Punjab & Haryana High Court: “Failure to Fulfil Terms of Re-Structuring Will Lead to Disentitlement of Remedies”

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On 22nd December 2020, a Division Bench consisting of Hon’ble Mr. S. Muralidhar and Hon’ble Mr. Justice Avneesh Jhingan heard the case of Dwarkadhis Projects Pvt. Ltd v. Punjab National Bank and Anr via video conferencing.

The writ petition was filed by the petitioner which is a company incorporated under the Companies Act, 1956, through its authorised signatory against the Respondent Bank (Punjab National Bank) where the re-structuring of its loan had been cancelled.

Facts of the case

The petitioner was a real estate developer, and had availed a term loan from the Bank for construction of a Residential Group Housing Project “Casa Romana” at Dharuhera. Subsequently, a Rs.100 crore term loan was sanctioned. Due to financial constraints in 2017, the project was downsized due to which the term loan was reduced from Rs.100 crores to Rs.80 crores. 

In 2019, the Petitioner sought permission from the Bank for selling the collateral securities. There was a default in repayment of the loan and thus, the account was declared as Non-Performing Asset (‘NPA’). Thereafter, the Bank allowed the request of the Petitioner for sale of the collateral security, subject to deposit of Rs.18 crores.

A notice under Section 13(2) (Enforcement of security interest) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was issued by the Bank to the Petitioner. Later, objections under Section 13(3A) of the Act were filed request was made by the Petitioner for re-structuring of the loan. 

In 2020, the loan was re-structured by the Bank subject to the pre-condition that the Petitioner had to infuse Rs.1.20 crore. The repayment of Funded Interest Term Loan (FITL) was to be made in five equated quarterly instalments. But the Petitioner failed to deposit the first and second instalments due to which the Bank terminated the re-structuring of the loan. Hence, the present petition was filed.

Contentions of the Petitioner

Mr. Puneet Bali, learned Senior counsel for the Petitioner, contended that the order of termination was vague and unreasonable. He relied upon the certificate issued by the Chartered Accountant to show that Rs.1.20 crores were in fact contributed by promoters. 

It was further argued that the Bank had to sell some of the properties mortgaged after No Objection Certificate (NOC) from the Petitioner but it failed to do so. He stated that if sufficient time was provided, the Petitioner was willing to infuse the aforementioned amount of Rs. 1.2 crores into the project account.

Contentions of the Respondent

Mr. P.B.A. Srinivasan, learned counsel for the Bank, contended that the Petitioner failed to comply with the pre-condition of re-structuring i.e., infusing Rs.1.20 crore into the project account. It was contended that in spite of the Bank granting the NOC, the Petitioner never sold the collateral security.

The Petitioner had to exclusively deal with the Bank, whereas as per the certificate issued by the CA the Petitioner had violated the said condition.

Court’s Analysis

The Court analysed the terms and conditions of re-structuring and observed that the Petitioner had to infuse Rs.1.20 crore prior to implementation of the restructuring. Further, the NOC had to be issued to develop and sell the plots on land situated at Sector-22, Dharuhera which was not part of the project due to reduction of the project size. 

The Court observed that the Petitioner miserably failed to fulfil the obligations cast upon it by the terms and conditions. The Petitioner had to infuse Rs.1.20 crore prior to implementation of the restructuring, however, the petitioner failed to do so. Also, there was no deposit in the bank account of the petitioner with the Respondent Bank.

The Court also observed that there was a clause obliging the Petitioner to have exclusive dealing with the Respondent Bank despite which not a penny of the contribution was deposited in the account with the Respondent Bank. 

Court’s Decision

The Court held that the restructuring never commenced as the Petitioner failed to infuse the sum of Rs. 1.2 crores as per the pre-condition for restructuring. Further, the contention of the Petitioner that there was no prior intimation before termination of the restructuring, did not stand. 

The Court further held that the Petitioner had miserably failed even to prima facie establish that it honoured its part of terms and conditions. The Petitioner, during the visits to its site and visit to the Bank, was informed about its failure to fulfil the obligations cast by the restructuring document.

There was no progress and the Bank was left with no other alternative except to terminate the restructuring. The contention that the termination order was vague and not well reasoned did not advance the case of the Petitioner. The termination was on account of non-compliance of the terms and conditions. Thus, the petition was dismissed.


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