TaxTMI 
TaxTMI 
2020 (12) TMI 1256
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....ndent to immediately pay the entire defaulted amount of Rs. 49,54,00,000/- (Rupees Forty-nine Crores Fifty-four Lakhs only) alongwith interest on delayed payment totalling to Rs. 78,74,446/- (Rupees Seventy eight Lakhs Nineteen Thousand Three Hundred and Fifty-one only) totaling to Rs. 50,32,74,446/- (Rupees Fifty Crores Five Lakhs Nineteen Thousand Three Hundred & Fifty-one only) to the lead Lender Banker of the Petitioner at TRA account being Account No. 34502995786, State Bank of India, Industrial Finance Branch, IFSC-SBIN0009996 subject to the final outcome the Arbitration; and c. Pass any other orders as this Hon'ble Court may deem fit and appropriate." 2. The petitioner herein is a private company incorporated under the provisions of the Companies Act, 1956. The respondent (formerly Bhushan Steel Limited or BSL) is a subsidiary of the industry giant Tata Steel Ltd. BSL underwent corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 ('IBC', for short) and was acquired by Bamnipal Steel Ltd., a wholly owned subsidiary of Tata Steel Ltd. and was subsequently renamed as Tata Steel BSL Ltd. with effect from November 27, 2018....
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....: "2.1 Subject to the provisions of the Lease Agreement and in consideration of the Rent to be paid by the Lessee as set out in this Agreement, the Lessor on and with effect from the Effective Date grants, demises and leases unto the Lessee, the Equipments, on an operating lease basis, in the manner provided in this Lease Agreement (Lease). From the Effective Date, the Lessee shall have exclusive right to use and enjoyment of and uninterrupted access to Equipments for its Business during the Lease Term, subject to the terms and conditions of this Lease Agreement." "5.1 In consideration of the Lease being granted, the Lessee shall pay to the Lessor a monthly rent (not of all taxes and tax deduction at source), details of which are set out in Schedule 2 hereof, in arrears on or before 2 (two) business days prior to the last date of each month (Rent). ... Further, the Parties acknowledge that the above Rent is based on, among others, a benchmark rate (based on the cost of financing the purchase of the equipments by the Lessor) that has been agreed between the Parties prior to the date of execution of this Lease Agreement... " "5.2 Notwithstanding an....
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....ecuted in furtherance of deleveraging exercise undertaken by the Lenders. 11. By referring to Clause 6.3(a) of the Lease Agreement, it is stated by the petitioner that the condition precedent for the quiet, peaceful use, enjoyment, possession and uninterrupted control of the Leased Equipment was the timely payment of rent. It is also stated that as per Clause 5.2, the respondent was strictly obligated to pay timely rent notwithstanding any other clause of the Lease Agreement. 12. Thereafter, on June 19, 2015, the petitioner, respondent and SBICAP Trustee Company Limited entered into a Substitution Agreement ('Substitution Agreement', for short) giving the Security Trustee the right on behalf of Lenders of substituting the Lessee in case it does not meet its financial responsibilities towards the Lessor or the Lenders. It is stated by the petitioner that this legal arrangement was especially important as the petitioner had undertaken a substantial debt of Rs. 850 Crores based on the warranties and knowledge of the respondent and as per the terms of the Lease Agreement and that the Lease Agreement and the Substitution Agreement rest on the respondent's timely paymen....
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...., it is stated by the petitioner that the said demand is nothing but an after-thought to illegally set-off the outstanding rentals. Further, on the non-functionality of the machinery of the last five years, it stated by the petitioner that the Oxygen Plants were run and exclusively operated by the respondent and since Steel Plants cannot function without proper functioning of Oxygen Plants, respondents have failed to show any instance where Plant had stopped due to malfunctioning of the Oxygen Plants. 19. Various correspondence and meetings between the petitioner and the respondent ensued without any finality and all negotiations regarding the terms of the Lease Agreement stood exhausted by the petitioner's letter dated July 20, 2020 wherein refusal for any reduction during the term of the Lease Agreement was intimated to the respondent. It is stated by the petitioner that the respondent even made a proposal to buy-back the Leased Equipment. 20. It is averred by the petitioner that by August 31, 2020, the respondent (i) defaulted in making payment of Rs. 49,54,00,000/- as a part of the lease rentals committing breach of the Agreement; (ii) the respondent defaulted in payi....
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....agement after the completion of the CIRP, it was during the process of regularizing the affairs of the respondent, comprising inter-alia the review of contracts entered into by the erstwhile Bhushan Steel Limited that it had realized the payment obligations under the Lease Agreement are not in line with market standard and hence required revision, that the petitioner had failed to carry out the maintenance, and there are amounts receivable from the petitioner. The respondent, thereafter, pursued active communication with the representatives of the petitioner beginning with the takeover by the new management until September 2020 when to the surprise and dismay of the respondent, the petitioner filed the present petition. 27. It is also stated by the respondent that it has time and again asserted (a) the lapses of the petitioner in the maintenance of the Oxygen Plants; (b) the cost incurred on repair and maintenance by the respondent since the inception of the contract; (c) failure to appoint a plant manager by the petitioner since 2015; (d) Operating rentals not in line with the market standard; and (e) outstanding receivables from the petitioner discovered pursuant to the review....
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....nt), ('Common Loan Agreement', for short). Despite these specific obligations, the respondent has failed to demonstrate its plan to adhere to the maintenance of such an integral part of the Steel Plant and had even failed to appoint a single technical person to oversee the operations of the respondent since the inception of the Lease Agreement until a technical appointee was provided in July, 2020. 32. It is stated by the respondent that it had demanded certain critical spare parts in terms of the letter dated March 27, 2020 and despite repeated reminders, this requirement has not been fulfilled till date which has left the respondent with no option but to consistently spend monies at their own accord for maintenance purpose. 33. In this regard, it is stated that the respondent has evaluated the expense incurred on the repair and maintenance of Oxygen Plants including on spares and services till date minimum at INR 41,79,48,852 (approx.). 34. On reliance placed by the petitioner upon Lender's Unit Inspection Report of November 20, 2019 during the course of discussions/communications, it is stated by the respondent that this report was does not have within its s....
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....n operating at 100% capacity by its own account and unjustly enriching itself at cost of the petitioner; (vii) the respondent has recently reported an EBIDTA of Rs. 1,140 Crores and net profit of Rs. 328 Crores as per a document titled 'Financial Performance for Quarter and Half Year Ended September 30, 2020' while utilizing the Leased Equipment of the petitioner and avoiding its contractual obligation; (viii) non-payment of rentals by the respondent adversely affects the petitioner's capability to service its loans thereby causing grave prejudice to the assets and credibility of the petitioner; (ix) whilst the respondent has security in form of possession of the Leased Equipment, the petitioner has no such security for ensuring payments of lease rentals. 39. Similarly, on irreparable injury likely to be caused to the petitioner, if relief is denied to the petitioner, it is stated by Mr. Sibal that (i) due to non-payment of rent by the respondent, the petitioner will be rendered unable to pay back its monthly instalments to the banks and other financial institutions; (ii) the petitioner is also liable to pay Goods and Service Tax @ Rs. 3.24 Crores per month on the fu....
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.... 43. It is also submitted by the Counsels that the prayers sought by petitioner tantamount to a decree that the respondent must pay INR 18 Crores monthly, before these disputed facts are even decided by the Ld. Arbitrator. 44. It is submitted by the Counsels that for grant of relief under Section 9 it is to be shown that not only is there a prima facie case and balance of convenience in favour of the petitioner, but also the respondent is acting in a manner to defeat the realization of future award. In this regard, they have placed his reliance upon a Judgment of this Court in the case of Goodwill Non-Woven Ltd. v. X Coal Energy & Resourced LLC in OMP (I) (COMM.) 120 of 2020, wherein it was inter-alia held that disputed factual positions cannot be decided in a Section 9 petition, more so when there is no threat of frittering away of the properties either or before during the pendency of the Arbitration proceedings. 45. It is also submitted by the Counsels that the petitioner in the present case has failed to even establish how the denial of interim relief would be likely to frustrate the arbitration proceedings (Ref: Nirbhay Pratap Singh v. Sumitomo Electric Industries and An....
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....s. The transaction, when entered into by the erstwhile Bhushan Steel Limited, was not as per the market value of leased equipment and that it was primarily entered into for the reason that an amount of INR 1,000 Crore was needed, lest erstwhile Bhushan Steel Limited would have turned into a Non-Performing Asset. It is submitted that keeping these considerations in mind, rentals were pegged to the loan amount/finance cost, and hence do not represent the true and correct lease rental amount as per the prevailing market standard. 48. It is also submitted by the Counsels that the entire transaction of sale and lease back of Oxygen Plants is itself questionable, being mentioned in a SFIO Complaint and Investigation Report. 49. It is further contended by the Counsels that Annual Reports of a Company are public documents as per the statutory position and judicial precedence under Indian Evidence Act, 1972 and as per the same, it is a matter of public knowledge that the respondent in its new Avtar was reviewing and analyzing all existing agreements in its domain. It was during this exercise that the Lease Agreement was reviewed and later realized by the respondent that Rs. 18 Crore p....
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....der bank is ill-founded as the petitioner had undertaken the moratorium on debt repayment and has also received close to 70% of the rental amount from the respondent through part payment made every month. Moreover, declaration of an NPA is a two-stage process done in accordance with RBI circulars and the petitioner has not crossed even the first stage. It is further submitted, the Supreme Court vide the order dated September 03, 2020 passed in Writ Petition (Civil) 825 of 2020 in Gajendra Sharma v. Union of India has also indefinitely stayed declaration of loan facilities as NPA until further orders. 53. Clause 6.1.(vii) of the Lease Agreement and Clause 6.1.7 of the Common Loan Agreement casts obligation on the petitioner to maintain the Oxygen Plants in accordance with best industry practice and undertake routine repairs. Clause 6.1.5 of the Common Loan Agreement also mandates the petitioner to maintain a comprehensive insurance coverage of the Oxygen Plants. Relying upon these contractual obligations, it is contended by the Counsels that each representation, warranty, undertaking and covenant of the petitioner under Lease Agreement and Common Loan Agreement is an independent ....
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....rein it is inter-alia held that admission in balance sheet is per se an admission of liability. 57. The Counsels also submitted that the allegation of the petitioner that the respondent is trying to take over the Oxygen Plants of the petitioner through CIRP is also ill-founded. Moreover, the lack of clarity on the accounts that are payable to the Lenders, intention to not arbitrate the present dispute by seeking final relief, it is submitted by them, are all illustrative of the fact that the petitioner has approached the Court with unclean hands. 58. Rebutting the pleas raised by the Counsels, Mr. Sibal contested that the respondent has paid the lease rentals at the documented rate until February, 2020 and even thereafter. The respondent claimed a discount based only on the stress on its liquidity due to COVID-19. It is also stated by Mr. Sibal that the respondent has even deducted tax at source under the Income Tax Act and has paid to the Government of India based on the documented lease rentals while paying to the petitioner a reduced amount. Moreover, the entire transaction was appraised by seventeen banks led by SBI, subsequent to which Rs. 10,00,12,50,000/- was paid by t....
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....ent on maintenance and repair after survey. 63. By relying upon the Division Bench Judgment of this Court in Durga Builders Pvt. Ltd. v. Motor and General Finance Ltd. and Anr., (2014) 140 DRJ 575, Mr. Sibal contended that the petitioner has not admitted any claim of the respondent even in its balance sheet, as the law requires the same to be put to trial. He further stated that the statement in the standalone financial statement, which reads as 'Balance receivable of Rs. 21,94,96,885 and payable of Rs. 10,19,91,600 from Bhushan Steel Limited is subject to confirmation', is neither unequivocal, nor clear or categorical for it to be an admission. Rather, it is qualified by two factors, i.e., 'Balance receivable of Rs. 21,94,96,885' and 'subject to confirmation'. The alleged claim for Rs. 10,19,91,600/-, it is also contested by Mr. Sibal on the ground that the same does not arise under the Lease Agreement and accordingly, not covered within the ambit of arbitral proceedings. 64. On non-invocation of Clause 11.1 which mandated pre-arbitration negotiations, Mr. Sibal submitted that the said plea is not sustainable in view of the Apex Court Judgment in Visa....
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....educted tax at source as per the actual lease rentals. 9. On the maintenance charges raised by the respondent, it is stated that being unadjudicated claims the same cannot be set-off against existing liability (Ref: NHAI (supra)). 10. On the admitted liability, it is stated that even entries in the balance sheet requires to be put to trial and even otherwise the petitioner's liability as per the standalone financial statement is neither unequivocal nor covered within the ambit of arbitral proceedings. 66. On the other hand, the submissions of Dr. Singhvi and Mr. Nigam (Counsels) are as follows: 1. Petitioner is trying to circumvent judicial dicta and established principles surrounding Section 9 as the said provision cannot be used to secure a decree to the tune of a final relief, nor can it be misused to nullify the arbitration proceedings by seeking a final relief. Reliance placed on Avantha Holdings Limited (supra). 2. The payment for Rs. 18 crores per month is disputed fact to be decided by the Arbitrator. 3. Granting of the reliefs under this petition would amount to negating the entire insolvency proceedings through which the....
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....dance with best industry practice and undertake routine repairs; 7.7. Since February, 2015 till May 31, 2020, the respondent has evaluated an expense incurred at Rs. 41,79,48,852/- towards maintenance of the Oxygen Plants; 7.8. Meeting the insurance obligations as per the Clauses under the Loan Agreement and Common Loan Agreement will not discharge the petitioner of its maintenance obligations; 7.9. No technical person appointed to oversee the functioning of the Oxygen plants until September, 2020; 7.10. Various communications between the parties whereby petitioner is informed about required repairs, requirement of spares, maintenance cost since 2019; 7.11. As per the ledger/statement of accounts of the Company, as well as stand-alone financial statement of petitioner for FY-2017-18 an outstanding amount of Rs. 10,19,91,600/- is payable by the petitioner to the respondent. Demand for its payment was made by respond on July 03, 2020 and the liability was acknowledged by one of the official of petitioner's Lenders. Reliance place on ESPN Software India Pvt. Ltd. (supra) and Shahi Exports Pvt. Ltd. (supra) to contend that admission in b....
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...., the amount representing such credit will be refunded by the Lessor to the Lessee. The Lessee may choose to set-off such amounts against future Rent payments to the Lessor. 5.2 Notwithstanding anything contained in this Lease Agreement, the Lessee shall be liable to pay the Rent to the Lessor in accordance with the terms hereof with effect from the Handover Date (Rent Commencement Date), and the Rent and other amounts payable by the Lessee in accordance with the terms hereof shall always be paid in/to the credit of the Lessor's Designated Bank Account. XXX XXX XXX SCHEDULE 2 RENT PAYMENT DETAILS The monthly Rent to be paid by the Lessee shall be as follows: (a) Rs. 15,00,00,000 (Rupees Fifteen Crores only) (net of all taxes and tax deduction at source) for the period commencing on the Rent Commencement Date and ending on 31 March 2020; and (b) Rs. 18,00,00,000 (Rupees Eighteen Crores only) (net of all taxes and tax deduction at source) for the remaining duration of the Lease Term, provided that the Parties may revise the monthly Rent as agreed between them from time to time. Notwithstanding the foregoing: ....
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....s to be decided in the prospective arbitration proceedings. But the question that arises is, pending arbitration proceedings, whether the petitioner is entitled to the reliefs as prayed for in the petition. 72. As stated above, there is a clear stipulation in the Lease Agreement for payment of lease rent at Rs. 15 Crores till March 31, 2020 and Rs. 18 Crores w.e.f. April 01, 2020, the said agreement is an admitted document of the parties. It is also an accepted position that the respondent is using the Oxygen Plants. The lease rentals received from the respondent are utilised for servicing the loans taken by petitioner from the Lenders and there is obligation to pay the GST/TDS to the concerned authorities as well. If that be so, there is a prima facie liability on the respondent to pay to the petitioner/Lenders for the usage of the Oxygen Plants in the manner stipulated in the Lease Agreement i.e., Clause 5.1 read with Schedule 2. 73. At this stage, I may also refer to the plea of the Counsels that despite specific obligation, the petitioner has failed to undertake routine maintenance measures of the Oxygen Plants and keep the same in good working condition in accordance wit....
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.... the petitioner, but there is a dispute as to whether the Oxygen Plants actually required any maintenance. On the other hand, it is the case of the respondent that the 340 TPD plant was always non-functional. That apart, the report on which reliance was placed by Mr. Sibal is disputed by the respondent stating that the same has been prepared during the course of the day on an inspection of merely a few hours which does not have within its scope review of any technical/mechanical operation of the Oxygen Plants. In other words, the conclusion in the report is not acceptable to the respondent. 79. So, it follows that there is a dispute between the parties as to whether the expenses of Rs. 41,79,48,852/- said to be incurred on the plants by the respondent are payable and need to be adjusted against the lease rent payable by the respondent. The same has to be decided; not by this Court but by the Ld. Arbitrator, as decision on such dispute shall amount to a final determination. The Counsels have relied upon the judgments of this Court to contend that no prima facie case has been made out by the petitioner for grant of the reliefs as prayed for. I have perused the said judgments caref....
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....ission by the appellant of the liability for rent at least of office unit B-1. The appellant, if had been a defendant in a suit, could have thus been directed by an interim order in the suit to make such payment to the respondent. Order XV-A added to the CPC as applicable to Delhi and which was added, as held by us in judgment dated 15th May, 2014 in FAO(OS) 597/2013 titled Raghubir Rai Vs. Prem Lata, to empower the Court to direct payment during the pendency of the suit at a rate other than admitted rate also, empowers the Civil Court to direct payment which is apparently wrongfully disputed. The denial by the appellant of the entire rent as agreed, on the ground of having determined the tenancy of one of the two office units taken on rent, is clearly vexatious, as in law the appellant as a tenant could not determine tenancy of part of the premises taken on rent. It is not the case of the appellant that it was entitled to do so as part of terms of its tenancy. In that view of the matter, the appellant could under Order XV-A of the CPC have been directed to pay the rent of the entire premises notwithstanding having given notice of termination of tenancy of part thereof We are there....
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....unts. The appellant, as aforesaid does not controvert that it continued to be the tenant of office unit B-1 and had not terminated the tenancy with respect thereto. There is thus an admission by the appellant of the liability for rent at least of office unit B-1. The appellant, if had been a defendant in a suit, could have thus been directed by an interim order in the suit to make such payment to the respondent. Order XV-A added to the CPC as applicable to Delhi and which was added, as held by us in judgment dated 15th May, 2014 in FAO(OS)597/2013 titled Raghubir Rai Vs. Prem Lata, to empower the Court to direct payment during the pendency of the suit at a rate other than admitted rate also, empowers the Civil Court to direct payment which is apparently wrongfully disputed. The denial by the appellant of the entire rent as agreed, on the ground of having determined the tenancy of one of the two office units taken on rent, is clearly vexatious, as in law the appellant as a tenant could not determine tenancy of part of the premises taken on rent. It is not the case of the appellant that it was entitled to do so as part of terms of its tenancy. In that view of the matter, the appellan....
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....cknowledgment of debt in the balance sheet is an admission. But the Division Bench of this Court in Durga Builders (supra) held as under: "14. As the Court recognized in its judgment, the admission must be clear, unequivocal and categorical, whereas in this case, various questions still require consideration and the alleged admission of liability in the balance sheet can be explained away, and accordingly, these issues must be put to trial. The issue here is not whether Durga Builders has an unimpeachable case, but rather, whether there is some room to doubt that the liability is established. Since Durga Builders, in its written statement, reply to the application under Order XII, and in its reply to the present review petition, has contested the existence of the ICDs, and MGF's case is based on a debt arising from the ICDs, this Court does not find merit in the argument that debt is established, while only the nature of the security is dispute. Neither is Mr. Nanda's alleged admission categorical, in that he specifically avers wrongdoing on behalf of Mr. Mehra, a fact which, whether ultimately true or not, deserves to be tested during the ordinary course of trial.....