TaxTMI 
TaxTMI 
2014 (2) TMI 1438
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....petitioners 2 to 5 are associated with the management and administration thereof. The petitioners obtained two separate loans: One loan of Rs. 50 crores on 08-12-2011, and another of Rs. 50 crores on 05-01-2012 from M/s India Bulls Financial Services Limited (for short "IBFSL"), after necessary documentation. On 08-09-2012, IBFSL issued a notice to the petitioners, requiring them to pay the outstanding amount within seven days from the date of receipt of the notice. The petitioners got issued a reply. Thereafter, IBFSL filed O.P.No.377 of 2013 against the petitioners in the Court of II Additional Chief Judge, City Civil Court, Hyderabad, under Section 9 of the Arbitration Act, for the relief of injunction, to restrain the petitioners from alienating, encumbering, transferring or creating third party rights, vis-à-vis the properties that were offered as security and for a direction to the petitioners to jointly and severally furnish security for a sum of Rs. 48,60,77,778/-. Similarly O.P.No.378 of 2013 was filed for similar relief in relation to another loan. Clause 25 of the Loan Agreement, which provides for arbitration was invoked in both the OPs. According to the pe....
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....th respondent, the procedure prescribed under the Sarfaesi Act becomes applicable, and the contention of the petitioners cannot be accepted. They raised the objection as to the very maintainability of the writ petition. It is also urged that the merger of the IBFSL with the 4th respondent is complete in all respects, and the assets and liabilities that accrued on the merger would be governed by the provisions of law, that are applicable to the 4th respondent. The allegation as to the realization of funds from other assets is denied. As regards the initiation of the proceedings under the Arbitration Act, the 4th respondent contends that the Sarfaesi Act would have overriding effect on all other enactments and that no exception can be taken to the impugned sale notice. Sri C.V. Mohan Reddy, learned Senior Counsel for the petitioners submits that though the petitioners could have borrowed amounts from Nationalised Banks and other similar agencies, they have chosen IBFSL only, on account of the reason that the proceedings of the Sarfaesi Act are not applicable to it. He contends that the merger of IBFSL with the 4th respondent was effected with the sole objective of initiating....
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....r liability stands transferred to the 4th respondent in view of the merger, and it being a company, registered under Section 3 of the Sarfaesi Act, is entitled to invoke the provisions of that enactment. Learned Senior Counsel submits that the Sarfaesi Act contains non-obstante clauses that virtually override the provisions of any other law for the time being in force, and in that view of the matter, the objection raised by the petitioners for initiation of proceedings under that Act are untenable. He further submits that the initiation of proceedings under the Arbitration Act was at a time when the merger did not take place, and with the merger becoming complete, a totally different legal regime altogether came into existence and the 4th respondent became entitled to invoke the provisions of the Sarfaesi Act. As regards the N.H.B Act, learned Senior Counsel submits that though the 4th respondent is a company governed by the provisions of that Act, it has every right to choose or elect between the mechanisms under the N.H.B Act, or the Sarfaesi Act, for recovery of the amounts, due to it. He too placed reliance upon quite a good number of precedents, in support of his contention....
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....ting. Capitalized terms used and not defined herein shall have the meaning as ascribed to such terms in the Loan Documents..." It is also necessary to note that IBFSL filed Arbitration O.P.Nos.377 and 378 of 2013 under Section 9 of the Arbitration Act against the petitioners in the Court of II Additional Chief Judge, City Civil Court, Hyderabad. Clause 25 of the Loan Agreement, that was invoked by the IBFSL reads: "25. Arbitration: 25.1 Notwithstanding anything to the contrary in the Loan Documents and herein, the Parties agree that if any dispute/disagreement/differences (Dispute) arises between the parties during the subsistence of the Loan Documents (including this Agreement) or thereafter, in connection with, inter alia the validity, interpretation, implementation or alleged breach of any provision of the Loan Documents (including this Agreement), jurisdiction or existence of the arbitrator or of any nature whatsoever, then, the Dispute shall be referred to a sole arbitrator who shall be nominated/appointed by the Lender only. The parties expressly agree that, in any circumstances, the appointment of the sole arbitrator by the Lender shall be and s....
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....rts was conferred upon the Tribunals. Gigantic Financial Agencies, which have sanctioned and paid loans of huge amounts were not satisfied with the mechanism provided for under the D.R.T. Act also. The Sarfaesi Act is a radical deviation from the settled principles of adjudication. The Parliament, which has to its credit, the enactment of Debt Relief laws, to protect the interests of innocent and gullible borrowers and relieved many from the indebtedness, has virtually taken a 'U' turn, to protect the superlative corporate lenders. In the process, the lender was assigned the status of the adjudicator as well as the executing agency of the decree. Its word is treated as final not only in regulating a debt but also to straightaway take possession of the mortgaged property. The curious part of it is that the debt can be recalled and mortgage can be invoked, even if the time for complete repayment of the debt has not reached. Citing of default in payment of installments is sufficient to take the drastic step. The validity of the Sarfaesi Act has been dealt with by the Hon'ble Supreme Court in Mardia Chemicals Ltd. v. Union of India & others (2004) 4 SCC 311. It was upheld in all res....
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....to borrow the amount from the financial institutions that are under regulation by the Reserve Bank of India, though there may be several private money lenders, prepared to advance the amount. The reason is that a semblance of protection against indiscriminate levy of interest or undue squeezing of the borrower at the discretion of the lender is felt, in case the money is borrowed from regulated financial agencies. Even as between the financial agencies, that are controlled by Reserve Bank of India, there are specialized financial agencies, that are meant to serve the industrial sector, housing sectors, etc. Laws are made to suit the interests of the lending, as well as the borrowing agencies, keeping in view the purpose for which the money is borrowed. Instances are not lacking where the establishment of industries is treated as primary, and every effort is made to sustain them. The extreme steps taken in this regard can be discerned from the scope and ambit of the Sick Industrial Companies Act, which provides for framing of schemes, to sustain an industry, than to close it, on account of its being sick. Various agencies that advanced finances are even made to re-schedule the loans....
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.... ensure that a citizen is not forced to come under a regime, which he did not agree for. When this is the approach even to a law, the subsidiary step, such as merging of an agency, which was not under the purview of the Sarfaesi Act, with the one, which is under it, cannot be taken so lightly, or in a routine manner. The well-settled principle, that what is not permitted to be done directly, cannot be done indirectly; gets attracted. The question as to whether a loan transaction, which is outside the purview of the Sarfaesi Act, can be brought under its purview, without the consent of the borrower, has not been examined by the Hon'ble Supreme Court, so far, to our knowledge. The opinion of the High Courts on this aspect is not uniform. T h e Orissa High Court in Subash Chandra Panda v. State of Orissa AIR 2008 Orissa 88 took the view that such a step is not permissible. T h e Allahabad High Court in Yogendra Kumar Jaiswal and others v. C.M.M and others AIR 2010 Allahabad 3 took a different view. In Subash Chandra Panda v. State of Orissa (2 supra), a Division Bench of the Orissa High Court took note of the definition of the expressions "financial institution" under Section....
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.... Courts are supposed to view the changes in law from the strict principles of interpretation, not carried away by the other temptations. The intention of the legislature becomes relevant on different occasions, and not when the complaint is that the rights of the parties are trampled. It is not as if that the petitioners are extended any facility or favouritism on account of the 4th respondent being required to abide by the conditions, under which the loan was borrowed. Unfortunately, an impression is being created among the citizens, that approaching an ordinary Court of law is a purposeless exercise, or a punishment to a party. The curious part of it is that even Courts of higher order are giving this impression, may be subconsciously, in the course of deliberations outside the Court for promoting alternative dispute resolution mechanisms, or making observations in some judgments. It is an indirect way of belittling the existing system and telling the people that, there is one legal system for elite, and the other, for ordinary and inconsequential public. The Allahabad High Court appears to have been convinced by the judgment of the Uttaranchal High Court in Unique Engineer....