1. This appeal is an apt illustration of how like politics, business makes strange bed-fellows.
This appeal is filed by a party which is not party to the original proceedings before Debts Recovery Tribunal-Ill, Mumbai, who did not choose to intervene in those proceedings though, now, before this Forum they say that the impugned order passed by the learned Presiding Officer of DRT-III, Mumbai, which is being assailed by them in this appeal before this Appellate Tribunal, was passed without hearing them and that it is to their detriment. The appellants say that they are aggrieved by the order passed by the learned Presiding Officer of DRT-III, Mumbai on 10.3.2003 and that they learnt about it only from a write- up, which appeared in "Hindu" on 19.2.2003. Hence, they filed the appeal before this Appellate Forum on 28.3.2003.
The respondent No. 1 ICICI, on the other hand, is making allegation against the present appellants that this is totally a collusive appeal and that the appellants are colluding with the appellants SPIC Petrochemicals Ltd. (hereinafter to be referred to as "SPIC" for the sake of brevity and convenience) in Appeal No. 75/2003 and that they were just waiting in the wings to see the outcome of that appeal and when that appeal was dismissed by this Appellate Tribunal, now they have come forward assailing he impugned order passed by the DRT-III, Mumbai, submitting that they are prejudiced by the said order. The said order which is allegedly causing prejudice to the present appellants and also to the other appellants (SPIC) whose appeal was dismissed, by this Appellate Forum on 10.3.2003, is the one whereby receiver came to be appointed and was also granted power to sell the property mortgaged by the SPIC to the ICICI Bank Ltd. during the pendency of the original application filed by the ICICI against the SPIC to which the present appellants Chennai Petroleum Corporation Ltd. (formerly known as Madras Refineries Ltd. (hereinafter for the sake of brevity and convenience to be referred to as "MRL"), were not party.
2. To understand the controversy, few relevant facts, have to be stated. They are as follows: ICICI who are respondent No. 1 in the present appeal had advanced huge amount to the SPIC on their request as the appellants wanted to set up their plant for manufacture of polyester Filament Yarn.
Terephtalic Acid, Polythylene Terephthalate and Polyester Staple Fibre and Polythylene Resins at Kosappur village in Chennai.
Financial assistance was admittedly given by the respondent No. 1 ICICI to the SPIC to the tune of Rs. 289 crores. The properties of the SPIC were secured by mortgage and hypothecation with respondent No. 1 i.e. ICICI Bank. There is no dispute with regard to indebtedness of the SPIC or their liability to pay the above mentioned amount, which is outstanding to respondent No. 1. The project of SPIC was to take off in the year 1997 but for various reasons the said project did not take off and it proved to be a worthless project. As per the case of SPIC, custom duty on the machinery, which was imported from abroad for the purpose of the said project is lying in the warehouse of the customs at Chennai and the custom duty, which the SPIC was required to pay as on 12.12.2002 was Rs. 199.77 crores. Interest on that custom duty was Rs. 220.44 crores. Demurrage and duty was Rs. 1.21 crores. Suppliers' claims for material supplied was Rs. 86.66 Crores (excluding interest). The SPIC admittedly was unable to get the said machinery release from the warehouse of the customs because they had no money to pay towards customs duty, demurrage charges, penalty etc. Thus, the machinery was just lying there in the warehouse at Chennai and total liability of the SPIC towards all this was Rs. 508.08 crores.
Admittedly the SPIC is facing litigations initiated by the appellants herein namely Chennai Petroleum Corporation Ltd. [formerly known as Madras Refineries Ltd. (MRL)]. The MRL filed two suits against the SPIC for injuncting implementation of SPIC's project based on MOU dated 17.1.1989 entered into between promoters of SPIC. namely Southern Petrochemicals Industries Corporation Limited and the other one for handing over possession of lands to the joint venture entity of the SPIC's promoters and MRL. The SPIC was anxious to put an end to these litigations but they were unable to do so for want of funds. They had arrived at some settlement with the appellants (MRL) for withdrawing the suits. For withdrawing these two suits, MRL wanted its pound of flesh and as per the settlement arrived at between the SPIC and MRL, the SPIC had to shell out approximately Rs 35 crores for paying the said, amount to MRL. On receipt of that amount only, the MRL, would withdraw the suits including the one for injunction whereby the SPIC would be able to implement the project, if other conditions were satisfied. There was no other option left for SPIC but to pay this amount because it had lost in all the judicial Forums including the Supreme Court.
Thus, the SPIC is facing innumerable problems from all the sides.
Initial amount of Rs. 289 Crores advanced by the respondent No. 1 is exhausted and there is all darkness around. Future is grim and the SPIC could not start the project though it was to take off seven years back in the year 1994. The SPIC is desperately in need of finance and small amount would not do because liabilities are huge and of great magnitude. Request was made to the lender institutions including the respondent No. 1, for financial assistance. Amount, which was requested from these financial institutions, was at least Rs. 250 crores to meet immediate requirements. ICICI, taking initiative, recalled their loan by sending legal notice and thereafter by filing Original Application No. 9 of 2003 in the DRT-III, Mumbai. Considering the bleak scenario, the respondent No. 1 Bank, during the pendency of the said original application, came out with an interlocutory application praying for appointment of Receiver with a power to sell. In the original application, interim prayer inter alia praying for appointment of receiver with power to sell, was included. The said application came to be allowed by the learned Presiding Officer of Debts Recovery Tribunal-III, Mumbai by his order dated 14th February, 2003, Being aggrieved, the SPIC filed Misc. Appeal No. 75 of 2003 before this Appellate Tribunal and this Appellate Forum, by its order dated 10th March, 2003 dismissed the said appeal and upheld the order passed by the learned Presiding Officer of Debts Recovery Tribunal-III. Mumbai on 11th February, 2003. Southern Petrochemicals Industries Corporation Limited, who are promoters of SPIC, had also filed Misc. Appeal No. 79 of 2003 before this Appellate Tribunal allegedly being aggrieved by the order of appointment of receiver with power to sell passed by the learned Presiding Officer of DRT-III, Mumbai, but the said appeal also came to be rejected by the common order passed by this Appellate Tribunal on 10th March, 2003. Thereafter, for some time, every thing was quiet and still and thereafter, MRL appeared on the scene by way of filing the present misc. appeal challenging the very same order dated 14th February, 2003 passed by the learned Presiding Officer of Debts Recovery Tribunal-III, Mumbai, making a grievance that though they were interested and affected parties, they were not heard in the matter, that they were aggrieved by that order and that portion of the order which gave receiver power to sell be set aside.
The appellants MRL contended that MRL is a public limited company as defined in the Companies Act, 1956. In the year 1986, the appellants conceived a project for the manufacture of certain petrochemicals and accordingly obtained a letter of Intent from the Government of India on 6th February, 1987, authorising it to undertake this project MRL then requested the Government of Tamil Nadu to acquire about 1600 acres of land for setting up of the aforementioned project and accordingly the Government of Tamil Nadu by invoking urgency clause under Section 17 of the Land Acquisition Act, 1884, had issued a Notification and acquired 1655 acres of land in Chengai-MGR District. The costs of acquisition for the entire 1655 acres of land was paid by the appellants along with the National Aromatics and Petrochemicals Corporation Limited (hereinafter to be referred to as "Arochem")- Out of the 1655 acres of land, about 600 acres of land was to be used for the establishment of the Aromatics/PTA project and another 500 acres of land for the other projects of the appellants MRL.
MRL, in the meantime, had decided to enter into a joint venture with a suitable partner for the purpose of commissioning the Aromatics and PTA project. For this purpose, M/s. Southern Petrochemicals Industries Corporation Limited was chosen as the appellants partner in the proposed joint venture. Accordingly, the appellants entered into a Memorandum of Understanding dated 17th Januaryt 1989 with M/s. Southern Petrochemicals Industries Corporation Limited, by virtue of which a joint venture company under the name and style of National Aromatics and Petrochemicals Corporation Limited (Arochem) was to be incorporated by the contracting parties to the MOU. The said joint venture company was to be managed by a Board of Directors consisting of up to 14 persons of whom three persons would be chosen from each of the promoters and the decisions of the Board of Directors were to be taken by majority with the rider that certain matters set out in Article 4.1.1 of the MOU could not be approved if there was dissenting vote among the Directors nominated by each of the partners. Thus, Arochem was incorporated as a joint venture company under the provisions of the Companies Act, 1956 on 10th May, 1989. The MRL, and the M/s. Southern Petrochemicals Industries Corporation Limited (respondent No. 3 in the present appeal, respondent No. 2 in the Misc. Appeal No. 75 of 2003 and appellants in Misc. Appeal No. 79 of 2003) had equal shareholding in Arochem. Thereafter, MRL informed the Government of Tamil Nadu of its proposal to implement the Aromatics and PTA project to be carried out by the newly incorporated Arochem and requested that 600 acres of land out of the 1655 acres of land acquired for the purpose of the MRL could be allocated directly in the name of Arochem, which the Government of Tamil Nadu did. This acquisition was challenged by the concerned land owners and the acquisition was finally upheld by the Court. In the meantime, MRL obtained necessary approval from the concerned authorities. Then there was some other difficulty because the Government of India had embarked on an economic liberalisation programme, which adversely affected the viability of the project. There was further impediment, which rendered the joint venture project economically unviable and M/s. Southern Petrochemicals Industries Corporation Limited, had sought permission of the Government of India to implement the project without participation of the MRL. This was contrary to the terms of the MOU, which categorically stated that the project would be implemented only as a joint venture. However, the Government of India did not give its consent to the M/s. Southern Petrochemicals Industries Corporation Limited, to independently implement the PTA/PTY project. Further, the Vice-Chairman and President of M/s. Southern Petrochemicals Industries Corporation Limited, addressed a letter to Arochem requesting that 200 acres of land out of the 600 acres of land which had been allocated in favour of Arochem should be set aside and it be allocated in favour of a new company which was to be promoted by the M/s. Southern Petrochemicals Industries Corporation Limited, so as to implement the PTY project with textuvising facility. The said letter further stated that the PFY plant could be integrated with Arochem at an appropriate time. In the meanwhile, the joint venture company Arochem continued to incur expenditure to develop the north-west corner of the plot of land of 600 acres allotted to it and had also taken steps to obtain the necessary environmental and other clearances for the implementation of the joint venture project.
MRL's further case is, that without their knowledge, M/s. Southern Petrochemicals Industries Corporation Limited, had incorporated a new company under the name and style of SPIC Petrochemicals Limited (the defendant No. 1 in original application filed by the ICICI, appellants in Misc. Appeal No. 75/20003 and respondent No. 2 in Misc. Appeal No.79/2003) for implementing the PTA/PFY project independently and as a competitive company to Arochem. MRL's grievance, in short, is that though Arochem was the one who was to go ahead with the project, SPIC was introduced and projected by M/s. Southern Petrochemicals Industries Corporation Limited and in fact important personnel from Arochem like Production Director, Company Secretary, had acted collusively against the interest of Arochem and transferred 168.38 acres of land to SPIC.This was done in undue haste and in total disregard to directions of the Chairman of the Arochem and as a result, Arochem was dispossessed from 168.38 acres of developed valuable land. According to MRL, reallocation of land from Arochem to SPIC was contrary to the joint venture agreement and in complete breach of trust. Therefore, two suits in the High Court of Judicature at Madras being C.S. No. 67/1996 and C.S. No. 73/1996 were instituted. In the first suit being suit No.67/1996, MRL prayed for declaration that PTA/PFY project being implemented by SPIC through M/s. Southern Petrochemicals Industries Corporation Limited was in breach of trust and in violation of MOU dated 17.1.1989 entered into between MRL and M/s. Southern Petrochemicals Industries Corporation Limited. In the said suit, they also prayed for permanent injunction restraining M/s. Southern Petrochemicals Industries Corporation Limited, acting by itself or through SPIC, its agents or any other person acting under the directions of M/s. Southern Petrochemicals Industries Corporation Limited, from taking any further steps in implementing PTA/PFY project.
In the second suit, namely C.S. No. 73/1996, MRL sought declaration that the defendants had committed breach of trust by illegally and unauthorisedly transferring 168.38 acres of land, more particularly described in schedule the suit and allotted to Arochem in favour of SPIC and for consequential declaration that the said land was being held by SPIC in trust for Arochem. They also prayed for mandatory injunction directing SPIC to hand over possession to Arochem, of 168.38 acres of land and for permanent injunction restraining SPIC from carrying on any further construction or other activities on 168.38 acres of land.
MRL's contention is that those suits are pending in the Madras High Court. It is further stated by MRL that the Single Judge of the Madras High Court passed common order dated 2.7.1996, granting injunction in favour of MRL under certain conditions and on appeal to the Division Bench those conditions also were removed and the injunction order was confirmed though prayer seeking mandatory injunction for handing over the said land of 168.38 acres, came to be rejected. The date of Single Judge's order was 2.7.1996 and date of order of the Division Bench was 18.3.1997. Special Leave Petition to the Supreme Court filed by M/s.
Southern Petrochemicals Industries Corporation Limited, was dismissed.
4. Subsequent to the dismissal of this Special Leave Petition, MRL and M/s. Southern Petrochemicals Industries Corporation Limited had endeavoured to resolve the disputes and had accordingly arrived at a settlement, which had been initiated by authorised signatories of the parties thereto for the purpose of identification. As per the settlement, it was agreed that M/s. Southern Petrochemicals Industries Corporation Limited, would repay to MRL whatever sum had been paid by MRL towards the project in the form of share application deposit in Arochem, together with interest thereon. It was further agreed that M/s. Southern Petrochemicals Industries Corporation Limited, would repay to MRL litigation expenses and costs with reference to various legal actions initiated by MRL against M/s. Southern Petrochemicals Industries Corporation, SPIC, SACL (other company flouted by M/s.
Southern Petrochemicals Industries Corporation Limited). It was agreed that, upon such repayment all the rights and obligations of MRL and M/s. Southern Petrochemicals Industries Corporation Limited, would stand fully settled by the terms of settlement and that MRL and M/s.
Southern Petrochemicals Industries Corporation Limited, would have no claims or demands against each other in respect of any matter arising out of the MOU dated 17.1.1989 or in relation to the Aromatics, PTA and PFY projects, etc. etc. In terms of draft Memorandum of Settlement M/s.
Southern Petrochemicals Industries Corporation Limited was due and liable to pay to MRL a sum approximately Rs. 40 crores.
5. The appellants in the present appeal, before this Forum, are contending that land which is mortgaged by SPIC to ICICI is subject matter of suit No. 73/1996, which is pending in the High Court at Madras. It is further contention of MRL, in this appeal that it is a suit on title, which is yet to be adjudicated upon by the Madras High Court and there is interim injunction in their favour. It is therefore contended by MRL that if this land with respect to which they have raised dispute in the Madras High Court, is allowed to be sold by the receiver which is appointed by the impugned order passed by the learned Presiding Officer of DRT-III, Mumbai and which order is confirmed by this appellate Tribunal by order dated 10.3.2003 in the appeal filed by SPIC, then MRL's interest will be prejudiced and that is how, they are aggrieved by the impugned order.
6. It is argued by Mr. D'vitre, learned Counsel appearing for the appellants that MRL was not the party to the original application filed by ICICI against SPIC and that the said order with respect to appointment of receiver with power to sell was passed without hearing them, that they have interest in the said land, which is allowed to be sold. Mr. D'vitre, further argued that SPIC and ICICI might be having anything between them, that the SPIC might be the debtor and ICICI might be the registered mortgagee/creditor and the order dated 14th February, 2003 passed by the learned Presiding Officer of DRT-III, Mumbai and confirmed by this Appellate Forum might be good, qua SPIC but not qua his clients namely MRL. He further argued that it was an ex parte order as far as MRL was concerned. He further submitted that his clients were not heard in the matter when the order was passed, and that his client would have pointed out the fact about the two suits filed by them against SPIC, and involvement of their rights with regard to the title and possession in those lands and if that property is sold, those suits, would become infructuous. He further submitted that if those suits are decreed in favour of his clients then the mortgage created by SPIC in favour of ICICI would be declared null and void. He relied upon Section 52 of the Transfer of Property Act, 1882. Mr.
D'vitre vehemently argued that the said transfer namely mortgage by SPIC to ICICI was hit by doctrine of Lis pendence because such a transfer is forbidden by the said doctrine. Mr. D'vitre therefore prayed that portion of the order, which gives receiver power to sell the property (land), be stayed.
7. Mr. Janak Dwarkadas, learned Counsel appearing for ICICI vehemently opposed contentions raised by Mr. D'vitre. Mr. Dwarkadas submitted that MRL could not be heard to say that, "Review the order passed by the DRT" or to say that it was an ex parte order qua MRL and that they were not heard in the matter. He pointed out that MRL was aware way back in the year 1996 that ICICI had interest in the matter but still MRL did not choose to make ICICI a party in their suits filed in the Madras High Court. Neither they made attempt to obtain any injunction order against ICICI, nor they had chosen to join them as a party defendant and therefore when the order is passed by DRT, which is also confirmed by DRAT, MRL cannot choose, in a collateral proceeding to challenge the said order. He submitted that contention of the appellants that they were not knowing about passing of the said order, is a boggie; He submitted that there is total collusion between the present appellants and appellants in Appeal No. 75/2003, that MRL waited in the wings to see the outcome of these two appeals and then emerged on the scene pretending to be not knowing about the dispute between ICICI and SPIC.Mr. Janak Dwarkadas further submitted that MRL and M/s. Southern Petrochemicals Industries Corporation Limited might be litigating in the year 1996 and at that point of time, their dispute might be genuine, and MRL might have spent two and half crores in litigating, but now much water has flown under the bridge, and now MRL's claim in those suits appears to be a simple money claim, quantified at Rs. 35 to 40 crores. It is pointed out that in the suits filed by MRL in the Madras High Court nothing is happening because M.O.U. entered into between the parties and those suits have become a spent force and MRL is now not interested in pursuing those suits. He submitted that those suits are now abandoned by MRL and are in the state of suspended animation.
Mr. Dwarkadas further argued that ICICI is a lawful, registered mortgagee, who is seeking to enforce its security and how can anyone prevent ICICI from enforcing their security. Since much was said by the appellants about 'prudent Banking' and 'wisdom', Mr. Dwarkadas replied by highlighting the fact that date of mortgage was 2nd February, 1996.
Thereafter, he further pointed out that at that point of time, only Single Judge's order was available and after going through the said order, nothing was found therein so as to be apprehensive, because plaintiff in that suit, namely MRL, who was Government of India's company was put to certain conditions by the learned Single Judge, which was very peculiar and thereafter, injunction came to be granted which was in personam and was against the defendant No. 7 in the suit.
It was submitted by Mr. Dwarkadas that the ICICI had not done anything wrong and had not shown any imprudentness in accepting by way of mortgage land which was subject matter of the suits, filed by MRL in the High Court, in which question of title and possession with respect to that very piece of land was involved.
Mr. Janak Dwarkadas further argued that Section 52 of the Transfer of Property Act, 1882 does not put total embargo on transfer made during the pendency of any suit and such a transfer does not become void but only voidable and the same can be avoided only when party succeeds in establishing his case and becomes a decree holder. To substantiate his arguments, Mr. Janak Dwarkadas relied upon AIR (38) 1951 Calcutta 481, AIR 1987 M.P. 78, so also a Supreme Court decision reported in AIR 1956 S.C. 593, Nagubai Animal v. B. Shamrao and Ors., in which it was held that transfer during pendency of a suit did not become void but only voidable and. that the effect of Section 52 is not to wipe out a sale pendente lite altogether but to subordinate it to the rights based on the decree in the suit. Mr. Dwarkadas submitted that this proposition in the aforementioned judgments have not been over turned by any other decision and that no contrary view has been taken by the Supreme Court.
8. I have heard both the sides at length and I have gone through the voluminous record, so also plethora of case law cited by both the sides. Having gone through the same, I find substance in the submissions of Mr. Janak Dwarkadas.
"52. Transfer of property pending suit relating thereto.-During the (pendency) in any Court having authority (within the limits of India excluding the State of Jammu and Kashmir) or established beyond such limits by (the Central Government) of (any) suit or proceedings which is not collusive and in which any right to immovable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the rights of any other party thereto under any decree or order which may be made therein, except under the authority of the Court and on such terms as it may impose." In short, what this section says is that in any transfer of immovable property, which is made during the pendency of a suit, which is not collusive and in which any right to immovable property is directly and specifically in question, the said property cannot be dealt with by any party to the suit so as to affect rights of any other party thereto under any decree or order.
There is no blanket injunction or embargo as such on the transfer of any immovable property taking place during pendency of any suit. The only thing is that such transfer is always subject to subsequent transfer and subsequent transferee gets his title subject to the out come of the suit and is subservient to the title of the decree-holder.
This is obviously a reasonable and rational principle based on public policy, otherwise, result will be disastrous. Any person can file frivolous suit in the Court of law and if interpretation advanced by Mr. D'vitre is to be accepted then, such a person filing frivolous suit will succeed in blocking the subsequent transfer with respect to that property. This will be absurd and this is certainly not the intention of the Legislature.
So, on the same principles, MRL who are appellants in this appeal, will not be prejudiced because of this very principle of lis pendence.
Assuming that their title to the land is yet to be adjudicated upon, (though that does not appear to be the case because of subsequent turn of events), still they cannot injunct ICICI in a parallel proceeding from enforcing their security. ICICI is registered mortgagee of the said land, which is mortgaged with them by their borrowers namely SPIC.ICICI is before a Tribunal of competent jurisdiction who has passed order, appointing receiver with respect to that property with a power to sell it, which has been upheld by this Appellate Forum and if at this juncture, MRL tries to get injunction from this Appellate Tribunal, such an attempt should not be allowed to succeed. MRL has not chosen to joint ICICI in the Madras suits though they knew about the interest of the ICICI in those lands, nor did they ask for injunction against ICICI. MRL did not come forward and pray for being joined as party defendant before the DRT but they have suddenly appeared before DRAT in a collateral proceeding, challenging the order passed by the DRT. MRL has already got protection by virtue of Section 52 of the Transfer of Property Act. Their title, if they succeed in the High Court suits (provided they pursue those suits diligently, which does not appear to be a case) and become decree holders, will be higher, while title of all other transferees who have become transferees during the pendency of the suit, will be always subservient to MRL's title. So there is no prejudice to MRL even though order of appointment of receiver with a power to sell, has been passed, with respect to that very land. MRL cannot injunct ICICI.... a lawful mortgagee from enforcing their securities. That is not the law and that is not what Section 52 of Transfer of Property Act says. Nor does the Supreme Court say that such a transfer is void. Supreme Court says that such a transfer is voidable and MRL can avoid it only if they establish their right after becoming decree holders. The section protects them and no order from any Court is required. Therefore, there is no reason to interfere or disturb the impugned order, which is already passed.
As already observed, though MRL might have filed suits against M/s.
Southern Petrochemicals Industries Corporation Limited, way back asking for possession of the said land back to Arochem, to whom the land was originally allotted by the Government of Tamil Nadu, reallocation of this land is not challenged by MRL though in the suit filed by MRL leave under Order 2 Rule 2, is taken. Considering and taking into account, terms of M.O.U. between MRL and M/s. Southern Petrochemicals Industries Corporation Limited, it is very clear that claim of MRL with respect that land has been now reduced into a money claim, quantified at about Rs. 40 crores. That suit in the Madras High Court now has become spent force and is in the state of suspended animation and is almost abandoned. Delay in prosecuting the same, is not because of the proverbial judicial delay but because of inaction on the part of MRL.
What MRL now wants and is insisting upon by virtue of M.O.U. is that it should be paid back its money, amounting to Rs. 40 crores and if that money is paid up by M/s. Southern Petrochemicals Industries Corporation Limited, injunction granted by the Madras High Court will not come in the way of implementing the project. Thus, there are wheels within wheels and it has to be said that though claim of MRL in the suits filed by MRL against M/s. Southern Petrochemicals Industries Corporation Limited, is pending in the High Court, it has changed its colour and hue and has turned into a money claim.
In view of above discussion, I do not see any reason to review my own order, which has been passed after hearing marathon arguments of the Counsel appearing for both the sides in Appeal Nos. 75 and 79 of 2003.
This Misc. Appeal indeed smacks of collusion with the appellants in M.A. No. 75 and 79 of 2003 and, therefore, has to go the same way.
Hence, following order is passed: