DELHI HIGH COURT ALLOWS AUCTION OF JUDGMENT DEBTOR’S ASSETS BY VARIOUS BANKS

The #DelhiHighCourt has in a matter of Daiichi Sankyo Company Limited vs Malvinder Mohan and Others passed a Judgment dated 15-10-2020 and allowed #YesBank to conduct e-#auction of the properties of the Judgment Debtor that was the subject matter of the #enforcement proceedings. However, the High Court directed Yes Bank to deposit the sale proceeds with the Court until further orders.

In this case, the Singapore Arbitrator had passed an Arbitral Award dated 29-04-2016 (Arbitral Award) and held that the Judgment Debtor has to pay a sum of INR 3500 Crores to the Decree Holder-Daiichi Sankyo Company Limited (Daiichi). Thereafter, Daiichi filed a Petition for Enforcement of the said Arbitral Award before the Delhi High Court on 23-05-2016.

The High Court directed the Judgment Debtors to file Affidavit of Assets and disclose the details of all their assets and properties. Thereafter, the High Court passed an Interim Order dated 19-02-2018 and directed the Judgment Debtors to maintain a status quo with respect to the assets and properties as disclosed in the Affidavit. Further, the High Court passed another Interim Order dated 26-02-2018 and issued Warrants of Attachment with respect to all the unencumbered assets and properties as disclosed in the Affidavit and also directed the Judgment Debtors to maintain status quo with respect to other assets in which they had any interest whatsoever.

Meanwhile, Yes Bank, Axis Bank and ICICI Bank had initiated debt recovery proceedings against the Judgment Debtors as the latter had failed to repay loans to the respective banks. Later, Yes Bank planned to conduct e-auction of the properties of the Judgment Debtors including those properties that were the subject matter of the Enforcement Proceedings before the Delhi High Court (Subject Property). Hence, the Decree Holder-Daiichi filed an Application before the Delhi High Court seeking restraining order against the e-auction, so that status quo is maintained with regard to the Subject Property, until further orders/permission granted by the High Court. 

The Delhi High Court made the following observations in this case:

1- That the initial Order of 19-02-2018 provided interim protection, i.e. to maintain status quo, with respect to all the assets including the Subject Property until the next date of hearing. The subsequent Order of 26-02-2018 directed attachment of all unencumbered assets as well as extended the interim protection of status quo, that was provided in the initial Order, with respect to all other assets of the Judgment Debtors.

2- But much before the Arbitral Award dated 29-04-2016 was passed and the Enforcement Proceedings were initiated by Daiichi before the Delhi High Court, a mortgage charge in the Subject Property was already created in favor of the Banks, when Loan Agreement dated 08-04-2015 and Mortgage Deed dated 15-07-2015 were executed between the Judgment Debtor and the Banks. The Certificate of said Charge in the Subject Property had also been registered with the Ministry of Corporate Affairs (MCA).

3- Despite the fact that the details of mortgage were in public knowledge, the Decree Holder-Daiichi failed to raise any grievance about the mortgage/charge earlier. Thus, the Delhi High Court held that Daiichi cannot raise any issue or challenge at this stage with respect to the auction or creation of charge in favor of the Bank(s) or that the Subject Property was not an encumbered asset at the time of passing the Arbitral Award.

Therefore, based on the aforesaid grounds, the Delhi High Court held that the charge or encumbrance over the Subject Property preceded the Orders of the High Court dated 19-02-2018 and 26-02-2018. Thus, the High Court modified its Order dated 26-02-2018 to the extent that the interim protection of status quo would extend only to unencumbered assets, which would mean that the interim protection of status quo would not be applicable to the Subject Property.

The Delhi High Court further appointed a Court Commissioner to supervise the auction of the Subject Property and directed the Yes Bank to release the amounts received from sale of the subject property by auction into an escrow account maintained by the Bank until further orders. 

Sushila Ram Varma

Chief Legal Consultant

The Indian Lawyer & Allied Services

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