NEL HOLDINGS SOUTH LIMITED vs SHRIRAM CITY UNION FINANCE LTD on 30 June 2021

FINAL ORDER

The Applicants have filed Miscellaneous Application under Section 17(7) of the SARFAESI Act' 2OO2 read with Section 22(l) of the Recovery of Debts And Bankruptcy 1-993 seeking withdrawal of the complaint filed by Respondents under Section 138 of th,g Instruments Act, 1881 before the Act, the able Magistrate, Jaipur and further to direct

D.No.1818/2020 release/issue the balance payment of Rs.2,93,00,000/- out of total consideration of Rs.5,25,00,000/- within 60 days from the date of order of this Tribunal; further to direct the Respondents to issue clean/clear NOC to the Applicants in respect of penthouse Unit No.306 for which the Applicants will pay Rs.6,25,00,000/- within 90 days from the date of issuance of NOC and for such other reliefs as this Tribunal deems fit to grant.

The Applicants contended that they had filed the above appeal before this Tribunal seeking to set aside/quash the order dated 23.07.2019 passed by the Learned x Additional Chief Metropolitan Magistrate, Bengaluru, in C.Mis.No.50L63/2019 under Section 14 of the SARFAESI Act with respect to schedule propefi which is a Flat bearing No.107 (also numbered as A-207) measuring 4942 sq.ft. in Project Nitesh Logos constructed in the lands/p bearing Municipal Nos.37l4,38,38/1 and 38/2, situated Aga Abbas Ali Road, Civil Station, Bangalore. The Applic D No.1818/2020 further contended that Applicants are not due the huge sum of Rs.14,89,52,554/- as demanded in the demand notice dated 15.03.2019 under Section 13(2) of the Act wherein the schedule properly i.e. Flat No.1O7 (present No'Flat A-207) is the Item No.3 of the mortgaged property which has been sold by the Applicants after obtaining No-Objection Certificate from the 1't Respondent under a registered sale deed dated 26.09.2018 in favour of third party and for which a sum of Rs.5,94,13,040/- has already been deposited by the Applicants into the Escrow Account as demanded/as per the condition laid down in the No-Objection Certificate issued by the L't Respondent. Applicants contended that in this view of the matter, the Respondents are legally estopped from proceeding against the schedule property or taking possession thereof and hence the said impugned notice and the afore-mentioned order passed by the Learned Magistrate are illegal and liable to be set aside by this Tribunal on the ground that the Respondents are aware that they c{not take physical possession of the schedule propfrty breaking open the lock or otherwise, let alone with the help of the jurisdictional police when there is a third party who is in lawful possession and enjoyment of the schedule property, that too when the Respondents themselves have given a clear No-Objection Certificate for the sale of the schedule property and the sale consideration has been deposited by the Applicants. As such, the schedule property is no longer a secured asset as defined under Section 2(zc) of the SARFAESI Act and the Respondents therefore have no jurisdiction or authority to proceed against the schedule property much less take physical possession of the same.

It is further contended that in the above appeal, the Respondents appeared and the Applicants in compliance of the interim order of stay granted by this Tribunal on L7.f2.20L9, filed a joint memo vide Annexure-A1 on 04.02.2020 with a copy of a cheque for Rs.1,50,00, on 03.03.2020, the appeal was disposed of on the joint memo. The Applicants stating that Claqses D No.1818/2020 the joint memo dated 03.03.2020 being relevant have reproduced the said clauses which read as under "6. The Respondents hereby acknowledge having received a Demand Draft bearing No'955643 dated 18.02.2020 for Rs.30,00,000/- (Rupees thlrty lakhs only) from the Applicant' Further the Respondents have also received a cheque bearing No.036317 dated 22.03.2020 f or Rs.77,63'255 / - which shall be banked by the Respondents on 22.03.2020. Further the Applicants would provide TDS certificates lor Rs.42,36,7 45/- for the financial years 201-8-19 and 20!9-20 till (29'02'2020) on or before 22.03.2020. The Respondents shall release the charge over the said schedule property ie' item No.3 (Flat A 207 earlier referred to as Flat No.l.07 in the suPplementary JDA reement dated 29th July 201L) on realization of the sAid cheque and confirmation of the TDS

their account. Upon realization of the said amount of Rs.1.5 crore as above the Respondents shall withdraw the complaint under Section 138 of the NI Act filed before the Metropolitan Magistrate (NI Act Cases) No.L0 at Jaipur." "7. The Respondents further expressly undertake to issue a Conditional NOC for a sum of Rs.5,25,00,000/- (Rupees five crore twenty-five lakh only) in respect of (Flat No.A-0205 earlier referred to as Flat No.105 in the supplementary JDA agreement dated 29th July 2011) i.e. item No.1 property of the demand notice dated 15.03.2019 upon realization of the aforementioned cheque dated 22.03.2020 and confirmation of the TDS credits in their account. In the event the Applicants approac!-{e Respondents for a Conditional NOC in respect of (Flat No.A-0205 earlier referred to as D No-181.8/2020 in the supplementary JDA agreement dated 29th July 20L1) i.e. ltem No.1 property of the demand notice dated 15.03.2019 before realization of the aforementioned cheque dated 22.03.2020 rhe Respondents will issue a Conditional NOC with inter-alia conditions that the aforementioned flat shall be finally released only and only upon credit of the accounts as mentioned in this Para and Para 6 above in the Respondents account'" "8. The Respondents further undertake that upon a conditional NOC being issued to the Applicants in respect of ltem No.l of the demand notice of Rs.5,25,00,000/- and thereby enabling the Appticants to sell ltem No.1 property of the demand notice. Then the Applicants will pay the Respondents the sum of Rs.5,25,00,000/- o before 31.03.2020. AccordinglY settlement amount of Rs.13,00,00,000/- balance payable by the Applicants would then reduced to Rs.6,25,00,000/-." Thereafter, as the Respondents did not comply with the terms of the joint memo in its letter and spirit even though the Applicants had virtually complied with the terms of the joint memo, email correspondences took place between the representatives of the Applicants and the Respondents. In fact, paras-1-, 2 and 3 of the email dated 26.09.2020 sent by the representatives of the Applicants to the Respondents read as under: "1. Payments of 1.50 crs as per agreed position with Shriram has been made and now Shriram needs to execute some documents. This closes one part of part simple process. We be "9. returned the PDC of 77 lacs whe

D.No.l818/2020 the DD of 77 lacs and the balance amount of 30 lacs has also been paid through the DD was handed over to Shriram. And 43 lacs has been paid directly to the Shriram TDS account. With this we completed our obligation on this first leg totally. This has been agreed position with Siddhartha'

2. On the 2"d step of the simple process, we had to sell the duplex unit for 5.25 crs' We got a conditional NOC for 5.25 crs and were told that when we complete the point No l a clean NOC will be given. All we are asking now a clean NOC stating on payment of the balance of 2.93 crs this unit would be clear of any charges. The client requires housing loan a we are making this simPle req You can /0" rest assured within 60 daYs s will closed fully. And this with Siddhartha. This leg. is an agreed position will complete the 2nd

3. The last part of the process, is the l" unit pending after this of the penthouse 306, where we have now asked for an NOC for 5.75 crs and once received the client will pay 20 & and balance 80% through housing loan."

The Applicants further contended that upon the payments of Rs.1,50,00,000/- and in terms of clause 6 of the joint memo, the Respondents were supposed to file a memo on the Jaipur court to withdraw the complaint filed under Section 138 of the Negotiable Instruments Act, 1881. However, till this day they have not withdrawn the said case, though the Respondents fully admit that the complied with all the conditions as mentioned i nts the joint memo, including that of providing TDS clause 6

D No.1818/2020

The Applicants further contended that afore- mentioned amount of Rs.1,50,00,000/- was to be paid in the following manner (a) Rs.30,00,000/- vide Demand Draft bearing No.955643 dated 18.02.2020; (b) Rs.77,63,255/- vide cheque bearing No'0363L7 dated 22.03.2020;

(c) Rs.42,36,7 45/ - vide TDS Certificate for FY 201"8- 19 and FY 2019-20, on or before 22'03 2020'

The Applicant further submitted that, despite the outbreak of the COVID-19 pandemic and the ensuing nationwide lockdown which began on 24'03 2020 and continued till August, various parts of India including Bengaluru and the severely debilitating effect this had on the real estate industry, the Applicants made every effort to ensure compliance with terms of the joint memo' l)) contended that towards this end, the Applicants compl the payment of the initial sum of Rs 1,50,00,

D.No.1818/2020 for in Cl. 6 and 7 of the joint memo) as detailed above. Therefore, despite the nation-wide lockdown due to COVID- 19, and despite there being moratorium ordered on loan repayments by the RBI vide order dated 01.03.2020, bearing No.DOR.No.BP.BC4l /21.04.048/2019-20, (which was extended upto 31.08.2020), the Applicants fulfilled all their obligations towards the first part of the joint memo by L0.07.2020. The aforementioned payments have also been acknowledged by the Respondents vide appropriate endorsements.

It is the further contention of the Applicants that though the Applicants made the aforementioned payments, the Respondents have failed to abide by the terms of the joint memo. Despite having a positive obligation to unequivocally release their charge over Flat No.A-207 (which is already sold to a third party), the Respondents have failed to do so till date. Similarly, despite having,;b positi obligation to withdraw the complaint pendin( before/th

l4 D No.1818/2020 Learned Metropolitan Magistrate Court (MMC-10) in Jaipur' the Respondents have failed to carry out such a withdrawal'

8. Notwithstanding the deliberate and purposeful non- compliance of the Respondents with their obligations to withdraw the aforementioned complaint and to release all charges over Flat No.A-207, the Applicants continued their efforts to ensure compllance with terms of the joint memo' Despite all odds, and during one of the worst periods that the real estate market has had to 9o through, the Applicants secured a buyer for Flat No.A2O7 and pursuant thereto' the Applicants requested the Respondents to issue a conditional NOc for the said fla! which was only complied with by the Respondents on L7.06.2020. As per Clause (6) of the joint memo, upon realization of the amount of Rs'1 5 crore' the Respondents shall release the charge over the schedule property and shall withdraw the complaint under ion 138 of the Negotiable Instruments Act file Metropolitan Magistrate (NI Act Cases) No 1 before

D-No.1818/2020

9. Following this, the prospective buyer paid to the Applicants advance consideration towards purchase of Flat No.A0205 to an extent of Rs.2,32,00,000/-. It is further contended that this entire sum was paid forward by the Applicants to the Respondents as follows:

a. Rs.50,00,000/- was paid vide 6 (six) demand drafts all dated 18.06.2020; b. Rs.1,50,00,000/- was paid vide 1.6 demand drafts all dated 26.06.2020 NEFT payment dated 22.07.2020; Rs.32,00,000/- was paid vide 4 (four) drafts all dated L4.07.2020; (sixteen) and one demand

10. Applicants further contended that time and again, via email as well as telephonically requested that an unconditional NOC in respect of Flat-A0205 be issued, which woutd enable the Applicants to secure the balance payment of Rs.2,93,00,000/- within 60 (sixty) days from the d such issuance. The refusal on the part of the Applicants to )le acknowledge the ongoing crisis, and to grant reasonpbl extensions sought by the Applicants in completing payments (which are well in line with applicable RBI directives) is unreasonable, unfair, and self-serving. Ll. It is further contended that subsequent to filing of the joint memo, the market conditions in the real industry have severely constrained the Applicants and due to the current situation of global COVID-l9 pandemic everything has come to a standstill. Due to the uncertainty of the current situation and the lockdowns, businesses across the country in such a scenario, the governments and the Hon'ble Supreme Court of India have been generous enough to grant various exemptions and extend the timelines for legal recourse it is further contended that in respect of the Penthouse Unit No.305, the Applicants have already paid the Respondents Rs.2,32,00,000/- and the balance remaining is only Rs.2,93,00,000/-. However, the Respondents giving a clean/clear NOC, for the unit No 205 by balance payment of Rs.2,93,00,000/- out of sale consideration of Rs.5,25,00,000/- with 45 days, the Respondents have issued a conditional NOC which would not serve the purpose. Applicants further contended that unnecessary cumbersome conditions are imposed in the NOC vide Annexure-A6 which are neither warranted nor necessary. L2. That apart, the Applicants had also found prospective buye(s) for the third mortgaged property, being Pent House No.A-0306. It is further contended that, on earlier occasions, prospective buyers were wary of purchasing the given unit due to the failure of the Respondents in issuing an NOC in respect thereof. This has essentially resulted in delayed repayment through the Respondents' own doing. It is also contended that the Applicants have most recently communicated to the Respondents (vide email dated 72.05.2020) that the sale price negotiated for the sai with a prospective buyer is Rs.5,75,00,000/- d that a purchase is likely to go through only upon i ance o

NOC for the said amount by the Respondents Respondents were further communicated that 2OYo of this amount would be transferred to the Respondents upon issuance of the NOC, and the balance within 90 days thereafter. This request for an extension too has been met with stolc opposition from the Respondents, without consideration of the immense difficulties faced by the commercial borrowers, especially those in the real estate sector such as the Applicants'

13. Applicants further contended that as the Respondents are adamant and are not complying with the terms of the joint memo as agreed upon by the parties in its letter and spirit, and as the joint memo is part of the record of this Tribunal, the Applicants have filed this application for the intervention of this Tribunal in view of the COVID-19 pandemic being suffered by the Applicants in following the timelines of the joint memo dated 03.03.2020 I!!:-lurther contended that the Applicants have issued a legal nqtice dated 28.09.2020 vide Annexure-A7 through their

D.No.1818/2020 for the non-compliance of the agreed terms of the joint memo by the Respondents to which no positive response was forthcoming. In view of what has been stated above by the Applicants, the Applicants have sought to allow the application as prayed, in the interest of justice and equity. The Applicants along with the above application have produced copies of documents which are marked as Annexures-A2 to 45. L4) In response to the notice, the Respondents No.1 and 2 appeared through their counsel and subsequently filed detailed statement of objections to the above application, contending, inter alia, that the application is not maintainable in law; it is misconceived and the reliefs claimed in the application are based on a deliberate attempt to mislead this Tribunal, by utter false allegations, misrepresentations and a deliberate attempt to suppress truth and materials facts and the application is therefore vexatious and frivolot-rs, filed wi oblique motive and for collateral purpose {nd

D.No.1818/2020 application is liable to be dismissed in limine' The Respondents contended that in the joint memo filed in I.R.No.4285l2019 by both the parties before this Tribunal, the Applicants had agreed to pay a settled amount of Rs.13,00,00,000/- against the claim amount of Rs.L8,7g,27,347 /- to be payable by the Applicants on or before 30.04.2020 and if the Applicants fail to pay the said settled amount of Rs.13,00,00,000/- on or before 30'04 2020' it was agreed that the Applicants are liable to pay an amount of Rs.18,79,27,347l- with future interest as applicable from 29.02.2020. Respondents further contended that the Applicants have agreed to pay an amount of Rs'77 '63'255/- on or before 22.03.2020 and induced the Respondent to accept a post-dated cheque bearing No'036317 and promised that the said cheque will be honoured by the Respondents on 22-03.2020 and also agreed to submit the TDS Certificate for Rs.42,36,745/- on or before 2A The Applicants did not adhere to the said commitment by them. Applicants also agreed to pay an

Rs.5,25,00,000/- on or before 3L.O3.2020. It is further contended that the Applicants had further agreed to pay an amount of Rs.6,25,00,000/- in respect of Pent house No.A-306 i.e. Item No.2 as mentioned in the demand notice on or before 30.04.2020. Respondents further contended that none of the undertakings given by the Applicants in the joint memo was honoured by them. Respondents further contended that the Applicants sent mail on 20.03.2020 vide Annexure-Rl, requesting to provide the extension of 45 days to comply with the settlement terms and not to deposit the cheque bearing No.036317 fot Rs.17,63,255/-. It is further contended that the Applicants have sent a mail on 28.05.2020 stating that they will be closing part of the loan amount by paying an amount of Rs.5,25,00,000/- by sale of duplex flat on or before 3L.072020 and further kept on requesting to extend the timelines for payment of the amount due as per the settlement terms, which clearly showed Applicant's intention of not paying the amount a 2l per the joint memo dated 03.03.2020. It is the f her

D No.1818/2020 contention of the Respondents that till date the Applicants have not adhered to the said undertakings and extended timelines given by them and hence the application filed by the Applicants has to be dismissed Respondents further contended that the Respondents have borrowed finance from other financial institution and financed the amount to Applicants and the Respondents continue to pay the interest on borrowed funds and any delay in clearing the dues by the Applicants has incremental cost burden for the Respondents which needs to be recovered from the Applicants' It is further contended that the Applicants are taking undue advantage of the sufficient time granted by the Respondents for the repayment of the settled amount and have filed this application with an intention to delay the payment Further contentions of the Respondents are that the Respondents have never agreed for the revised joint memo submitted by the Applicants along with the application The s and conditions submitted mentioned in the revised joint a5 by the Applicants are not a

Respondents which was communicated to the Applicants and Respondents also proposed terms acceptable to Respondents via e-mail dated 31.08.2020, to which there is no response from the Applicants thereafter.

15) The Respondents in their statement of objections to paras-4 and 5 of the application contended that the conditional NOC was issued but the Applicant has not complied with the terms of the conditional NOC and the Applicants guilty of gross suppressio veri suggestio falsi and it is the Applicants who have abused the process of law and the provisions of SARFAESI Act. The Applicants during the subsistence of the mortgage have sold the property to third party without intimating the Respondents and the said act of the Applicants amounts to fraud and criminal breach of trust. Unless and until the liabilities of the Applicants are cleared, the mortgage created by the Applicants will be subsisting and the Applicants should not have created en the property without written permission from

D No.1818/2020 Respondents and the third party will not acquire clear' valid title over the property sold by the Applicant until the mortgage is discharged.

16) The Respondents in their detailed statement of objections, referring to the Clauses-6 to 9 of joint memo dated 03.03.2020 contended that the said clauses are applicable only when the Applicants adhere to the terms and conditions of the said joint memo and the Applicants without clearing the liability as undertaken by them in the joint memo have come with this plea to delay the payment of settled amount. As the Applicants have not adhered to the terms and conditions of the said joint memo' the Respondents contended that it need not withdraw the complaint filed under Section 138 of the Negotiable Instruments Act and it will be withdrawn provided the Applicants pay the entire dues payable by them in terms of joint memo dated 03.03.2020. With respect to the averments made in parc-L2 of the application,

O.No.1818/2020 contended that the moratorium is not applicable for Applicants as per the RBI Circular, since the loan was declared NPA prior to 29.02.2020. With respect to the averments made in para-15 of the application, the Respondents contended that the Applicants have not furnished the details of the sale agreement to the Respondents and the Respondents apprehend that the Applicant would have received the entire sale consideration and has made only pad payment to Respondents towards the loan amount. The Respondents further contended that if the application is allowed, it is tantamount to a malefactor and fatal to system and again "Malignancy will emerge" which cannot be cured at all. And a right created in favour of the Respondents involves corresponding obligation on the part of the Applicants to see that the value of the security does not depreciate with the passage of time which due to their failure to repay the loan in time. For the above- said reasons, the Respondents have prayed for the dism

D.No.1818/2020 of the above application filed by the Applicants with exemplary costs, in the interest ofjustice and equity'

117) On the above background, I have gone through the records and heard the arguments advanced by Learned Counsels appearing for both sides; and the following points arise for my consideration:

a) Whether the Applicants have made out the case to allow the aPPeal? and

b) To what relief, the parties are entitled?

REASONS

The Applicants had challenged the impugned order dated 23.07.20Lg passed by the Learned X Additional Chief Metropolitan Magistrate, Bengaluru under Section 14 of the Act, obtained by the Respondents by filing Diary filed a joint memo on 03.03.2020 for outstanding amount of Rs.78,79,27,347.00 by payme

D.No.1818/2020 Rs.13.00 crore in full and final settlement, as per the terms of joint memo. Paras-6, 7, 8 and 9 of the joint memo contained the manner in which the settled amount of Rs.13.00 crore was to be paid. Para-10 of the joint memo provided that upon payment of the settlement, as detailed in paras-6, 7, 8 and 9, i.e. within the stipulated time by the Applicants to the Respondents, the Respondents would have no claims whatsoever against the Applicants in respect of the schedule property.

19) In terms of the para-1.]- of the joint memo, the Applicants undertook that in case they are not able to clear any of the payments mentioned above in paras-6, 7, 8 and 9 or if they are not able to abide by any of the terms as undertaken in the joint memo within the specified time, the Respondents shall be at liberty to proceed further to recover their loan dues, i.e. Rs.18,79,27,347 .00, less the amoultts paid by the Applicants, pursuant to the notice dated 05.03.2019. The Applicants further stated that they have

D.No.1818/2020 uphold all proceedings initiated by the Respondents, in pursuance of demand notice dated 15.03.2019 and also voluntarily handover the flats, as mentioned in the schedule (1) of the notice under Section 13(2), without any demur or the Respondents will have no option other than to execute the Learned Additional Chief Metropolitan Magistrate's order for taking physical possession and if required to break open the locks and further that the total amount due together with the overdue interest, as mentioned in the note (2) together with future interest as applicable and other costs, including legal costs etc shall be recovered from the APPlicants.

20) Para-L2 of the joint memo stated that "both the parties hereby expressly and unconditionally undertake that they will not file any new cases / complaints / petitions against each other on any cause, wh and will withdraw all pending cases filed country/ notices issued in respect of said the int,

D.No.1818/2020 agreement bearing No.CBDRTF1609080004 only after realisation of the closure of the entire loan". 2L) Both the sides prayed that the Tribunal be pleased to dispose of the above application, i.e., Diary No.2460l2019 (lR 4285/2079) by filing joint memo. Accordingly, this Tribunal recorded filing of joint memo by both the sides and allowed the same on 03.03.2020.

22) It is clear from the pleadings made by the Applicants in the present application, i.e. Diary No.1"818/2020 and the objections filed by the Respondents in reply thereto that terms and conditions of the joint memo have not been complied with. The Applicants have also admitted that they could not comply with the payment obligations and they have taken cover of the subsequent outbreak of COMD-19 pandemic by end ol March-2020. The Applicants have also contended that they are eligible for the mo m ord on loan repayments by RBI due to outbreak of OVID-

23) The Respondents have stoutty rebutted the contentions of Applicants by filing detailed objections'

24) The contentions of the Applicants are found to be far from the truth, as the Applicants account became NPA in 2019 itself and even a demand notice has been admittedly issued on 15.03.2019 and even impugned order for taking possession of the scheduled property was passed on

23. o7.20Lg. Hence the contentions and plea taken by the Applicants that they are eligible for moratorium under the RBI guidelines dated 01.03.2020 are found to be not factually correct and therefore cannot be accepted and thus rejected' Admittedly, the Applicants have failed to comply with the payment obligations under parcs-6,7,8 and 9 of the joint memo and the present application filed is also not maintainable, in view of the express and unconditional undertaking by both the sides that they will not fil cases / complaints / petitions against each other' It is alsqto be observed that the Applicants vide para-11 of joint/me had undertaken that in case they are not able to clear any of the payments mentioned in paras-6, 7, 8 and 9 or if they are not able to abide by any of the terms and conditions as undertaken in the joint memo within the specified time, the Respondents are at liberty to proceed further for recovery of the loan dues of Rs.L8,79,27,347.00, as mentioned in the notice dated 05.03.2019. The Applicants have also stated that they have no objections to uphold all proceedings initiated by the Respondents in pursuance of demand notice dated 15.03.2019 and also undertook to votuntarily handover the flats, as mentioned in schedule (1) of the notice under Section 13(2) of SARFAESI Act dated 15.03.2019 without any demur.

25) It is clear that after filing the present application, the Applicants have taken various adjournments for settlement of the dues, but except making some part have not complied with the settlement, as ag payments, theY by them.\lt licants,,fail is also clear from the joint memo that if the A

D.No.1818/2020 to comply with the terms, they are liable to pay the contractual dues, including interest by reducing the payments already made during the proceedings and after the issuance of demand notice. Learned Counsel for Applicants has filed memo on 29.05.202L, seeking two weeks' time for settlement of dues with Respondent. Applicants are at liberty to approach Respondent and the matter need not be kept pending, as on earlier occasions, Applicants failed to comply with such undertakings for settlement with Respondent.

26) Under the circumstances, this Tribunal holds that the present application, i.e. D.No.1818/2020 is not maintainable for the reasons stated supra and is therefore liable to be dismissed. I therefore pass following:

ORDER

In the result, D.No.1818/2020 without costs.

Interim order, if any, stands vacated. Pending IAs, if any, also stand closed as infructuous. (Dictated to the Stenographer, after its transcription and necessary c and pronounced by me in the Open Court on this 30th day of (K. RAVINDRAN Presiding Officer DRT-I, Bengaluru {1ash{t