9911796707
TMI Blog2020 (12) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... 54,00,000/- (Rupees Forty-nine Crores Fifty-four Lakhs only) alongwith interest on delayed payment totalling to Rs. 78,74,446/- (Rupees Seventy eight Lakhs Nineteen Thousand Three Hundred and Fifty-one only) totaling to Rs. 50,32,74,446/- (Rupees Fifty Crores Five Lakhs Nineteen Thousand Three Hundred & Fifty-one only) to the lead Lender Banker of the Petitioner at TRA account being Account No. 34502995786, State Bank of India, Industrial Finance Branch, IFSC-SBIN0009996 subject to the final outcome the Arbitration; and c. Pass any other orders as this Hon'ble Court may deem fit and appropriate." 2. The petitioner herein is a private company incorporated under the provisions of the Companies Act, 1956. The respondent (formerly Bhushan Steel Limited or BSL) is a subsidiary of the industry giant Tata Steel Ltd. BSL underwent corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 ('IBC', for short) and was acquired by Bamnipal Steel Ltd., a wholly owned subsidiary of Tata Steel Ltd. and was subsequently renamed as Tata Steel BSL Ltd. with effect from November 27, 2018. 3. The respondent prior to undergoing insolvency and resolution proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rent to be paid by the Lessee as set out in this Agreement, the Lessor on and with effect from the Effective Date grants, demises and leases unto the Lessee, the Equipments, on an operating lease basis, in the manner provided in this Lease Agreement (Lease). From the Effective Date, the Lessee shall have exclusive right to use and enjoyment of and uninterrupted access to Equipments for its Business during the Lease Term, subject to the terms and conditions of this Lease Agreement." "5.1 In consideration of the Lease being granted, the Lessee shall pay to the Lessor a monthly rent (not of all taxes and tax deduction at source), details of which are set out in Schedule 2 hereof, in arrears on or before 2 (two) business days prior to the last date of each month (Rent). ... Further, the Parties acknowledge that the above Rent is based on, among others, a benchmark rate (based on the cost of financing the purchase of the equipments by the Lessor) that has been agreed between the Parties prior to the date of execution of this Lease Agreement... " "5.2 Notwithstanding anything contained in this Lease Agreement, the Lessee shall be liable to pay the Rent to the Lessor in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated by the petitioner that the condition precedent for the quiet, peaceful use, enjoyment, possession and uninterrupted control of the Leased Equipment was the timely payment of rent. It is also stated that as per Clause 5.2, the respondent was strictly obligated to pay timely rent notwithstanding any other clause of the Lease Agreement. 12. Thereafter, on June 19, 2015, the petitioner, respondent and SBICAP Trustee Company Limited entered into a Substitution Agreement ('Substitution Agreement', for short) giving the Security Trustee the right on behalf of Lenders of substituting the Lessee in case it does not meet its financial responsibilities towards the Lessor or the Lenders. It is stated by the petitioner that this legal arrangement was especially important as the petitioner had undertaken a substantial debt of Rs. 850 Crores based on the warranties and knowledge of the respondent and as per the terms of the Lease Agreement and that the Lease Agreement and the Substitution Agreement rest on the respondent's timely payment of dues towards discharge of amounts to the Lenders. 13. On May 15, 2018, the CIRP proceedings under the IBC initiated as C.P. IB NO. 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctionality of the machinery of the last five years, it stated by the petitioner that the Oxygen Plants were run and exclusively operated by the respondent and since Steel Plants cannot function without proper functioning of Oxygen Plants, respondents have failed to show any instance where Plant had stopped due to malfunctioning of the Oxygen Plants. 19. Various correspondence and meetings between the petitioner and the respondent ensued without any finality and all negotiations regarding the terms of the Lease Agreement stood exhausted by the petitioner's letter dated July 20, 2020 wherein refusal for any reduction during the term of the Lease Agreement was intimated to the respondent. It is stated by the petitioner that the respondent even made a proposal to buy-back the Leased Equipment. 20. It is averred by the petitioner that by August 31, 2020, the respondent (i) defaulted in making payment of Rs. 49,54,00,000/- as a part of the lease rentals committing breach of the Agreement; (ii) the respondent defaulted in paying the GST on the above amounts; (iii) thereafter in the month of September, 2020, i.e., during the pendency of the instant petition, the respondent further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into by the erstwhile Bhushan Steel Limited that it had realized the payment obligations under the Lease Agreement are not in line with market standard and hence required revision, that the petitioner had failed to carry out the maintenance, and there are amounts receivable from the petitioner. The respondent, thereafter, pursued active communication with the representatives of the petitioner beginning with the takeover by the new management until September 2020 when to the surprise and dismay of the respondent, the petitioner filed the present petition. 27. It is also stated by the respondent that it has time and again asserted (a) the lapses of the petitioner in the maintenance of the Oxygen Plants; (b) the cost incurred on repair and maintenance by the respondent since the inception of the contract; (c) failure to appoint a plant manager by the petitioner since 2015; (d) Operating rentals not in line with the market standard; and (e) outstanding receivables from the petitioner discovered pursuant to the review of the past ledger maintained for the period prior to CIRP reflecting a receivable of Rs. 10,19,91,600/- pertaining to the sale and lease back transaction remained outsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegral part of the Steel Plant and had even failed to appoint a single technical person to oversee the operations of the respondent since the inception of the Lease Agreement until a technical appointee was provided in July, 2020. 32. It is stated by the respondent that it had demanded certain critical spare parts in terms of the letter dated March 27, 2020 and despite repeated reminders, this requirement has not been fulfilled till date which has left the respondent with no option but to consistently spend monies at their own accord for maintenance purpose. 33. In this regard, it is stated that the respondent has evaluated the expense incurred on the repair and maintenance of Oxygen Plants including on spares and services till date minimum at INR 41,79,48,852 (approx.). 34. On reliance placed by the petitioner upon Lender's Unit Inspection Report of November 20, 2019 during the course of discussions/communications, it is stated by the respondent that this report was does not have within its scope review of all technical and mechanical aspects of the continuous operation of the Oxygen Plants. It is also stated that at the relevant time period, the upkeep and repair was compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 328 Crores as per a document titled 'Financial Performance for Quarter and Half Year Ended September 30, 2020' while utilizing the Leased Equipment of the petitioner and avoiding its contractual obligation; (viii) non-payment of rentals by the respondent adversely affects the petitioner's capability to service its loans thereby causing grave prejudice to the assets and credibility of the petitioner; (ix) whilst the respondent has security in form of possession of the Leased Equipment, the petitioner has no such security for ensuring payments of lease rentals. 39. Similarly, on irreparable injury likely to be caused to the petitioner, if relief is denied to the petitioner, it is stated by Mr. Sibal that (i) due to non-payment of rent by the respondent, the petitioner will be rendered unable to pay back its monthly instalments to the banks and other financial institutions; (ii) the petitioner is also liable to pay Goods and Service Tax @ Rs. 3.24 Crores per month on the full invoiced amount despite the default of the respondent; (iii) being the only source of revenue for the petitioner, the wilful non-payment by the respondent has resulted in resulting in forced l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted by the Counsels that for grant of relief under Section 9 it is to be shown that not only is there a prima facie case and balance of convenience in favour of the petitioner, but also the respondent is acting in a manner to defeat the realization of future award. In this regard, they have placed his reliance upon a Judgment of this Court in the case of Goodwill Non-Woven Ltd. v. X Coal Energy & Resourced LLC in OMP (I) (COMM.) 120 of 2020, wherein it was inter-alia held that disputed factual positions cannot be decided in a Section 9 petition, more so when there is no threat of frittering away of the properties either or before during the pendency of the Arbitration proceedings. 45. It is also submitted by the Counsels that the petitioner in the present case has failed to even establish how the denial of interim relief would be likely to frustrate the arbitration proceedings (Ref: Nirbhay Pratap Singh v. Sumitomo Electric Industries and Anr., OMP (I) (COMM.) 275/2020. 46. That apart, it is submitted by the Counsels that in the present case the scope of Section 9 petition is being misused as there exist no immediate threat of any nature to the subject matter and further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while Bhushan Steel Limited would have turned into a Non-Performing Asset. It is submitted that keeping these considerations in mind, rentals were pegged to the loan amount/finance cost, and hence do not represent the true and correct lease rental amount as per the prevailing market standard. 48. It is also submitted by the Counsels that the entire transaction of sale and lease back of Oxygen Plants is itself questionable, being mentioned in a SFIO Complaint and Investigation Report. 49. It is further contended by the Counsels that Annual Reports of a Company are public documents as per the statutory position and judicial precedence under Indian Evidence Act, 1972 and as per the same, it is a matter of public knowledge that the respondent in its new Avtar was reviewing and analyzing all existing agreements in its domain. It was during this exercise that the Lease Agreement was reviewed and later realized by the respondent that Rs. 18 Crore per month lease rental was not in accordance with the prevalent market standard but far in excess of it. Consequently, the respondent had approached the petitioner to streamline the rentals with current market standards. In this regard, it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge process done in accordance with RBI circulars and the petitioner has not crossed even the first stage. It is further submitted, the Supreme Court vide the order dated September 03, 2020 passed in Writ Petition (Civil) 825 of 2020 in Gajendra Sharma v. Union of India has also indefinitely stayed declaration of loan facilities as NPA until further orders. 53. Clause 6.1.(vii) of the Lease Agreement and Clause 6.1.7 of the Common Loan Agreement casts obligation on the petitioner to maintain the Oxygen Plants in accordance with best industry practice and undertake routine repairs. Clause 6.1.5 of the Common Loan Agreement also mandates the petitioner to maintain a comprehensive insurance coverage of the Oxygen Plants. Relying upon these contractual obligations, it is contended by the Counsels that each representation, warranty, undertaking and covenant of the petitioner under Lease Agreement and Common Loan Agreement is an independent obligation of the petitioner. Therefore, meeting the insurance obligation under Clause 6.1.(viii) and 6.1.5 of the Lease Agreement and Common Loan Agreement respectively will not discharge the petitioner's maintenance obligations under 6.1.(vii) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P is also ill-founded. Moreover, the lack of clarity on the accounts that are payable to the Lenders, intention to not arbitrate the present dispute by seeking final relief, it is submitted by them, are all illustrative of the fact that the petitioner has approached the Court with unclean hands. 58. Rebutting the pleas raised by the Counsels, Mr. Sibal contested that the respondent has paid the lease rentals at the documented rate until February, 2020 and even thereafter. The respondent claimed a discount based only on the stress on its liquidity due to COVID-19. It is also stated by Mr. Sibal that the respondent has even deducted tax at source under the Income Tax Act and has paid to the Government of India based on the documented lease rentals while paying to the petitioner a reduced amount. Moreover, the entire transaction was appraised by seventeen banks led by SBI, subsequent to which Rs. 10,00,12,50,000/- was paid by the petitioner to the respondent to reduce its liability and no dispute was raised by the committee of creditors, respondent RP on the petitioner's Lease Agreement during the CIRP process. In this regard, anchorage has been made on the Apex Court Judgment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent even in its balance sheet, as the law requires the same to be put to trial. He further stated that the statement in the standalone financial statement, which reads as 'Balance receivable of Rs. 21,94,96,885 and payable of Rs. 10,19,91,600 from Bhushan Steel Limited is subject to confirmation', is neither unequivocal, nor clear or categorical for it to be an admission. Rather, it is qualified by two factors, i.e., 'Balance receivable of Rs. 21,94,96,885' and 'subject to confirmation'. The alleged claim for Rs. 10,19,91,600/-, it is also contested by Mr. Sibal on the ground that the same does not arise under the Lease Agreement and accordingly, not covered within the ambit of arbitral proceedings. 64. On non-invocation of Clause 11.1 which mandated pre-arbitration negotiations, Mr. Sibal submitted that the said plea is not sustainable in view of the Apex Court Judgment in Visa International Ltd. v. Continental Resources (USA) Ltd., (2009) 2 SCC 55. 65. Having heard learned counsels appearing for the parties, I shall encapsulate their submissions in brief. The submissions of Mr. Sibal are as follows: 1. There is an admitted obligation to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s liability as per the standalone financial statement is neither unequivocal nor covered within the ambit of arbitral proceedings. 66. On the other hand, the submissions of Dr. Singhvi and Mr. Nigam (Counsels) are as follows: 1. Petitioner is trying to circumvent judicial dicta and established principles surrounding Section 9 as the said provision cannot be used to secure a decree to the tune of a final relief, nor can it be misused to nullify the arbitration proceedings by seeking a final relief. Reliance placed on Avantha Holdings Limited (supra). 2. The payment for Rs. 18 crores per month is disputed fact to be decided by the Arbitrator. 3. Granting of the reliefs under this petition would amount to negating the entire insolvency proceedings through which the respondent revived a sick unit; 4. Respondent facility has been deemed to be a Public Utility Service vide a Government of Odisha Notification dated July 16, 2020 in the times of COVID-19 and therefore, no injunction or restraint from using the Oxygen Plants can be granted considering the fact that the Steel Facility cannot be run without its Oxygen Plant. 5. No case made out by the petitioner that non-grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... until September, 2020; 7.10. Various communications between the parties whereby petitioner is informed about required repairs, requirement of spares, maintenance cost since 2019; 7.11. As per the ledger/statement of accounts of the Company, as well as stand-alone financial statement of petitioner for FY-2017-18 an outstanding amount of Rs. 10,19,91,600/- is payable by the petitioner to the respondent. Demand for its payment was made by respond on July 03, 2020 and the liability was acknowledged by one of the official of petitioner's Lenders. Reliance place on ESPN Software India Pvt. Ltd. (supra) and Shahi Exports Pvt. Ltd. (supra) to contend that admission in balance sheet is per se an admission of liability. 8. The plea that the respondent is attempting to force the petitioner into being declared an NPA by the lender bank is ill-founded as the petitioner had undertaken the moratorium on debt repayment and has also received close to 70% of the renal amount from the respondent through part payment made every month. Moreover, Supreme Court has currently stayed declaring loan facilities NPA. 67. Having noted the broad submissions of the learned counsels for the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XXX XXX XXX SCHEDULE 2 RENT PAYMENT DETAILS The monthly Rent to be paid by the Lessee shall be as follows: (a) Rs. 15,00,00,000 (Rupees Fifteen Crores only) (net of all taxes and tax deduction at source) for the period commencing on the Rent Commencement Date and ending on 31 March 2020; and (b) Rs. 18,00,00,000 (Rupees Eighteen Crores only) (net of all taxes and tax deduction at source) for the remaining duration of the Lease Term, provided that the Parties may revise the monthly Rent as agreed between them from time to time. Notwithstanding the foregoing: (i) for the first month of the Lease Term, in addition to the Rent payable for that month, the Lessee shall also pay an amount of Rs. 15,00,00,000/- (Rupees Fifteen Crore only) as one month's advance Rent. This shall be adjusted by the Lessor only against the Rent payable for the last month of the Lease Term or against any other amounts as may be agreed in writing by the Lessee, and (ii) if the Lease Commencement Date is a day other than the first date of the month, then the Rent payable for that month shall be pro-rata to the number of remaining days of that month." 68. Mr. Sibal is right in relying upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the Lenders and there is obligation to pay the GST/TDS to the concerned authorities as well. If that be so, there is a prima facie liability on the respondent to pay to the petitioner/Lenders for the usage of the Oxygen Plants in the manner stipulated in the Lease Agreement i.e., Clause 5.1 read with Schedule 2. 73. At this stage, I may also refer to the plea of the Counsels that despite specific obligation, the petitioner has failed to undertake routine maintenance measures of the Oxygen Plants and keep the same in good working condition in accordance with best industry practice. In support of their submission, they had relied upon the Clause 6.1.(vii) of the Lease Agreement and Clause 6.1.7 of the Common Loan Agreement. 74. According to them, the petitioner has failed to even appoint a single technical person to oversee the operation of the Oxygen Plants since inspection of the Lease Agreement in 2015. It is only after repeated requests made by the respondent that at a very belated stage in July 2020, the details of technical appointee were provided. That apart, it is also stated that the petitioner has failed to provide the spares for the plants. In substance, it was their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the parties as to whether the expenses of Rs. 41,79,48,852/- said to be incurred on the plants by the respondent are payable and need to be adjusted against the lease rent payable by the respondent. The same has to be decided; not by this Court but by the Ld. Arbitrator, as decision on such dispute shall amount to a final determination. The Counsels have relied upon the judgments of this Court to contend that no prima facie case has been made out by the petitioner for grant of the reliefs as prayed for. I have perused the said judgments carefully viz., Goodwill Non-Woven Pvt. Ltd. (supra), Avantha Holdings Ltd. (supra) and Nirbhay Pratap Singh (supra). Suffice to state that this Court in the facts and circumstance of those cases refused to exercise its power under Section 9 of the Act. 80. On the other hand, Mr. Sibal is justified in relying upon the judgment of this Court in Supertrack Hotels Pvt. Ltd. (supra), wherein the Division Bench upheld the judgment of the Single Bench, directing the appellant therein to pay a sum of Rs. 1,30,44,960/- which was the outstanding amount of agreed rent as per the lease deed from November 2015 till April 2016. The Division Bench in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of having determined the tenancy of one of the two office units taken on rent, is clearly vexatious, as in law the appellant as a tenant could not determine tenancy of part of the premises taken on rent. It is not the case of the appellant that it was entitled to do so as part of terms of its tenancy. In that view of the matter, the appellant could under Order XV-A of the CPC have been directed to pay the rent of the entire premises notwithstanding having given notice of termination of tenancy of part thereof We are therefore satisfied that the impugned order satisfies the test of being in exercise of the same power for making orders as the Court has for the purpose of a Civil Suit and is thus within the ambit of Section 9 of the Arbitration Act." 81. The aforesaid judgment was primarily pivoted on the settled position of Law as stated by the Supreme Court in its judgment of Alopi Prashad and Sons Ltd. (supra), wherein the Apex Court inter-alia held that the Indian Contract Act, does not enable a party to a contract to ignore the express covenants thereof and to claim payment of consideration of performance of the contract at rates different from the stipulated rates on vague ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed rate also, empowers the Civil Court to direct payment which is apparently wrongfully disputed. The denial by the appellant of the entire rent as agreed, on the ground of having determined the tenancy of one of the two office units taken on rent, is clearly vexatious, as in law the appellant as a tenant could not determine tenancy of part of the premises taken on rent. It is not the case of the appellant that it was entitled to do so as part of terms of its tenancy. In that view of the matter, the appellant could under Order XV-A of the CPC have been directed to pay the rent of the entire premises notwithstanding having given notice of termination of tenancy of part thereof. We are therefore satisfied that the impugned order satisfies the test of being in exercise of the same power for making orders as the Court has for the purpose of a Civil Suit and is thus within the ambit of Section 9 of the Arbitration Act. 83. That apart, a submission was made by the Counsels that as per the past ledger/statement of accounts maintained with the Company, an amount of Rs. 10,19,91,600 is outstanding/payable by the petitioner to the respondent in view of the 'Sale and Lease Back' tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in its reply to the present review petition, has contested the existence of the ICDs, and MGF's case is based on a debt arising from the ICDs, this Court does not find merit in the argument that debt is established, while only the nature of the security is dispute. Neither is Mr. Nanda's alleged admission categorical, in that he specifically avers wrongdoing on behalf of Mr. Mehra, a fact which, whether ultimately true or not, deserves to be tested during the ordinary course of trial. The fact that Mr. Nanda and his lawyers have allegations of forgery pending against them in unrelated trials, or that FIRs have been registered against them, does not allow this Court to reach the conclusion that its findings based on well-established jurisprudence surrounding decree on admissions are to be reviewed or set aside. Crucially, this Court, neither in its judgment of 10.04.2012 nor in the present review expresses any opinion on the merits of the claims advanced by either party, but only reiterates that these claims must be tested at trial..." (Emphasis supplied.) 86. In view of the above, it is clear that Rs. 18 crores being the contractual amount w.e.f. April 01, 2020, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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