Agreements remain valid unless payment conditions are met; civil suits challenging secured transactions are barred under SARFAESI Act.

JUDGMENT :

(Delivered by Justice Senthilkumar Ramamoorthy)

Balaji Constructions Private Limited (Balaji Constructions) and The East India Hotels Limited (East India Hotels) entered into Technical Services Agreement dated 26.10.1988 in relation to the establishment of a hotel by Balaji Constructions. On the same date, Project Consultancy Service Agreement and Royalty Agreement were entered into by and between Balaji Constructions and Oberoi Hotels Pvt. Ltd. (Oberoi Hotels). Balaji Constructions was subsequently reconstituted as Balaji Hotels and Enterprises Limited (Balaji Hotels) and East India Hotels was renamed as EIH Limited (EIH). By a later agreement dated 12.01.2000 between Balaji Hotels and EIH, it was recorded that the hotel unit would be transferred by Balaji Hotels to a separate company and that the sum of Rs.9 crore, which had been paid by EIH to Balaji Hotels, would be repaid by issuance of equity shares or fully convertible debentures to EIH in the transferee company.

2. Thereafter, an agreement dated 04.02.2002 was entered into between EIH and Oberoi Hotels, on the one hand, and Balaji Hotels and Balaji Industrial Corporation Limited (BICL), on the other. Under this agreement, Balaji Hotels agreed to pay a sum of Rs.15.12 crore to EIH as consideration for EIH not objecting to Balaji Hotels selling, leasing or otherwise transferring the hotel unit to any other company and for the termination of all earlier agreements. BICL extended a corporate guarantee in respect of obligations undertaken by Balaji Hotels under this agreement. Subsequent thereto, admittedly, Balaji Hotels failed to pay the sum of Rs.15.12 crore to EIH as agreed upon and EIH did not make a call on the corporate guarantee.

3. In the facts and circumstances set out above, EIH and Oberoi Hotels filed a civil suit (later renumbered as Tr.C.S. No.108 of 2017) seeking a declaration that all the agreements referred to above are valid, legal and subsisting. The plaintiffs also prayed for permanent injunctions to restrain Balaji Hotels, BICL and the secured creditors of the above mentioned defendants from selling, encumbering or disposing of the property described in the schedule to the plaint without disclosing and or recognizing the rights of the plaintiffs to operate and manage the hotel under the agreements referred to earlier. The suit was subsequently amended to implead Robust Hotels (P) Ltd., which is the entity to which the property described in the schedule to the plaint was transferred, its directors, and Hyatt Hotels Corporation (Hyatt Hotels), as Defendants 8 to 12. The reliefs claimed were also amended by seeking a permanent injunction to restrain the newly impleaded defendants from acting in a manner inimical to and/or in derogation of the rights of the plaintiffs in the Technical Services Agreement dated 26.10.1988, Project Consultancy Service Agreement dated 26.10.1988 and Royalty Agreement dated 26.10.1988.

4. About one year later, EIH and Oberoi Hotels filed a second suit (C.S.No.164 of 2011) against Balaji Hotels, BICL, IFCI Ltd, Tourism Finance Corporation of India Ltd. and Robust Hotels Pvt. Ltd. In this suit, the plaintiffs prayed for a declaration that the Deed of Transfer dated 05.07.2007 and the certificate of sale of immovable property dated 05.07.2007 are illegal, null and void and for a permanent injunction to restrain the defendants from giving effect to or taking steps in furtherance of the deed of transfer and the above mentioned certificate of sale.

5. Issues were framed separately in the two suits, but evidence was recorded in common. The plaintiffs examined Mr.Singanellore Natesan Sridhar as PW1 and exhibited 14 documents through PW1 as Exs.P1 to P14. PW1 was cross-examined by learned counsel for Balaji Hotels and BICL; learned counsel for secured creditors; and by learned counsel for Robust Hotels and its directors. Robust Hotels adduced evidence by examining T.N.Thanikachalam as DW1. 13 documents were exhibited through DW1 as