Continuing Breach Of Rights Arising Out Of Loan Agreement Where Collateral Advanced For Loan Is At Risk Necessitates Injunction: Calcutta HC

Finding that the respondent is in continuing breach of the petitioner’s rights arising out of the loan agreement, and the encumbrance of the respondent’s properties is in continuation of that breach, the Calcutta High Court ruled that hypothecation and charge are undisputed and the petitioner’s rights are therefore required to be protected.

The High Court held so while considering a petition seeking an order of injunction on the respondent from dealing with or taking any step in creating any interest over 13 flats together with 13 car parking spaces with each flat and an additional 66 car parking spaces and undivided proportionate share of a piece of land measuring 3337.34 square meters in the building proposed to be constructed by the respondent.

The High Court further observed that since there is no evidence on record to show that the petitioner is seeking enforcement of any mortgage, the respondent cannot resist the reliefs on a pre-supposition of the petitioner’s claim in the arbitration.

A Single Judge Bench of Justice Moushumi Bhattacharya observed that “There is sufficient evidence that the petitioner’s right on the hypothecated and charged assets which is also the collateral for the loan advanced to the respondent is at risk. The restraining orders on the respondent by the Bombay High Court and other statutory authorities have already been acted upon and there is hence every chance that the petitioner’s security may further be put at risk”.

“Section 9(1) contemplates interim measures of protection to a party who approaches the Court for urgent relief or on an apprehension that the subject matter of the dispute in the arbitration may be disposed of even before the arbitration commences. Section 9(1) is simply a stopgap measure before the arbitration starts and the parties can have a forum to have the remaining of their disputes adjudicated”, added the Bench.

Senior Advocate Jishnu Saha appeared for the Petitioner, whereas Advocate Krishnaraj Thaker appeared for the Respondent.

The brief facts of the case were that petitioner had granted a loan of Rs. 200 crores to the respondent on easy terms, but the respondent defaulted in its repayment obligations, even though the respondent was under an obligation to repay the loan in 36 instalments. Since moratorium was granted during the pandemic, the loan was rescheduled. However, the respondent’s default led the petitioner to issue a notice calling upon the respondent to make payment of the outstanding amount. The petitioner thereafter terminated the agreement. According to the petitioner’s counsel, the respondent has already dealt with part of the 13 flats owing to failure in completion of the Project. The counsel further submitted that one of the 13 flats has already been attached in execution of an order passed by the Maharashtra Real Estate Regulation Authority (MAHRERA). This was opposed by the respondent and submitted that the security interest claimed by the petitioner is in the form of mortgage of the flats and car parking space and that the present application is for protection of the petitioner’s rights as mortgagee of the flats and car parking spaces.

After considering the submission, the Bench found that the dispute in the present application relates to the Supreme Court decision in Booz Allen and Hamilton INC. v. SBI Home Finance Limited [(2011) 5 SCC 532], wherein it was held that a mortgage is a transfer of a right in rem and the suit for sale of the mortgage property is an action in rem for enforcement of the right, and hence, a suit for enforcement of a mortgage being enforcement of right in rem will have to be decided by a Court of law and not by an arbitral tribunal.

The Bench noted that the question to be decided is whether the petitioner is seeking to enforce any mortgage in the present application, but the application does not disclose any such pleadings or prayers.

Finding that the words used in the application are to the effect that the petitioner would lose security interest over the assets as the respondent is indebted to several other creditors and is unable to pay its dues, the Bench observed that the only prayer is for a restraint on the respondent from dealing with or creating any interest over the 13 flats together with car parking spaces and other car parking spaces as specified in prayer.

Further, noticing that the petitioner has not filed its statement of claim since arbitration is yet to commence, the Bench stated that it would be presumptuous and speculative for the respondent to assume that the petitioner would make a claim for enforcement of the mortgage in the arbitration.

“It is undisputed that the respondent is indebted to the petitioner for a substantial amount of money in terms of the loan agreement and the supplementary agreement; the former containing an arbitration clause. It is also undisputed that the respondents created a charge on the 13 flats together with 13 car parking spaces bundled with each flat and an additional 66 car parking spaces and undivided proportionate share of the land measuring 3337.34 square meters in the building. The respondent also hypothecated its receivables to the petitioner”, added the Bench.

The High Court therefore concluded that the petitioner is entitled to an order of injunction restraining the respondent from dealing with any further or creating any interest over 13 flats/units together with 13 car parking spaces bundled with each flats/units and an additional 66 car parking spaces and undivided proportionate share of the land measuring 3337.34 square meters in the building to be constructed by the respondent.

Cause Title: SREI Equipment Finance Limited v. Avarsekar Realty Private Limited

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