TaxTMI 
TaxTMI 
2024 (12) TMI 957
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....m reliefs in the nature of stay to the effect and implementation of the Deed of Guarantee dated 10 April 2014 qua the Plaintiff and also to restrain the Defendants, their assigns, agents or persons claiming under them from acting upon in any manner, directly or indirectly, in furtherance of the Deed of Guarantee dated 10 April 2014 against the Applicant/Plaintiff. 2. The instant suit is instituted seeking an order and decree declaring that the Deed of Guarantee dated 10 April 2014 executed by the Plaintiff in favour of the Defendants has not come into force and is not valid and/or binding contract/instrument, and, in the alternative, it has ceased to have effect and stands automatically terminated, and, accordingly, is voidable and has been avoided by the Plaintiff. 3. Shorn of superfluities, the Plaintiff's case can be stated as under : 3.1 Parekh Aluminex Limited ('the Company') was one of the largest manufacturers of Aluminium Foil Containers, Aluminium Foil Roll and Aluminium Lids, in India. Amitabh Arun Parekh, brother of the Plaintiff, was the Chairman and Managing Director of the Company. The Plaintiff is a financial consultant and mutual funds distributor. Defendant Nos.....
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....held on 22 February 2016, decided that the company stood exited from the CDR mechanism as a failure. Upon being appraised that CDR did not fructify, the Plaintiff tendered his resignation from the Company with effect from 28 April 2016, and, it was accepted by the then Board of Directors of the Company as well as the Defendants without any demur. 3.6 The Plaintiff asserts, despite the aforesaid clear understanding regarding the role and status of the Plaintiff, many of the Defendants in the proceedings instituted in respect of the loans and financial facilities extended to the Company, made the Plaintiff a party to the proceedings in his capacity as personal guarantor, and, in some cases, as the heir of late Amitabh Parekh unjustifiably. The Plaintiff being the brother of late Amitabh Parekh, does not fall in the category of Class I heirs of Amitabh. Nor the Plaintiff has inherited any property from the estate of late Amitabh Parekh. 3.7 With reference to the covenants in the Deed of Guarantee, the Plaintiff asserts, the Deed of Guarantee did not become effective and operational as it was to come into force only upon sanction of the CDR plan under the CDR Scheme. Secondly, the ev....
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....filed in the year 2024, is ex-facie barred by the law of limitation. 7. Secondly, the Defendants contend, there is an express bar for institution of the suit of the present nature before the Civil Court under the provisions of Sections 34 and 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002),Section 18 of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act, 1993) and Section 180 of the Insolvency and Bankruptcy Code, 2016. The Defendants, thus, contend as the suit ex-facie appears to be barred by the provisions of law, the plaint itself deserves to be rejected under Order VII Rule 11(d) of the Code of Civil Procedure, 1908. 8. Thirdly, the Plaintiff had participated in some of the Original Applications/proceedings instituted by the Defendants - Banks / financial institutions before the DRT. In few of the matters, the Plaintiff did not even file written statement. DRT is the appropriate forum before which the Plaintiff ought to have raised the grievances regarding the unenforceability of the Deed of Guarantee. The Plaintiff having failed to raise the said ground before the DRT, is trying to cover....
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....licant entered the frame, only pursuant to the Deed of Guarantee executed as a pre-requisite for CDR. Indisputably, the Corporate Debt Reconstructing did not fructify as CDR failure report came to be notified. 13. Mr. Andhyarujina, thus, submitted that the Plaintiff's case would stand or fall by the terms of the Deed of Guarantee. Taking the Court through the Deed of Guarantee, especially clause 12 thereof, Mr. Andhyarujina strenuously submitted that the sanction of CDR package by the CDR EG was the pre-condition for the guarantee to come into effect. As the CDR was not sanctioned, the guarantee did not become effective and operational. 14. Secondly, the failure report under CDR scheme also rendered the guarantee unenforceable (even if it is assumed that it came into force), as sub-clauses (a), (c) and (e) of clause 12 triggered in. Incontrovertibly, the Plaintiff, upon being informed about the failure of CDR, resigned on 28 April 2016, and, thereby, ceased to be a member of the Board of Directors. CDR failed as lenders backed out. On the own showing of the Defendants, Insolvency Petition was admitted. All these events, coupled with the express term of Clause 12 and the recitals ....
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.... learned Counsel for Defendant Nos. 1, 5 and 12 led the submissions in opposition to the grant of interim reliefs. At the outset, Mr. Joshi submitted that the Plaintiff has resorted to the device of clever drafting and has sought declaratory reliefs to disguise the real nature of the Plaintiff's claim. In effect, the Plaintiff desires to put hindrances in the recovery of the amount due and payable to the banks and financial institutions and covered by the applications/proceedings already filed by the banks and financial institutions before the DRT. The instant suit is squarely in relation to matters covered by Section 17 of the RDB Act, 1993, and, thus, the bar under Section 18 operates with full force and vigor. 19. Secondly, Mr. Joshi would urge, the suit is clearly barred by the law of limitation. Under Article 58 and 59 of Schedule I of the Limitation Act, 1963, the period of limitation for a declaratory decree is three years. The instant suit came to be instituted after eight years of the CDR failure report. In fact, the Defendants have instituted applications before the Tribunals since the year 2016. Therefore, the suit being hopelessly barred by limitation, the plaint itsel....
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....rwoven with the core controversy. 26. To start with, there does not appear much controversy over the facts upto the stage of failure of CDR proposal. Though, there are averments in the plaint and the application to the effect that the family members of late Amitabh Parekh were coerced into agreeing for CDR and furnishing personal guarantee and joining the Board of Directors, yet, for the purpose of determination of this application, the Court, at this stage, need not delve deep into that aspect of the matter. 27. Broadly admitted facts are : Late Amitabh Parekh was the Chairman and Managing Director of the Company. Substantial loans and financial facilities were extended to the Company by the consortium of lenders - Defendant Nos. 1 to 18. Amitabh Parekh passed away on 6 January 2013. A proposal to restructure the debt was moved and, for that purpose, one of the family members was to be taken on the Board of Directors of the Company. The Plaintiff joined the Board of Directors of the Company with effect from 11 September 2013. A Deed of Guarantee came to be executed on 10 April 2014. Eventually, the Company exited from CDR as resolved in CDR EG in its meeting dated 22 February 20....
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....d pay to the Lenders the Principal sum (not exceeding Rs.2762.09 Crores (Rupees Two Thousand Seven Hundred Sixty-two Crores and Nine Lacs only) together with interest, costs, charges, expenses and/or other monies for the time being due to the Lenders in respect of or under the above mentioned Credit Facilities or any of them (the "Guaranteed Amounts") in the event of failure on the part of Borrower in payment of/repaying the same to the Lenders or otherwise upon the occurrence an event of default under the said Agreements of Loan. Provided that the aggregate amount recoverable from the Guarantor under this Guarantee shall not exceed the guaranteed amounts. ........ 12. It is agreed and understood by the Lenders that this Guarantee shall become effective, if and only, if the CDR package sanctioned by the CDR EG has been implemented in full and totality and signed by all lenders in terms of the LOA issued. It is further agreed and understood by the Lenders that this Guarantee shall cease to have effect and shall automatically terminate on happening of any of the following events : a. The Guarantor ceasing to be a member of the Board of Directors of the Borrower for any reason w....
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....ackage sanctioned by CDR EG accepted by all the lenders. The communication dated 23 March 2016 addressed by the Corporate Debt Reconstructing Cell (Exhibit C) to the Indian Overseas Bank, the leader of consortium of lenders, records that the company stood exited from the CDR mechanism as failure, in terms of the decision taken at the meeting held on 22 February 2016. 33. Simultaneously, exclusion clauses triggered in. The Plaintiff resigned from the Board of Directors of the Company with effect from 28 April 2016. Sub-clause (c) of clause 12 also triggered in as non-approval of CDR implied that the lenders walked out of the CDR. By an order dated 7 October 2020 in CP No. 1262 of 2017 passed by the NCLT, Mumbai Bench, the Corporate Debtor i.e. Parekh Aluminex Limited was directed to be liquidated in the manner laid down in Chapter III of the IBC. Resultantly, sub-clause (e) of Clause 12 also triggered in. 34. Even if the aspects as to whether the guarantee ceased to operate on account of the happening of the events enumerated in clauses (a), (c) and (e) above, is considered to be a matter which is in the realm of adjudication, yet no such uncertainty seems to exist with regard to ....
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....risdiction of the Civil Court, reads as under : "18. Bar of Jurisdiction. - On and from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under Articles 226 and 227 of the Constitution) in relation to the matters specified in section 17 : Provided that any proceedings in relation to the recovery of debts due to any multi-State co-operative bank pending before the date of commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 under the Multi-State Co-operative Societies Act, 2002 (39 of 2002) shall be continued and nothing contained in this section shall, after such commencement, apply to such proceedings." 38. Section 34 of the Act, 1993 gives overriding effect to the provisions of the RDB Act, 1993. It reads as under : "34. Act to have overriding effect. - (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtu....
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....liance was placed by Mr. Andhyarujina, illuminates the path. In the said case, the Supreme Court was called upon to decide the following questions which were referred to the larger Bench in view of the cleavage of judicial opinion in the cases of SBI V/s. Ranjan Chemicals Ltd. (2007) 1 SCC 97, United Bank of India V/s. Abhijit Tea Co.(P) Ltd. (2000) 7 SCC 357, Indian Bank V/s. ABS Marine Products (P) Ltd. (2006) 5 SCC 72 and Nahar Industrial Enterprises Ltd. V/s. Hong Kong and Shanghai Banking Corporation (2009) 8 SCC 646: "(a) Whether an independent suit filed by a borrower against a bank or financial institution, which has applied for recovery of its loan against the plaintiff under the RDB Act, is liable to be transferred and tried along with the application under the RDB Act, by DRT ? (b) If the answer is in the affirmative, can such transfer be ordered by a court only with the consent of the Plaintiff ? (c) Is the jurisdiction of a civil Court to try a suit filed by a borrower against a bank or financial institution ousted by virtue of the scheme of the RDB Act in relation to the proceedings for recovery of debt by a bank or financial institution ?" 43. After an elabo....
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....tion 19 (11) of the RDB Act, though such determination is to take place along with the determination of the claim for recovery of debt. 45. We are thus of the view that there is no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted, but it is the matter of choice of that defendant. Such a defendant may file a counterclaim, or may be desirous of availing of the more strenuous procedure established under the Code, and that is a choice which he takes with the consequences thereof." (emphasis supplied) 44. The Supreme Court further clarified that the fact that the Defendant is entitled to institute a suit against the bank or financial institution before the civil court would not, however, entitle the Defendant to seek a stay on the decision of DRT awaiting the verdict of his suit before the civil court as it is a matter of his choice. The observations in paragraph Nos.53 and 54 make this position absolutely clear. They read as under : "53. We certainly would not like that the process envisaged under the RDB Act be impeded in any manner by filing of a separate suit if a defendant chooses to do so. A claim petition before the....
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....e Defendants sought rejection of the plaint by filing an appropriate application, the Plaintiff would have met the said challenge. 48. Mr. Joshi, learned Counsel for Defendant Nos. 1, 5 and 12 joined the issue by canvassing a submission that, in the affidavits in reply, the Defendants have specifically raised the said ground, and, even otherwise, the Defendants can seek rejection of the plaint without filing written statement and/or an application seeking a specific prayer for rejection of the plaint. 49. Relevant part of the provisions contained in Order VII Rule 11 of the Code of Civil Procedure, 1908 reads as under : 11. Rejection of plaint. - The plaint shall be rejected in the following cases:- (a) ...... (b) ...... (c) ....... (d) where the suit appears from the statement in the plaint to be barred by any law; 50. From the phraseology of the aforesaid provision, which empowers the Court to interdict the suit if the plaint does not disclose a cause of action or suit appears to be barred by any law, indicates that the said power can be exercised at any stage of the suit. It is not peremptory that the Defendant must raise a ground either in written statement or by f....
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....n T. Arvandandam V/s. T.V.Satyapal (1977) 4 SCC 467 and others, as stated above, and as the suit is clearly barred by law of limitation, the plaint is required to be rejected in exercise of powers under Order 7 Rule 11 CPC." 53. In the case of Dahiben V/s. Arvindbhai Kalyaniji Bhanusali (Gajra) and Ors. (supra), the Supreme Court emphasised the peremptory nature of the provisions contained in Order VII Rule 11 and upheld the order of rejection of the plaint where the suit appeared to be barred by limitation. The observations in paragraph 23.15, 29.19 and 29.20 read as under : "23.15 The provision of Order 7 Rule 11 is mandatory in nature. It states that the plaint "shall" be rejected if any of the grounds specified in clauses (a) to (e) are made out. If the Court finds that the plaint does not disclose a cause of action, or that the suit is barred by any law, the Court has no option, but to reject the plaint. 29.19 Reliance is placed on the recent judgment of this Court rendered in Raghwendra Sharan Singh V/s. Ram Prasanna Singh (supra), wherein this Court held held that the suit would be barred by limitation under Article 59 of the Limitation Act, if it was filed beyond three....
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.... three years and the time begins to run when the right to sue first accrues. Under Article 59, the period of limitation to cancel or set aside an instrument is also three years and the time begins to run when the facts entitling the Plaintiff to have the instrument cancelled or set aside first become known to him. 59. The thrust of the submission on behalf of the Defendants was that the right to sue accrued in the year 2016. Thus, the suit is hopelessly barred by limitation. 60. A pivotal question that wrenches to the fore is, whether a declaration in respect of or an order for cancellation of the Deed of Guarantee in question is strictly warranted ? 61. As noted above, the recitals in the covenants in the Deed of Guarantee make it, prima facie, beyond contestation that the sanction of CDR package by CDR-EG and acceptance thereof by the lenders was peremptory to infuse life into the contract of guarantee. The non-approval of CDR package, prima facie, dismantled the very edifice on which the contract of guarantee could have been built. The deed of Guarantee, thus, did not come into force. 62. At this stage, a distinction is required to be drawn between the operability and enforc....
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....voidable documents on the one hand, and void documents, on the other, was highlighted and it was enunciated that there can be no doubt that Article 59 is applicable only in cases where it is necessary to have a document set aside. Whether the document will have to be set aside or not for the purpose of ensuring the rights of the Plaintiff bears upon the principle of substantive law and the distinction has always been maintained between voidable documents on the one hand and void documents on the other. The Court referred to an earlier decision in the case of Appanna V/s. Venkatappadu AIR 1953 Mad 611 (A) and observed as under : "This distinction has been well brought out in the judgment of Justice T.L. Venkatarama Iyer in Appanna V. Venkatappadu (supra). Learned Single Judge first referred to Patherpermal Chetty V/s. Maniandy Servai ILR 35 Cal 551(B) where the question for determination was whether a suit to recover properties which had been transferred by a person benami in the name of another was governed by Article 91 of the Limitation Act, and in holding that the Article had no application, the Privy Council observed : "As to the point raised on the Indian limitation Act, 1....
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....inciples, both well settled, that article 91 did not apply when the instrument sought to be cancelled was void and inoperative and that where a person executes a deed of one character under misrepresentation that it is of a different character, it was void. In para. 3 the learned judges say : "this article presupposes that a suit is necessary under the law to set aside the instrument. But, where under the law there is no duty cast on the person to get an instrument set aside, this article does not impose any obligation on him to get it set aside. We must, therefore, have recourse to the substantive law to ascertain whether a party to an instrument should get that cancelled or not. Now the authorities have established that for this purpose there is a distinction between voidable and void transactions and that while the former class of transactions should be set aside, the latter need not be." 68. In the light of the aforesaid position in law, as regards the necessity of declaration in the matter of the instruments which are inoperative or spent, the bar of limitation may not operate. Therefore, the submission on behalf of the Defendants that since the Deed of Guarantee was invoke....