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2023 Supreme(Bom) 2024
IN THE HIGH COURT OF BOMBAY
G.S. Patel, Neela Gokhale, JJ.
Mahindra And Mahindra Financial Services Limited - Appellant
Versus
Union of India - Respondent
Writ Petition No. 638 of 2023
Decided On : 12-04-2023
Neeta Jain, Advocate, Ashutosh Mishra, Advocate, Priya Crasto, Advocate, Zaman Ali, Advocate, Siddharth Katekar, Advocate
IMPORTANT POINT
Arbitration proceedings are recognized as valid legal actions for recovery of dues under the GECL scheme, and the NCGTC cannot unilaterally determine their legality.
Headnote:
ARBITRATION - EMERGENCY CREDIT LINE GUARANTEE SCHEME - Article 226 of the Constitution of India, Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The court discussed the legal framework surrounding the Emergency Credit Line Guarantee Scheme (GECL) and the implications of arbitration proceedings as a mode of recovery. It highlighted that the GECL scheme allowed for arbitration to be considered a legal action for recovery of dues, contrary to the initial stance of the National Credit Guarantee Trustee Company (NCGTC) which had stated otherwise. The court emphasized that the NCGTC, as an insurer, does not have the authority to determine the legality of arbitration proceedings, which must be recognized as valid recovery actions, especially when an arbitration award has been obtained. This interpretation influenced the court's decision to direct the NCGTC to accept arbitration awards as legal proceedings for recovery of dues.
Fact of the Case:
The Petitioners, a Non-Banking Finance Company (NBFC) and Member Lending Institution (MLI) under the GECL scheme, sought relief from the court after the NCGTC's portal indicated that arbitration proceedings were not considered legal actions for recovery of dues. The GECL scheme was established to support MSMEs during the COVID-19 pandemic by providing guaranteed credit. The Petitioners had obtained an arbitration award but faced issues when attempting to register it on the NCGTC portal.
Finding of the Court:
The court found that the NCGTC's refusal to recognize arbitration proceedings as legal actions for recovery of dues was untenable. It noted that the NCGTC had removed the problematic remark from its portal and accepted that arbitration awards should be treated as valid recovery actions. The court emphasized that the NCGTC does not have the jurisdiction to determine the legality of arbitration proceedings.
Issues: Whether arbitration proceedings can be considered legal actions for recovery of dues under the GECL scheme, and whether the NCGTC has the authority to determine the legality of such proceedings.
Ratio Decidendi: The court held that arbitration proceedings are valid legal actions for recovery of dues, particularly when an arbitration award has been obtained. The NCGTC, as an insurer, lacks the authority to adjudicate on the legality of arbitration proceedings, which must be recognized as legitimate recovery methods.
Final Decision: The court disposed of the petition by directing the NCGTC to accept the arbitration award as a legal proceeding for recovery of dues, with no order as to costs.
JUDGMENT/ORDER
G.S.PATEL, J. - By our order of 3/3/2023 we briefly set out the facts. We reproduce that order to save time.
"1. Ms Jain for the Petitioners points out that the Writ Petition seeks the following four reliefs:
"(a) that this Hon 'ble Court be pleased to issue a Writ of Certiorari or any other Writ in the nature of Certiorari, order or direction under Article 226 of the Constitution of India, to the Respondent Nos.2 calling for the records, papers and proceedings pertaining to Emergency Credit Line Guarantee Scheme and to direct the Respondent No.2 to consider Arbitration proceedings as legal proceedings for recovery of dues; Mahindra And Mahindra Financial Services Limited v Union of India and Anr 906-oswp-638-2023 -J.doc
(b) be pleased to issue a Writ of Mandamus or any other Writ in the nature of Mandamus, order or direction under Article 226 of the Constitution of India, (i) directing the Respondent No.2 to consider Arbitration proceedings as legal proceedings for recovery of dues and accordingly pay the Petitioners the claim amount, and (ii) directing the Respondent No.2 to forthwith remove the remark from its portal i.e. "Arbitration proceedings are not considered as legal proceedings for recovery of dues.
(c) Pending the hearing and final disposal of the present writ petition, this Hon 'ble Court be pleased to direct the Respondent No.2 to forthwith remove the remark from its portal i.e., "Arbitration proceedings are not considered as legal proceedings for recovery of dues ". Exhibit "G " is the screenshot of portal.
(d) accept the arbitration proceedings as recovery proceedings for the action initiated by the Petitioner."
2. The facts arise in this fashion. In 2020 a Guaranteed Emergency Credit Line ( "GECL ") scheme was announced principally on account of the disruption to commercial transactions by the onset of Covid 19 and the ensuing lockdown. The purpose was to provide relief to Micro, Small and Medium Enterprises ( "MSMEs "). The Member Lending Institutions or MLIs were to be given an incentive to provide additional credit of an aggregate of Rs.5.00 Lakh Crores but at a low carrying cost. This would, the scheme conceived, enable MSMEs to tide over their operational issues. Many businesses were facing a shutdown. An infusion of funds would enable them to continue or restart Mahindra And Mahindra Financial Services Limited v Union of India and Anr 906-oswp-638-2023 -J.doc their businesses. These MSMEs were typically constituted in a variety of forms including proprietorships, partnerships, registered companies, trusts, limited liability partnerships and so on. They also included borrowers under the Pradhan Mantri Mudra Yojana. Individuals too were covered by this, provided that the financing was for commercial/business purposes. The Petitioner is not only a Non-Banking Finance Company ( "NBFC ") but is a MLI for the purposes of this scheme.
3. The GECL was in fact a form of guarantee or insurance. It provided 100% guaranteed coverage by the National Credit Guarantee Trustee Company to all member lending institutions. This took the form of additional working capital, term loan facilities and non-fund-based facilities for scheduled banks and financial institutions and, for NBFCs, additional term loan facilities. The Petition sets out the details of the GECL credits. The scheme was applicable to all known sanctioned under the scheme from 23/5/2020 (just a few weeks after the first lockdown) until 31/3/2023 or until guarantees for an amount of Rs.5.00 Lakh Crores were issued by the 2nd Respondent.
4. This guarantee scheme is that once a lender enters the details of the loan sanctioned (the loan being to an eligible borrower under the guidelines), there is an automated approval of the guarantee. In other words, once the loan details are provided/uploaded, the guarantee begins to operate as soon as the details are entered into the delegated portal. Appropriate reference numbers are then provided. No documents are re
