HON'BLE MR. JUSTICE MANMOHAN SINGH MANMOHAN SINGH, J.
1. The plaintiff has filed the present suit for declaration seeking declaration that Pari Passu Deed dated 22.08.2011 entered into between the plaintiff and defendant No.1 and defendant No.2 is valid and subsisting and also seeking consequential relief of injunction. The prayers made in the suit reads as under:
“a. declare the Pari Passu Deed dated August 22, 2011, executed by and between the plaintiff, defendant No.1 and defendant No.2 as valid, subsisting and binding on both defendants herein;
b. pass an order and preliminary decree directing defendant No.1 to disclose on affidavit the amounts received by defendant No.1 under the Lender B Finance Documents entered into by and between defendant Nos.1 and 2 from time to time for the facilities set out in Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011) on and from February 07, 2012 being the Calculation Date till the date of the passing of the decree;
c. pass an order and decree directing defendant No.1 to disclose on affidavit and/or to the plaintiff the amounts received by defendant No.1 under the Lender B Finance Documents entered into by and between defendant Nos.1 and 2 from time to time for the facilities set out in Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011), subsequent to the date of the passing of the decree as submitted in prayer clause (b), within 7 (seven) days of receipt of the said amounts by defendant No.1;
d. pass an order and decree directing defendant No.1 to pay to the plaintiff monies in accordance with Clause 5 of the Pari Passu Deed dated August 22, 2011, from and out of the amounts received by defendant No.1 under the Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011), on and from February 07, 2012, being the Calculation Date, till date of the passing of the decree together with interest thereon @ 15% per annum till the date of payment thereof;
e. pass an order and decree directing defendant No.1 to pay to the plaintiff monies in accordance with Clause 5 of the Pari Passu Deed dated August 22, 2011, from and out of the amounts that are received by defendant No.1 under the Lender B Finance Documents entered into by and between defendant Nos.1 and 2 from time to time for the facilities set out in Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011), subsequent to the date of passing of the decree under prayer clause (d) above, within 7 (seven) days of receipt of the said amounts by defendant No.1 together with interest thereon @15 % per annum till the date of payment thereof;
f. pass an order and decree of perpetual restraining defendant No.2 from paying any monies to defendant No.1 under the Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011), save and except in accordance with Clause 7 of the Pari Passu Deed dated August 22, 2011;
g. pass an order and decree declaring that the credit facilities disbursed or granted or extended by defendant no.1 to defendant No.2 after the February 7, 2012, being the Calculation Date, which are not part of the Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011) are non-binding, illegal and void;
h. pass an order and decree of perpetual injunction permanently restraining defendant No.1 by an order and perpetual injunction from granting or disbursing or extending any credit facility of any nature to defendant No.2 without the specific written consent of plaintiff;
i. pass an order and decree of perpetual injunction permanently restraining defendant No.2 from paying any monies to defendant No.1 under the credit facility disbursed or granted or extended after February 07, 2012 being the Calculation Date, to defendant No.2 which are not listed in Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011);
j. pass an order and decree of perpetual injunction permanently restraining defendant No.2 from paying any monies to defendant No.1 under the credit facility disbursed or granted or extended after February 7, 2012 being the Calculation Date, to defendant No.2 which are not listed in Lender B Finance Documents (as defined under the Pari Passu Deed dated August 22, 2011);
k. allow the costs of the suit in favour of the plaintiff and against the defendants.”
2. The brief facts of the case leading to hearing of the present applications are enunciated as under:
3. It is stated in the plaint that loan agreement of Rs.75 crores between the plaintiff and defendant No.2, namely, Saraya Sugar Mills Limited was executed. The supplementary agreement for further loan of sum of Rs.15 crores of loan was executed dated 25.07.2008. Confirmations/certificates of loan were issued by defendant No.2 in favour of the plaintiff on 18.06.2009, 19.06.2010, 21.04.2011, 07.09.2011 and 25.11.2011. The defendant No. 1 is the lender of the sum to the defendant No. 2 who owed a sum of Rs. 15,11,94,665.11 (Rupees Fifteen Crore Eleven Lac Ninety Four Thousand Six Hundred Sixty Five and Eleven Paisa Only) as on 07.02.2012 as per statement made in his reply to the legal notice.
4. In order to settle the debts proportionately, the Pari Passu Deed between parties was executed wherein it has been stated that upon the enforcement of the security and the realization of the money arising out thereto, the same shall be distributed amongst the lenders on pari passu or proportionate basis as per the clause.
5. Plaintiff served notice dated 07.02.2012 to the defendant No. 1 stating that the calculation date as per the Pari Passu Deed shall commence upon the service of the notice and whatever amount towards the debt is received pursuant to the same, has to be shared on proportionate basis as per agreement. The extracted notice reads thus:
“we refer to the pari passu deed. Words defined in the pari passu deed shall have the same meanings when used herein.
There has been an event of default under the Lender A Loan Agreements. We hereby notify you that the date of this letter shall be the Calculation Date for the purposes of the Pari Passu Deed. Any Recoveries by Punjab National Bank after the Calculation Date must be applied in the order specified in Clause 5 read with clause 2 of the Pari Passu Deed.
Pursuant to clause 5.3 of the Pari Passu Deed both Lenders are to notify the other within 7 days of the Calculation Date of the amount of their respective Debts. The Lender A Debt as at the Calculation Date is Rs.1,303,742,432 (Rupees One Billion Three Hundred Three Million Seven Hundred Forty Two Thousand Four Hundred Thirty Two Only). This amount includes outgoing costs/charges/expenses and liabilities of Rs.14,460,392 (Rupees Fourteen Million Four Hundred Sixty Thousand Three Hundred Ninety Two Only) incurred in connection with the Recoveries till date. Please advise us of the Lender B Debt within 7 days from the date hereof.
Should you receive any payments from the Company after the Calculation Date please inform us immediately so we can agree with you on the amount to be paid by you to us in accordance with clause 5.3 read with clause 5.1 of the Pari Passu Deed. Until such time as the required payment is made to us you are reminded that under the Pari Passu Deed such money received by you shall accrue interest thereon in accordance with clause 5.3 of the Pari Passu Deed.
We also advise you in accordance with clause 4.1 of the Pari Passu Deed that we wish to enforce our Charges and are desirous to meet you as soon as possible in that regard. Pursuant to clause 4.1 of the Pari Passu Deed you are required to cooperate with us in realizing the assets charged to us. Please advise us when you are free this week to discuss the same.”
6. The case of the plaintiff in the suit is that at present the plaintiff is confined to the enforcement of the said agreement towards payment of the debt and agrees that no security as per the loan agreement has been enforced or realized amongst which the said amount is derived.
7. The plaintiff further has stated that the plaintiff has invoked clause-5 of the agreement whereby the plaintiff by way of letter dated 07.02.2012 called upon the defendant no. 1 to decide amongst the both the lenders as to how to go about in relation to pari passu arrangement. The said notice was duly replied by defendant No.1 by letter dated 21.02.2012. As no positive response is received from the side of defendant No.1, the plaintiff had no option to initiate the proceedings on the basis of agreement.
8. Prior to the present suit, there is an earlier litigation i.e. winding up proceedings and civil suit being CS(OS) No.549/2012 filed by the plaintiff against defendant No.2 under Order XXXVII CPC is pending for recovery of the loan amount, wherein the pleading of defendant No.2‟s application for leave to defend is yet to be completed. In fact, one of the objections raised by defendant No.1 is that the present suit is not maintainable under provision of Order II, Rule 2 CPC as plaintiff has omitted his right to sue on the basis of Pari Passu Deed and relinquishes its claim, now the plaintiff cannot be permitted to sue in respect of the omitted/relinquished claim.
9. Along with suit, the plaintiff‟s interim application being I.A. No.5798/2012 (under Order XXXIX, Rules 1 & 2 CPC) came up before Court on 28.03.2012. Summons and notices were issued to the defendants and partly interim order was passed. The operative part of the interim order passed reads as under:-
“I.A. No.5798/2012 (u/O. XXXIX, R. 1 & 2 CPC) …….In view of the statement made by the plaintiff in the plaint, documents placed on record and also various clauses mentioned by the learned Senior counsel appearing on behalf of the plaintiff, the plaintiff is entitled to following limited relief at this stage:
(a) Defendant No.1 is directed to disclose on affidavit, the monies received by it from defendant No.2 till 07.02.2012 under all the facilities as per Pari Passu Deed dated 22.08.2011 within two weeks from the date service of summons and notice,
(b) Defendant No.1 is also directed to deposit all the monies to be received from the defendant No.2 from the date hereof, i.e., 28.03.2012 in a separate account „No Lien Account‟ and not to appropriate the same till the next date of hearing.
(c) Defendant No.1 is also restrained from granting/disbursing or extending any credit facilities to the defendant No.2 over and above the facilities which have been set out in Lendor B Finance Documents of Pari Passu Deed dated 22.08.2011.”
10. Upon service, the defendant No.1 in terms of order dated 28.03.2012 filed an affidavit of Mr. Rajendra Sharma, Chief Manager (Special Structuring Group) of the defendant No.1 Bank. Defendants have also filed applications under the provisions of Order XXXIX, Rule 4 read with Section 151 CPC (being I.A. No.6843/2012 by defendant No.1) and (I.A. No.6681/2012 by defendant No.2) for vacation/modification of order dated 28.03.2012. They are pressing immediate orders for vacation, though pleadings in the main suit are yet to complete.
11. In the affidavit of Mr. Rajendra Sharma, Chief Manager (Special Structuring Group) inter alia, it is stated as under :
“5. The deponent further states that after 07.02.2012, it has further received following amount from defendant No.2 towards the repayment of its all the loans:-
6. The deponent states that after 07.02.2012, an amount of Rs.50,97,500.00 (mentioned in para 4 and 5) is received by the defendant No.1 towards all the loans extended by defendant No.1 as mentioned in Lenders B Finance Document of Pari- Passu Deed dated 22.08.2011 till date of filing of this affidavit.
7. The deponent further states that the defendant No.1 received the copy of order only on 02.04.2012, however, by that time, defendant No.1 had already appropriated the entire amount received (including the amount received on 30.03.2012) towards repayment of interest from the defendant No.2.”
12. As per the defendant No.1, on request of defendant No.2, a Pari Passu Deed dated 22.08.2011 was entered. The intent and object of the said deed was to effect an arrangement for enforcement of securities by mutual consent and appropriation of proceeds thereof. It is stated by defendant No.1 that the present suit was filed on the basis of the said deed wherein it was agreed for enforcement of securities by mutual consent and on the method of application of recoveries. The plaintiff has failed to comply with the provisions of the deed. The plaintiff misrepresented and concealed the vital information from this court and read the deed in segregation to its benefit. As per clause 4 of the Deed only securities can be enforced by either party with the consent of the other and thereafter clause 5 will apply for appropriation of proceeds. The lenders had agreed to exercise their right of recovery under the Deed jointly with mutual consent and not unilaterally as in the notice dated 07.02.2012 it was asked by the plaintiff to the defendant No.1 to enforce their charges against the amount due and payable by the defendant No.2 as on 07.02.2012 inclusive of Rs.14,460,392/- towards outstanding cost, charges, expenses incurred in respect of recoveries till date though the said will not get priority in terms of clause 5.1 of the Deed and it has been rightly stated in the reply dated 21.02.2012.
13. It is argued by defendant No.1, the notice dated 07.02.2012 is cryptic and does not disclose the facts constituting “event of default” as sine-quo-non for any action under the Deed. , the defendant No.1has come to know that the plaintiff has issued a notice dated 05.12.2011 to the defendant no.2, but without informing the defendant No.1 and also issued the cryptic notice dated 07.02.2012. The plaintiff is not entitled for the relief sought as there is no cause of action in pursuance to the Deed dated 22.08.2011.
14. There is no prima facie case, nor any irreparable loss or balance of convenience in favour of the plaintiff. The order dated 28.03.2012 is preventing the defendant No.1 from discharging the Banking obligations within the Guidelines of the Reserve bank of India.
15. Further it is stated that even otherwise the order dated 28.03.2012 is contrary to the law whereby, this Court has restrained the defendant no.1 from granting any credit facilities to the defendant No.2 over and above the facilities already set out in the Schedule No.2 of agreement.
16. In reply, it is stated by plaintiff that the defendants in collusion with each other are trying that the dues of defendant No.1 are paid to the exclusion of the plaintiff despite of having admitted the execution of Pari Passu Deed and did not even respond to the letter dated 12.03.2012 of the plaintiff. The letter dated 21.02.2012 of the defendant No.1 has not disputed the fact that after the execution of the deed, no amount has been paid by the defendant No.1 towards repayment of its principal dues and now after receipt of notice, defendant No.1 refused to share the amount received by it with the plaintiff in accordance with the deed. In the affidavit dated 13.04.2012 filed pursuant to the orders, defendant No.1 has stated that it received an amount of Rs.1,89,81,000/- towards repayment of loans as per Lender B Financial Documents. Hence, the conduct of the defendant No.1 demonstrates the intention of the defendants to deprive the plaintiff of its right.
17. Mr. Rajeev Nayar, learned Senior counsel appearing on behalf of the plaintiff has made his submissions which can be outlined as under:
Firstly, Mr. Nayar argued that the pari passu deed is an arrangement where by the recovery of debts between the plaintiffs and defendant no. 1 as lenders are to be shared on the proportionate basis. Mr. Nayar has read the definition clause of the pari passu deed and clause 2.3, 4, 5 and 6 of the deed and submits that both the defendants in connivance with each other are violating the terms of the tripartite agreement which has been signed between the parties. This is due to the reason that the defendant no. 2 is paying the defendant no. 1 the sums singularly and the defendant no. 1 is being benefited fully with the deprivation of proportionate sums to the plaintiff.
Mr. Nayar argued that clause 5 of the pari passu deed relating to recovery is stand alone clause and thus the enforcement of security is not condition precedent for distribution of the recovery. The fact that the defendant No.1 bank has appropriated the sum given by the defendant No. 2 towards debts due to the bank, the said fact by itself suggest that the debts can be suitably adjusted by not even enforcing the securities or charges as per the loan agreement.
Mr. Nayar submitted that the stand of the defendant no. 1 bank is unreasonable as it suits the bank in as much as the bank may reap the sums of the defendant no. 2 without even payment of the same to the plaintiff proportionately. Therefore, the defendant no. 1 bank will not come to aid of the plaintiff despite being the lender as in this situation of money crises, the person who is able to recover the maximum is the beneficiary.
Per contra Mr. Atul Sharma, learned counsel appearing on behalf of the defendant no. 1 has made his submissions also urged that he intends to rely upon the submissions made by the defendant no. 1 bank in the CS (OS) no 709/2012 and would make only the additional submissions which can be outlined as under:
There is no cause of action accrued in favour of the plaintiff entitling the plaintiff to sue the defendant for declaration as it is the defendant no. 1 who has complied with the agreement and the plaintiff has not followed the agreed procedure mentioned in the pari passu deed while invoking the clause and thus no cause of action accrued in favour of the plaintiff against the defendant.
The plaintiff cannot seek the injunctory relief against the working capital or the credit facilities which the defendant no. 1 was and would provide to the defendant no. 2 as a banker. The said reliefs sought for are untenable as well as based on misinterpretation of contract.
Notice dated 7.2.2012 is defective as the same is not the notice in accordance with the clause 1.1 of the agreement as the said notice does not state that the plaintiff intends to enforce the security. Similarly, the said enforcement could only take place once the plaintiff will follow the agreed procedure in the agreement under clause 4 of the agreement.
The plaintiff is misinterpreting the terms of the pari passu deed by contending that pursuant to service of the notice dated 7.2.2012, it is entitled to receive a share from the monies received by the defendant no. 1 Bank from the Defendant no. 2 in their business transactions which are entirely separate and distinct from the plaintiff‟s loan or loan transactions.
Rest of the submissions of the learned counsel for the defendants are the same as were made in the CS(OS) 709/2012. I have gone through the plaint, documents, written statement, documents filed by the parties and also given my careful consideration to the submissions advanced by the parties at the bar. Let me now proceed to evaluate them one by one.
18. Firstly, I would deal with the submission of the defendant no. 2 that the suit is not maintainable in view of the rehabilitation policy of BIFR. the suit is not maintainable in view of order passed by BIFR dated 05.08.2008 alongwith its annexures (modified scheme). However, Clause 14 (viii) and 14 (xiii) of the General Conditions of the modified scheme for revival of Saraya Sugar Mill Limited and its merger with defendant No.2 which was sanctioned by the BIFR vide its order dated August 5, 2008 speaks for itself that all dues arising after the cut off date of 31.12.2007, would be paid in the normal course, protection under Sick Industrial Companies (Special Provisions) Act, 1985 would not be available. Hence, the plea of defendant No.2 in this regard is not sustainable and is rejected.
19. Let me, now, refer the relevant clauses of the Pari Passu Deed dated 22.08.2011 (herein referred to as PPD), have been reproduced herein below:-
1. DEFINITIONAND INTERPRETATION
1.1 Definitions In this Deed :
“Calculation Date” means the date either of the Lenders gives notice to the other Lender of the occurrence of an event of default under a Loan Agreement and of its desire to enforce its security under any of the Charges.
“Charges” means collectively, the Lender A Charges and the Lender B Charges, and “Charge” means any of them.
“Company” means Saraya Industries Ltd.
“Debts” means collectively, the Lender A Debt and the Lender B Debt, and “Debt” means any of them.
“Finance Documents” means collectively, the Lender A Finance Documents and the Lender B Finance Documents.
“Lender A Charges” means any security created or to be created
by the Company (subsisting security being listed in Part 1 of Schedule 1 (the Existing Charges)) together with all collateral, additional or substituted securities which Lender A may now or in the future have or obtain from the Company in respect of all or any part of the Lender A Debt.
“Lender B Charges” means any security created or to be created by the Company (subsisting security being listed in Part 2 of Schedule 1 (the Existing Charges)) together with all collateral, additional or substituted securities which Lender B may now or in the future have or obtain from the Company in respect of all or any part of the Lender B Debt.
“Lender A Debt” means the indebtedness of the Company to Lender A, under the Lender A Loan Agreement, plus all accrued but unpaid interest thereon, and fees, costs and expenses payable by the Company to Lender A pursuant to Lender A Loan Agreement as at the Calculation Date, being indebtedness secured by all or any of the Lender A Charges.
“Lender B Debt” means the indebtedness of the Company under the Lender B Loan Agreement, plus all accrued but unpaid interest thereon, and fees costs and expenses payable by the Company to Lender B pursuant to the terms of the Lender B Loan Agreement as at the Calculation Date, being indebtedness secured by all or any of the Lender B Charges.
“Lender A Finance Documents” means the Lender A Loan Agreements, Lender A security documents and all documents providing for obligations of the Company/sponsors to Lender A which are secured by Lender A Charges.
“Lender B Finance Documents” means the Lender B Loan Agreement, Lender B security documents and all documents providing for obligations of the Company to Lender B which are secured by Lender B Charges.
“Lender A Loan Agreements” means the Loan Agreement dated May 17 2007, supplementary Loan Agreement dated July 25 2008 executed inter alia between the Company and Lender A. “Lender A Loan Agreement” means any of them.
“Lender B Loan Documents” means the Rupee Loan Facility Agreement dated December 19 2009 and Master Facility Agreement dated March 26, 2009 and subsequently modified on December 19, 2009 between the Company and Lender B.
“Lenders” means Lender A and Lender B and “Lender” means either of them.
“Loan Agreements” means the Lender A Loan Agreements and the Lender B Loan Agreement, and “Loan Agreement” means any of them.
“Pari Passu” means, in relation to the Lender A Debt and the Lender B Debt, that the repayment of such Debts on or after the Calculation Date shall be made pro rata in the proportions which the amount of each such Debt bears to the aggregate thereof as at Calculation Date.
“Party” means a Lender or the Company.
“Recoveries” means the amount received by any Lender under or pursuant to the Finance Documents on or after the Calculation Date and includes any other amount paid to or received by a Lender in respect of the indebtedness of the Company under Finance Documents.
2. PRIORITY
2.1 Ranking
The Charges constituted by the Charges shall, as between themselves, rank pari passu for the payment of the Lender A Debt and Lender B Debt, as set out in the Schedule.
2.2 Failure of Security
If all or any of the charges in favour of either Lender shall be released or be or become wholly or partly invalid or unenforceable, such Lender shall itself bear the loss resulting and shall not be entitled to share in the moneys derived from assets over which it has no effective security but the Lenders shall not themselves challenge or question the validity or enforceability of any of the Charges.
2.3 Moneys Wrongly received
If any sum is received by either Lender after the Calculation Date whether pursuant to any realization or enforcement of the charges or otherwise, that Lender agrees to make such payment to the other Lender as will ensure that the order of application referred to in this Clause 2 and in Clause 5.1 (Order of Application) is observed.
3. Deeds and Documents Each Lender undertakes that, on discharge of its Charges, it will deliver all such deeds and documents then held by it to the other Lender if the other‟s Charges are still subsisting.
4. ENFORCEMENT OF SECURITY
4.1 Enforcement If either lender wishes to exercise its powers of sale or otherwise enforce any of the Charges it shall forthwith inform the other Lender of its intention. The lenders shall consult together with a view to agreeing upon the method of enforcement and shall co-operate with each other in realizing the assets charged to them and in ensuring that the net proceeds after deduction of the expenses of realization are applied in accordance with the provisions of this Deed.
5. APPLICATION OF RECOVERIES
5.1 Order of Application All Recoveries shall be applied by the Lenders in the following manner, subject only to the rights of any person ranking in priority as a matter of law :
(a) First, in or towards all of the outgoings costs, charges, expenses and liabilities (and all interest thereon as provided in the Charges) reasonably incurred by or in connection with the Recoveries otherwise.
(b) Second, to the Lenders so that the Lender A Debt and the Lender B Debt shall be reduced pro rata.
5.2 Method of Application Recoveries available in accordance with each paragraph of Clause 5.1 (Order of Application) shall be applied pro rata among the persons entitled thereto under each such paragraph, and no amounts will be applied under any paragraph of that Clause until all amounts specified in the preceding paragraph (s) of that Clause have been paid.
5.3 Payments between Lenders The Lenders shall, within 7 days of the Calculation Date, notify each other in writing of the amount of their respective Debts. If either Lender receives any amount from the Company or otherwise in payment of its Debt it shall immediately notify the other Lender in writing of the amount so received, and shall within 7 days pay to the other Lender such amount as is required to ensure that the order of application of Recoveries in Clause 5.1 (Order of Application) is complied with. Amounts required to be paid under this agreement that remain outstanding shall accrue interest at the rate of 15% per annum from the date such payment was due until paid.
6. Acknowledgments
6.1 Consent to Security Lender A consents to the creation and subsistence of the Lender B Charges. Lender B consents to the creation and subsistence of the Lender A Charges.
7. COVENANTS
7.1 The Parties covenant and undertake that, so long as any part of the Recoveries remain outstanding and until the full and final payment of all money owning under the Finance Documents to the Lenders, the Parties will comply with the provisions of this Deed.
7.2 The Company further covenants to ensure that the understanding between the Lenders as set out in Clause 5 is given effect to and the Company shall in this regard provide all necessary cooperation to the Lenders including making simultaneous payment to the Lenders in the ratio as agreed to between the Lenders.
8. Miscellaneous
8.1 Counterparts This Deed may be executed in any number of counterparts, and this has the same effect as if the signatures and/or seals on the counterparts were on a single copy of this Deed.
8.2 Notify Amount in Default The Lenders shall within 7 days of a request advice the other if the Company is in default under their Loan Agreements and if so the amount in default.
Lender A states that the Company is currently in default on its obligations under the Lender A Loan Agreement.
20. At this stage, it is wise to consider the contention of the learned counsel for the defendant no. 1 which is that the definition of Calculation Date in the present Pari Passu Deed is distinct from that of what has been signed by the defendant no. 2 with Punjab National Bank in CS(OS) No. 709/2012 wherein separate order is being passed on account of presence of clause 1.1. As per the learned counsel for the defendant, in the present case, the calculation date shall commence when the plaintiff gives the notice informing the event of default and also his desire to enforce the security. Thus, as per the defendant counsel two things emerge from the reading of the said clause which are:
That the realization or the money which the defendant no. 1 is entitled to share with the plaintiff as a lender pertains to the enforcement of security or the one arising out of the enforcement of the security only and nothing else.
The calculation date shall commence when the notice complies the twin requirements which are first, is the information of event of default and second is the desire to enforce the security. In the present case, the plaintiff has not initiated the process of enforcement of security which can commence by way inviting the meeting of the lenders etc. thus, the said notice dated 7.2.2012 is defective one and thus the same cannot be treated the calculation date.
21. Therefore, as per the learned counsel, the defendant No. 1 cannot be precluded from the appropriation of the money which it has already appropriated. No embargo exists in the agreement to appropriate the said amount until and unless the same relates to enforcement of the security.
22. I have given the careful consideration to the submission advanced by the learned counsel for the defendant but the same cannot be acceded to due to the following reasons:
a) Indeed, it is correct that the clause 1.1 defines calculation date which states the lender should inform the occurrence of the default and his intention to enforce the security. But it is inconceivable as to how the notice dated 7.2.2012 should not be qualifying the said requirement. On careful reading of the contents of the notice, it becomes clear that the plaintiff informs the defendant No.1 categorically that the said date of the notice shall be treated as calculation date and also informs the defendant No. 1 is occurrence of event of default. In addition to that it was also called upon the defendant No. 1 to take steps to invite such meeting of the lenders as per clause 4 and also enforcement of charges. the contents of the said notice reads as under:
“There has been an event of default under the Lender A Loan Agreements. We hereby notify you that the date of this letter shall be the Calculation Date for the purposes of the Pari Passu Deed. Any Recoveries by Punjab National Bank after the Calculation Date must be applied in the order specified in Clause 5 read with clause 2 of the Pari Passu Deed.”
“We also advise you in accordance with clause 4.1 of the Pari Passu Deed that we wish to enforce our Charges and are desirous to meet you as soon as possible in that regard. Pursuant to clause 4.1 of the Pari Passu Deed you are required to cooperate with us in realizing the assets charged to us. Please advise us when you are free this week to discuss the same.”
On reading the contents of the letter, there is no room for doubt that the said letter categorically provides the event for the default and consequential steps required to be taken by the defendant no. 1 as a lender as per clause 4.1 as well as the desire to enforce the charges in the clear wordings. However, the contention of the defendant no. 1 is that the steps should have been undertaken and consensually the parties must also decide to enforce the security and from that date only, the calculation date shall commence. I find that is not the requirement of the agreement under clause 1.1. What is the requirement under clause 1.1 is the “desire to enforce the security” which can be conveniently conveyed to the defendant no. 1 calling upon him not to receive money and take steps to invite the meeting as per clause 4 and enforce the charges. If such wordings are present in the letter, the same is sufficient to convey the “desire to enforce the security” as against the actual consensus arrived at to enforce the security. This is due to the reason that upon conveying the desire only, the parties shall take steps under clause 4 and meet and arrive at the consensus. It is not that the parties should first take steps and arrive at consensus to enforce the security and then only the calculation date shall commence.
b) The another reason which persuades me to take this view is that clause 1.1 cannot be read in isolation but has to be read with clause 2.3, clause 5.1 and 5.3 which I have interpreted later to find that they provide that “any sum” towards debt shall be divided proportionately amongst the lenders after calculation date. Thus, the calculation date has a relevance in the agreement and the same is the cut off date where after even the money received from “otherwise” modes from the defendant no.2 other than the enforcement of securities shall be divided amongst the lenders as per clause 5 which shall be treated as money wrongfully received. Thus, the calculation date is cut off date for realizing the money by different modes of realization described in the agreement and is not confined to a single mode of enforcement of security.
Thus, to allow clause 2.3, 5.1 to operate in its field properly, it is essential that the calculation date should commence prior to the actual decision to enforce the security is taken by the lenders as the reading of the clause 2.3 also connects it with the commencement of the calculation date. Therefore, if the lender like plaintiff if informs the defendant no. 1 as a co- lender the event of default in the loan agreement and remedial measures to be undertaken along with the explicit statement to realize the charges, then the same is sufficient compliance of the said calculation date.
Accordingly, it cannot be said that the said notice dated 7.2.2012 was ineffective or defective which did not inform the calculation date to the defendant no. 1. Thus, I find that the calculation date has been duly informed by the plaintiff to the defendant by way of 7.2.2012 and the reading of definition of calculation date which is differently worded in the present case would not make any difference so far as it relates to the commencement of the calculation date in as much as the notice contained the well informed intention of one lender to the co-lender to take steps towards the doing of the acts with the security as prescribed in clause 4 and 5 of the agreement by enforcement of the charges.
23. Let me now also evaluate clause 2.3, 4 and 5 in order to discern as to whether the agreement permits other modes of the payment or realization of money other than the enforcement of the security which may lead to proportionate distribution of the money and if so to what extent and effect. The answer to this can be traced by looking at the clauses of the agreement closely.
24. It is now well settled that the agreement is to be read in its entirety in order to discern the real intention of the parties at the time of entering into such an agreement. The court should avoid reading any clause of the agreement in isolation and rather should read the agreement clause by clause in order to give meaning to each and every clause to determine the intent of the parties.
25. A conjoint reading of clause 2.3, clause 4 and clause 5 would reveal that when clause 5 talks about “all recoveries”, the same may encompass different mode of recoveries of the amount which can be either by way of “distribution or enforcement of securities” or “ any realization” or “otherwise ”. The clause 5 of the agreement is not confined to mode of recovery only relating to preceding clause 4 which talks about the enforcement of the security or charges which is one of the mode of recoveries in the agreement. This construction of the agreement makes the clause 5, clause 2.3 and 4 workable in their respective fields and giving narrow construction to the clause 5 would lead to shutting the other modes of recoveries when clause 2 specifically provides for the same. The following are the reasons for adopting such construction of the agreement:
a) Clause 2.3 itself is an unqualified terms provides that “ if any sum” received by the lender “whether pursuant to any realization…..” “or otherwise”, the lender shall forthwith pay the same in respect of the order laid down in clause 5. The use of the words “any sum” coupled with an unqualified language which reads “whether pursuant to any realization, enforcement or distribution of charges” and coupled with an exception which reads “or otherwise” makes this clause wider enough to cover within its sweep not merely the modes of recovery of the amount by way of doing anything with the charges but otherwise also.
The said clause 2.3 therefore would cover within its ambit and realm the case where “any sum” is wrongfully received by the lender “by otherwise mode” other than relating to security or charge which affects the debt of the one lender and the said adjustment if done would proportionately be shared by the lender receiving such money wrongfully with that of another lender in the same order as laid down in clause 5. Therefore, the immediate connection of clause 2.2 and clause 5 would make the clause 5 wider as the same relates to “All recoveries” and not merely recoveries relating to clause 4.
b) The said clause 5 cannot be given narrow construction due to the reason that the wordings of clause 5 talks about “All recoveries” and reading it together would include recovery of money “otherwise”. Therefore, the said clause 5 would operate it widely and not narrowly.
c) The wordings used in clause 2.3 which is “or otherwise” cannot also be interpreted as ejusdem generis or be given narrow construction with the accompanying words like “realization or distribution or enforcement of charges” so as to read “otherwise” narrowly relating to similar kind of modes of realization. Such interpretation of clause 2.2 is not possible due to the clear accompanying contextual indicators which are “if any sum” “whether pursuant to realization” “or otherwise” all these indicators themselves reveal the clear intention of the parties who are two lenders and one creditor is to divide any sum of moneys received by the lenders affecting debt whether by realization of charges or otherwise as per clause 5. Thus, the intention of the parties and unqualified language of clause 2.2 makes it wider in ambit.
For all these reasons, it is seen after reading the agreement clause by clause and giving meaningful reading that clause 5 would operate not only the recoveries which are made alongside the realization of charge but the receipt of the wrongful moneys also.
26. Thus, the submission of the learned counsel for the defendants cannot be acceded to that clause 5 of the agreement would operate in the limited field and there cannot be any mode of recovery towards the loan without enforcement of security of the charge. Rather, the intention of the parties as emerging from the reading of the agreement is that the agreement provides a special kind of pari passu arrangement between two lenders and one borrower over and above what has been provided by the statute by giving an extra cover of protection to the lender to enforce or realize or distribute the charges proportionately on their own without the aid of the court as laid down in the companies act as well as adjust the moneys received by way of “otherwise modes” towards the debt and divide them proportionately. Had there been any intention to just do pari passu adjustments simplicitor, then the agreement could not have been warranted as the entire scheme of winding up as per section 510 of the Companies Act is premised on pari passu distribution of the assets in satisfaction of liabilities.
27. It cannot also not be lost sight of that the winding up court is in seisen of the dispute between the parties and the suit for recovery is also pending. The defendant no. 2 company is still working and the interests of other creditors are required to be safeguarded by the winding up court as well this court so that the business of the company should not be obstructed which may affect the debts of the other creditors as well.
28. At this stage, it is relevant to examine the submission of Mr. Nayar as he says that the entire money of which has been received by the Defendant no. 1 banker after the calculation date should be a subject matter of pari passu deed and the banker may not be allowed to deal with such money unilaterally as the same has been received from the Defendant no. 2 and the same should divided as per the mechanism laid down in deed. It is immaterial as to for what purpose the said money is received by the defendant no. 1 bank and if it has received the same after the calculation date, defendant no. 1 becomes liable to divide the same. Such contention has been refuted by the Learned counsel for the defendant no. 1 as he urges that the plaintiff cannot claim the right to the entire sum which may include the working capital of the defendant no. 2 as well as which has been received by the defendant no. 1 in lieu of the other facilities undertaken by the defendant no. 1.
29. Mr. Nayar has substantiated his argument by stating that clause 2.2 of the agreement is wide enough to put such embargo on the bank to deal with any receipt of the sum by the defendant no. 1 bank and thus the same principle of pari passu sharing would be applicable irrespective of the fact that the defendant no. 1 banker actually appropriates the said sum or not.
30. I find the submission of Mr. Nayar on this count unmeritorious. This is due to the reason that no doubt the language of the clause 2.3 is broad enough to cover the cases where “any sum” has been received by the Bank as a matter of satisfaction debt. But the said clause cannot be read dehors the agreement. The pari passu deed has been made by the two lenders and one borrower so that the debts realized by the lenders can be shared by various modes of recovery of such debts. The wrongful receipt of money or recovery by way payment and appropriation thereof is one of the mode of the recovery of the said loan. Therefore, the word “any sum” and interpretation of “otherwise” has to be broader as interpreted above but cannot be read without its co-relation with the debt. What follows from the same is that the bank as a lender is entitled to share a sum of money which the defendant no. 1 receives it as lender towards the subject debt or for that matter receives it and appropriates it towards that debt and not the sum which the defendant no. 1 bank receives it for other transaction. The interpretation canvassed by Mr. Nayar if would be accepted would make the clause so much wider which will preclude any business person or the debtor to even do the day to day banking transaction with the banker.
31. Such cannot be the intent or spirit behind the entering of the pari passu agreement so that the defendant bank would sign such an agreement whereby the defendant bank as a banker would be precluded to even receive any money and in the event any money is brought to the bank, the bank becomes liable to share the same with the plaintiff. Thus, it is only the money which either lender receives it in lieu of the loan or debt which is entitled to be shared proportionately and not otherwise.
32. This aspect further becomes clear once clause 5.3 is read carefully which reads under:
“The Lenders shall, within 7 days of the Calculation Date, notify each other in writing of the amount of their respective Debts. If either Lender receives any amount from the Company or otherwise in payment of its Debt it shall immediately notify the other Lender in writing of the amount so received, and shall within 7 days pay to the other Lender such amount as is required to ensure that the order of application of Recoveries in Clause 5.1 (Order of Application) is complied with. Amounts required to be paid under this agreement that remain outstanding shall accrue interest at the rate of 15% per annum from the date such payment was due until paid.”
The use of the expression “in payment of its debt” makes the clause amply clear and qualified to the extent that only when the money is received in payment of the payment of the debt, only then the lender is entitled to follow the order of application laid down in clause 5 and not in all the cases.
33. Let me now deal with the residual submissions of the learned counsel for the defendant.
The submission that there is no cause of action in favour of the plaintiff is rejected as the defendant no. 1 has clearly appropriated the sum after the calculation date. Thus, the said submission of the learned counsel for the defendant no. 1 is rejected.
I have already stated that there is no defect in the notice dated 7.2.2012 and therefore the differently worded definition of the calculation date is immaterial as the notice satisfies the twin criterion laid down therein. Also additionally, I have found that there are other modes of receiving the payment towards debt, therefore there cannot be any limited operation of the deed only in cases of the enforcement of security.
I find merit in the submission of the learned counsel for the defendant no. 1 that the sum of Rs. 14,460,392-/ as mentioned in reply to the legal notice dated 21.2.2012 could not be the subject matter of the sharing as per the pari passu deed due to the reason that was the sum received prior to the calculation date. However, it is matter of fact on record as per the affidavit of Rajendra Sharma of defendant no. 1 bank that post the calculation date, the defendant no. 1 has appropriate the sum of Rs. 50,97,500 towards the loan which are subject matter of lenders B Finance Document. Thus, the said amount of Rs. 50,97,500 is the sum received in relation to debt which would attract the sharing on proportionate basis as per the procedure laid down in the pari passu deed in view of the interpretation of the clauses done hereinabove. All future payments by the defendant no.2 to defendant no. 1 towards the said debt shall equally attract the same embargo under the deed.
34. It cannot also not be lost sight of that the winding up court is in seisen of the dispute between the parties and the suit for recovery is also pending. The defendant no. 2 company is still working and the interests of other creditors are required to be safeguarded by the winding up court as well this court so that the business of the company should not be obstructed which may affect the debts of the other creditors as well.
35. It is also noteworthy that the defendant no. 1 as a banker can provide other credit facility to the defendant no. 2 which can be used as a matter of working capital or carrying out day to day affairs of normal banker. But certainly, being a banker, the defendant no. 1 on receipt of the money from defendant no. 2 cannot appropriate the said money towards the debt which is subject matter of the loan agreement which is the subject matter of the pari passu deed and if done then the said receipt of money by the defendant no. 1 and consequential adjustments made thereto either to interest or to principal amount shall be subject to fetters envisaged under clause 2.3 and 5.3 of the Pari Passu agreement.
36. Considering the competing interests of the parties as lenders as well as the interest of the other secured or unsecured creditors which is to be looked after by the winding up court and also respecting the covenants entered into by the parties, a balance has to be struck whereby the business of the defendant no. 2 company may be allowed to carry by availing such working capital and other facilities from the banker defendant no. 1 and at the same time not enabling the defendant no. 1 and defendant no. 2 to evade the covenants entered into between the parties and consequently deprive the plaintiff from its legitimate dues. Accordingly the following directions are made modifying the earlier order dated 28.3.2012 passed by this court:
a) The defendant No. 1 shall not be entitled to appropriate the sums received from that of the defendant No. 2 unilaterally towards the term loans which are the subject matter of loan agreement of Pari Passu Deed dated 22.08.2011. Upon receiving money from the defendant No.2, when the defendant No. 1 intends to make an adjustment towards the said loan or debt due from the defendant No. 2, the said defendant No.1 shall do the same after the intimation of the same to this court and following the due procedure provided in clause 5.1 under Pari Passu Deed dated 22.08.2011 and consequently dividing the same proportionately.
b) As regards the sum of Rs.50,97,500/- already appropriated as admitted by defendant No.1 on and after loan and the defendant No. 1 shall keep the said amount to the extent of proportionate value as per clause 5 of the agreement which may inure to the plaintiff as per the Pari Passu Deed in the “Non Lien Account” and the same shall be continued to remain in the said account until further orders are made to this effect and in future also the defendant No.1 is directed to follow the same procedure.
c) The defendant No. 1 may as per its own option allow to carry out and provide the working capital facilities, banking facilities in relation to day to day affairs and other future credit facilities to the defendant no. 2 (other than the ones charged in the pari passu deed) and is entitled to receive such money as the case may be due from defendant no. 2 to the extent of discharging the functions of working capital, banking and other credit facilities and new kind of facilities to be provided by the defendant no. 1. However, it is clarified that if from such money if any adjustment is carried out either of interest or principal sum of loan which is the subject matter of loan agreement of the pari passu deed dated 22.8.2011, then the direction (a) shall operate and the appropriation shall be done accordingly.
d) It is further directed that the defendant no. 1 shall keep full accounts separately towards carrying out such working capital facilities and other credit facilities which are in addition to the term loans which are the subject matter of the present proceedings. The said accounts shall be furnished along with the statements before the court as and when directed by the court. Further, if it is discovered after seeing the accounts that anyway that the said amount is still utilized towards the subject term loans, then the same shall be suitably adjusted by putting the liability on the defendant no. 1 on the proportionate basis as laid down in the pari passu deed.
e) An affidavit to the effect of compliance of the aforementioned directions shall be filed by the defendant no. 1 within two weeks from today.
37. All above mentioned applications are disposed of.
CS(OS) No.824/2012
38. List the matter before the Joint Registrar on 13.08.2012 for admission/denial of the documents. In the meanwhile, the plaintiff is granted four weeks time to file replication if any.
MANMOHAN SINGH, J.
JUNE 01, 2012