BANK OF INDIA vs Coastal Oil and Gas Infrastructure Pvt Ltd and Six Others on 15 May 2024

: - O R D E R - :

This application under Section 19 of the RDB Act, 1993 filed jointly by the four Applicant Banks for recovery of Rs.750,60,91,863.51p against the Defendants 1 to 3 jointly and severally bifurcating the sums payable to each of the Applicant Banks; however during the pendency of the litigation the Applicants have filed a memo dated 20.03.2024 restricting their claim only as against Defendant No.2 and claimed the recovery of the sums of Rs.206,94,52,524/- along with interest payable to the 1st Applicant Bank, a sum of Rs.111,57,54,106/- along with interest payable to the 2nd Applicant Bank, a sum of Rs.222,52,36,913.51p along with interest payable to the 3rd Applicant Bank and a sum of Rs.173,00,06,665/- along with interest payable to the 4th Applicant Bank and sought for the recovery certificate accordingly.

BRIEF FACTS OF THE CASE:-

1.0 As per the amended OA it is pleaded that the Applicants are all the institutions incorporated under the Banking Companies (Acquisition and Transfer of undertakings Act, 1970). The 2nd Defendant and the 3rd Defendant are the guarantors to the transactions of Defendant No.1 with the Applicant Banks and Defendants 4 to 7 are the Companies holding the shares of 1st Defendant Company.

1.1 The 1st Defendant Company (Now deleted consequent to the orders dated 04.10.2023 in IA No.163/2023 since the successful resolution Applicant – before the NCLT having paid certain sums realized by the Applicants) had been floated as a special purpose vehicle and is engaged in the business of developing the terminal facility for Nagarujana Oil Corporation Limited (NOCL) for its Oil Refinery at Kayalpattu Village, Poojimedu, Cuddalore District, Tamilnadu. The 1st Defendant entered into the service agreement with NOCL on 26.05.2010. Thus, on this basis the 1st Defendant approached the Applicant Banks for a term loan not exceeding Rs.641.85 Crores and accordingly all the Banks have sanctioned the terms loans vide sanction letters of different dates ranging from 21.02.2011 to 30.06.2015 produced at Annexure A6 to A15. The common loan agreement executed by Defendant No.1 is dated 01.08.2021. It is pleaded that the Applicants 1 to 4 have sanctioned Rupee Term Loan of Rs.198,00,00,000/- by the 1st Applicant; Rs.98,85,00,000/- by the 2nd Applicant; Rs.197,00,00,000/- by the 3rd Applicant and Rs.148,00,00,000/- by the 4th Applicant.

1.2 It is averred that due to the delay in the implementation of the project, the 1st Defendant requested for additional debt of Rs.358.69 Crores and the same was partly sanctioned. In view of the debt requirement not fully tied up, the Applicants did not disburse the 2nd Term Loan. The common loan agreement provided for the secured obligations to the satisfaction of the banks inter-alia the first charge on all tangible movables, the Applicants submit that the consortium lenders have a charge on the primary and collateral security. On the date of the agreement, it was agreed that IDBI Trustee Ship Services Limited would act as the Security Trustee as per the agreement at Annexure A17 dated 01.08.2021. It is on the same date the 1st Applicant was agreed to be the lead bank inter se Applicants.

1.3 The 3rd Defendant executed an undertaking dated 01.08.2011 executing the corporate guarantee. The Defendants 3 to 7 have pledged their shares of Defendant No.1 Company in favour of the Applicants. On 02.08.2011, the 1st Defendant executed indenture of mortgage concerning the properties described in the schedule to the OA and deposited the title deeds with IDBI Trustee Ship Limited which is duly registered and the compliances under the law are followed.

1.4 It is specifically pleaded that the 2nd Defendant had executed the guarantee deed dated 28.06.2013 in favour of the IDBI Trustee Ship Services Limited and in terms of the guarantee deed, it was agreed by the 2nd Defendant that in the event of 1st Defendant failing to meet the secured obligations, the same would be borne by the 2nd Defendant in terms of the personal guarantee. Further, it is pleaded that the amendment to the common loan agreement as well as the security trustee agreement was executed on 28.06.2013 and the 2nd amendment on 31.03.2015. The liability of the 1st Defendant Company is acknowledged on 30.06.2014 and on 31.01.2017.

1.5 The Applicants 2 to 4 had issued demand notices of various dates in the year 2017 and 2018 as per Annexure A36, A38 and A39A respectively annexure with the OA calling upon the Defendants to pay the dues. A common legal notice on behalf of all the Applicants was also issued dated 07.12.2017 addressed to the Defendants No.1 to 3 calling upon them to discharge the liabilities arising out of the loan agreements and the obligations. The same was not complied despite service.

1.6 It is submitted that as on 29.07.2018 a total sum of Rs.750,60,91,863.51p was the due payable as per the statement of accounts and it is pleaded that the Applicants have filed the OA in time and this Tribunal is competent having the jurisdiction to entertain this claim.

2.0 The case was initially before the DRT-II, Chennai and the same is transferred to this Tribunal. While the matter was pending before the Ld. Predecessor, it is seen that the Defendant No.1 Company had filed its written statement (unsigned by the counsel for the Defendant) which is adopted by Defendants 4, 5 & 6. D2 had also adopted the written statement filed by Defendant No.1 through his counsel, which is noted in the order sheet dated 17.02.2021. There are no other written statements filed by the Defendant No.3 & 7.

2.1 Upon transfer of this matter to this Tribunal, the Applicants were asked to intimate the next date of hearing to all the Defendants. The Applicants counsel had filed the affidavit of service dated 16.11.2023 in which it is mentioned that the Defendants 2 & 3 have not claimed the notices and 4 & 5 had left the address and the 6th Defendant was not found in the address. This Tribunal by an order dated 16.11.2023 held the services of intimation of notices upon transfer (though properly served before the Ld. Predecessor) as sufficient. On 30.11.2023, the Ld. Counsel for the Applicants submitted that Defendant No.3 is facing insolvency proceedings and later it was reported that D3 was taken over by a new entity. However on 14.03.2024, the Ld. Counsel for the Applicants submitted that Applicants restrict their prayer against Defendant No.2 alone.

THE CASE OF THE DEFENDANTS:-

3.0 With the subsequent developments reported during the pendency of the matter, as noted in the order sheet dated 14.03.2024 and the amended OA filed on 20.03.2024, the relief is sought against 2nd Defendant alone. Therefore the Applicants have restricted their prayers to seek recovery against the 2nd Defendant who has not individually filed his written statement. However since he adopted the written statement filed by the Defendant No.1, and the Defendant No.2 being the only Defendant on whom the liability is sought to be enforced, the case of the Defendant No.2is concisely as under:- 3.1 In the written statement filed by Defendant No.1 adopted by Defendant No.2 admits that the 1st Defendant is the special purpose vehicle promoted by Defendants 3 to 6 group of companies namely Abir Group of Companies and the Defendant No.1 entered into a terminal service agreement with NOCL. It is also admitted that loan applications were made and the Applicants have sanctioned the loan and that the 1st Applicant is the lead bank.

3.2 It is pleaded that the economic sustenance of Defendant No.1 was dependent on the survival of M/s.NOCL. It is pleaded that refinery was never complete by the NOCL and by which time the Defendant No.1 had invested huge sum for the storage facility of NOCL. The said NOCL leased out 323 acres of land for building the storage facility of 72 tanks and the same is mortgaged with the IDBI Trustee. The construction of NOCL was stalled in January, 2012 and the tank project was suspended. The financial assistance by the banks was based on agreement with NOCL, which the Applicant banks were very much aware. In fact the Defendant No.1 acted as an agent of the lenders. The loans released have been used in setting up the ‘tankage facility of NOCL’.

3.3 Since the 1st Defendant depended on NOCL and since the said NOCL faced CIRP Proceedings, the Doctrine of Frustration comes into effect and the circumstances arose for no fault of either party. Therefore, the parties are required to be released from all the further obligations. When the entire performance of the contract becomes impossible the same gets dissolved by the “Doctrine of Frustration” for the superveining impossibility. Therefore it is pleaded that the Applicants are not entitled to approach this Tribunal and the application is devoid of merits.

3.4 It is also pleaded that the Applicants are suppressing the material facts and are whimsically approaching this court without any reason or fairness. The Applicants ought to have examined the viability of the project and should have explored the implementation of the project independently. Therefore it is prayed that the application be dismissed.

3.5 It is to be noted that there is no separate written statement filed by the 2nd Defendant.

SUBSEQUENT DEVELOPMENTS:-

4.0 After the adducing of the evidence by the lead bank witness, the Applicants have filed an Interlocutory Application in IA No.163/2023. It is prayed in the Interlocutory Application to delete the Defendant No.1 from the array of parties. It is supported by an affidavit filed by the authorized signatory of the 1st Applicant Bank. It is averred in the Affidavit that during the corporate insolvency proceedings initiated at Ld. NCLT, Amaravathi, the resolution plan was approved and the successful resolution Applicant had disbursed the following sums in favour of the Applicants as under:- Sl. No. Applicant Amount (Rupees)

1. Bank of India Rs.11,47,31,876.00

2. Central Bank of India Rs.5,29,35,882.00

3. State Bank of India Rs.11,14,79,506.00

4. Canara Bank Rs.8,64,94,391.00

In view of the above, the 1st Defendant was given up by the Applicants consequent to the orders of the Tribunal dated 04.10.2023 on the IA.

4.1 Thereafter when the matter was kept for the Counter Proof Affidavit of the Defendants, the same was not filed and opportunity is closed on 08.01.2024.

4.2 During the course of arguments on 21.02.2024, it was submitted by the Applicants that Defendant No.3 is taken over by a new entity and the Applicant was asked to specify any amounts realized. The same was not reported. However, on 14.03.2024, it was submitted that the Applicants restrict their claim only against Defendant No.2 and sought for a personal decree. Consequently the amended OA was filed. It was also submitted in the course of arguments that the Defendant No.2 had not mortgaged any of the properties in favour of any of the applicant banks. Therefore, the prayer is against the 2nd Defendant in person. Written synopsis of arguments is also filed by the Applicants.

POINTS FOR DETERMINATION:-

5.0 In view of the amended OA filed on 20.03.2024 and in the written arguments filed on 13.05.2024, wherein the Applicant contends that the relief in the suit does not survive against other Defendants excepting the 2nd Defendant, the only point that arises for determination is as follows:- Whether the 2nd Defendant is liable to pay the sums claimed by each of the Applicant Banks as prayed for in the amended TA?

5.1 It is to be noted that the 2nd Defendant had not filed the written statement, but adopted that of the 1st Defendant. The WS of 1st Defendant does not dispute the claim of the Applicant Banks. It only specifies the Applicants are not eligible to the claim following the Doctrine of Frustration.

5.2 The Law Lexicon by Sh.P.Ramanatha Aiyar of 1997 Edition, Wadhwa and Company, Nagpur – explains the frustration of contract as “The applicability of the doctrine of frustration of contracts depends upon the particular circumstances of the case in which it is sought to be invoked. Where it has not become impossible for a party to discharge his obligation under contract, but merely burdensome to him to do, the doctrine cannot be invoked. Before the doctrine can be invoked, it must be shown that the cause which produced frustration was one which the parties to the contract did not foresee and could not, with reasonable diligence have foreseen. (1945) PWN 106=AIR 1945 PAT300.”

5.3 In the instant case, there is no counter proof affidavit at least to adumbrate the suggestion. Furthermore, the Defendant No.1 which was tasked to work for NOCL - is not a party to the loan transaction. Therefore, the contention taken in the written statement, which is not proved on record, is only a lip service to avoid the liability. The liability is not disputed.

5.4 In the circumstances, this Tribunal is only to find out whether the Defendant No.2 had executed the personal guarantee for the loan transactions of Defendant No.1 Company with the Applicant Banks or not.

5.5 Perused the Proof Affidavit. It is averred in Para-15 of the Proof Affidavit of AW1 that the 2nd Defendant had guaranteed the repayment of the facilities under the guarantee deed executed in favour of M/s.IDBI Trustee Ship Limited which is the security trustee of the Applicant Banks. It is also averred that in terms of the same, the 2nd Defendant under took with the security trustee and the Applicant Banks that in the event of the Defendant No.1 unable to meet its secured obligations under the common loan agreement, the 2nd Defendant shall stand to meet and pay such secured obligations from time to time. This document is at Exh.A11. The same is perused which is in the Volume No.II of the Proof Affidavit. The said document is executed by the 2nd Defendant in favour of the IDBI Trustee Ship Limited. The terms of the said document styled as “deed of personal guarantee” ensures and guarantees the IDBI and the Applicant Banks that the liability is accepted towards the obligation of the principal borrower. This document is not disputed and the averment in the affidavit is unrebutted. In view of the above, this Tribunal has no hesitation to hold that the 2nd Defendant having executed the personal guarantee deed is bound by such obligations. Hence the point for determination is answered in favour of the Applicant Banks and against the 2nd Defendant.

5.6 It is pertinent to note that during the course of the arguments the Ld. Counsel already submitted on 14.03.2024 that no properties / assets are mortgaged by the 2nd Defendant in favour of the Applicant Banks. Therefore, a decree for the amount to be recovered against the 2nd Defendant personally follows. Consequently the following:

: - O R D E R - :

The 2nd Defendant is hereby ordered to pay:-

(i) a sum of Rs.206,94,52,524/- along with interest @16.20% p.a. with monthly rests from 29.07.2018 till the date of realization payable to the 1st Applicant - Bank of India

(ii) a sum of Rs.111,57,54,106/- along with interest @14.70% p.a with monthly rests from 29.07.2018 till the date of realization payable to the 2nd Applicant – Central Bank of India,

(iii) a sum of Rs.222,52,36,913.51p along with interest @14.95% p.a with monthly rests from 29.07.2018 till the date of realization payable to the 3rd Applicant – State Bank of India and;

(iv) a sum of Rs.173,00,06,665/- along with interest payable @14.65% p.a with monthly rests from 29.07.2018 till the date of realization payable to the 4th Applicant – Canara Bank along with the costs and less the amounts realized by the Banks or the security trustee in any other collateral proceedings including the realization of the shares of the Defendants 4 to 7 in the Defendants No.1 & 3 Company or in the proceedings before the NCLT Proceedings concerning the resolution plan of the Defendant No.1 Company, for which the details / memo of calculations to be submitted before the Recovery Officers.

(v) The applicant banks may proceed to recovery such amounts against the 2nd Defendant.

The applicant bank is directed to file costs memo within two weeks of the receipt of this order.

Issue recovery certificate accordingly.

Communicate a copy of this order to the Applicant Banks and the 2nd Defendant as per Rules. Sd/- (A.S.JAYACHANDRA) PRESIDING OFFICER DRT-I, CHENNAI

(Dictated to PS on the system corrected, signed and pronounced by me on this 15th day of May, 2024)