Delhi HC allows Yes Bank Ltd to conduct Auction under the supervision of Court Commissioner

Delhi HC allows Yes Bank Ltd to conduct Auction under the supervision of Court Commissioner

Justice Rekha Palli of the Delhi High Court dismissed the applications pertaining to the proposal auction by Yes Bank Limited (YBL). The Court held that the order passed on 26th February 2018 stood modified insofar as the subject property is concerned and the Bank is at liberty to conduct sale by auction of the subject property to recover the outstanding dues under TL-2.

A total of three applications were filed with the Court. The first application was filed by the Decree Holder (DH) seeking to restrain the auction.

The second application was filed by YBL seeking modification of the order dated 26.02.2018 passed by the Delhi High Court where under Judgment Debtor (JD-19) was directed to maintain status quo with respect to all its assets.

Another application was being preferred by M/s Fortis Hospitals Ltd. (FHsL) seeking impleadment on the ground that being a creditor of JD-19, it also has a right over its assets and that all claims of FHsL arising therefrom ought to be considered before permitting sale of the subject property by auction.

On 14th November 2012 a dispute between the Decree Holder (DH) and the Judgment Debtors (JDs), arising out of the Share Purchase and Share Subscription Agreement executed between them on 11th June 2008, was referred to arbitration. The arbitration was held in Singapore and led to the passing of an award dated 29th April 2016 which held the DH entitled to receive a sum of approximately INR 3500 crores, which amount comprised of a principal sum of INR 2562 crores besides interest and costs.

On 8th August 2020, M/s Fortis Hospitals Ltd. – a 100% owned subsidiary of M/s Fortis Healthcare Limited, also filed an application seeking its impleadment on the ground, having extended loans to JD-19 indirectly, it also had a charge over the assets of JD-19 which included the subject property. This applicant, therefore, prayed for an opportunity to be heard before deciding the issue of modifying the order dated 26 February 2018, or permitting the auction to take place.

In a letter in the year 2015, YES Bank had sanctioned a loan amount of INR 500 crores to JD-14 and, to secure the same, JD-19 pledged its assets, including the subject property, in favour of the Bank and in 2019 JD-14 was notified as a Non Performing Asset (NPA) and by that time had begun defaulting in its obligations to the Bank under TL-2.

Aggrieved, the Bank instituted debt recovery proceedings against some of the JDs and these proceedings are presently pending adjudication before a debt recovery tribunal, however the bank was never aware of the order dated 26th February 2018 passed by Delhi High Court.

According to the Bank, it had no way of knowing earlier that status quo had been purportedly directed to be maintained with respect to this property or the order passed, and therefore it claimed that in these circumstances, it cannot be said that YBL was aware of any such status quo order or that the Bank was in willful violation of any order passed by this Court.

It was also submitted that the Bank's interest in the subject property in terms of Sections 2(zb) and 2(zf) of the SARFAESI Act, gives it a prior statutory right overthe subject property under Section 26E of the SARFAESI Act. Therefore, they prayed that the applications moved by DH and Fortis be dismissed and the application preferred by the Bank, be allowed in order to enable the Bank to enforce its security interest over the subject property under the SARFAESI Act, and recover the amounts due to it.

The Court after examining drew its conclusion on the following lines that whether SARFAESI Act applies to the subject property or not ought to be determined in the appropriate proceedings instituted under that Act.

To this Court observed that it cannot be said that the DH is without any remedies as it is always at liberty to prefer an appropriate application before the learned Debt Recovery Tribunal and that, insofar as these proceedings were concerned, irrespective of whether SARFAESI Act would apply or not, the fact remains that there was a charge over the subject property in favour of YBL.

The Court further stated that the charge certainly continued in favour of YBL with effect from 1st March 2017, which was in public knowledge, and therefore it is apparent that the property was indeed encumbered much prior to 19th February 2018 or 26th February 2018.

Another issue which was issued was that whether YBL should be permitted to conduct the e-auction on its own, or should a Court Commissioner be appointed to oversee the process of auction?

The Court made it clear that the auction would be conducted by YBL itself, and the Court Commissioner is only being entrusted with the responsibility of supervising the same, to avoid any future controversy regarding the transparency of the auction it was deemed appropriate for the court to appoint a Court Commissioner.