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2023 Supreme(Online)(DEL) 17257
DELHI HIGH COURT
KOTAK MAHINDRA BANK LTD – Appellant
Versus
HASSAD FOOD COMPANY Q S C & ORS – Respondent
FAO(OS)_(COMM)-283_2018
A suit filed by a borrower against a bank is maintainable unless there is an express or implied exclusion to that effect. However, the proceedings before the learned DRT and Civil Court are permitted to continue independently. There will be no stay of the proceedings before the learned DRT, and both the proceedings would take their own course. A defendant, who chooses to file a suit before the Civil Court, would not be entitled to seek a stay on the decision of the learned DRT awaiting the verdict of the said suit filed by him before the Civil Court.
Headnote:
CORPORATE GUARANTEE - FRAUD - MISREPRESENTATION - BANKING - RECOVERY OF DEBTS - RDB ACT - CIVIL SUIT - MAINTAINABILITY - INTERIM ORDER - IMPEDING RECOVERY PROCEEDINGSHEADNOTE: A suit filed by a borrower against a bank is maintainable unless there is an express or implied exclusion to that effect. However, the proceedings before the learned DRT and Civil Court are permitted to continue independently. There will be no stay of the proceedings before the learned DRT, and both the proceedings would take their own course. A defendant, who chooses to file a suit before the Civil Court, would not be entitled to seek a stay on the decision of the learned DRT awaiting the verdict of the said suit filed by him before the Civil Court.
Fact of the Case:
Hassad Food Company QSC (Hassad Foods) filed a suit against Kotak Mahindra Bank Ltd. (the appellant) and other banks, alleging that the corporate guarantee it had issued to secure a loan taken by Bush Foods Overseas Pvt. Ltd. (Bush Foods) was vitiated by fraud and misrepresentation. Hassad Foods claimed that the banks had concealed their knowledge about the poor financial health of Bush Foods and had painted a rosy picture to induce Hassad Foods to invest in Bush Foods. The appellant denied the allegations and contended that Hassad Foods had conducted its own due diligence before investing in Bush Foods and that the corporate guarantee was not dependent on any representation made by the banks.
Finding of the Court:
The High Court held that the suit filed by Hassad Foods was maintainable. However, the Court set aside the interim order passed by the learned Single Judge, which had restrained the banks from using any coercive methods against Hassad Foods for recovery of their dues. The Court held that the learned Single Judge had erred in passing the impugned order, as Hassad Foods had not been able to show that the investments were made by them on a representation of the appellant or the consortium of banks.
Issues: 1. Whether a suit filed by a borrower against a bank is maintainable?2. Whether the proceedings before the learned DRT and Civil Court can continue independently?3. Whether a defendant, who chooses to file a suit before the Civil Court, would be entitled to seek a stay on the decision of the learned DRT awaiting the verdict of the said suit filed by him before the Civil Court?
Ratio Decidendi: 1. A suit filed by a borrower against a bank is maintainable unless there is an express or implied exclusion to that effect.2. The proceedings before the learned DRT and Civil Court are permitted to continue independently.3. A defendant, who chooses to file a suit before the Civil Court, would not be entitled to seek a stay on the decision of the learned DRT awaiting the verdict of the said suit filed by him before the Civil Court.
Final Decision: The appeal was allowed, and the interim order passed by the learned Single Judge was set aside.
IN THE HIGH COURT OF DELHI AT NEW DELHI
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Judgment delivered on: 12.12.2023
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FAO(OS) (COMM) 283/2018 & CM APPL. 50200/2018
KOTAK MAHINDRA BANK LTD
..... Appellant
versus
HASSAD FOOD COMPANY Q S C
& ORS
..... Respondents
Advocates who appeared in this case:
For the Appellant
: Mr. T. K. Ganju, Sr. Adv. with Mr. B. L.
Wali & Mr. Shahrookh, Advs.
For the Respondent
: Mr. Jayant Mehta, Sr. Adv. with Mr. Samar
Singh Kachwaha, Ms. Ankit Khushu, Ms.
Akansha Mohan & Ms. Aanya Saluja, Advs.
for R1&2.
Mr. Adhish Rajvanshi & Mr. Bikram
Bhattacharya, Advs. for R3, 4, 5, 7 & 8.
Ms. Usha Singh, Adv. for R10.
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
HON’BLE MR JUSTICE AMIT MAHAJAN
JUDGMENT
AMIT MAHAJAN, J
1.
The appellant, Kotak Mahindra Bank Limited, has filed the
present appeal impugning the order dated 14.09.2018 (hereafter ‘the
impugned order’), passed by the learned Single Judge under Order 39
Rule 1 & 2 of Code of Civil Procedure (hereafter ‘CPC’), in I.A No.
Digitally Signed
By:HARMINDER KAUR
Signing Date:12.12.2023
18:15:16
Signature Not Verified
7103/2018, in CS (COMM) 9/2018 titled Hassad Food Company QSC
& Ors. v. Bank of India & Ors.
2.
The learned Single Judge by its impugned order has restrained
the consortium of banks, including the appellant, from using any
coercive methods against Respondent Nos. 1 and 2 (hereafter
collectively referred to as ‘Hassad Foods’) for recovery of their alleged
dues. The learned Single Judge has given liberty to the appellant and
other banks to approach the High Court for appropriate orders for
protection of their interest, in case the learned Debts Recovery Tribunal
(hereafter ‘DRT’) issued a Recovery Certificate in their favour, in the
pending proceedings initiated by the banks for recovery of their dues
before the learned DRT.
BRIEF FACTS:
3.
Respondent No. 1 is owned and controlled by Qatar Investment
Authorities. Respondent No. 2 is a subsidiary of Respondent No. 1,
which was incorporated as a special purpose vehicle for Respondent
No.1’s investment in Bush Foods Overseas Pvt. Limited (hereafter
‘Bush Foods’).
4.
Bush Foods is a company that was incorporated by Mr. Virkaran
Awasty and his wife Mrs. Ritika Awasty. At the material time it was,
inter alia, engaged in the business of manufacturing, importing and
exporting all kinds of rice, paddy etc.
Digitally Signed
By:HARMINDER KAUR
Signing Date:12.12.2023
18:15:16
Signature Not Verified
5.
Prior to 2013, 29% of the equity in Bush Foods was held by two
Mauritius based indirect subsidiaries of the Standard Chartered Bank,
UK, with the balance shareholding being held by its promotors.
6.
Sometime in September, 2012, Hassad Foods was approached to
invest in Bush Foods. Hassad Foods after conducting due diligence,
entered into two Share Purchase Agreements both dated 09.03.2013
with the promotors of Bush Foods and the said subsidiaries of the
Standard Chartered Bank respectively for acquisition of 69.5% equity
in Bush Foods.
7.
Various credit facilities were granted by the banks to Bush Foods.
In terms of the agreements with the concerned banks, any change in the
shareholding required their consent (No Objection Certificate- ‘NOC’).
The consortium of banks was led by the Bank of India. Post a meeting
held between the banks and Hassad Foods on 11.03.2013, NOCs for the
change of shareholding were granted by the banks on the condition that
Respondent No.1 would furnish a corporate guarantee securitizing 70%
of the working capital facilities availed by Bush Foods from the
consortium of banks.
8.
The appellant (erstwhile ING Vysya Bank) also gave its NOC to
Hassad Foods on 20.03.2013 on the aforesaid condition that Hassad
Foods would provide a corporate guarantee to the extent of 70% of the
working capital limit of Bush Foods.
9.
Thereafter, Respondent No.1 issued a corporate guarantee on
16.05.2013 (hereafter ‘the corporate guarantee’) in favour of the
