TaxTMI 
TaxTMI 
2022 (5) TMI 994
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....ate with Mr. Raunak Dhillon, Mr. Abhijeet Das, Mr. Adarsh Saxena, Mr. Vikash Kumar Jha, Mr. Shubhankar Jain, Ms. Isha Malik, Mr. Nihaad Dewan, Mr. Ritu Vishwakarma, Ms. Drishti Das, Advocates Mr. Abhirup Dasgupta, Mr. Ishaan Duggal, Ms. Bhawana Sharma, Advocates for Tata Power Consolidated Provident Fund and Pramerica Life Insurance. Mr. Sanjay Kapur, Ms. Megha Karnwal, Mr. Arjun Bhatia, Advocates for SBI Mr. Puneet Taneja, Ms. Laxmi Kumar, Mr. Manmohan Singh Narula, Advocates for GAIL, Intervenors Mr. Rajiv S Roy and Avrojyoti Chatterjee, Advocates for UCO Bank Mr.Vishnu Sharma and Anupama Sharma, Advocate for Noida Authority, Intervenor Mr. Atul Sharma, Mr. Abhishek Sharma, Ms. Ashly Cherian and Ms. Harshita Agarwal, Advocates for CDTE and DTEL in I.A. No. 59 and 1958 of 2021 Mr. Sidharth Sethi, Ms. Tanya Tiwari, Mr. Avinash Das, Advocates for PTC India FSL, Intervenor Mr. Amit Tyagi and Shubhangi Tiwari, Advocates for Sapient Consulting EPF and TLG India Pvt. Ltd. EPF For Respondents: Mr. Arun Kathpalia, Sr. Advocate with Mr. R. Sudhinder, Mr. Sandeep Singhi, Mr. Udit Mendiratta, Mr. Krishnava Dutt, Mr. Gaurav Mathur, Ms. Ekta Bhasin, Ms. Aastha Trivedi, ....
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....re withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations availed by the IL&FS and its 348 group companies. iv. The March 12 Judgment by this Hon'ble Tribunal affirmed the October 15 Order and also upheld the jurisdiction of Hon'ble Tribunal to pass interim orders, akin to orders declaring moratorium under Section 14 of the IBC, under Sections 241 to 242 of the Companies Act, 2013. v. Infrastructure Leasing & Finance Services Limited (hereinafter referred to as 'Borrower') approached the Housing Development Finance Corporation Limited (hereinafter referred to as 'Lender') with request to avail Financial Assistance. By Sanction Letter dated 22nd June, 2018, the Lender sanctioned a financial facility of Rs. 400 Crores to the Borrower. On 25th June, 2018, a Master Facility Agreement was entered between Borrower and Lender for amount of Rs. 400 Crores. The Master Facility Agreement contemplated opening of a separate Escrow Account with Housing Development Finance Corporation Bank Limited (he....
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....&FS to approach Hon'ble Justice (Retd.) D.K. Jain for consent and discuss the terms and conditions to supervise the operation of Resolution Process. iii. Ministry of Corporate Affairs filed an Affidavit dated 07.08.2019 in the Appeal stating that certain banks were still debiting amounts from IL&FS group entities classified as Amber and Red without authorization from the Board and such debits were in contravention of the Order dated 15.10.2018. Direction was sought to restrain Banks and Financial Institutions from debiting the accounts of the Applicant and its group entities and/or appropriating the funds held in the said accounts without authorization of IL&FS and the relevant group entities; and further return/refund/release such amounts that have been debited. iv. This Tribunal on 08.08.2019 passed following Order: "..............If any of the Bank/ Financial Institution has debited any amount in violation of order of this Appellate Tribunal dated 15th October, 2018, it will be open to Union of India/ILFS to bring the same to the notice of Hon'ble Justice Shri D. K. Jain for appropriate orders and also intimate the Bank/ Financial Institution that it m....
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....ation of the Impugned Order dated May 12, 2020 passed by Hon'ble Mr. Justice D.K. Jain (Retd.) during the pendency and disposal of the present application; (iii) pass any such other order/ judgment, as this Hon'ble Tribunal may deem fit, in the given facts and circumstances of the present case, in favor of the Applicant." ii. I.A. No. 2264-2266 of 2020 I.A. No. 2264-2266 of 2020 was filed by the Lender praying for following reliefs: "In view of the facts and circumstances of the case, the Applicant most humbly prays that this Honble Tribunal be pleased to: (i) Quash and set aside the aforesaid impugned order dated July 3, 2020 passed by Hon ble Mr. Justice D.K. Jain (Retd.) and annexed at Annexure A/l to the present Application; (ii) Pass an ad interim order granting stay of operation of the impugned order till the final disposal of the present application; (iii) Pass Such further or other Order(s) as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the case." iii. I.A. No. 2196 of 2020 I.A. No. 2196 of 2020 has been filed by IL&FS and Ors. and following prayers have been made: ....
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....judication of the subject matter involved in the present application and for its implementation." In I.A. No. 2332 of 2020, the HDFS Bank Limited has prayed for setting aside the Order dated 12th May, 2020 of Hon'ble Justice (Retd.) D.K. Jain directing to maintain Status quo. After the Order dated 12th May, 2020, the Escrow Bank stopped debiting any amount from the Escrow Account and informed the Lender and Borrower accordingly. 5. The parties have filed their Replies as well as Rejoinders in the aforesaid Applications. All the Applications raises common issues of facts and law which need to be considered together. It shall be sufficient to consider pleadings, Reply and Rejoinder filed in I.A. No. 2196 of 2020 which contains the pleas of all three parties i.e. 'Borrower', 'Lender' and 'Escrow Bank' which shall be sufficient to decide all the above noted Applications. 6. We thus proceed to note the submissions made by Learned Counsel for the parties in I.A. No. 2196 of 2020. 7. Mr. Ramji Srinivasan, Sr. Advocate has made submissions on behalf of IL&FS Limited (Borrower). Mr. Ramji Srinivasan submits that the Facility Agreement dated 25th June, 2018 and other Agreements e....
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....e transaction documents makes it clear that the Facility extended to Borrower is Lease Rental Discounting (LRD) Loan Transaction which is materially different from a traditional loan transaction. An LRD loan transaction involves assignment/sale of the rent receivables by the Landlord to the Financing Entity at a discounted value as per transaction documents. A certain component of lease rentals arising from the use of the TIFC Property i.e. sufficient for repayment of the facility, has been irrevocably assigned in favour of the Lender till repayment of the said Facility. Clause 5(c) of Schedule I of the Facility Agreement recognizes that the assigned receivables are the exclusive property of the HDFS Limited. The assigned receivables are clearly the property of the HDFS Limited. The Borrower has no right/title or interest in the monies/receivables/ amount deposited in the Escrow Account. The relief of release/refund/reversal of amounts debited from the Escrow Account stating that the same is in line with the Order dated 3rd July, 2020 issued by Hon'ble Justice (Retd.) D.K. Jain, is misplaced since the same has not attained finality and still under scrutiny by this Tribunal in the I....
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....um did not restrain the Escrow Agent from performing its obligation under respective Escrow Agreement. The Escrow Bank is not party to the Facility Agreement. Irrevocable Power has been given by the Borrower to the Lender. I was not lender of the Borrower and the name of the HDFC Bank was wrongly mentioned in the list which was submitted by the Affidavit of Ministry of Corporate Affairs as Lender of IL&FS. No money/financial facility was advanced by the Escrow Bank to the Lender. Order dated 15.10.2018 never directed any Escrow Agent. No contempt has been committed by the Escrow Bank. There is no occasion to purge the contempt by the Escrow Bank. 11. Mr. Ramji Srinivasan, Sr. Advocate in rejoinder reiterated that the present is not the case of any debt purchase. Each part of the Agreement is a loan agreement. In the present case charge was registered. The Agreement required payment of principal and interest. Mr. Ramji Srinivasan has referred to conclusion accorded by Hon'ble Mr. Justice (Retd.) D.K. Jain and placed reliance on the said conclusion. 12. Learned Counsel for the parties have placed reliance on various judgements. Mr. Kathpalia has also placed reliance on few Engl....
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....EFINITIONS (l) "Due Date" shall mean such dates on which any amount including principal, interest or other charges in respect of the Facility is payable to fall due in terms of this Agreement and/ or other transaction documents. (aa) "Repayment" shall mean payment obligation of the Borrower on the Due Date/s in terms of this Agreement as more particularly described in the Schedule-II. (cc) "Security" shall have the meaning as described in Clause-8 of this Agreement and also described in the Schedule-III. (ee) "Secured Property" shall mean the immovable property, including all accretions, incidents arising there from offered to secure the repayment of the Facility as, principal security, collateral and/or additional security, more particularly described in the Schedule-III." 17. The Agreement contemplated borrower entering into Escrow Agreement on such terms as agreed by the lender. The power was to give irrevocable instructions to Escrow Bank. Clause 8 of the Agreement deals with the 'security interest'. Clause 8(8.1) is as follows:- "8. SECURITY INTEREST- DESCRIPTION/ CREATION/ PERFECTION 8.1. The Borrower create Security In....
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.... have an adverse effect or impact on the Receivables and/ or which shall otherwise detrimentally effect the Lender's interest in the Secured Property and income thereof." 21. Clause 5 of Schedule-1 deals with 'Security and Repayment Specific Covenants'. Clause 5(a), (b) & (c) are as follows:- "5. SECURITY AND REPAYMENT SPECIFIC COVENANTS a) The Borrower agrees that the Facility shall be secured by exclusive security interest on the Receivables in such mode and manner as deemed fit and desired by the Lender. b) The Borrower shall, on execution of this Facility Agreement, assign the Receivables in favour of the Lender on such terms as would be entered into between the Borrower and the Lender and pursuant thereto shall execute a Power of Attorney and Assignment and Management Agreement in line with the draft enclosed herewith in Appendix-3 to the Special Conditions. c) The Borrower agrees that the Receivables shall be exclusive property of the Lender for the purpose of secured repayment of the Facility and as such the Borrower will not make any further borrowing on the strength of the Receivables as being Borrower's Property." 22. An 'Escrow A....
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....s set out herein and shall not permit any deviation, without the written consent of the Lender. (d) The Escrow Bank agrees that all money(ies) received by it under this Agreement shall, until transferred in accordance with this Agreement, be held in trust for the purposes for which they were received, and shall be segregated from other accounts of the constituents of the Escrow Bank and from the funds and Property of the Escrow Bank, in accordance with the banking law and practice. (e) The Bank shall transfer such amounts to the account of the Borrower which are in excess of the minimum balance required to be maintained in the Escrow Account in accordance with the terms stated herein." 24. Clause 4(b) deals with 'Operation and Maintenance'. Clause 4(a), (c) and (e) provides as follows:- "4. OPERATION AND MAINTENANCE (a) The Borrower agrees that, the payments to be collected/ received by the Borrower from the Business Service Centre/ Licensee/ lessee of various Units/properties built and/or to be built and leased/to be leased on the Property which is more particularly described in Schedule of the said Facility Agreement (hereinafter called "the....
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....rms of the said Facility Agreement, is hereby assigned and pledged and shall be set aside for that purpose and this Assignment and Pledge shall extend to and include any assessments that may be levied pursuant to Clause 4(a) hereof." 26. A Power of Attorney was also executed by the borrower on 25.06.2018. By the Power of Attorney, the borrower had irrevocably nominated, constituted and appointed HDFC as the true and lawful attorney on behalf of the borrower. 27. A perusal of the relevant conditions of transaction documents, as noticed above, makes it clear that a facility of Rs.400 Crores was advanced by the lender to the borrower payable in 96 months with tentative repayment schedule. The amount of interest component and principal component payable on each month has been provided in Schedule 2 of the Agreement. The immovable property of the borrower i.e. 'IL&FS Financial Centre, Plot-No. 22, G Block, Bandra Kurla Complex, Bandra East, Mumbai was mortgaged as security to the facility. All the right, title and interest of the borrower in the receivables in respect of the TIFC Property was assigned to the lender. All receivables were to be deposited by the tenants of the IL&FS ....
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.... Supreme Court." 29. We need to proceed to examine the nature of prohibition as imposed by above noted directions (i) to (v) and to find out as to under which prohibition the acts complained of by the IL&FS can fall. 30. The prohibition (i) was with regard to the institution or continuation of suits or any other proceedings by any party or person against IL&FS and its group companies in any Court of Law/Tribunal/Arbitration Panel or Arbitration Authority. The present is not a case where any suit or any other proceedings have been instituted by the lender or Escrow Bank, hence, the present is not a case which can be covered by prohibition (i). 31. The prohibition (ii) provides any action by any party or person or Bank or Company, etc. to foreclose, recover or enforce any security interest created over the assets of 'IL&FS' and its group companies. The thrust of the submission of Counsel for IL&FS is that the debiting of the Escrow Account by the lenders falls under prohibition (ii). Whether present is a case where lender has foreclose, recover or enforce any security interest created over the assets of the IL&FS is the question which has to be answered. The crux of the subm....
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.... 616, 617. It is generally appropriate to the transfer of equitable interest. Kavanaugh v. Cohoes Power & Light Corporation, 187 N.Y.S. 216, 228, 114 Misc. 590." 34. The term 'assignment' also came to be considered by different Courts. The Calcutta High Court in "Saregama Ltd. vs. The New Digital Media and Ors.-(2018) 1 WBLR (Cal) 329" has noticed the concept of 'assignment' in paragraphs 122 to 126:- "122. In English law, an absolute assignment need not necessarily be equivalent to a sale out and out; it may be only an equitable assignment. [Bence v Shearman 47 WR 350: (1898) 2 Ch 582; Brand v London Rubber Co. (1904) 1 KB 387]. 123. In India, absolute assignment means a transfer of the entire interest of the assignor. 124. In Black's Law Dictionary, 6th Edition the "Assignment" means the act of transferring to another all or part of one's property, interest, or rights. A transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes transfers of all kinds of property (Higgins v. Monckton, 28 Cal.App.2d 723, 83 P.2d 516, 519), including negotiable in....
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....gnor's contractual obligations. (Chitty on Contracts 30th Edition- Para 19-078 Page 1362). Where contractual rights are assigned, the extent of those rights are defined by the original contract, (Chitty on Contracts: 30th Edition Para 19-079, Page 1363), i.e., the contract between the CFIs and the Company pursuant to which the loan facilities were granted. An assignment of a debt is not invalid even if the necessary for litigation to recover it is contemplated. Provided that there is a bona fide debt, it does not become unassignable merely because the debtor chooses to dispute it. Suing on an assigned debt is not contrary to public policy even if the assignor retains an interest. (Comdex International Ltd. v. Bank of Zambia 2 (1998) QB 22" 37. The expression "security" has already been defined in Black Law Dictionary to the following effect:- "SECURITY. Protection; assurance; indemnification. The term is usually applied to an obligation, pledge, mortgage, deposit, lien etc., given by a debtor in order to make sure the payment or performance of his debt, by furnishing the creditor with a resource to be used in case of failure in the principal obligation. The name is also....
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....ns given by the lender. Further, Clause 3 of the Assignment and Administration Agreement, as extracted above, clearly contemplates that sufficient portion of receivables to pay the principal and interest is assigned and set aside for that purpose, the transaction documents thus, clearly indicate that insofar as the amount receivables deposited in the Escrow Account which are sufficient to pay the principal and interest are concerned, they are assigned to the lender and cannot be dealt with the borrower in any manner. The submission of the Counsel for the IL&FS cannot be accepted that the above part of the receivables which is assigned, only creates a security interest in favour of the lender which can be enforced by lender to realise its security. The present is not a case where lender has enforced any security interest created in their favour nor is a case where they have exercised any right given to them consequent to an event of default. Assigned receivables are as per transaction documents, noted above, are lender's property which on instructions given by the lender to the Escrow Bank is transferred to the account of lender. It is however, clear that only part of receivables wh....
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.... in the matter of "Arthur D. and Patricia Newcomb, Debtors. Thomas J. Carlson, Trustee, Appellee vs. Farmers Home Administration, Appellant". Dealing with the nature of an Escrow Account, in paragraphs 7, 14 & 16 of the judgment, following has been observed:- "7. The courts below analyzed this case under Count II and ignored Counts I and III. This was the correct approach. Count I is inapposite because the escrow involved in this case is something more than an executory contract. It is not clear that the parties could have entered into a valid contract under which the United States promised not to levy on Arthur Newcomb's property in exchange for Newcomb's promise to pay the judgment if and when this court affirmed. Such a contract might lack consideration from Newcomb under the principle that the performance of a legal duty is not consideration. See Restatement (Second) of Contracts, Sec. 73 (1981). However, even assuming that such a contract could have been made, an escrow is something more than a contract--it is a method of conveying property. See generally, 28 Am.Jur.2d Escrow Sec. 1 (1966); 30A C.J.S. Escrows Sec. 1 (1965). When property is delivered in escrow....
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....t of life tenant to compensation where life tenant died between creation of escrow and fulfillment of condition); 30A C.J.S. Escrows Sec. 13b (1965); Annot., 117 A.L.R. 61 (1938). 16. U.S.C. § 101(40). This definition is broad enough to include both the transfer that occurs when an escrow is created and the transfer that occurs when the condition of an escrow is met. Thus the issue becomes which of these two "transfers" is controlling in this case. In analyzing this issue, we look to the real substance of the interests transferred, not to whether those interests are referred to as "legal title" or "equitable interest." 41. From the above, we arrive at inescapable conclusion that insofar as that part of the receivables deposited in the Escrow Account which is sufficient to meet the principal and interest which has been assigned by the borrower to lender, no proprietary interest continues with the borrower nor borrower can exercise any right over that part of the Escrow Account which is assigned. The borrower may have right and interest on the residual of deposits which is an excess of principal and interest for which security interest is created in favour of the len....
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....lows creditors to collect rents directly from tenants of certain mortgaged properties. The following day, ECP recorded the notice documents in Macomb County, Michigan, completing the last step required by the statute to make the assignment of rents binding against both Town Center and the tenants of the property. On January 23, 2015, ECP filed a complaint in the Circuit Court for Macomb County alleging breach of contract, initiating foreclosure on the mortgage, and requesting appointment of a receiver to take possession of the Town Center property. Approximately one week later on January 31, 2015, Town Center filed for Chapter 11 bankruptcy relief. At the time Town Center filed its petition, Town Center owed ECP $5,329,329 plus attorney's fees and costs. The parties have reached an interim agreement to allow Town Center to continue to collect rents from the tenants of the complex, with $15,000 per month used to pay down the debt to ECP and the remainder of the rents used for authorized expenses." 42. In the Agreement, word 'pledge' was also mentioned. However, the Court read it assignment i.e. transfer of ownership. The Court also held that language that the assignment ....
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....dict, under Erie v. Tompkins, that the Michigan Supreme Court would treat a completed assignment of rents as a transfer of ownership. Town Center argues that the title and language of the Michigan statute make it clear that only a security interest, not an ownership interest, is assigned under this law. (Appellant Br., App. R. 11, p. 28-29) Section 554.231 is titled "Assignment of Rents to Accrue as Additional Mortgage Security"2 and the body of the statute says "it shall be lawful to assign the rents . . . as security in addition to the property described in [the] mortgage." Town Center would have us read the statute as expressing the Michigan legislature's intention to allow only transfers of security interests, and not ownership, based on its language authorizing assignments "as security in addition to the property." Mich. Comp. Laws § 554.231. Town Center reasons that the statute allows only for a security interest in the assigned rents, so any attempt to transfer ownership of the rents is blocked by the default rule that an assignment of rents is unenforceable. Language that the assignment is "as security," however, does not foreclose an ownership transf....
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....row Agreement. 45. There is one more reason due to which we are satisfied that present is not a case of committing of any contempt either by the Escrow Bank or by the lender. There being debatable and rival issues raised by the parties in its pleadings filed before Hon'ble Mr. Justice (Retd.) D.K.Jain's Committee and there being serious issues pertaining to interpretation of the various clauses of transaction documents, no occasion arises to impute any wilful and deliberate disobedience on the part of the Escrow Bank or the lender. The lender was claiming debiting of an amount assigned to it as per Agreement which it claimed on the basis of transaction documents. We are satisfied that there is no question of any wilful disobedience of the interim order dated 15.10.2018, hence, there was no occasion for purging the contempt either by lender or Escrow Bank. We having come to the conclusion that the lender has right to instruct the Escrow Bank to debit the amount sufficient to cover interest and principal deposited in the Escrow Account out of the receivables, no direction can be issued to reverse the said amount to the borrower. As observed above, however, in case the amount debit....