2011 (12) TMI 772 - HC - Indian Laws

Summary

Issues Involved:
1. Justification of IFCI Ltd. in assigning debt to Kotak Mahindra Bank Ltd.
2. Binding nature of the decision in AIR 2007 Delhi 65 Haryana Steel & Alloys Ltd. Vs. IFCI Ltd.
3. Allegations of mala fide against IFCI Ltd. and Kotak Mahindra Bank Ltd.
4. Bona fide conduct of the 'Company' in settling debts.
5. Jurisdiction of BIFR versus the High Court under Article 226 of the Constitution of India.
6. Impact of debt assignment on the rights of the debtor.

Detailed Analysis:

1. Justification of IFCI Ltd. in Assigning Debt to Kotak Mahindra Bank Ltd.:
The court held that the proper forum to challenge the assignment of debt by IFCI Ltd. was BIFR. It was noted that IFCI Ltd. was justified in assigning the debt to Kotak Mahindra Bank Ltd. as there were no allegations of mala fide in the pleadings against the decision-makers in IFCI Ltd. The court found that IFCI Ltd. acted within its rights and fiduciary duties as an operating agency appointed by BIFR.

2. Binding Nature of the Decision in AIR 2007 Delhi 65 Haryana Steel & Alloys Ltd. Vs. IFCI Ltd.:
The court acknowledged that an identical issue was decided by a Division Bench in the Haryana Steel & Alloys Ltd. case, which was binding on the learned Single Judge. The Supreme Court had dismissed the Petition seeking Special Leave to Appeal against this decision, reinforcing its binding nature. The court noted that the distinctive facts of the present case did not alter the binding effect of the earlier decision.

3. Allegations of Mala Fide Against IFCI Ltd. and Kotak Mahindra Bank Ltd.:
The court examined the allegations of mala fide and found them unsubstantiated. It was highlighted that the 'Company' had no knowledge of certain facts when the writ petition was filed, but supplementary pleadings were considered. The court found no evidence of mala fide in the actions of IFCI Ltd. or Kotak Mahindra Bank Ltd., including the timing of payments and the terms of the bid acceptance. The court concluded that the actions of IFCI Ltd. were prudent from a business perspective and did not demonstrate any mala fide intent.

4. Bona Fide Conduct of the 'Company' in Settling Debts:
The court disagreed with the learned Single Judge's view that the 'Company' lacked bona fide due to its evolving settlement offers. It was noted that the 'Company' made honest attempts to settle debts, evidenced by successful settlements with four of the five secured creditors. The court found that the 'Company's' conduct demonstrated bona fide efforts rather than a lack thereof.

5. Jurisdiction of BIFR versus the High Court under Article 226 of the Constitution of India:
The court clarified that the grievance related to IFCI Ltd.'s conduct as an operating agency appointed by BIFR could be agitated before the High Court under Article 226. The court emphasized that the challenge was based on the right conferred under Article 14 of the Constitution of India, requiring the State and its instrumentalities to act reasonably, fairly, and non-arbitrarily. The court found that IFCI Ltd.'s actions were reasonable and prudent from a business standpoint.

6. Impact of Debt Assignment on the Rights of the Debtor:
The court held that the assignment of debt by IFCI Ltd. to Kotak Mahindra Bank Ltd. did not affect the rights of the debtor. It was noted that the liability of the debtor remained unchanged regardless of the creditor. The court referred to the Supreme Court's observation in Mardia Chemicals Ltd.'s case, which stated that the transfer of debt does not affect the rights or interests of the borrower. The court concluded that the 'Company' had no legal right to challenge the assignment of debt based on its interest in knowing its creditor.

Conclusion:
The court affirmed the conclusions of the learned Single Judge but provided a detailed reasoning process. The appeal was dismissed, and no costs were imposed considering the weak financial position of the appellant.