IDBI TRUSTEESHIP SERVICES LIMITED Vs. HUBTOWN LIMITED

JUDGEMENT

(1.) The Plaintiff seeks a decree in the sum of over Rs.33 Crores in this Summary Suit. The Plaintiff is a company engaged in the business of providing trusteeship services. The Defendant is a public company engaged in the business of real estate development. The suit is in respect of a guarantee provided by the Defendant on behalf of its group company, Rubix Trading Pvt. Ltd. ('Rubix'), for a loan extended to the latter by Deutsche Investments India Pvt. Ltd. ("DIIPL") inter alia on the security of certain assets. The Plaintiff acted as a security trustee for and behalf of the lender, DIIPL, to hold upon trust, and enforce, the security. Rubix, the principal borrower, having failed to repay the loan, the Plaintiff demanded payment from the Defendant under the guarantee. The Defendant having failed to pay, the present suit is instituted by the Plaintiff. The facts of the Plaintiff's case may be briefly stated as follows :

(2.) By a Facility Agreement dated 1 December 2009, executed between Rubix (as a borrower), DIIPL (as a lender), the Plaintiff (as a security trustee) and the Defendant (as a confirming party), DIIPL provided a loan facility of Rs.23.50 Crores ("the Facility") on the terms and conditions mentioned therein. As part of such terms and conditions, the Defendant executed a Deed of GuaranteecumMortgage ("Deed of Guarantee") agreeing to stand surety for repayment of the loan in favour of the Plaintiff in the latter's capacity as a security trustee for the benefit of DIIPL. On 22 January 2010, the amount of Rs.23.50 Crores was disbursed by DIIPL to Rubix. On 22 April 2012, Rubix defaulted in quarterly payment of interest. The default continued in respect of all subsequent quarterly payments (except for a part payment made on 5 March 2013). In the premises, by its recall notice dated 5 June 2013, DIIPL cancelled the Facility and recalled the entire amount paid thereunder together with accrued and overdue interest. The amount was not paid by Rubix. On 9 July 2013, the Plaintiff issued a Demand Certificate ("Demand Certificate") to the Defendant for enforcement of the Deed of Guarantee in terms thereof, calling upon the latter to pay a sum of over Rs.30 Crores. The Defendant failed to pay any amount in response to the Demand Certificate. This was followed by a Supplementary Recall notice and a Supplementary Demand Certificate, respectively issued by the Plaintiff to Rubix and the Defendant for repayment of the Facility and enforcement of the Deed of Guarantee. Both Rubix and the Defendant failed to pay, leading to the filing of the present suit.

(3.) The execution of the Deed of Guarantee, disbursal to, and nonrepayment of the loan by, the principal borrower and demand under the Deed of Guarantee based on such nonrepayment, are not disputed. The main defence to the suit is that the suit Deed of Guarantee is not a stand alone agreement, but a part of a larger transaction, which was said to be a colourable and artificially structured transaction, the object and purpose of which were to enable a foreign investor, Nederlandse FinancieringsMartchapining Voor ("FMO") to secure a fixed return on Foreign Direct Investment ("FDI") in housing sector. Under this larger transaction, FMO brought in FDI into the Defendant's group companies, Rubix and Amazia Developers Private Limited ("Amazia") by interposing another companyVinca Developers Private Limited ("Vinca"). The investment of FMO was in Vinca, which in turn invested, respectively, Rs.150 Crores and Rs.268 Crores in Optionally Partly Convertible Debentures (OPCDs) issued by Rubix and Amazia, providing for a fixed rate of return. It is submitted that the loan of Rs.23.50 Crores by DIIPL to Rubix was a related transaction. The subsisting FEMA regulation/FDI policy does not permit any equity investment by a foreigner with a fixed/agreed rate of return in this sector.