Hassan

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2018 SCC OnLine Del 11371 : (2018) 172 DRJ 270
In the High Court of Delhi at New Delhi

(BEFORE JAYANT NATH, J.)
Hassad Food Company Q.S.C. and Another …

Plaintiffs;
Versus
Bank of India and Others … Defendants.
CS(COMM) 9/2018
Decided on September 14, 2018, [Judgment Reserved on :
30.05.2018]
Advocates who appeared in this case :
Mr. Neeraj Kishan Kaul, Sr. Adv. with Mr. Samar Kachwaha, Ms.
Chanan Parwani, Ms. Hansa Kaul, Ms. Akanksha Mohan, Mr. Akash
Lamba & Mr. Varun Mathur, Advs.
Mr. V. Seshagiri, Mr. Anchit Tripathi, Mr. Siddharth Sacchar & Mr.
Adhish Rajvanshi, Advs. for D-1, 2, 3, 5 & 6.
Mr. Rohit Kumar, Adv. for D-4.
Mr. Sanjay Gupta, Mr. Ateev Mathur & Mr. Amol Sharma, Advocates
for D-7/HSBC & D-11.
Mr. B.L. Wali, Adv. for D-8/KMBL.
Ms. Usha Singh, Adv. for D-9.
Mr. Sumant Das, Adv. for D-10/DBS.
The Judgment of the Court was delivered by
JAYANT NATH, J.
IA 7103/2018 (u/O 39 R 1 & 2 CPC
1. In the present application filed under Order 39 Rules 1 & 2 CPC,
the plaintiffs have sought appropriate ex parte injunction to restrain the
defendants from seeking to enforce against the plaintiff any obligation
under the Deed of Guarantee dated 16.05.2013 pending disposal of the
present suit.
2. This suit is filed by the plaintiffs seeking a decree of declaration
declaring that the Corporate Guarantee dated 16.05.2013 issued by
plaintiff No. 1 is vitiated by fraud or misrepresentation including under
Sections 17, 18, 142, 143 of the Contract Act, 1872 and is therefore
invalid in law and that the plaintiff is entitled to consequential reliefs. A
decree is also sought in favour of plaintiff No. 1 against defendants No.
1 to 8, 10, 12 for specified amounts as detailed below:—
Defendant No. 1 Rs. 1,43,22,00,000.00
Defendant No. 2 Rs. 30,07,00,000.00
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Defendant No. 3 Rs. 40,06,82,247.68

Defendant No. 4 and 12 (Jointly & Rs. 91,11,00,000.00
severally)
Defendant No. 5 Rs. 13,12,00,000.00
Defendant No. 6 Rs. 9,28,41,756.00
Defendant No. 7 Rs. 37,56,65,846.00
Defendant No. 8 and 10 (Jointly & Rs. 35,93,00,000.00
severally)
3. Other connected reliefs are also sought.

4. Plaintiff No. 1 is said to be owned and controlled by the Qatar
Investment Authority, (a Government of Qatar Entity), which is said to
be one of the largest investors in the world. Plaintiff No. 2 is the
subsidiary of plaintiff No. 1 and was incorporated by plaintiff No. 1 to
serve as a special purpose vehicle for the plaintiff's investment in the
company called Bush Foods Overseas Pvt. Ltd. (hereinafter referred to
as ‘Bush Foods’). It is stated that Bush Foods was incorporated in July
2005 by Mr. Virkaran Awasty and his wife, namely, Mrs. Ritika Awasty.
Its main business was trading in rice, both domestic and exports. In
March 2011, two Mauritius based indirect subsidiaries of Standard
Chartered Bank, U.K. invested in Bush Foods by subscribing to its
shares and compulsory convertible debentures stock. They came to hold
29% equity in Bush Foods with the balance shareholding then
remaining with the promoters, namely, by Mr. Virkaran Awasty and Mrs.
Ritika Awasty.
5. In September 2012, the plaintiff was approached to invest in the
said Bush Foods. After conducting due diligence, a transaction was
closed on 28.03.2013. Plaintiff No. 2 was incorporated and acquired
69.5 % equity shares in Bush Foods. The Mauritius based Standard
Chartered Bank subsidiaries and investor Mrs. Ritika Awasty exited
Bush Food. Balance 30.5% shares remained with Mr. Virkaran Awasty.
6. As there was a change in the shareholding in Bush Foods, it
required a no objection from defendants No. 1 to 7, 10, 11 who are the
members of the Consortium of banks led by Bank of India (hereinafter
referred to as ‘Consortium’) who had granted credit facilities to Bush
Foods. Each of the banks had given an NOC upon the condition that
plaintiff No. 1 furnishes a Corporate Guarantee securitizing 70% of the
loans availed by Bush Foods from the said Consortium. A meeting was
held with the Consortium Members at Oberoi Hotel in Delhi on
11.03.2013 which was attended by the Consortium Members and ING
Vysya Bank. The Banks are said to have painted a rosy picture to the
plaintiff stating that they have good relations with Bush Foods. It was
never pointed out or indicated that Bush Foods was in fact desperately
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struggling to meet its loan repayment obligations and was regularly

defaulting in its interest paying obligation. Time and again banks had
warned Bush Foods for the delays and defaults and that its debts was
likely to be declared as non-performing assets under the SARFAESI Act.
All these facts were deliberately hidden by the Consortium from the
plaintiff. On the contrary false assurances were held out to the plaintiff.
7. The transaction with Bush Foods was closed on 28.03.2013. A
Corporate Guarantee was furnished by plaintiff in favour of the
Consortium Members on 16.05.2013 as per their stipulation.
8. On paper Bush Foods was a financially healthy and profit making
company with annual gross revenue of Rs. 1,267 crores and having a
rice and paddy inventory worth about Rs. 1000 crores which was
hypothecated with the banks who had on the strength of this
hypothecation loaned a huge amount to the Company.
9. After acquiring majority shareholdings in Bush Foods, the
management and business operation remained with Mr. Virkaran
Awasty who was CEO and MD. Subsequently, statutory auditors Deloitte
gave a disclaimed audit report stating that an attempt for physical
verification of the rice and paddy inventory could not be finalized. It
was pointed out that Bush Foods had converted its inventory from bags
to metric tonnes claiming each bag as weighing 75 kgs. whereas the
purchase invoices ranged from 50-65 kg per bag. This itself had an
adverse impact of Rs. 164.73 crores from the claimed inventory. On
account of the disclosure of Deloitte and its inability to complete the
stock taking of the inventory, an independent quantity surveyor,
namely, Dr. Amin Controllers Pvt. Ltd. was roped in to audit and verify
the physical stock of rice and paddy in three warehouses-Shahabad,
Murthal and Panipat as well as at the plant at Silos at Sonepat.
Shocking state of affairs was discovered in the inspection. Large
number of bags were filled with plant sweepage and/or rice husk.
Further, bags were stacked to give a false impression that the
warehouses were full at maximum quantity whereas this was only a
window dressing. Bags were stacked against the windows and against
the entrance to visually give a false impression of full warehouses.
Some warehouses were said to be under fumigation but in fact they
were found to be empty. A final audit was completed. It was ultimately
found that Shahabad, Murthal and Panipat warehouses had a total of
1160.603 MT of rice and 3091.806 MT of paddy as against 2,46,000 MT
as claimed by Bush Foods in November 2013.
10. At all material times, Bush Foods certified its inventory of paddy
and rice to be worth somewhere around Rs. 1,000 crores. In reality, the
inventory of Bush Foods was not even worth Rs. 20 crores.
11. Clearly, it was a case of fraud and cheating being played on the
plaintiff by misleading the plaintiff about the value of the stock. This
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fraud/misrepresentation rendered the entire investment of the plaintiff

a total waste and further exposing plaintiff No. 1 to huge liability under
the Corporate Guarantee. The plaintiff filed a criminal complaint before
the Economic Offences Wing (EoW), Mandir Marg, New Delhi on
06.01.2014 and an FIR was registered on 03.12.2014. EoW filed a
charge sheet on 08.08.2016 in the court of ACMM, Saket Court against
Mr. Virkaran Awasty in respect of offences under Sections 409, 420,
468, 471, 477A and 120 B IPC, 1860. The court has taken cognizance
of the offences.
12. In the absence of the necessary inventory, on the strength of
which the Bush Foods had taken a credit of over Rs. 700 crores, the
Company inevitably slid into insolvency. Vide order dated 10.02.2016
passed by this court, the Official Liquidator was appointed as the
Provisional Liquidator. This court also directed the SFIO to carry out an
investigation in the accounts of Bush Foods. SFIO has filed its interim
report but the final report is awaited.
13. The plaintiff states that on humanitarian consideration and in
order to meet the salary dues of Bush Foods' employees, the plaintiff
injected funds to the tune of USD 162,00 and subsequently, another
sum of USD 1,038,000 into Bush Foods.
14. Keeping in view the acts of Mr. Virkaran Awasty, he was
removed from the post of MD and CEO.
15. The shocking fact was that the bank consortium, namely, Bank
of India, Allahabad Bank, Bank of Baroda, Central Bank of India, PNB,
EXIM Bank and Standard Chartered Bank had executed a joint deed of
hypothecation on the stocks of Bush Foods. The Consortium was joined
by two banks, namely, HSBC and DBS. A sanctioned credit limit of
about Rs. 650 crores was granted by the banks to Bush Foods based on
this make belief inventories. It is stated that the banks were so grossly
negligent that they failed to keep a track of the inventory of rice and
paddy which was hypothecated to them.
16. The Consortium Banks instead of pursuing the remedy against
the hypothecated assets of the Bush Foods sought to invoke the
Corporate Guarantee given by the plaintiff. The plaintiff has paid a total
of Rs. 442.68 crores to various banks/defendants. However, despite
having paid the said amount, the Consortium Banks are said to have
initiated proceedings against the plaintiff and Bush Foods/Mr. Virkaran
Awasty before DRT seeking sums outside the Corporate Guarantee
along with interest @ 14.8%. A Total of Rs. 282.28 crores are being
sought from the plaintiff despite the large payments made by the
plaintiff. It is pleaded that the amounts claimed by the consortium
banks are outside the Corporate Guarantee and not the liability of the
plaintiff.
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17. It is further stated that on account of the fraud played by Bush

Foods on the plaintiff, the plaintiff engaged a professional business
agency called GPW having its offices in London and Dubai to gather and
present evidence relating to the fraud committed on it. Hassad
Netherlands B.V. was permitted to take copies of physical and
electronic records of Bush Foods for the purposes of enquiry. Other
experts were also roped in. The analysis of the experts, it is pleaded,
conclusively establish that the bank consortium had great difficulties
with the Bush Foods Account but they concealed the same wrongfully
and induced the plaintiff to furnish the guarantee. It is pleaded that as
per the correspondence of the banks, Bush Food was supposed to have
a turnover of Rs. 1200 crores per annum and was also reporting each
month to the banks that it was sitting on an inventory of stock of about
Rs. 1,000 crores. Banks were lending money under the structure where
they were required to meet, consult and discuss the performance of the
Borrower. Despite grave infirmities in the financial and assets structure
of the Bush Foods, the banks continued to blindly give loan to the said
company and falsely represented to the plaintiff that they had good
relations with Bush Foods. Hence, it is pleaded that the banks are liable
to return the money realized under the Corporate Guarantee on account
of negligence, deceit, fraud and misrepresentation.
18. The grounds on which the relief is sought are as follows:—
(i) The banks negligently did not disclose the unhappy relationship
with Bush Foods and the frequent irregularities in its accounts to
the plaintiffs.
(ii) The banks were negligent in holding out that their principal
security i.e. stock of rice and paddy was adequately safeguarded
and they had full rights over the same whereas the banks did not
carry out any independent serious physical verification or
valuation exercise. The banks happily sanctioned credit of upto
Rs. 650 crores to Bush Foods based on hypothecation of stocks
worth about Rs. 1000 crores whereas the actual stock was worth
about Rs. 20 crores.
(iii) The banks owe a duty of care to the plaintiff inasmuch as the
banks had old banking relationship with Bush Foods. On the
contrary, they misled the plaintiff by painting a rosy picture about
the finances/assets of Bush Foods.
(iv) The banks are also guilty of fraud and misrepresentation as they
actively concealed their knowledge of the poor financial state of
Bush Foods.
(v) It has also been pointed out that the plaintiff commenced
arbitration proceedings against Mr. and Mrs. Awasty and an Award
was passed on 31.05.2016 for USD 197.41 million. However, it is
pleaded that the promoters of Bush Foods, namely, Mr. and Mrs.
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Awasty have fled away from India and appear to have taken the
nationality of Cyprus.
19. Hence, the present suit.
20. The some of the defendants have filed written statement. An
application under Order 7 Rule 11 CPC seeking dismissal of the suit on
the ground that this court has no jurisdiction to adjudicate the suit has
also been filed. It has been stated by the said defendants that this
court does not have jurisdiction to adjudicate the present suit. Reliance
is placed on the judgments of the Supreme Court in the cases of United
Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd., (2000) 7 SCC 357 :
AIR 2000 SC 2957 and Radnik Exports v. Standard Chartered bank,
(2014) 211 DLT 436. It is also pleaded on merits that there is no prima
facie case of any fraud against the answering defendants. It is pleaded
that execution of the corporate guarantee was not dependent upon any
representation made by the said defendants but was based on proper
due diligence done by the plaintiffs. It is also pleaded that share
purchase agreement dated 09.03.2013 was executed before the
meeting with the consortium on 11.03.2013. It is further stated that
several due diligence report were prepared by KPMG, Khaitan & Co.,
PricewaterhouseCoopers Pvt. Ltd. Earnest and Young etc. before the
plaintiff took steps to invest in Bush Foods. It is stated that defendants
were not aware about the prevailing situation when the meeting took
place on 11.03.2013 and hence, there is no concealment of fact or
fraud by the defendants. It is also stated that in the chargesheet filed
by the Economic Offence Wing against Bush Foods, there is no adverse
finding against the answering defendants.
21. I have heard learned counsel for the parties.
22. Learned senior counsel for the plaintiff has reiterated the
submissions made in the plaint pointing out that the defendant Banks
have played a fraud on the plaintiff. They were fully aware of the
financial weakness of Bush Foods but in the meeting that was held with
the bankers on 11.03.2013 vital information was illegally and
fraudulently suppressed from the plaintiff. On the contrary, a
completely rosy picture was given misleading the plaintiff and causing
loss and damages to the plaintiff. The entire investment of the plaintiff
of USD 120.34 million has been completely wiped out. It has been
pointed out that the plaintiff made investments on 28.03.2013.
Pursuant to the report of Dr. Amin Controllers Pvt. Ltd. and Deloitte, Mr.
Awasty was removed as CEO on 27.11.2013. Hence, within 7 to 8
months, the plaintiff discovered that the inventories claimed were
virtually non-existent. By January 2014 i.e. in about 8 months from the
date of issuing Corporate Guarantee, the banks started issuing call
notice on the Corporate Guarantee. The plaintiff being a responsible
Company has honored the Corporate Bank Guarantee and paid the
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entire dues of the banks totaling Rs. 442 crores yet the banks are arm
twisting the plaintiff demanding another amount of Rs. 282 crores
which is beyond the terms of the Corporate Guarantee. In any case on
account of the fraud and misrepresentation now discovered by the
plaintiff, the plaintiff seeks recovery of its dues/losses from the banks.
23. Learned counsel appearing for the consortium/defendants
submits that this court does not have the jurisdiction to entertain the
present suit. It is pleaded that it is the DRT which is the appropriate
forum to adjudicate upon the defence if any raised by the guarantor,
namely, the plaintiff. He relies upon the following judgments:—
(i) State Bank of India v. Ranjan Chemicals Ltd., (2007) 1 SCC 97
(ii) United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd., (2000)
7 SCC 357 : AIR 2000 SC 2957
(iii) Radnik Exports v. Standard Chartered bank, (2014) 211 DLT 436
24. The learned counsel has also relied upon the judgment of the
learned Single Judge of this court in the case of Radnik Exports v.
Standard Chartered Bank (supra), where this court held that in case of
conflict of opinion between the finding recorded by the civil court and
the tribunal, the finding of the tribunal would prevail.
25. Learned senior counsel for the plaintiffs in rejoinder rebutted the
contention of the defendants that this court does not have the
jurisdiction Reliance is placed on the following judgments:—
(i) Indian Bank v. ABS Marine Products (P) Ltd., (2006) 5 SCC 72
(ii) Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai
Banking Corporation, (2009) 8 SCC 646
(iii) Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311
26. The learned senior counsel has denied that in case of conflict of
view of the tribunal and the civil court, the finding of the tribunal will
prevail. He has submitted relying upon the judgment of the Supreme
Court in Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai
Banking Corporation (supra), that finding of the civil court would
prevail.
27. I may only note that this matter has been heard extensively on
two dates. Parties have filed their written submissions.
28. The essential argument raised by the defendants is about the
jurisdiction of this court. Section 18 of the Recovery of Debts and
Bankruptcy Act, 1993 (in short the ‘RDB Act’) reads as follows:—
“18. Bar of Jurisdiction.—On and from the appointed day, no court
or other authority shall have, or be entitled to exercise, any
jurisdiction, powers or authority (except the Supreme Court, and a
High Court exercising jurisdiction under articles 226 and 227 of the
Constitution) in relation to the matters specified in section 17”
29. Hence, in matters specified under section 17 of RDB Act, no
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Court has authority to exercise jurisdiction. Section 17(1) reads as

follows:—
17. Jurisdiction, powers and authority of Tribunals.—(1) A
Tribunal shall exercise, on and from the appointed day, the
jurisdiction, powers and authority to entertain and decide
applications from the banks and financial institutions for recovery of
debts due to such banks and financial institutions.
30. In Indian Bank v. ABS Marine Products (P) Ptd., (supra) the
Supreme Court was dealing with a case where the bank had filed a
petition before the DRT for recovery of its dues. The respondent
company had also filed a suit against the bank for recovery of damages
on account of non disbursal of the loans with interest. Subsequently,
the bank filed an application in the suit for transfer of the suit filed by
the respondent company to the DRT on the ground that the said suit
was partly in the nature of a counter-claim and was integrally
connected with the bank's application. The Supreme Court held that
there was no connection between the subject matters of the two suits
and they were in no way connected. The Supreme Court held as
follows:—
“16. As far as sub-sections (6) to (11) of Section 19 are
concerned, they are merely enabling provisions. The Debts Recovery
Act, as it originally stood, did not contain any provision enabling a
defendant in an application filed by the bank/financial institution to
claim any set-off or make any counterclaim against the
bank/financial institution. On that among other grounds, the Act was
held to be unconstitutional (see Delhi High Court Bar Assn. v. Union
of India, [AIR 1995 Del 323]). During the pendency of appeal
against the said decision, before this Court, the Act was amended by
Act 1 of 2000 to remove the lacuna by providing for set-off and
counterclaims by defendants in the applications filed by
banks/financial institutions before the Tribunal. The provisions of the
Act as amended were upheld by this Court in Union of India v. Delhi
High Court Bar Assn. [(2002) 4 SCC 275] The effect of sub-sections
(6) to (11) of Section 19 of the amended Act is that any defendant
in a suit or proceeding initiated by a bank or financial institution
can : (a) claim set-off against the demand of a bank/financial
institution, any ascertained sum of money legally recoverable by him
from such bank/financial institution; and (b) set-up by way of
counterclaim against the claim of a bank/financial institution, any
right or claim in respect of a cause of action accruing to such
defendant against the bank/financial institution, either before or
after filing of the application, but before the defendant has delivered
his defence or before the time for delivering the defence has expired,
whether such a counterclaim is in the nature of a claim for damages
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or not. What is significant is that Sections 17 and 18 have not been

amended. Jurisdiction has not been conferred on the Tribunal, even
after amendment, to try independent suits or proceedings initiated
by borrowers or others against banks/financial institutions, nor the
jurisdiction of civil courts barred in regard to such suits or
proceedings. The only change that has been made is to enable the
defendants to claim set-off or make a counterclaim as provided in
sub-sections (6) to (8) of Section 19 in applications already filed by
the banks or financial institutions for recovery of the amounts due to
them. In other words, what is provided and permitted is a cross-
action by a defendant in a pending application by the bank/financial
institution, the intention being to have the claim of the
bank/financial institution made in its application and the
counterclaim or claim for set-off of the defendant, as a single unified
proceeding, to be disposed of by a common order.
17. Making a counterclaim in the bank's application before the
Tribunal is not the only remedy, but an option available to the
defendant borrower. He can also file a separate suit or proceeding
before a civil court or other appropriate forum in respect of his claim
against the bank and pursue the same. Even the bank, in whose
application the counterclaim is made, has the option to apply to the
Tribunal to exclude the counterclaim of the defendant while
considering its application. When such application is made by the
bank, the Tribunal may either refuse to exclude the counterclaim and
proceed to consider the bank's application and the counterclaim
together; or exclude the counterclaim as prayed, and proceed only
with the bank's application, in which event the counterclaim
becomes an independent claim against a bank/financial institution.
The defendant will then have to approach the civil court in respect of
such excluded counterclaim as the Tribunal does not have
jurisdiction to try any independent claim against a bank/financial
institution. A defendant in an application, having an independent
claim against the bank, cannot be compelled to make his claim
against the bank only by way of a counterclaim. Nor can his claim by
way of independent suit in a court having jurisdiction, be transferred
to a tribunal against his wishes.”
31. In Nahar Industrial Enterprises Limited v. Hong Kong and
Shanghai Banking Corporation (supra) the Supreme Court held as
follows:—
“105. The civil court indisputably has the jurisdiction to try a suit.
If the suit is vexatious or otherwise not maintainable action can be
taken in respect thereof in terms of the Code. But if all suits filed in
the civil courts, whether inextricably connected with the application
filed before the DRT by the banks and financial institutions are
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transferred, the same would amount to ousting the jurisdiction of the

civil courts indirectly. Suits filed by the debtor may or may not be
counterclaims to the claims filed by banks or financial institutions
but for that purpose consent of the plaintiff is necessary.
106. It is furthermore difficult to accept the contentions of the
respondents that the statutory provisions contained in Sections 17
and 18 of the DRT Act have ousted the jurisdiction of the civil court
as the said provisions clearly state that the jurisdiction of the civil
court is barred in relation only to applications from banks and
financial institutions for recovery of debts due to such banks and
financial institutions.
107. A civil court is entitled to decide the respective claims of the
parties in a suit. It must come within the purview of the hierarchy of
courts as indicated in Section 3 of the Code. It will have jurisdiction
to determine all disputes of civil nature unless the same is barred
expressly by a statute or by necessary implication.
108. Although some arguments have been advanced before us
whether having regard to the provisions of Sections 17 and 18 of the
Act the civil court jurisdiction is completely ousted, we are of the
view that the jurisdiction of the civil court would be ousted only in
respect of the matters contained in Section 18 which has a direct co-
relation with Section 17 thereof, that is to say that the matter must
relate to a debt payable to a bank or a financial institution. The
application before the Tribunal would lie only at the instance of the
bank or the financial institution for the recovery of its debt. It must
further be noted in this respect that had the jurisdiction of the civil
courts been barred in respect of counterclaim also, the statute would
have said so and Sections 17 and 18 would have been amended to
introduce the provision of counterclaim.
109. We may in this context place on record the following
observations from Indian Bank [(2006) 5 SCC 72] : (SCC pp. 81-82,
paras 14-16)
“14. Section 9 of the Code of Civil Procedure provides that the
courts shall have jurisdiction to try all suits of a civil nature,
excepting suits of which their cognizance is either expressly or
impliedly barred.
15. It is evident from Sections 17 and 18 of the Debts
Recovery Act that civil court's jurisdiction is barred only in regard
to applications by a bank or a financial institution for recovery of
its debts. The jurisdiction of civil courts is not barred in regard to
any suit filed by a borrower or any other person against a bank for
any relief. …
16. … What is significant is that Sections 17 and 18 have not
been amended. Jurisdiction has not been conferred on the
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Tribunal, even after amendment, to try independent suits or

proceedings initiated by borrowers or others against
banks/financial institutions, nor the jurisdiction of civil courts
barred in regard to such suits or proceedings.”
110. It must be remembered that the jurisdiction of a civil court
is plenary in nature. Unless the same is ousted, expressly or by
necessary implication, it will have jurisdiction to try all types of suits.
32. It follows from the above judgments that a civil court would
have jurisdiction to try a suit filed by the debtor. Jurisdiction of the civil
court was ousted under the provisions of sections 16 and 17 of the RDB
Act only for such suit which relates application from the banks and
financial institutions for recovery of their debts.
33. I may however note that there are two other judgments of the
Supreme Courts where the court has take a view that if in such a suit
filed by the borrower the issues are inextricably linked with the case of
the bank filed before the DRT the suit can be transferred to be
adjudicated upon by the tribunal.
34. The Supreme Court in United Bank of India, Calcutta v. Abhijit
Tea Co. Pvt. Ltd. (supra) was dealing with a case where a suit was
pending filed by the bank in the High Court prior to enactment of RDB
Act. The debtor company had also filed a suit for specific performance,
perpetual and mandatory injunction raising common issues between
the parties which was pending in the High Court. The Supreme Court
held that the pleas raised by the debtor company were inextricably
connected with the amount claimed by the bank. Holding that the suit
of the debtor was in subsistence a counter claim under section 19(8) of
the DRT Act the Court directed the suit to be tried before the DRT.
35. In State Bank of India v. Ranjan Chemicals Ltd. (supra) the
Supreme Court was again dealing with a case where the High Court had
refused to transfer the suit for being tried jointly with the application of
the bank before DRT Patna. The Bank had sought transfer on the basis
that the suit was in the nature of counter claim to its claim and arose
out of the same cause of action. The Supreme Court held that the two
claims are inextricably interlinked. The counter-claims arising out of the
said claim arose from transaction between the bank and the company.
The court was of the view that a joint trial could be ordered. It was
ordered accordingly.
36. In Bank of Rajasthan Limited v. VCK Shares and Stock Broking
Services Limited, (2015) 13 SCC 635 the Supreme Court noted the
above views of different benches of the Supreme Court and directed
that the matter may be referred to a larger bench. The Supreme Court
held as follows:—
“14. It is not possible to accede to the submissions made on
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behalf of the respondent as pointed out above. There is a difference

of opinion between several Benches of this Court on the issue. This is
likely to create a doubt as to the true position in law, hence we
consider it appropriate to refer the following questions of law to a
larger Bench:
14.1 (i) Whether an independent suit filed by a borrower
against a bank or financial institution, which has applied for
recovery of its loan against the plaintiff under the RDB Act, is
liable to be transferred and tried along with the application under
the RDB Act by DRT?
14.2. (ii) If the answer is in the affirmative, can such transfer
be ordered by a court only with the consent of the plaintiff?
14.3. (iii) Is the jurisdiction of a civil court to try a suit filed by
a borrower against a bank or financial institution ousted by virtue
of the scheme of the RDB Act in relation to proceedings for
recovery of debt by a bank or financial institution?”
37. I was informed at the Bar that the aforesaid matter is pending
adjudication before a larger bench of the Supreme Court.
38. I may only note that in none of the aforesaid judgments of the
Supreme Court, any of the Courts has held that a Civil Court would not
have jurisdiction to entertain a suit filed by a debtor against the
financial institutions. The Supreme Court in Nahar Industrial
Enterprises Limited v. Hong Kong and Shanghai Banking Corporation
(supra) has categorically held that a civil suit would lie by a borrower
against the Financial Institution keeping in view the provisions of the
DRT Act. The aforesaid view has been reaffirmed by the Supreme Court
recently in Robust Hotels Private Limited v. EIH Limited, (2017) 1 SCC
622 where the Supreme Court held as follows:—
“31. The scope and ambit of Section 34 of the SARFAESI Act,
2002 have been considered by this Court in several cases. It is
sufficient to refer to the judgment of this Court in Nahar Industrial
Enterprises Ltd. v. Hong Kong & Shanghai Banking Corpn., (2009) 8
SCC 646 : (2009) 3 SCC (Civ) 481] This Court held that the
jurisdiction of the civil court is plenary in nature, unless the same is
ousted, expressly or by necessary implication, it will have jurisdiction
to try all types of suits.”
39. The facts of the present case would show that it cannot be said
that the disputes which have been raised in the present suit are
inextricably linked with the claims arising out of the applications filed
by the consortium banks before the DRT. The consortium banks have
already received a total sum of Rs. 442.68 crores from the plaintiff. It
appears that there are still some disputes with the consortium banks
claiming additional amounts pursuant to corporate guarantee signed by
the plaintiff on 16.5.2013.
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40. In the present suit the plaintiff has sought a declaration

declaring that the corporate guarantee is vitiated by fraud and
misrepresentation on account of the various facts which have been
explained above. The plaintiffs claim that consortium banks have
misled the plaintiffs into entering the transaction. The consortium
banks were fully aware that the Bush Foods was in dire financial
problems and repeatedly defaulting in payment of its dues to the
consortium banks. This fact was never revealed to the plaintiffs in the
meeting that was held on 11.03.2013. On the contrary the consortium
banks deliberately painted a rosy picture about the financial health of
Bush Foods and misled the plaintiffs. It is further pleaded that the
stock of Bush Foods was hypothecated to the consortium banks on the
basis of which credit facility has been granted to Bush Foods. It is
pleaded that the consortium banks were grossly negligent in keeping a
track on the physical inventory of the hypothecated stock of goods of
Bush Foods when the banks should have been diligent about the same.
Stock of Bush Foods on paper when transactions took place was worth
about Rs. 1,000/- crores. When actual physical inventory was prepared
by the specialist, the actual inventory turned out to worth about Rs. 20
crores only. Hence, the relief sought of declaration that the corporate
guarantee is vitiated by fraud and misrepresentation. The plaintiffs also
seek to recover damages/dues from the consortium banks.
41. Learned senior counsel for the plaintiff has clarified that no
counter claim has been filed by the plaintiff before the DRT. It is stated
that in the reply filed to the applications filed by the consortium banks
a clear averment has been made that the plaintiff would be seeking its
remedy against the banks in appropriate civil proceedings.
42. Hence, the issue before DRT is whether the plaintiff has paid its
dues pursuant to the Guarantee dated 16.5.2013. In the present suit
the issue is whether the Guarantee is vitiated by fraud and
misrepresentation. If so, what relief is the plaintiff entitled to. Hence, it
cannot be said that the issues involved here are inextricably linked with
the proceedings pending before the DRT.
43. Keeping in view the above facts and legal position, in my
opinion, the present suit would be maintainable.
44. I may now see whether an interim order is to be passed in
favour of the plaintiffs. Some of the facts in this case are very striking.
The plaintiffs have made an investment on 28.3.2013 of USD 120.34
million and have issued the corporate guarantee on 16.5.2013. On
27.11.2013 on receipt of reports from Dr. Amin Controllers Private
Limited and the audit report of Deloitte, Mr. Virkaran Awasty was
changed as CEO of Bush Food. From January 2014 onwards, namely, in
around 9 months the consortium banks began issuing call notices on
-----------------------------------------------------------------------------------------------------------------------------------------------------------
the corporate guarantee which have been duly paid. Pursuant to the call
notices the plaintiff has paid total of Rs. 442 crores to the consortium
banks. Hence, in a short span of barely nine months the plaintiffs have
lost out the entire investment of Rs. 120.34 million US Dollars i.e.
about Rs. 800 crores plus a sum of Rs. 442 crores paid on invocation of
the corporate guarantee by the consortium banks for no fault of the
plaintiffs.
45. Firstly, one cannot help noticing that the consortium banks had
given loans to ‘Bush Foods’ of over Rs. 700 crores on the charge of an
inventory of rice and paddy which was supposed to be worth about Rs.
1,000 crores. After taking over Bush Foods when a physical verification
was got carried out by the plaintiff company through international
experts Dr. Amin Controller Private Limited it transpired that the total
worth of the inventory was not even worth Rs. 20 crores. Prima facie it
appears that the consortium banks have been grossly negligent in
keeping a tab on the physical inventory of paddy and rice hypothecated
to them and they have for unknown reasons readily believed the
account of Bush Foods to conclude the stock of goods was worth Rs.
1,000 crores. Of course, a full picture will emerge only after trial. The
banks have given about Rs. 700 crores credit limit to Bush Foods.
Inevitably the Bush Foods went into insolvency and the provisional OL
was appointed by this court on 10.2.2016.
46. Secondly, strong allegations have been made in the plaint about
a meeting held with the consortium banks on 11.3.2013 which was also
attended by ING Vyasya Bank where the bankers have painted a rosy
picture to the plaintiff. It was not pointed out as is evident from the
documents that Bush Foods was struggling to meet its loan
demand/payment and was regularly defaulting. It has been pleaded
that the banks and its officials are guilty of fraud and misrepresentation
under sections 17 and 18 of the Indian Contract Act and that the
corporate guarantee as void. I may look at the minutes of the meeting
that was held on 11.03.2013, relevant portion of which reads as
follows:
“MINUTES OF THE CONSORTIUM MEETING HELD ON 11.03.2013
AT Hotel The Oberoi, Dr. Zakir Husain Marg, NEW DELHI.
…
Mr. Sood extended special welcome to representatives of Hassad
Foods. He informed that Bank of India has had satisfactory
relationship with company for over six years. On behalf of consortium
he welcomed Hassad Foods and informed that the consortium
expects the relationship with Bush Foods will grow further.
Hassad Foods' representative informed that Hassad foods is
owned and was established by Qatar Investment Authority. Qatar
Holdings is a subsidiary of Qatar Investment Authority. He informed
-----------------------------------------------------------------------------------------------------------------------------------------------------------
that Qatar Investment Authority has invested in reputed companies

like Porsche, Qatar Airways, Credit Suisse, Barclays Bank,
Volkswagon, Al Jazeera etc. He also informed that Qatar Investment
Authority makes sector specific investments through separate
subsidiaries which have been incorporated for different sectors. For
e.g. investments in the agri sector are being done through Hassad
Foods, investments in the mining sector has being done through
Qatar Mining. He informed that company wants to extend its
presence in rice domain (Food and Agri Business segment) He
informed that Hassad Foods has found a right partner and he
expects their relationship with Bush Foods will grow further in future.
Hassad Foods informed that partnership with Bush Foods falls in line
with company's future vision and it views its investee companies as
standalone investments and they expect to develop solid partnership
with consortium members. It was further informed that post
(primary and secondary) funding by Hassad Foods (whereby Hassad
will own 70% and Mr. Awasty will continue to hold the balance
30%), there will be no major change in management of Bush Foods
(other than 4 new board members and the CFO to be eventually
nominated by Hassad Foods) and Mr. Vir Karan Awasty will continue
as CEO of the company. Company expects long term commitment
from the partners.
Regarding Exim Bank's query on investment, Mr. Khalid clarified
that Hassad Foods Netherlands, an SPV of Hassad foods will acquire
70% stake in Bush Foods Overseas Pvt. Ltd.
Mr. Sood informed that as far as Bank of India & consortium
member banks are concerned, we have full faith in Mr. Vir Karan
Awasty and with Hassad Foods investing in the company, financial
position of Bush Foods Overseas Pvt. Ltd. will become strong.
Consortium informed that they have good relationship with Bush
Foods and assured that they will continue their support to Hassad
Foods and Bush Foods.”
(emphasis added)
47. It is clear from the above minutes that the banks have clearly
held out to the plaintiffs that satisfactory relationship with Bush Foods
exists for over six years. They have also held out that they have full
faith in Mr. Virkaran Awasty. The actual facts on that date was totally
different. Bush Foods was a defaulter in its repayments and was
actually struggling to stay afloat. Prima facie there is merit in the plea
of the plaintiff that the bankers painted a rosy picture to the plaintiff
about the financial health of Bush Foods and induced the plaintiffs to go
ahead with the transactions. No doubt the plaintiffs has not relied upon
only the defendant for its due diligence.
48. Thirdly, some of the facts are quite glaring. The transaction has
-----------------------------------------------------------------------------------------------------------------------------------------------------------
been finally closed on 28.03.2013. The corporate guarantee was

furnished in favour of the consortium members on 16.05.2013. Within
six months, namely in January, 2014 the consortium banks issued a
call notice on the corporate guarantee. The plaintiffs paid a sum of Rs.
442 crores to the consortium bankers. Hence, within eight-nine months
of taking over Bush Foods, the plaintiffs have lost Rs. 442 plus about
Rs. 800 crores of investment in a dead company i.e. about Rs. 1242
crores. Prima facie it appears that the plaintiffs have been cheated.
49. I also cannot help noticing the bona fide conduct of the
plaintiffs. The plaintiffs have without any litigation paid a sum of Rs.
442 crores to the consortium bankers pursuant to the demand of the
banks. However, the consortium feels that this amount does not
discharge the plaintiffs. Proceedings are pending before the DRT for
recovery of Rs. 282 crores claimed by the consortium banks.
50. The plaintiffs have made out a prima facie case. Balance of
convenience is also in favour of the plaintiffs and against the
defendants. Hence, an interim order is passed restraining the
consortium banks/defendants from using any coercive methods against
the plaintiffs for recovery of its alleged dues.
51. In the course of arguments I was informed that the petitions
filed by the consortium banks before the DRT are pending at the final
stage of arguments. In case DRT were to pass recovery certificate in
favour of the banks and against the plaintiffs the banks would be free
to approach this court seeking appropriate orders for protection of their
interest as per law.
52. As far as the issue of conflict of opinion between the civil court
and DRT is concerned, at present there is no such conflict arising. This
court need not to go into this aspect at this stage. I may only note that
the Supreme Court in the case of Nahar Industrial Enterprises Ltd. v.
Hong Kong and Shanghai Banking Corporation (supra) had noted the
view expressed by the Division Bench of this court in Cofex Exports Ltd.
v. Canara Bank, AIR 1997 Del 355. The view was noted as follows:
“36. It was, thus, held that the Tribunal is inferior to that of the
civil court. The Court summed up its conclusions, thus : (Cofex
Exports Ltd. case, [AIR 1997 Del 355], AIR p. 368, para 42)
“42. To sum up our answers to the questions referred to in para
7 above are—
1. A suit the subject-matter whereof lies within the jurisdictional
competence of the Tribunal cannot be refused to be transferred
by a civil court to the Tribunal merely because a cross-suit or a
counterclaim has been filed or preferred before the civil court.
2. A cross-suit or cross-claim or a plea in the nature of setoff
cannot be transferred to the Tribunal along with the suit with
-----------------------------------------------------------------------------------------------------------------------------------------------------------
which it is associated and which is liable to be transferred to

the Tribunal.
3. A plea of setoff raised in a suit filed by a bank or financial
institution cannot be tried by Tribunal nor would it enable the
suit being retained by civil court before it if the subject-matter
of suit lies within the jurisdictional competence of Tribunal
otherwise.”
37. One of the questions which would arise, thus, for our
consideration is whether having regard to the amendment of Section
19 by reason of Act 1 of 2000 and Act 30 of 2004 empowering the
Tribunal to determine a claim of setoff and/or counterclaim, and
whether Cofex Exports Ltd., [AIR 1997 Del 355] is still good law.”
53. I may only note that the Supreme Court in the said judgment
concluded that the tribunal is not a civil court.
54. Application stands disposed of as above.
———
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SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 1 Tuesday, April 16, 2024

2018 SCC OnLine Del 11371 : (2018) 172 DRJ 270

In the High Court of Delhi at New Delhi

Hassad Food Company Q.S.C. and Another …

Defendant No. 3 Rs. 40,06,82,247.68

3. Other connected reliefs are also sought.

struggling to meet its loan repayment obligations and was regularly

fraud/misrepresentation rendered the entire investment of the plaintiff

17. It is further stated that on account of the fraud played by Bush

Court has authority to exercise jurisdiction. Section 17(1) reads as

or not. What is significant is that Sections 17 and 18 have not been

transferred, the same would amount to ousting the jurisdiction of the

Tribunal, even after amendment, to try independent suits or

behalf of the respondent as pointed out above. There is a difference

40. In the present suit the plaintiff has sought a declaration

that Qatar Investment Authority has invested in reputed companies

been finally closed on 28.03.2013. The corporate guarantee was

which it is associated and which is liable to be transferred to

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