Allahabad High Court Quashes Criminal, ED Proceedings Initiated Against Indiabulls & Its Officials
The Allahabad High Court, on Friday, quashed the criminal proceedings initiated by the borrower, Shipra Group, and the Enforcement Directorate against the Indiabulls Group and its officials as arbitral proceedings pursuant to the loan agreements are already underway, a fact which was suppressed by the informant.
Observing that the informant had hidden the various proceedings instituted by him in different forms, including arbitral proceedings, the bench of Justice Ashwani Kumar Mishra and Justice Ashutosh Srivastava held that
“Suppression of material facts by the borrower while invoking criminal proceedings against the lender assumes greater significance in the facts of the present case as repeated attempts made by it to injunct the lender i.e. Indiabulls from proceeding against the pledged property had not succeeded. The non-disclosure of material facts would lead to an inference that criminal proceedings are maliciously instituted with the intent to avoid repayment of availed loan facility; to secure leverage in pending Arbitration and other proceedings inter-se between the parties; coerce the lender i.e. Indiabulls to succumb to the terms dictated by the defaulter borrower.”
Further, the Court held that once the borrower had entered into loan agreement with open eyes, and not challenged the signing of the agreement, it was not open for the borrower to challenge the terms and conditions of the loan as being unreasonable.
It was observed that allegations against the Directors of Indiabulls regarding unreasonable terms of loan agreement to grab borrower's properties was not made in the arbitration proceedings, but several years after the first default.
“It would not be open for the borrower to come up with arguments that are otherwise available to a poor man who has gone to a village money lender having evil eyes on his property.”
Case Background
Indiabulls Housing Finance Ltd. (IHFL) sanctioned 16 loan facilities of more than Rs.2400 Crores to "Shipra Group/Borrowers" comprising of Shipra Hotels Ltd., Shipra Estate Ltd. and Shipra Leasing Pvt. Ltd. for the purposes of construction and development of housing projects. Shares of various companies were pledged in favour of IHFL.
M/s Kadam Developers Pvt. Ltd. was granted permission to mortgage its land allotted by Yamuna Expressway Industrial Development Authority (YEIDA) under its sub-lease with IHFL.100% equity shares (demated) of M/s Kadam Developers were pledged to secure the loan. Shipra Group committed default of approximately Rs.1763 Crores. Due to no response from Shipra Group, IHFL sold the pledged equity shares to one M/s Finalstep Developers Pvt. Ltd. with M3M India Pvt. Ltd. as confirming party for Rs.900 Crores.
M/s. Kadam Developers conveyed the factum of the sale to YEIDA within 45 days. However, despite non-payment of loaned amounts by them, 43 borrowers lodged FIRs against IHFL and its officers for selling the shares of M/s. Kadam Developers as it caused it a loss of Rs. 200 crores. YEIDA also lodged FIRs against Indiabulls and its officers.
Petitioners challenged the ECIR as well as the FIRs lodged by the Enforcement Directorate, YEIDA and the criminal proceedings initiated at the behest of officers of Shipra Group against IHFL and its officers under Sections 420, 467, 468, 471 and 120-B IPC. Petitioners had also challenged the vires of Section 420 of the Indian Penal Code which was not pressed at the time of the hearing.
High Court Verdict
When the case was first heard, the bench comprising of Chief Justice Pritinker Diwaker and Justice Ashutosh Srivastava held that the dispute was civil in nature and was being given a criminal color. No civil proceedings have been initiated by YEIDA against the Petitioners prior to lodging the impugned FIRs, observed the Court while granting interim protection to the petitioners.
The bench headed by Justice Mishra took note of its order in Writ Petition No. 11837 of 2023 and 11838 of 2023, where the Court had quashed certain FIRs in related matters holding that criminal proceedings in cases where the Debt Recovery Tribunal had already taken cognizance was an abuse of criminal process.
In the present case also, the Court questioned whether the proceedings under challenge before the Court were abuse of criminal process.
The Court noted the attempts made by IHFL to sell the pledged shares of Kadam with the consent of the borrower. Further, the Court noted that Kadam had only pledged shares and mortgaged land as a collateral for the loan availed by its holding company, the borrower. It also noted that since the loan agreements contained arbitration clause, the same were invoked by various borrowers and proceedings were pending before the arbitrator.
Noting that the informant despite being aware of the arbitration clause in the loan agreement chose to lodge FIR, the Court observed that
“Sanction of loan is a commercial transaction. It is to be regulated by the terms of loan/contract and any dispute in respect thereof would require adjudication in the manner stipulated therein. It is undisputed that sanction of loan to the borrower is pursuant to loan agreement which contain an Arbitration clause. Even the pledge of shares of Kadam is in accordance with the pledge agreement dated 6.4.2018 which contains clause 20 as per which any dispute/disagreement/differences between the lender and pledger and/or confirming party (defined in the pledge agreement i.e. Indiabulls, borrower and Kadam) has to be resolved by way of arbitration.”
The Court held that the informant had deliberately suppressed the fact of arbitration clause, its invocation by the borrower and the proceedings before the Delhi High Court in this regard. It was observed that the informant, Shri Amit Walia, had instituted various proceedings in different forums regarding the same loan transaction, and concealed all of them.
“Suppression and concealment of material facts by the borrower while instituting complaint before the Chief Judicial Magistrate cannot be viewed kindly. The effect of such misrepresentation would render the proceedings of borrower tainted.”
The Court observed that by instituting delayed criminal proceedings against the petitioner, the borrower had tried to short circuit the route and avoid arbitration. It was held that the unexplained delay in instituting criminal proceedings were questionable.
“Initiation of criminal action by a defaulter, against the lender, would be viewed with suspicion when the defaulter conceals previous adjudications, inter-se between the parties, in arbitral proceedings. It otherwise remains undisputed that the loan transaction contains an arbitration clause which is already invoked and issues raised in criminal proceedings are pending adjudication before the arbitrator appointed by the Delhi High Court.”
The Court observed that determining issues pressed by the informant in criminal proceedings would amount to overreaching the arbitral proceedings where same issues were pending. Noting that the issues raised by the informant in the FIR were already dealt with by the Delhi High Court who relegated the matter to the arbitrator, the Court quashed the criminal proceedings.
Observing that the issue of transfer charges leviable by YEIDA on the transfer of shares of KADAM by IHFL was a matter of another writ petition, the Court held that the 2nd FIR by YEIDA was a continuation of the 1st FIR by the Shipra Group informant and no criminal case was prima facie made out.
“Upon elaborate consideration of the issues raised in this matter, we have no hesitation in holding that initiation of criminal proceedings at the instance of borrower are instituted on the strength of suppression and concealment of relevant facts, with unexplained delay and malicious intent to thwart legitimate steps taken by Indiabulls to recover the financial assistance extended to the borrower. Such proceedings are also intended to create leverage in ongoing civil/arbitration proceedings inter se between the parties. The criminal proceedings are, therefore, clearly an abuse of the process of law and deserve to be quashed.”
However, the Court noted that the observations made in this case were not to influence the Arbitrator or any other proceedings pending before the Court.
Case Title: Niraj Tyagi And Another v. State Of U.P. And 3 Others [CRIMINAL MISC. WRIT PETITION No. - 10893 of 2023]
Appearances: Mukul Rohatgi, Rakesh Dwivedi, Anoop Trivedi, Senior Advocates assisted by Raghav Dwivedi, Ankit Banati, Eklavya Dwivedi, Mrs. Devanshi Singh, Rishi Agarwala and Kartikeya Saran, Advocates; Vikram Chaudhari, Senior Advocate assisted by Jatin Sehgal, Ms. Devna Soni, Shivashish Dwivedi, Ashish Garg, T. Islam, Adhirath Singh, Raymon Singh and Ms. Yashi Bajpai, Advocates, for petitioners; Manish Goel, Additional Advocate General assisted by Suresh Singh, Advocate, for YEIDA, J. K. Upadhya, AGA for State; Sikandar B. Kochar, Zoheb Hossain, Advocates for ED; Vinay Saran, Senior Advocate assisted by Prashant Kumar, Sarvesh Kumar Tiwari, Saumitra Dwivedi and Devesh Srivastava, Advocates for complainant/intervener and Syed Imran Ibrahim, Advocate for private respondent.
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