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 as follows:

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.

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 Plaintiff’s 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”.

(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.”

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/FMO's 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.

xxx 16.6 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 following conclusions:

[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 Rs.[.] (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.

19. Coming to the facts of the present case:

20. Based on the aforesaid, it cannot 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 Defendant’s good faith and the genuineness of such a triable issue. ?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 ?418 crores invested by FMO, or gives security for the said amount of ?418 crores, to the satisfaction of the Prothonotary and Senior Master, Bombay High Court within a period of three months from today. The appeal is accordingly allowed, and the judgment of the Bombay High Court is set aside.

21. We further direct that the suit be tried expeditiously, preferably within a period of one year from the date of this judgment, uninfluenced by any observations made by us herein.