Case: Idbi Trusteeship Services Ltd Vs. Hubtown Ltd

2. The present appeal arises out of a Summons for Judgment No. 39 of 2013 in a Summary Suit filed on the original side of the Bombay High Court, by the Petitioner, a debenture trustee, to enforce rights that arise out of a Corporate Guarantee executed by the Respondent-defendant. The necessary averments made in the plaint would disclose the cause of action of the suit as well as the facts necessary to decide this appeal. They are asIn 2009 and 2010, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (hereinafter referred to as "FMO") invested in certain equity shares and compulsorily convertible debentures (hereinafter referred to as the "CCDs") of Vinca Developer Private Limited (hereinafter referred to as "Vinca"). As a result of the said investment, FMO currently holds (i) 10% of the equity of Vinca through Class A shares and is entitled to 10% of the voting rights and economic interest in Vinca by virtue thereof; and (ii) 3 CCDs in Vinca. Further, as on date, the Defendant owns 49% of the equity of Vinca through Class A shares and is entitled to 49% of the voting rights and economic interest in Vinca by virtue thereof. The remaining 41% Class A equity shares in Vinca are owned by the individual promoters of the Defendant, being Hemant Shah and Vyomesh Shah, which entitles them to 41% of the voting rights and economic interest in Vinca. Hemant Shah and Vyomesh Shah together also own 100% of Class B equity shares of Vinca, which carry with them collective voting rights and dividend entitlement not exceeding 0.01%. Upon conversion, the 3 CCDs in Vinca will entitle FMO to 99% of the equity of Vinca (by allotment of additional Class A shares), thereby entitling it to 99% of the voting and economic rights of Vinca. The said monies invested by FMO into Vinca were then used by Vinca to subscribe to certain optionally partially convertible debentures (hereinafter referred to as "OPCDs"), as specified below.4. The Plaintiff is Indias largest Trusteeship Company and provides a wide spectrum of Trusteeship Services. The Plaintiff has been appointed as the Debenture Trustee under (i) the Debenture Subscription and Debenture Trust Deed dated 1st December, 2009 executed by Amazia Developers Private Limited (hereinafter referred to as "Amazia"), Vinca, Brainpoint Infotech Private Limited (hereinafter referred to as "Brainpoint"), the Defendant and the Plaintiff; and (ii) the Debenture Subscription and Debenture Trust Deed dated 1st December, 2009 executed by Rubix Trading Private Limited (hereinafter referred to as "Rubix"), Vinca, the Defendant and the Plaintiff as amended by OPCD Amendment Agreement dated 8th September, 2010; (hereinafter collectively referred to as the "Debenture Trust Deeds") in relation to Vincas investment in OPCDs issued by Amazia and Rubix. A copy of the Debenture Trust Deeds is annexed hereto and marked as Exhibits "A-1", "A-2" and "A-3".5. Pursuant to and in accordance with the terms of the Debenture Trust Deeds, Vinca has subscribed to:i. certain secured, non marketable, transferable, OPCDs of Rubix, of a face value of L 10,00,000 each aggregating to INR 1,285,000,000 in tranche 1;ii. additional secured, non marketable, transferable, OPCDs of Rubix, of a face value of L 10,00,000 each, aggregating to INR 1,395,000,000 in tranche 2;iii. certain secured, non marketable, transferable, OPCDs of Amazia, of a face value of L 10,00,000 each, aggregating to INR 1,500,000,000.6. The OPCDs carry a variable running coupon and a back ended coupon to ensure an internal rate of return of 14.75% per annum.7. The Plaintiff states that the proceeds obtained by Amazia and Rubix from the issue of the OPCDs to Vinca were to be applied towards inter alia projects which are compliant with Indian foreign direct investment law as applicable to townships, housing, built-up infrastructure and construction development projects, as provided more particularly under clause I, Part C, Schedule 7 of the Debenture Trust Deeds.8. The Plaintiff states that in order to secure the said OPCDs, and to ensure the due and punctual payment by Amazia and Rubix of all dues to Vinca under the Debenture Guarantee Deeds, the Defendant has, inter alia vide the Corporate Guarantee Deed, dated 9th December, 2009, issued an unconditional, absolute and irrevocable corporate guarantee in favour of the Plaintiff, inter alia for the benefit of Vinca (hereinafter referred to as the "Guarantee"). A copy of the Guarantee is annexed hereto and marked as Exhibit "B".9. The Plaintiff submits that inter alia the following defaults were committed by Amazia and Rubix, inter alia under the said Debenture Trust Deeds:i. Defaults by Amazia and Rubix in payment of interest on the OPCDs, as contemplated under Condition 7 of Schedule 3 of the Debenture Trust Deeds, which default has been subsisting since 15th June, 2011, on the interest accrued on the OPCDs since 16th March, 2011;ii. Defaults by Amazia and Rubix in payment of default interest accrued on the OPCDs since 16th June, 2011;iii. The occurrence of an event of default (cross default) specified in Clause 21(a) of Schedule 14 of the Debenture Trust Deeds, arising inter alia out of a default by Vinca under the CCDs;iv. Failure on the part of Rubix, Amazia and the Defendant in providing the financial statements required to be provided as per Entry I (Financial Statements) of Part A of Schedule 7 (Covenants of the Obligors and Security Providers) of the Debenture Trust Deeds;v. Failure on the part of the Defendant in maintaining the Net Debt to EBITDA Ratio, the Debt Service Cover Ratio and the Interest Coverage Ratio as per the provisions of Part B of Schedule 7 (Covenants of the Obligors and Security Providers) of the Debenture Trust Deeds, for the Ratio period from 1st April, 2011 to 30th September, 2011;vi. Failure on the part of Rubix, Amazia and the Defendant in complying with a number of the Positive Covenants which were required to be fulfilled by them as per the provisions of Part C of Schedule 7 (Covenants of the Obligors and Security Providers) of the Debenture Trust Deeds, including the failure to apply the proceeds from the issue of OPCDs in the manner contemplated in the abovementioned Schedule i.e. towards projects that are compliant with the Indian foreign direct investment law;vii. Failure on the part of Rubix, Amazia and the Defendant in complying with a number of the Negative Covenants as per the provisions of Part D of Schedule 7 (Covenants of the Obligors and Security Providers) of the Debenture Trust Deeds.10. In view of the aforesaid defaults, the Plaintiff was constrained to issue notices dated 2nd May, 2012 to Amazia and Rubix respectively, under Clause 33.1 of the Debenture Trust Deeds, for subsisting payment of interest on OPCDs as contemplated under Condition 7 of Schedule 3 of the Debenture Trust Deeds, setting out inter alia (i) the payment defaults subsisting as on the said date; (ii) the default by Amazia and Rubix in crediting the designated account with lease rental proceeds; and (iii) the failure to provide information, and breach of certain identified covenants. However, no response was forthcoming from Amazia and/or Rubix. A copy of the notices dated 2nd May, 2012 is annexed hereto and marked Exhibits "C-1" and "C-2".11. Consequently, and further to the Plaintiffs letters dated 2nd May, 2012, and in view of the fact that the said defaults were not rectified by Amazia and Rubix as required under the said letters dated 2nd May, 2012, the Plaintiff, in exercise of its right of early redemption under Condition 12.1(a) and Condition 12.2 of Schedule 3 of the Debenture Trust Deeds, has issued redemption notices to both Amazia and Rubix on 27th June, 2012 (hereinafter referred to as the "Redemption Notices") for the reasons and on the grounds contained therein, inter alia calling upon Amazia and Rubix to fully redeem all the OPCDs at par value on 3rd July, 2012 (hereinafter referred to as the "Early Redemption Date") and to credit the Principal Redemption Amount alongwith interest accrued and unpaid thereon, aggregating to Rs. 4,843,299,862.97/- into A/c. no.: 00600350098359 held in the name of the Plaintiff at HDFC Bank, on the Early Redemption Date. A copy of the Redemption Notices is annexed hereto and marked Exhibits "D-1" and "D-2".12. However, despite repeated reminders to rectify their various defaults under the Debenture Trust Deeds, and various attempts to resolve the issues amicably, Amazia and Rubix have failed and neglected to pay the amounts due and payable in terms of the Debenture Trust Deeds. Consequently, the Plaintiff was constrained to issue a Demand Certificate for the enforcement of the Guarantee, in terms of the said Guarantee, to the Defendant on 3rd August, 2012. A copy of the Demand Certificate dated 3rd August, 2012 is annexed hereto and marked Exhibit "E".13. No reply has been received to the aforementioned Demand Certificate from the Defendant till date. The Defendant therefore failed and neglected to make payment of the amounts due to the Plaintiff under the Guarantee.33. The Plaintiff therefore prays:this Honble Court be pleased to order and decree the Defendant to pay to the Plaintiff a sum of Rs. 532,11,29,364.05/- (Rupees Five Hundred and Thirty Two Crores Eleven Lakhs Twenty Nine Thousand Three Hundred and Sixty Four and Five Paisa Only) as on May 6, 2013, being (i) Rs. 477,51,90,932.97/- (Rupees Four Hundred Seventy Seven Crores Fifty One Lakhs Ninety Thousand Nine Hundred and Thirty Two and Ninety Seven Paisa only) as the revised principal amount, being Rs. 484,32,99,862.97/- (Rupees Four Hundred and Eighty Four Crores Thirty Two Lakhs Ninety Nine Thousand Eight Hundred and Sixty Two and Ninety Seven Paise only) (hereinafter referred to as "Principal Amount"), less an amount of Rs. 6,81,08,930/- (Rupees Six Crores Eighty One Lakhs Eight Thousand Nine Hundred and Thirty Only) received on March 4, 2013 under the Amazia TRA Agreement (hereinafter referred to as "Revised Principal Amount"); (ii) Rs. 42,26,78,815.12/- (Rupees Forty Two Crores Twenty Six Lakhs Seventy Eight Thousand Eight Hundred and Fifteen and Twelve Paisa only) as the default interest on the Principal Amount, at the rate of 14.75% per annum from August 11, 2012 till March 4, 2013 as per Clause 3 of the Guarantee; and (iii) Rs. 12,32,59,615.96/- (Rupees Twelve Crores Thirty Two Lakhs Fifty Nine Thousand Six Hundred and Fifteen and Ninety Six Paise only) as the default interest on the Revised Principal Amount, at the rate of 14.75% per annum from March 5, 2013 till May 6, 2013, as per Clause 3 of the Guarantee and thereafter, such further interest @ 14.75% per annum on the Revised Principal Amount being Rs. 477,51,90,932.97/- (Rupees Four Hundred Seventy Seven Crores Fifty One Lakhs Ninety Thousand Nine Hundred and Thirty Two and Ninety Seven Paise only), till the date of actual payment or realization.The affidavit-in-reply to the aforesaid Summons for Judgment raised the following defence, as recorded by the Ld. Single Judge in the impugned judgment dated 8th May, 2015.Since according to the Defendant, the above submission is their main submission in the present matter, the same is elaborated as follows:16.1 That the FDI Policy and the statutory FEMA Regulations (which incorporate the FDI Policy as a Schedule thereto), permit FDI in townships, construction of houses, only by way of equity investments (which is defined to also include debentures which are compulsorily required to be converted into equity: CCDs). The FDI Policy and the FEMA Regulations prohibit any other form of investment (non equity) in the said sector with an assured return/rate of return.16.2 That FMO, a foreign entity wanted to invest a substantial sum by way of FDI in a slum rehabilitation project being undertaken in Mumbai by Rubix and an Industrial Park being undertaken/ owned by Amazia. FMO was however only willing to invest in the said projects on the basis of an assured/fixed return, which was and is not permissible under the FEMA Regulations/FDI Policy. To enable FMO to bypass/circumvent the said FEMA/FDI prohibitions and get a fixed return of 14.5% per annum on its investment of L 418 crores, the investment structure (i.e investment by way of CCDs in Vinca and Vinca purporting to invest the said amounts in OPCDs of Amazia and Rubix) was devised/adopted as follows:i) Vinca was interposed as the Holding Company of Amazia and Rubix and Vinca was the nominal recipient of the FDI of L 418 crores from FMO by way of equity investment and CCDs (in apparent compliance with the FDI/FEMA Regulations).ii) The documents executed for the FDI investment (Subscription Agreement and Debenture Trust Deed annexed as Schedule 13 thereto), however establish that the FDI received from FMO, was not intended for/could not be used by Vinca for any project of its own but was specifically required to be immediately invested by/through Vinca in OPCDs of Rubix & Amazia, bearing a fixed rate of return of 13.5%.iii) Under the FEMA/FDI regulations/policy FMO could not have invested the said amounts in Amazia and Rubix through OPCDs bearing a fixed rate of return. By interposing Vinca (an Indian Company) the amounts received from FMO were invested in OPCDs of Amazia and Rubix bearing the fixed 14.5% rate of return.iv) At the same time it was provided (a) that on conversion of the CCDs FMO would own 99% of the equity of Vinca and further that (b) the Articles of Vinca were amended to provide that any decision regarding the OPCDs/investment could only be taken by FMO nominees on the Board of Vinca. (c) the DTDs for the Amazia and Rubix OPCDs provided that the Debenture Trustee/the Petitioner would only act on the instructions of the Nominee Directors of FMO.v) Accordingly though Vinca was an "Indian Company" and the nominal recipient of the FDI, the transaction was so structured that:(a) the FDI amount would be immediately routed by Vinca to Amazia & Rubix against issue by them of OPCDs bearing a return of 14.5%.(b) FMO/its Nominee Directors could exclusively deal with the OPCDs and the Debenture Trustee/IDBI.(c) after receipt by Vinca of the fixed rate of return (14.5 per cent per annum) from Amazia and Rubix under the OPCDs, FMO would on conversion of the CCDs, become the owner of Vinca and thereby receive/become entitled to the amounts received by Vinca by way of the fixed rate of return from Amazia and Rubix.vi) The Deed of Guarantee was contemporaneously executed by the Respondents on 9th December, 2009 in favour of the Debenture Trustee (the Petitioner herein) for securing the "due and punctual payment" of the principal and the interest by Amazia and Rubix to Vinca, actually to FMO and was part of the structure devised to ensure the receipt by FMO at the fixed rate of return of 14.5%.16.3 That, if the entire transaction is looked at as a whole, it is clear that the interposing of Vinca as the nominal recipient of the FDI (against issuance of equity shares and CCDs) was a colourable and artificially structured transaction, the object and purpose of which was to enable FMO to secure a fixed rate of return on its FDI investments in townships/construction of housing, notwithstanding the FEMA Regulations/FDI Policy which permit only an equity investment without any fixed/agreed rate of return in the said sector. The said structure was and is not lawful and was and is opposed to public policy as it was designed to defeat and would defeat the provisions of law, the FEMA Regulations read with the FDI Policy.16.4 That, the present Petition has been filed to effectuate the said illegal object of securing the said fixed rate of return for FMO. Although IDBI, the Petitioner, claims to be nominally acting on behalf of Vinca, it is in fact admittedly acting only at the instance of FMO/FMOs Nominee Directors on the Board of Vinca. FMO through its Nominee Directors on the Board of Vinca has instructed IDBI to demand the said sums (principal and agreed rate of return) from Amazia and Rubix and has further instructed/required IDBI to invoke the said Guarantee and file the present Petition. (sic - actually, Plaint). This is apparent from the correspondence annexed as Exhibits-C to V to the Petition.xxx16.6 That, by the present Petition, the Petitioner, acting at the instance of FMO, is seeking to utilise the process of this Court to secure for FMO a 14.5 per cent fixed rate of return on its FDI investment, contrary to the statutory stipulation/prohibition contained in the FEMA Regulations (which incorporate/embody the FDI Policy), which require FDI in townships/housing/construction development projects to be made only by equity participation (including compulsorily convertible debentures) and prohibits/precludes any assured return/rate of return. It is submitted that this would be contrary to law, public policy and public interest.Based on this defence, the Ld. Single Judge in the impugned judgment arrived at the followingAccording to the Plaintiff, the doctrine of Pari Delicto is not applicable, that IDBI is not a party to the conspiracy and IDBI is not acting on behalf of FMO. Even if IDBI is acting on behalf of FMO, the doctrine of Pari Delicto would not be applicable as the Defendant had induced FMO to make the FDI/Investment by representing that the transaction was FDI/FEMA complaint.31.1 The above submission of the Plaintiff cannot be accepted. The conduct of FMO in routing its FDI nominally through Vinca to Amazia and Rubix against issuance by them of OPCDs and the amendments/provisions made in Vincas Articles of Association, establishes that FMO was fully aware that it could not under the FDI policy and FEMA Regulations directly invest in the OPCDs, or require that its FDI amount/investment be returned back to it with a fixed rate of return after a stipulated period i.e. without bearing an equity investment risk. The complex structure devised for FMOs FDI investment establishes that all parties (including FMO) were aware that the transaction which was premised on return back of the FDI amount along with a fixed rate of return thereon, was not permissible under/in violation of the FDI policy and the FEMA Regulations. It is clear that in claiming the amount and initiating the present proceedings, the Plaintiff is acting at the instance of FMO/FMO nominees on the Board of Directors of Vinca. This is the stipulation in Vincas articles and under the DTD. In any event, inasmuch as the transaction (based on return of the FDI/principal amount invested along with a fixed rate of return thereon) is not permissible/prohibited under the FDI policy and the FEMA Regulations, neither IDBI nor FMO can seek the assistance of the Court to effectuate/implement/enforce such a prohibited/illegal transaction.32. The Plaintiff has lastly contended that the alleged illegal purpose of securing a fixed return has not been carried out and that if the proceedings are allowed, the money will go to Vinca and not to FMO. It has been contended that FMO cannot receive the sums without complying with the FDI Regulations for sale of shares and repatriation.32.1 This submission too of the Plaintiff cannot be accepted. The present claim has been made and the present proceeding has been initiated/filed by the Plaintiff at the instance of FMO/FMO nominees on Vincas Board of Directors, in order to secure repayment/return of the FDI amount invested along with a fixed rate of return thereon i.e. for seeking the active assistance of this Court to implement/effectuate/enforce a transaction prohibited by the FDI policy and the FEMA Regulations. The contractual documents (SSA & DTD) establish that it was always agreed and understood that Vinca was only the nominal recipient of the FDI amount received from FMO and was also only nominally the recipient of the FDI amount and interest thereon at 14.5 per cent per annum to be received back from Amazia and Rubix. On receipt back by Vinca of the FDI amount and 14.5 per cent interest thereon, FMO can and will by conversion of the three CCDs become the 99% shareholder of Vinca. Under the FDI policy/FEMA Regulations, FMO can thereafter sell the shares of Vinca at the fair value, which will necessarily include the value/benefit of the FDI amount and interest at 14.5 per cent thereon.33. However, I must also state that I do not find substance qua the following defences raised by the Defendant:33.1 That the Suit deserves to be dismissed on the ground that the guarantee as well as trusteeship of IDBI has been discharged/terminated;33.2 That under the provisions of the FDI Policy, an Indian Company which has received foreign direct investment can utilise its funds downstream only for making investment by way of equity instruments (i.e. in the form of equity capital or compulsorily and mandatorily convertible preference shares or debentures);33.3 That Investment by an Indian Company in OPCDs issued by subsidiary (also an Indian Company) would amount to an external commercial borrowing.xxx37.2 In the case in hand, I am prima facie of the view that the structure/device of routing FMOs FDI amount of L 418 crores to Amazia and Rubix through the newly interposed Vinca (as the nominal recipient of the FDI) was a colourable device structured only to enable FMO to secure repayment (through Vinca) of its FDI amount and interest thereon at 14.75%, contrary to the statutory FEMA Regulations and the FDI policy embodied therein, which only permit FDI investment in townships/real estate development sector to be made in the form of equity (including Compulsorily Convertible Debentures) and preclude any assured return. I am also prima facie of the view that the Defendants guarantee (which is the basis of the Company Petition No. 644 of 2013) though ostensibly in favour of Vinca, an Indian Company, was part of the aforesaid illegal structure/scheme and was given to ensure that FMO received back its FDI amount with interest as aforesaid through Vinca. The Guarantee was therefore part of the aforesaid illegal structures/scheme and therefore prima facie illegal and unenforceable.37.3 Further the question of the Defendant not being allowed to plead its own wrong also does not arise in the facts of the present case. Through the present Petition, the Plaintiff (who is admittedly acting at the instance of FMO/FMOs nominees) is in effect seeking the assistance of this Court to enable/enforce recovery by FMO of its FDI amount and interest thereon (through Vinca), contrary to the provisions of the FEMA Regulations and FDI policy embodied therein. As has been held by the Honble Supreme Court in the case of Immami Appa Rao v. G. Ramalingamurthi (supra), the Plaintiff who wants orders in his favour, is actually seeking the active assistance of the Court to achieve what the law prohibits/declares illegal and that is clearly and patently inconsistent with public interest. Moreover, as has been held by the Supreme Court i n the above case, in such a case there can be no question of estoppel and the paramount consideration of public interest requires that the plea be allowed to be raised and tried."xxx40.2 In my view, the Plaintiff is also not correct when they state/submit that the judgment supports the Plaintiff in contending that the Defendant had not "brought on record a shred of material to show how the facts of the present dispute would mandate lifting of the corporate veil..." Even if it is assumed that the corporate veil is not to be lifted or Vinca, Amazia and Rubix are to be treated as one Company, as has been mentioned hereinabove, Vinca interposed as the holding Company of Amazia and Rubix only for the purpose of structuring FMOs FDI investment into Amazia and Rubix, through Vinca as the nominal recipient. The SSA and the annexed Debenture Trust Deed, specifically provided that the FDI amount to be received by Vinca from FMO against issuance of CCDs and equity shares by Vinca, was not to be retained by Vinca or used by Vinca in its own projects. The SSA and Trust Deed in fact expressly stipulated that the FDI amount received by Vinca from FMO, was to be immediately passed on by Vinca to Amazia and Rubix, against issuance by them of OPCDs. Accordingly the SSA and the Trust Deed itself established that Vinca had been interposed only to provide a facade of compliance with the FEMA Regulations/FDI policy and was only a nominal recipient of the FDI and that Vinca was immediately required to route the entire amount received from FMO to Amazia and Rubix, against issuance by them of OPCDs."xxx42. In the circumstances I am of the view that the Defendant has raised triable issues which require adjudication on further evidence at the time of final disposal of the suit. Hence the following order:(i) Unconditional leave is granted to the Defendant to defend the above suit;(ii) The suit is transferred to the list of commercial causes and the Defendant is directed to file its written statement on or before 15th June, 2015;(iii) The hearing of the suit is expedited and the Court will endeavour to dispose of the suit within a period of one year from the date of this order. It is clarified that the Suit shall be decided without being influenced by any of the observations made in the present order.(iv) Place the suit for framing of issues on 29th June, 2015.Since the summary suit is filed on a Corporate Guarantee, and since this document has been heavily relied upon by Dr. Abhishek Manu Singhvi, Ld. Senior Counsel on behalf of the appellant, it is necessary to set out some of the clauses of this Guarantee. It may first be noticed that the deed of Corporate Guarantee cum Mortgage, dated 9th December, 2009, was made by Ackruti City Ltd. as guarantor. Ackruti City Ltd. has since become Hubtown Ltd., the Respondent-defendant. IDBI Trusteeship Services Ltd. is described as the debenture trustee for the benefit of Vinca Developer Pvt. Ltd., for the Amazia Optional Partially Convertible Debentures (hereinafter referred to as "OPCDs") and the Rubix OPCDs, and appointed pursuant to the Amazia OPCD subscription and debenture trust deed and the Rubix OPCD subscription and debenture trust deed. The very opening clause of the Deed of Corporate Guarantee states asGUARANTEEIn consideration of the premises, the Surety hereby unconditionally, absolutely and irrevocably guarantees to and agrees with the Debenture Trustee for the benefit of the Debenture Holder and the Security Trustee, for the benefit of the Lender, respectively, that:1. It shall ensure that Amazia shall duly and punctually pay or repay the Amazia Secured Obligations and Rubix shall duly and punctually pay or repay the Rubix Secured Obligations and Rubix Facility Secured Obligations, including but not limited to the Principal Amount under the Amazia OPCD Subscription and Debenture Trust Deed and the Rubix OPCD Subscription and Debenture Trust Deed, respectively and the Facility, together with all interest, liquidated damages, commitment charges, premia on prepayment or on redemption, costs, expenses, and other monies due to (i) the Debenture Holder and the Debenture Trustee and any remuneration and charges that and (ii) the Lender and the Security Trustee and any remuneration and charges that might be payable to the Security Trustee, in accordance with the Facility Agreement and perform and comply with all the other terms, conditions and covenants contained in the OPCD Subscription and Debenture Trust Deeds and the Facility Agreement.2. The Surety guarantees to the Debenture Trustee acting for the benefit of the Debenture Holder and the Security Trustee acting for the benefit of the Lender, jointly and severally, the due and punctual payment by Amazia of the Amaxia Secured Obligations and by Rubix of the Rubix Secured Obligation and Rubix Facility Secured Obligations, which are due but unpaid, and irrevocably and unconditionally agrees and undertakes (as primary obligor and not only as (sic.) to pay to the Debenture Trustee and/or the Security Trustee forthwith on demand (which demand shall be made in terms of the Transaction Documents) as stated in Clause 31 herein (and in any event within five (5) Business Days of the demand) and indemnify and keep indemnified the Debenture Trustee acting for the benefit of the Debenture Holder and the Security Trustee acting for the benefit of the Lender against all losses, damages, claims, charges, fees and expenses whatsoever which the Debenture Trustee/Security Trustee may incur by reason of or in connection with any default on the part of the Guarantor or on the part of the Issuers in making such payment and including in connection with legal proceedings taken against the Issuers and/or the Guarantor for recovery of the moneys referred to in this Guarantee. In this regard the Debenture Trustees and/or the Security Trustees independent opinion of default of the Issuers and the amounts comprising shortfall amounts, as indicated in the Demand Certificate (as defined hereinafter in Clause 31) shall be final and binding on the Guarantor and the Guarantor shall not dispute the same. This Guarantee shall be continuing and shall remain in full force and effect until all the Secured Obligations have been discharged in full to the satisfaction of the Debenture Approved Instructions) and the Security Trustee certify the same in writing.3. If the Guarantor delays in making payments in full pursuant to the demand being made on it, then it shall pay interest at the rate of 14.75% per annum ("Default Interest Rate") on the outstanding amount, till the same is discharged in full to the satisfaction of the Debenture Trustee (acting on Approved Instructions) or the Security Trustee and the Guarantor agrees that the Default Interest Rate agreed, is a genuine pre-estimate of the loss likely to be suffered by the Debenture Holder, Debenture Trustees, Security Trustee and/or the Lender on account of any default by the Guarantor in discharging its obligations as agreed herein.14. Notwithstanding the Debenture Holders/the Debenture Trustees and the Security Trustees/ Lenders rights under any security which the Debenture Holder/ the Trustee (acting on Approved Instructions) and the Security Trustee, jointly and severally, shall have the fullest liberty to call upon the Guarantor to pay all or part of the monies for the time being due to the Debenture Holder/ the debenture Trustee and/or the Security Trustee/ the Lender (as the case may be) in respect of the Secured Obligations without requiring the Debenture Trustee/ the debenture Holder and/or the Security Trustee/ the Lender to realize from the Issuers the amount outstanding to the Debenture Holder/ the Debenture Trustee and/or the Security Trustee/ the Lender pursuant to the Debentures/ Facility and/or requiring the Debenture Trustee/ the Debenture Holder and/or the Security Trustee/ the Lender to enforce any remedies or securities available to the Debenture Trustee/ the Debenture Holder and/or the Security Trustee/ the Lender.31. The Guarantor agrees that the amount hereby guaranteed shall be payable to the Debenture Trustee and/or the Security Trustee immediately upon the Debenture Trustee and/or the Security Trustee/ Lender serving the Guarantor with a notice requiring payment of the amount due (the "Demand Certificate"), in the form and manner set out in Schedule I hereto, at the address and details specified in Clause 34 below. Save and except as provided above, prior to making any demand hereunder, the Debenture Trustee/ the Debenture Holder and/or the Security Trustee/ the Lender shall not be required to take any step, make any demand upon, exercise any remedies or obtain any judgment against any of the Obligors, give notice to the Obligors or any other person under the Transaction Documents or otherwise and howsoever arising, or make or file any claim or proof in the dissolution or winding-up of any of the Obligors or enforce or seek to enforce any Security now or hereafter held by any of the Debenture Trustee/Debenture Holder and/or the Security Trustee/ Lender in respect of the when sent (with the correct answerback), (ii) if sent by fax, when sent (on receipt of a confirmation to the correct fax number), (iii) if sent by person, when delivered, (iv) if sent by courier, one (1) Business Day after deposit with an overnight courier, and (v) if sent by registered letter, when the registered letter would, in the ordinary course of post, be delivered whether actually delivered or not. An original of each notice and communication sent by telex or telecopy shall be dispatched by person or overnight courier and, if such person or courier service is not available, by registered first class mail with postage prepaid, provided that the effective date of any such notice shall be determined in accordance with paragraphs (i) or (ii) of this Clause 31, as the case may be, without regard to the dispatch of such original.SCHEDULE IFORM OF DEMAND CERTIFICATETo: Ackruti City Limited [as "Guarantor"]From: [.] [as "Debenture Trustee"/ Security Trustee"]Dated: [.]Dear Sirs,Ref: Deed of Corporate Guarantee cum Mortgage dated [.] (the "Deed") executed by the Guarantor in favour of the Debenture Trustee and the Security Trustee.[Amazia Developers Private Limited/Rubix Trading Private Limited] has not fulfilled its obligations under [the Amazia OPCD Subscription and Debenture Trust Deed dated [.] and/or the Rubix OPCD Subscription and Debenture Trust Deed dated [.] and/or the Facility Agreement] and an amount of L [.] (Rupees [.] only) is due and payable by [Amazia Developers Private Limited/Rubix Trading Private Limited]. Accordingly, we hereby give you notice pursuant to Clause 2 and Clause 31 of the Deed that we require you to pay such amount.All amounts due should be paid to the account [details of account] entitled [.] under the [.] immediately and in no event later than 5 Business Days from the date hereof.Capitalised terms used herein shall have the meaning given to them in the Guarantee.Yours faithfully[Debenture Trustee]/[Security Trustee]"

Reasoning:
12. We find that Milkhirams case is in fact an important judgment on the scope of O.XXXVII of the CPC, and is not a judgment on principles to be applied under Section 115. This judgment, being a judgment of four learned judges of this court, set out, in paragraph 1, O.XXXVII, Rule 3 sub-rules (2) and (3) as amended by the Bombay High Court at the relevant time, asIf the defendant enters an appearance, the plaintiff shall thereafter serve on the defendant a summons for judgment returnable not less than ten clear days from the date of service supported by an affidavit verifying the cause of action and the amount claimed and stating that in his belief there is no defence to the suit.(3) The defendant may at any time within ten days from the service of such summons for judgment by affidavit or otherwise disclosing such facts as may be deemed sufficient to entitle him to defend, apply on such summons for leave to defend the suit. Leave to defend may be granted to him unconditionally or upon such terms as to the Judge appear just.It is thus clear that O.XXXVII has suffered a change in 1976, and that change has made a difference in the law laid down. First and foremost, it is important to remember that Milkhirams case is a direct authority on the amended O.XXXVII provision, as the amended provision in O.XXXVII Rule 3 is the same as the Bombay amendment which this Court was considering in the aforesaid judgment. We must hasten to add that the two provisos to sub-rule (3) were not, however, there in the Bombay amendment. These are new, and the effect to be given to them is something that we will have to decide. The position in law now is that the trial Judge is vested with a discretion which has to result in justice being done on the facts of each case. But Justice, like Equality, another cardinal constitutional value, on the one hand, and arbitrariness on the other, are sworn enemies. The discretion that a Judge exercises under Order XXXVII to refuse leave to defend or to grant conditional or unconditional leave to defend is a discretion akin to Josephs multi-coloured coat - a large number of baffling alternatives present themselves. The life of the law not being logic but the experience of the trial Judge, is what comes to the rescue in these cases; but at the same time informed by guidelines or principles that we propose to lay down to obviate exercise of judicial discretion in an arbitrary manner. At one end of the spectrum is unconditional leave to defend, granted in all cases which present a substantial defence. At the other end of the spectrum are frivolous or vexatious defences, leading to refusal of leave to defend. In between these two extremes are various kinds of defences raised which yield conditional leave to defend in most cases. It is these defences that have to be guided by broad principles which are ultimately applied by the trial Judge so that justice is done on the facts of each given case.18. Accordingly, the principles stated in paragraph 8 of Mechelecs case will now stand superseded, given the amendment of O.XXXVII R.3, and the binding decision of four judges in Milkhirams case, asIf the defendant satisfies the Court that he has a substantial defence, that is, a defence that is likely to succeed, the plaintiff is not entitled to leave to sign judgment, and the defendant is entitled to unconditional leave to defend the suit;b. if the defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend;c. even if the defendant raises triable issues, if a doubt is left with the trial judge about the defendants good faith, or the genuineness of the triable issues, the trial judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security;d. if the Defendant raises a defence which is plausible but improbable, the trial Judge may impose conditions as to time or mode of trial, as well as payment into court, or furnishing security. As such a defence does not raise triable issues, conditions as to deposit or security or both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires.e. if the Defendant has no substantial defence and/or raises no genuine triable issues, and the court finds such defence to be frivolous or vexatious, then leave to defend the suit shall be refused, and the plaintiff is entitled to judgment forthwith;f. if any part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit, (even if triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the defendant incannot be said that the defendant has raised a substantial defence to the claim made in the suit. Arguably at the highest, as held by the learned Single Judge, even if a triable issue may be said to arise on the application of the FEMA Regulations, nevertheless, we are left with a real doubt about the Defendants good faith and the genuineness of such a triable issue. L 418 crores has been stated to be utilized and submerged in a building construction project, with payments under the structured arrangement mentioned above admittedly being made by the concerned parties until 2011, after which payments stopped being made by them. The defence thus raised appears to us to be in the realm of being `plausible but improbable. This being the case, the plaintiff needs to be protected. In our opinion, the defendant will be granted leave to defend the suit only if it deposits in the Bombay High Court the principal sum of L 418 crores invested by FMO, or gives security for the said amount of L 418 crores, to the satisfaction of the Prothonotary and Senior Master, Bombay High Court within a period of three months from today.