TMI Blog2020 (12) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent to pay to the petitioner/Lenders for the usage of the Oxygen Plants in the manner stipulated in the Lease Agreement i.e., Clause 5.1 read with Schedule 2. Despite specific obligation, the petitioner has failed to undertake routine maintenance measures of the Oxygen Plants and keep the same in good working condition in accordance with best industry practice. There is a dispute between the parties as to who is responsible for the upkeep of the Oxygen Plants. Prima facie, Dr. Singhvi and Mr. Nigam are right in relying on Clause 6.1.(vii) of the Lease Agreement and Clause 6.1.7 of the Common Loan Agreement that the obligation in on the petitioner, but there is a dispute as to whether the Oxygen Plants actually required any maintenance. It is clear that ₹ 18 crores being the contractual amount w.e.f. April 01, 2020, the said amount is prima facie payable by the respondent atleast till such time the parties seek adjudication of the disputes as per the contractual provisions - So, it is directed that the respondent shall pay the arrears of lease rent (net of all taxes/TDS), after adjusting the amount already paid, to the lead Lender Bank with applicable interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing capital loans and other secured fund and non-fund based facilities from various Banks/Financial Institutions ('Lenders', for short). Subsequently, as part of deleveraging exercise and decisions taken at the meeting of Lenders of the respondent held on August 18, 2014, the respondent was required to monetize four oxygen plants having capacity of 1200, 1120, 405 and 340 tons per day (TPD) ('Oxygen Plants', for short), which are part of integrated steel facility at Mermandali, Odisha ('Integrated Steel Facility', for short) through 'Sale and Lease Back Arrangement'. 4. The Lenders of the respondent thereafter issued an NOC on February 21, 2015 permitting respondent to execute a Sale and Lease Back Agreement with the petitioner on the condition that interest over the lease for the Oxygen Plants shall be charged for the benefit of the Lenders. In pursuance, respondent sold the Oxygen Plants situated at the Integrated Steel Facility to the petitioner. 5. The petitioner on February 26, 2015 entered into separate agreement with the Lenders to raise ₹ 850 Crores in debt to finance the acquisition of the Oxygen Plants and additionally ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Han dover Date (Rent Commencement Date), and the Rent and other amounts payable by the Lessee in accordance with terms hereof shall always be paid in/to the credit of the Lessor's Designated Bank Account. 6.3 Use and enjoyment (a) The Lessee shall, subject to making timely payments and compliance with the terms and conditions of the Lease Agreement, have quiet, peaceful use, enjoyment and possession of the Equipments without any interference from or disturbance by the Lessor, its representative or any person claiming under the Lessor. 11.2 Arbitration Procedure If a Dispute is not resolved within 20 (twenty) business days after the service of a Dispute Notice, whether or not a Dispute Meeting has entitled to refer the Dispute to arbitration by a notice to the other party (Notice of Arbitration) and the Dispute will be finally resolved in the manner set out in this Clause 11. The pendency of a Dispute in any arbitration proceeding shall to affect the performance of the obligations (which are not the subject matter of this Dispute) under this Lease Agreement. 11.4 Venue, Language, and Rules of Arbitration The seat of the arbitration shall be in Delhi and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 filed by State Bank of India stood concluded and on May 18, 2018, the present management took over the respondent. 14. It is stated by the petitioner that subsequent to the taking over of the new management by Tata Steel Limited, for the period between May 18, 2018 to February 29, 2020, i.e., for the period of 21 months, there has not been any default in the payment of (a) lease rentals and (b) goods and services tax. 15. It is stated by the petitioner that since December, 2019 the respondent started raising certain non-maintainable and illegal issues with the petitioner and subsequently from March, 2020 stopped complying with its legal and contractual obligations of timely rental payments, thereby committing fundamental breach of the Lease Agreement and crippling the petitioner from timely servicing its loans. It is also stated that the respondent has forced the petitioner to opt for moratorium on its bank dues, thereby increasing its liability. 16. Further, it is stated by the petitioner that the respondent vide its letter dated April 27, 2020 informed the petitioner to claim moratorium from Lender Banks, re-visit the terms of the Lease Agreement and accept unilatera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent further defaulted to the tune of ₹ 10,74,00,000/-. And further as on September 30, 2020, the total defaulted amount towards unpaid rent and GST under the Lease Agreement amounts to ₹ 60,28,00,000/-. 21. It is also averred by the petitioner that since the Government of India has deferred filing of an application for financial default under IBC on September 24, 2020 till December 25, 2020 and also due to moratorium, the banks could not claim the default in payment of three EMIs totaling to ₹ 38,77,60,809/-. However, the petitioner would be bound to pay compound rate of interest on interest. It is at this juncture, that the petitioner has filed the present petition as the respondent could not be allowed to self-determine the claims to money due and payable as per existing obligation of admitted lease rentals. 22. Reply to this petition has been duly filed by the respondent. A preliminary objection has been taken against the relief sought by the petitioner as it is stated by the respondent that a final relief is sought in the garb of an interim relief. 23. It is stated by the respondent that the petitioner is attempting to virtually seek the final re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning to the sale and lease back transaction remained outstanding and had been duly acknowledged by the petitioner. 28. On grounds entitling the petitioner to any interim relief, it is stated by the respondent that no prima facie case/balance of convenience or irreparable harm is caused to the petitioner as negotiation/discussions were ongoing till September 7, 2020 and pending discussions on outstanding amounts and other obligations, the respondent was releasing part payment of lease rentals w.e.f. April, 2020 under protest but on good faith basis, every month. A table to that effect has been relied upon and same is reproduced as under: 29. It is stated that the petitioner has conveniently kept aside the claims of the respondent which exceeds the amount claimed by the petitioner and that if an interim order in the nature of restraining the respondent is granted, it would cause irreparable damage to the respondent. 30. It is also stated, even the petitioner has categorically admitted that the respondent Plant cannot function without Oxygen Plants, which are being supplied by the petitioner. Despite having been successfully emerged from CIRP if the Plant is made to shut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stated that at the relevant time period, the upkeep and repair was completely been undertaken by the respondent themselves and no credit can go to the petitioner for the upkeep. 35. It is also stated that the maintenance costs amounting to INR 41 Crore (approx.) and the outstanding amount of INR 10 Crores (approx.) (admittedly pending due) is merely in the nature of an 'adjustment' and therefore it cannot be deemed as an 'unliquidated claim', as alleged by the petitioner, thereby curtailing the respondent from adjudicating the same against the outstanding rentals. In this regard, the respondent stated that it is trite law that where two parties have certain amounts and monies payable to each other, they are both entitled to mutual adjustments of the said amounts. 36. Rejoinder has been filed by the petitioner. 37. Mr. Kapil Sibal, learned Sr. Counsel, appearing on behalf of the petitioner, stated that strong prima facie case is made out by the petitioner, against the respondent as the Lease Agreement with all its Clauses is admitted between parties, and therefore, quantum of rental obligations of the respondent is also settled and admitted. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue for the petitioner, the wilful non-payment by the respondent has resulted in resulting in forced liquidity crunch; (iv) this may lead to default by the petitioner, which may in turn lead to legal proceedings in addition to damaging the credit rating and reputation to the petitioner; (v) the petitioner is already saddled with penal interest on account of moratorium opted due to nonpayment by the respondent. 40. In support of his submissions that the relief sought by the petitioner is within the ambit of Section 9, Mr. Sibal has relied upon the following Judgments: 1. Value Source Merchantile v. M/s. Span Mechnotronix,(2014) 143 DRJ 505 2. Friends Motels Pvt. Ltd. v. Supertrack Hotels Pvt. Ltd. 3. Supertrack Hotels Pvt. Ltd. v. Friends Motels Pvt. Ltd. 4. Sona Corporation India Pvt. Ltd. v. Ingram Micro India 41. It is also submitted by Mr. Sibal that the relief sought by the petitioner in this petition is not final in nature, as contended by the respondent, and the dispute that have to be settled by Arbitration are exclusive of the predetermined rent which is necessary for the petitioner to survive. It is also submitted that the petitioner has a further claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 9 petition is being misused as there exist no immediate threat of any nature to the subject matter and further highlighted the disputed facts during the course of the submissions which cannot be decided in a petition filed under the said Section. They also contended that the petitioner is seeking to circumvent judicial dicta and established principles surrounding Section 9 as the said provision cannot be used to secure a decree to the tune of a final relief, nor can it be misused to nullify the arbitration proceedings by seeking a final relief. On the scope and applicability of Section 9, the Counsels have placed reliance on the Judgment of this Court in the case of Avantha Holdings Limited v. Vistra ITCL India Limited, OMP (I) (COMM.) 177/2020. 47. On the merits, it is submitted by the Counsels that this entire transaction was clearly not at an arm's length but rather a friendly one which has led to payments of exaggerated amounts as lease rentals that were artificially fixed to meet the requirement of INR 1,000 Crore (sale price), making it further into the nature of a financial lease. In this regard, they stated that prior to February 13, 2015, erstwhile Bhush ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently, the respondent had approached the petitioner to streamline the rentals with current market standards. In this regard, it is stated by the Counsels that communications between the petitioner and the respondent started in formally way back in December, 2018 and subsequently, took shape in the form of formal communications. They has also relied upon extracts from Annual Reports of the respondent for the years 2017-18 and 2018-19. 50. On terms of payment of lease rental under the Lease Agreement, it is submitted by the Counsels that Clause 5.2, which imposes an unconditional obligation on the petitioner to pay the lease rentals cannot be read in an isolation. More so, the said clause must be read along with Clause 5.1 of the Lease Agreement, which states that Lessor and Lessee may mutually decide to increase or decrease the prevalent rent (and/or other payables) at any time during the subsistence of this Lease Deed . 51. Thus, it is contended by the Counsels that Clause 5.1 read with Schedule 2 provides that lease rental can be increased or decreased mutually and Clause 5.2 in no way dilute clause 5.1 and this Clause is absolute in nature which can be invoked by either pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Lease Agreement and Common Loan Agreement respectively will not discharge the petitioner's maintenance obligations under 6.1.(vii) of the Lease Agreement and 6.1.7 of the Common Loan Agreement. The insurance is primarily to mitigate the risk of the petitioner and preserve the underlying security for the loan of ₹ 850 Crores given to the petitioner. 54. It is further contended by the Counsels that despite there being specific contractual obligations, the petitioner had failed to undertake any routine maintenance measures. Since the inception of the contract in February, 2015 till May 31, 2020, the respondent has evaluated an expense incurred at ₹ 41,79,48,852/- towards maintenance of the Oxygen Plants. The petitioner's plea that the respondent did not object to the question of maintenance is without merit as there can be no question of acquiescence or waiver since there is a direct contractual obligation in the Lease Agreement. 55. The Counsels have also relied upon various communications between the parties whereby the respondent informed the petitioner about required repairs, requirement of spares and maintenance cost due from petitioner since 2019. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmittee of creditors, respondent RP on the petitioner's Lease Agreement during the CIRP process. In this regard, anchorage has been made on the Apex Court Judgment in Alopi Parshad and Sons Ltd. v. Union of India, (1960) 2 SCR 793, wherein it was inter-alia held that the Indian Contract Act, 1872 ('Indian Contract Act', for short) does not enable a party to a contract to ignore the express covenants thereof. 59. Mr. Sibal on the plea of the Counsels that by way of an interim order a final relief of payment of lease rentals is sought, submitted that the respondent has defaulted in making the payment of these lease rentals by taking umbrage under its own unadjudicated disputes and claims and if such a plea is allowed, it would lead to anomalous situation where a party will be able to default in making payment of its contractual dues and claim that the other party cannot receive its contractual dues by way of interim order. In the facts of the present case, Mr. Sibal states it results in the respondent getting an unjust gain out of breaching Clause 5.2 and 6.3(a) of the Lease Agreement. 60. On the allegation of SFIO proceedings and charge sheet being filed, it is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65. Having heard learned counsels appearing for the parties, I shall encapsulate their submissions in brief. The submissions of Mr. Sibal are as follows: 1. There is an admitted obligation to pay rent on part of the respondent as per the Lease Agreement. (Reference to Clause 5.1 and 5.2). 2. Being an undisputed fact, prima-facie case is made out by the petitioner; 3. On the balance of convenience, it is stated that: 3.1. Rent collected is utilized towards servicing the loans taken for acquiring the leased equipment; 3.2. Respondent is in possession and continued commercial usage of the leased equipment worth over ₹ 1,000 crores, without paying rent; 3.3. Owing to the non-payment respondent is unjustly enriching itself whereas the petitioner is suffering financially; 3.4. The respondent has security in form of possession of the Leased Equipment, the petitioner has no such security for ensuring payments of lease rentals; 4. On irreparable injury, it is stated that: 4.1. The non-payment has resulted in forced liquidity crunch for the petitioner; 4.2. This might lead to petitioner facing legal proceedings and damaged credit ratings; 4.3. In addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D-19 and therefore, no injunction or restraint from using the Oxygen Plants can be granted considering the fact that the Steel Facility cannot be run without its Oxygen Plant. 5. No case made out by the petitioner that non-grant of interim-relief would frustrate the arbitration proceedings. (Ref: Nirbhay Pratap Singh (supra)). 6. Relied upon Goodwill Non-Woven Ltd. (supra), wherein it was inter-alia held that disputed factual positions cannot be decided in a Section 9 petition, more so when there is no threat of frittering away of the properties either before during the pendency of the Arbitration proceedings. 7. On merits, it is stated that: 7.1. The entire transaction was clearly not an arm's length but rather a friendly transaction which has led to payments of exaggerated amounts as lease rentals that were artificially fixed to meet the requirement of INR 1,000 Crore (sale price), making it further into nature of a financial lease; 7.2. The same is mentioned in a SFIO Complaint and Investigation Report; 7.3. The fact that the Lease Agreement and Common Loan Agreement records existence of four Oxygen Plants and the admitted stand that the 340 TPD plant was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived close to 70% of the renal amount from the respondent through part payment made every month. Moreover, Supreme Court has currently stayed declaring loan facilities NPA. 67. Having noted the broad submissions of the learned counsels for the parties and perused the record, it is the case of the petitioner that the Oxygen Plants were leased out to the respondent at the monthly consideration of ₹ 15 Crores (net of all taxes and TDS) for the period ending March 31, 2020 and ₹ 18 Crores (net of all taxes and TDS) w.e.f. April 01, 2020, as per Clause 5.1 read with Schedule 2 of the Lease Agreement. Therefore, I find it apposite to reproduce Clauses 5.1, 5.2 and Schedule 2 of the Lease Agreement herein under: 5. RENT 5.1 In consideration of the Lease being granted, the Lessee shall pay to the Lessor a monthly rent (net of all taxes and tax deduction at source), details of which are set out at Schedule 2 hereof, in arrears on or before 2 (two) business days prior to the last date of each month (Rent). The Lessor and the Lessee may mutually decide to increase or decrease the prevalent Rent (and/or other payables) at any time during the subsistence of this Lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other amounts as may be agreed in writing by the Lessee, and (ii) if the Lease Commencement Date is a day other than the first date of the month, then the Rent payable for that month shall be pro-rata to the number of remaining days of that month. 68. Mr. Sibal is right in relying upon the Clauses 5.1 and 5.2 of the Lease Agreement to contend that there is an admitted obligation to pay lease rent on the part of the respondent. In fact I note, the respondent on taking over the management of the BSL for the period between May 18, 2018 to February 29, 2020, had paid the lease rent to the petitioner and also deposited the GST with the public authority. 69. The dispute has arisen thereafter. According to Dr. Singhvi and Mr. Nigam (Counsels) the entire transaction leading to the lease agreement is not at arm's length. It was while reviewing various contracts/transactions as per an Annual Report of the company it was realised by the respondent that ₹ 18 Crores per month leased rental is not in accordance with prevalent market standard, but is far excess of it. 70. The submission of the Counsels was that Clause 5.2 of the Lease agreement read with clause 5.1 imposes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce inspection of the Lease Agreement in 2015. It is only after repeated requests made by the respondent that at a very belated stage in July 2020, the details of technical appointee were provided. That apart, it is also stated that the petitioner has failed to provide the spares for the plants. In substance, it was their plea that the respondent has incurred expenses to the tune of ₹ 41,79,48,852/- for the upkeep of the plants. 75. On the other hand, Mr. Sibal has contested the submission made by Dr. Singhvi and Mr. Nigam by stating that the respondent has been in effective possession, control and commercial usage of the oxygen plants and is responsible for the routine and operation costs of the Oxygen Plants and the Lenders in the appraisal memo have clearly noted that the routine maintenance and operation and maintenance charges are on the respondent. 76. Further, according to Mr. Sibal the entire bogey of alleged maintenance cost has been created as an afterthought pursuant to the joint inspection report dated November 20, 2019 conducted by the Lenders and the parties herein. The joint inspection report records that the respondent has admittedly not faced any issue r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing upon the judgment of this Court in Supertrack Hotels Pvt. Ltd. (supra), wherein the Division Bench upheld the judgment of the Single Bench, directing the appellant therein to pay a sum of ₹ 1,30,44,960/- which was the outstanding amount of agreed rent as per the lease deed from November 2015 till April 2016. The Division Bench in paragraph 19 of the said judgment has stated as under: 19. We are therefore of the opinion that while exercising the powers under Section 9 of the Act, the Court can certainly be guided by the principles of Order XV-A and Order XXXIX Rule 10 of CPC. The same view was expressed by another Division Bench of this Court in the case of Value Source Mercantile Ltd. (supra). The relevant portion of the said judgment reads: 13. Section 9 of the Arbitration Act uses the expression interim measure of protection as distinct from the expression temporary injunction used in Order XXXIX Rules 1 2 of the CPC. Rather, interim injunction in Section 9 (ii) (d) is only one of the matters prescribed in Section 9 (ii) (a) to (e) qua which a party to an Arbitration Agreement is entitled to apply for interim measure of protection . Section 9(ii) (e) is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated by the Supreme Court in its judgment of Alopi Prashad and Sons Ltd. (supra), wherein the Apex Court inter-alia held that the Indian Contract Act, does not enable a party to a contract to ignore the express covenants thereof and to claim payment of consideration of performance of the contract at rates different from the stipulated rates on vague plea of equity. Similarly, in Sona Corporation India Pvt. Ltd. (supra) a coordinate Bench of this Court, guided by the Division Bench judgment in Supertrack Hotels Pvt. Ltd. (supra), has in paragraph 14 directed the respondents therein to pay the quarterly lease rent to the petitioner for the period commencing from March 01, 2018 till the date of occupation of the leased premises and the arears of rent within three weeks from the date of order. 82. Likewise, in Value Source Mercantile Ltd. (supra) as well a Division Bench of this Court, in paragraph 13 and 14 has held as under: 13. Section 9 of the Arbitration Act uses the expression interim measure of protection as distinct from the expression temporary injunction used in Order XXXIX Rules 1 2 of the CPC. Rather, interim injunction in Section 9(ii)(d) is only one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of a Civil Suit and is thus within the ambit of Section 9 of the Arbitration Act. 83. That apart, a submission was made by the Counsels that as per the past ledger/statement of accounts maintained with the Company, an amount of ₹ 10,19,91,600 is outstanding/payable by the petitioner to the respondent in view of the 'Sale and Lease Back' transaction by relying upon an e-mail dated July 19, 2020 of the Vice-President of Accounts and Operation at SREI Equipment Finance Limited sent to the Manager, Finance Account of the respondent Company and also on the stand alone finance statement of the petitioner for the financial year 2017-18 wherein at page 73 note 23 shows balance convertible is of INR 21.94 Crores and payable in INR 10.19 Crores from Bhushan Steel Limited subject to confirmation . 84. On the other hand, Mr. Sibal had contested the plea of the Counsels by stating that the statement on which reliance has been placed is neither unequivocal nor clear or categorical for it to be an admission. Rather, it is qualified by two factors 'balance convertible of ₹ 21,94,96,885/-' and 'subject to confirmation'. Further, the alleged claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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