Delhi High Court
K.K. Modi And Ors. vs K.N. Modi And Ors. on 22 August, 2005
Author: Anil Kumar
Bench: Anil Kumar
JUDGMENT
Anil Kumar, J.
1. This is an application by the defendant No. 2 under Section 151 of Code of Civil Procedure seeking a direction to IFCI to release Rs. 2.74 crores in favor of the Stressed Assets Stabilisation Funds (IDBI) and Rs. 83,95,092/- in favor of the Life Insurance Corporation (LIC) respectively out of the sale proceeds deposits with the IFCI in a ‘no-lien account’ from the sale of shares of Ambuja Cement Eastern Limited.
2. The present suit as also some other connected suits are result of a dispute between the sons of late Shri Gujar Mal Modi on the one hand and his brother Shri K.N. Modi and sons of Shri K.N. Modi on the other hand. The parties to the suit and their family members have shares of various companies and on 24.01.1989 a settlement was arrived at by which 60% of the assets in the Modi Group of Companies were assigned to the shares of K.K. Modi and his brothers and 40% shares fell to Shri K.N. Modi and hisroup.
3. In the year 1995 while working on the settlement, further disputes surfaced pertaining to the implementation of the settlement and consequently the matter was referred to the Chairman-cum-Managing Director of IFCI who gave his decision on 08.12.1995.
The decision of the Chairman-cum-Managing Director of IFCI led to more disputes which resulted into filing of present suit. In all, four suits came to be filed and it was contended that the decision of Chairman-cum-Managing Director of IFCI was beyon the Memorandum of Understanding arrived at between the parties.
4. The disputes between the parties relates to assignment of shares in various companies, merger and de-merger of assets of various companies. What is strongly disputed is that the controlling balance tends to get shifted or is projected to get shifted due to inter-corporate holding of shares by one company in the other.
5. During the pendency of the above-noted suit, IFCI had filed a petition against Modipon Limited and Others being OA No. 150/2001 before the Debt Recovery Tribunal- I, Delhi where an interim order was passed against the defendants including the applicant restraining him from alienating assets including the shares of Ambuja Cement Eastern Limited. The relevant part of the interim order dated 01.06.2001 passed by the Debt Recovery Tribunal ‘I is as under:-
“Till further order ad-interim ex parte inujunction as prayed in Para 8(a)(I), (II) and 8(b) of the OA is granted in favor of the applicant bank and against the defendants”.
6. Modipon and its guarantors, Shri K.K. Modi, filed an interim application being IA NO. 301/2001 before the Debt Recovery Tribunal ‘I, Delhi for modification of order dated 01.06.2001. Consequent to the application for modification of the order dated 01.06.2001, it was modified and a receiver was appointed with power to sell the unproductive assets as mentioned in the interim application which also included shares of Ambuja Cement Eastern Limited, sale consideration of which forms subject matter of he present application. It was also ordered that there will not be any impediment in sale by virtue of orders of any other court. The relevant part of the order of 28th June, 2001 passed by Debt Recovery Tribunal’ I, Delhi is as under:-
“I have considered the rival contentions of both the parties. In my view, if defendant No. 1 is permitted to participate in the offer, it would be beneficial to the applicant bank as these shares are currently fetching better price only because V.K. Mdi and Dr. B.K. Modi are trying to acquire majority shares holding in MRL. These shares will fetch more than Rs. Nine crores and the applicant bank would at least be able to realize this amount immediately out of the total amount involved in this OA, whch is more than Rs. Sixty one crores. Defendant No. 1 also would be benefited as it would be able to clear its part liability. Balance of convince is also in favor of defendant No. 1. I, accordingly, vary the injunction order dated 1.6.2001 to the following extent:-
(i) Defendant No. 1 is permitted to participate in the present public offer in respect of MRL shares owned by it, subject to the condition that sale proceeds are directly paid to the applicant bank. This order of participation by defendant No. 1 in public offer would also be subject to fulfillling of any other condition as stipulated in any other law and/or any other order passed by the Hon’ble High court of Delhi or any other Court where litigation is pending connecting these shares.
(ii) I appoint Sh. A.K. Sharma, G.M. Law of applicant bank as receiver to supervise the participation of defendant No. 1 in public offer. Receiver shall also be entitled to collect payment on behalf of the applicant bank from the purchasers directly.
(iii) The sale of 11,33,333 shares of Modi Rubber Ltd. owned by defendant No. 1 shall also be subject to confirmation by this Tribunal.
(iv) Receiver is further empowered to sell the unproductive assets as mentioned in Annexure ‘C’, subject to the condition that there is no impediment in sale by virtue of orders of any other Court.
(v). Defendants shall cooperate with the Receiver in respect of sale of the unproductive assets as mentioned in annexure ‘C’.
(vi) The sale of unproductive assets shall be subject to confirmation by this Tribunal.
Injunction order dated 1.6.2001 shall stands as it is in respect of other movable and immovable assets and/or of parties.
Application is disposed-of accordingly.
Copy of the order be given dusty to both the parties.”
7. As the shares of Ambuja Cement Eastern Limited were surplus, unproductive and uncharged assets of the Modipon Limited, pursuant to order dated 28.06.2001, they could be sold and it is not disputed by any of the parties to the suit.
8. Consequently interim applications being 781/2005 and 796/2005 were filed in the Court which were disposed of by order dated 24.02.2005. It was held that since the plaintiff had no objection for permission being granted for sale of the shares for the reason that under a settlement worked out by Shri Bansi S. Mehta, under clause 5 of the MOU between the parties, these shares were assigned to Group ‘A’, i.e., K.N. Modi Group. While disposing of the application for the sale of shares, all the objections of Shri K.N. Modi were also noticed where he had contended that it is for the Board of Directors of Modipon Limited to take a decision. The objectors had also relented contending that they will have no objection if at the Board Meeting of the Modipon Limited discussion is allowed on the issue of sale of shares held by Modipon Limited of Ambuja Cement Eastern Limited and if decision is taken there for sale of shares. The objection of IFCI was specifically recorded for the sale of the shares on account of orders passed by the Debt Recovery Tribunal.
9. Consequently, the applications were disposed of by modifying the order dated 02.08.1999 whereby this court had restrained the parties from considering the items mentioned in agenda notice dated 27.07.1998 and permitted the Board of Modipon Limited to consider whether 789174 shares held by company of Ambuja Cement Eastern Limited be sold and if the Board decides that the shares have to be sold, liberty was granted for sale of the shares with a direction that the sale proceeds would be deposited with IFCI and would be retained by IFCI in a `no-lien’ account.
10. The applicant/defendant No. 2 now contends that the shares of Ambuja Cement Eastern Limited were sold and total amount was released and deposited in the `no-lien’ account of IFCI to the tune of Rs. 5,52,42,180/-. The petitioner contended that the seshares were sold with a view that the amount received be utilized by Modipon Fiber Division to liquidate/repay its dues to banks and financial institutions as the company was not in a position to repay loans out of its commercial operations.
11. The basis for this application seems to be one-time settlement reached with Stressed Assets Stabilisation Funds (IDBI), one of the financial institutions who had advanced loans to Modipon Limited and had filed an application before the Debt Recovery Tribunal, Mumbai for recovery of dues aggregating Rs. 51,62,69,003/- and with whom one-time settlement for Rs. 1370 lakh had been arrived. The applicant contended that a join memo was also filed before the Debt Recovery Tribunal in the recovery application filed by the IDBI where it was stated that one-time settlement amount would be paid out of the sale proceeds of Ambuja Cement Eastern Limited, surplus land in Modi Nagar and Sterling Apartments in Mumbai after seeking permission/approval from the relevancourts. This one-time settlement with IDBI was also approved by the Board of Modipon Limited in its meeting and consequent thereto the Debt Recovery Tribunal, Bombay by its order dated 22.06.2005 disposed of the original recovery application filed by the IDBI.
12. Applicant contended that the IFCI can not withhold the amount lying in `No-lien’ account on the ground that IFCI is a creditor and the amounts are due to IFCI, as the benefit and welfare of the Company has to be seen for discharge of its liabilities in one time settlements reached with other creditors.
13. Defendant no. 2/applicant contended that the sale proceeds of Ambuja Cements Eastern Ltd is not charged with the IFCI and appointment of receiver pursuant to order dated 28th June, 2001 did not create charge in favor of IFCI, as receiver is an officer of the Court and is not an agent of any party to the suit. Applicant relied on to contend that receiver has no lien on the amount lying deposited in `No lien’ account with IFCI. The applicant also relied on and to contend that even in lien accounts Court has power to interfere. According to applicant though IFCI does not have a decree in its favor and against the applicant, but even after having a decree, it will be entitled for distribution of amount pari passu with other creditors and question of priority in respect of money kept in `No lien’ account can not be claimed. The applicant prayed that on the basis of principle under Section 73 of the Code of Civil Procedure, the amount could be distributed among the secured creditors ratably. Reliance has also been placed on Section 19(19) of the Recovery of Debts Due to the Banks and Financial Institutions Act, 1993 which provides for distribution of sale proceeds among secured creditors in accordance with provisions of Section 529A of the Companies Act, 1956 which provides for ratable distribution amongst secured creditors.
14. The application is not contested by the plaintiff who has filed a reply dated 18th July, 2005 contending that the plaintiff has no objection to the release of monies as prayed by the applicant/ defendant no. 2 subject to same being utilized exclusively for the purposes stated in the application i.e to pay off the two creditors of Modipon Fibre Division.
15. However, the application has been contested strongly by the IFCI contending inter alia that IFCI has a paramount claim on the proceeds from the sale of shares of Ambuja Cement Eastern Ltd. According to IFCI, as per the orders of DRT, there was a restrain order against the sale of shares which was modified at the behest of the applicant/ defendant no. 2. The sale proceed of these shares is to be mainly utilized towards the payments of dues of IFCI Ltd.
16. It was stated by the IFCI that during the pendency of O.A before the Debt Recovery Tribunal-I, Delhi for recovery of an aggregate amount of Rs. 60,31,31,502.70 and an amount of Rs. 3,61,35,344.00 as contingent liability under the Guarantee Loan, an agreements, as on April 15,2001, a one time settlement of Rs. 42,070 crores was arrived at and on the basis of this a consent decree dated April 29,2004 was also passed against the Modipon, Shri M.K. Modi and Shri K.N. Modi. This consent decree was later onset aside at the instance of Shri K.K. Modi by order dated 18th August,2004 and the O.A filed by the IFCI was revived to its original number which is still pending. Subsequently OTS (One time Scheme) was also revoked by the IFCI by its communication dated October, 12, 2004 The IFCI, therefore, claimed that no amount lying in ` No lien Account’ be permitted to be released in favor of Stressed Assets Stabilization Fund or the Life Insurance Corporation of India. The plea of the IFCI is also that this Cout cannot decide which secured creditor is entitled to what amount from the sale proceeds lying in `No lien’ account as the Debt Recovery Tribunal’ is the competent Forum or has exclusive jurisdiction to decide about appropriation of amount due to varous creditors. Reliance has been placed by IFCI on Allahabad Bank v. Canara Bank, AIR 2000 SC 1535 holding that under the provision of RDB Act, the jurisdiction of any other Court or authority which would otherwise have had jurisdiction but for the provision of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal and in regard to execution, the jurisdiction of the Recovery Officer is exclusive.
17. It will be pertinent to consider that IDBI and LIC are not parties to the suit. IFCI had sought intervention in the matter and filed an application being I.A No 1494 of 2005 which was disposed of by order dated 24th February, 2005 and the IFCI was permitted to intervene in the proceedings of the suit and the sale of the shares was also not objected to by IFCI on deposit of the sale consideration in the `No lien account’ with IFCI Ltd.
18. The plea of the applicant that since IFCI had granted `No objection’ to sale of share and therefore, now can not object to release of sale consideration of shares to satisfy the liability of other secured creditors can not be accepted in the present facts and circumstances. Sale of shares and deposit of consideration in `No lien’ account with IFCI in a manner is, conversion of asset from one form into another form i.e from shares to cash. Permitting release of this sale consideration, an asset to other secured creditors cannot be equated with permission to sale the share as it has entirely different connotation, especially when the IFCI is claiming rights over sale proceed. `No objection’ to sale of share and keeping the consideration in No lien’ account can not be construed as no objection to release of sale consideration in discharge of liability of other secured creditors. Consequently the plea of the applicant that once the IFCI gave `No Objection’ to sale of share, it can not object to release of sale consideration, can not be accepted.
19. The next contention of the applicant is that IFCI has no lien over the amount lying deposited in the No lien account, on account of appointment of receiver in the application of recovery pending against applicant and other debtors. The proposition that appointment of receiver does not create a charge of a party cannot be disputed nor it can be disputed that the receiver is an officer of the Court and is not an agent of any particular party to the suit. What is relevant to consider is whether the DRT has any jurisdiction over the sale proceed or not and whether this Court should exercise any power regarding distribution of sale proceeds to secured creditors. The Debt Recovery Tribunal had first stayed the sale of the shares by passing an interim order and thereafter, had appointed a receiver subject to the orders of any other Court. The Debt Recovery Tribunal thus is seized of this matter also. The recovery application in which the sale of share was stayed is still pending and the amounts arstill due to IFCI. No doubt that the receiver was authorized to sell the unproductive assets as mentioned in annexure C of the recovery application subject to no impediment in sale by virtue of order of any other Court. This order, however, can not be construed to mean that the Tribunal had completely divested itself from the sale proceeds of any shares pursuant to the orders of any other Court. This Court also vide order dated 24.2.2005 only granted permission to sell and not to distribute the sale proceed to creditors though it was also prayed by the applicant. In my opinion, permission for sale will be distinctively different from permission to disperse the sale proceed. The inevitable inference in the facts and circumstances, is that the DRT has juisdiction over the sale proceeds of shares which were allowed to be sold pursuant to the order of this Court.
20. This leads to whether this Court should decide as to how the sale consideration of shares be distributed among three secured creditors, two of which have consent decrees in their favor from Debt Recovery Tribunals and one of whom, IFCI, is still litigating about his entitlement. Two other secured creditors are not parties to the present suit nor have they filed any intervention applications. Since IDBI and LIC, other secured creditors have consent decrees in their favor, they may not be concerned wit whether the consent decrees’ amount is paid out of sale consideration of shares lying in `No Lien’ account with IFCI or from other sources by the applicant.
21. With this background `whether this Court should distribute the sale proceed of shares lying in `No lien’ account with IFCI’. Learned senior counsel for applicant Mr. Manmohan stated that under section 73 of the Code of Civil Procedure, this Court has power and should determine as to how much should be distributed to the three secured creditors ratably or pari passu in the facts and circumstances. Pari passu is defined in Black’s Law Dictionary:
“By an equal progress; equably; ratably; without preference’, Used especially of creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other.”
22. According to applicant, since Section 19(19) of the Recovery of Debts Due to Bank and Financial Institution Act,1993 also provides for ratable distribution of sale proceed among its creditors, therefore on the basis of pari passu charge on the assets of the company, IFCI is only having 64.38 percentage of share and as the amount lying is Rs. 15.50 crores, the IFCI at the highest is entitled for Rs. 9.98 crores only.
23. The court can ratably distribute the sale proceeds under Section 73 of the Code of Civil Procedure, however, pursuant to decree or orders passed by the Civil Courts. Admittedly the consent decrees have not been passed in favor of secured creditors by the Civil Courts or this Court. This suit is also for perpetual/mandatory injunction and for declaration that the order of the CMD of IFCI dated 18.12.1995 is illegal and he exceeded his jurisdiction. Therefore, it will also be relevant to consider whether the scope of the suit should be enlarged to distribute the sale consideration ratably among secured creditors on the basis of interim applications”.
24. The applicant has given the ratio in which the sale proceeds be distributed amongst IDBI, LIC and the IFCI, however, the same is not acceptable to the IFCI and other two secured creditors are not a party to the suit. In their absence, can the sale proceeds be distributed ratably or pari pasu in the ratio as given by the applicant or in some other ratio as may be determined by the Court? Whether ratio in which the sale proceed be distributed between the secured creditors, if decided by the Court will be binding on the secured Creditors who are not party to the suit.
25. Taking it from any angel, in my opinion, it will not be appropriate for this Court to ratably distribute the sale proceeds and also enlarge the scope of suit for declaration, mandatory/permanent injunction in the facts and circumstances of the case.
26. This is also not disputed that this Court is not exercising power under Article 226 or 227 of the Constitution of India in adjudicating a suit for declaration and permanent/mandatory injunction. As contended by the counsel for the applicant that Section 19(19) of Recovery of Debts due to Banks and Financial Institutions 1993 provides for distribution of sale proceeds among its creditors by the Debt Recovery Tribunal. Therefore, it is not the civil court which has to distribute the sale proceeds onpari pasu basis or ratably among the secured creditors. It should be Debt Recovery Tribunal, Delhi or the tribunals which have passed consent decrees to distribute the sale proceeds ratably or pari pasu in compliance with Section 19(19) of the RDB Act.
27. In the circumstances it is inevitable for this Court to conclude that this Court should not direct IFCI to release the amount from the `no lien’ account to be paid to IDBI or LIC as demanded by the applicant. It will be for the applicant to approach the Debt Recovery Tribunal for obtaining appropriate orders for the release of the amounts, if permissible, to discharge its any liability of any other secured creditors who have consent decree in their favors or who have to be paid.
28. Therefore the application of the applicant to direct IFCI to release the sale proceed to meet the liabilities of other secured creditors is dismissed in the present facts and circumstances.