proceedings. - HELD THAT: - Recognising that the orchestrated fraud may give rise to criminal offences, the Court directed the Registrar (Judicial-I) to file a report by the return date indicating what criminal action the Registry can initiate against the Claimant and Respondent; consideration of any criminal action against the Advocate was to be decided on the next date. This direction aims at identifying appropriate institutional steps beyond civil relief to address the misconduct. [Paras 21]Registrar to place a report by the return date specifying possible criminal action against the Claimant and Respondent; consideration of action against the Advocate deferred to the next date.Final Conclusion: The Court corrected its earlier order, held that the arbitral award and execution were collusive and a fraud on the Court, set aside the fruits of that process by raising the attachment, discharging the Court Receiver (subject to charges) and directing delivery of possession to the secured creditor, issued Suo Motu contempt notices to the Claimant, Respondent and the Advocate with steps towards Bar Council action, directed immediate eviction with police assistance while accepting the Respondent's undertaking, and required the Registrar to report on possible criminal action. Issues Involved: Error in previous order, commercial fraud, secured creditor rights, arbitral award legitimacy, contempt of court, fraudulent transfer of property, and criminal proceedings.1. Error in Previous Order:The court identified an error in the order dated 5th February 2018, specifically in paragraph 1, line 2, where the words 'no party' were to be deleted.2. Commercial Fraud:The case exemplifies commercial fraud and fraud on the Court, highlighting a deeply flawed state of commercial litigation.3. Secured Creditor Rights:Fullerton India Credit Company Ltd ('Fullerton') sought to lift an attachment on a flat mortgaged to it by Jitenderpal Singh Chadha ('Jitenderpal'). Fullerton, a secured creditor, had sanctioned a loan to Tornado Motors Pvt Ltd ('Tornado') with Jitenderpal as a co-borrower. The flat was initially mortgaged to IndiaBulls Housing Finance Limited, which was later redeemed using part of Fullerton's loan.4. Arbitral Award Legitimacy:Jitenderpal defaulted on the loan, prompting Fullerton to initiate measures under the SARFAESI Act 2002. Jitenderpal then claimed an Arbitral Award dated 6th November 2014 in favor of Prithipal Surenderpal Chadha ('Prithipal'), his father-in-law, based on an alleged oral agreement for the sale of the flat. The court found the award to be a pre-planned exercise to perpetrate fraud, noting its astonishing and remarkable nature, and the rapid sequence of events leading to the award.5. Contempt of Court:The court noted that the entire arbitration process was orchestrated to prevent Fullerton from recovering its dues, thus compromising and corrupting the court's process. The court issued Suo Motu Notice under Rule 9(1) of the Contempt of Courts (Bombay High Court) Rules, 1994, against Prithipal, Jitenderpal, and Advocate Dattatray R Parab, requiring them to show cause why they should not be punished for contempt of court.6. Fraudulent Transfer of Property:The court highlighted the fraudulent nature of the transfer, referencing the Supreme Court's decision in Ramesh Kumar & Anr v Furu Ram & Anr, which states that a collusive, bogus, and non-genuine award cannot be made a rule of the court. It also cited BN Srikrishna J's decision in SBI Home Finance Ltd v Credential Finance Ltd & Ors, indicating that a separate suit is not required to address fraudulent transfers.7. Criminal Proceedings:The court directed the Registrar (Judicial-I) to report by 12th March 2018 on possible criminal actions against Prithipal and Jitenderpal. The decision on criminal proceedings against Advocate Parab was deferred to the next date.Judgment Orders:1. The court allowed the Chamber Summons in terms of prayer clauses (a), (b), and (c), raising the warrant of attachment, discharging the Court Receiver, and directing the handover of possession to Fullerton.2. The Court Receiver was instructed to deliver vacant possession of the flat within 48 hours, with police assistance if necessary.3. Jitenderpal undertook to vacate the flat by 5:00 p.m. on 14th February 2018, failing which the Court Receiver would evict him.4. The court emphasized that fraudulent conduct by litigants would be dealt with swiftly and without mercy.Conclusion:The court condemned the fraudulent actions of Jitenderpal and Prithipal, emphasizing the importance of integrity in judicial proceedings and the severe consequences of attempting to defraud the court. The matter was listed for compliance on 15th February 2018.