916-ial-38013-2024.

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

IN ITS COMMERCIAL DIVISION

INTERIM APPLICATION (L) NO.38013 OF 2024

IN
Digitally
COMM. SUIT (L) NO.37972 OF 2024
signed by
SMITA
SMITA RAJNIKANT
RAJNIKANT JOSHI
JOSHI Date:
2024.12.21
17:09:41
Northern Arc Capital Limited .. Applicant/
+0530
Plaintiff.
v/s.
Aviom India Housing Finance Pvt. Ltd., .. Respondent/
Defendant.

Mr. Janak Dwarkadas, Sr. Advocate with Mr. Rohan Kadam, Mr. Rajendra
Barot, Mr. Vivek Shetty, Ms. Aditi Bhansali, Ms. Vasudha Jain and Mr. Tejas
Raghav i/b. AZB Partners, for the Applicant/ Orig. Plaintiff.

CORAM: FIRDOSH P. POONIWALLA,J.

DATE : 20th DECEMBER, 2024.

P.C:-

1. This Interim Application (“Application”) was moved by the Plaintiff

seeking urgent ad-interim reliefs.

2. The present Application was mentioned on Friday December 13,

2024, for seeking urgent listing. The Application was directed to be listed
on Tuesday, December 17, 2024. I am given to understand that the Plaint
and the Application were served on the Defendant on December 14, 2024.

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3. The Application appeared on board on Tuesday at S. No. 34 to 37.

Due to paucity of time the same did not reach hearing and therefore
the same was mentioned for an urgent listing on Tuesday itself with
notice to the Defendant. In view of the urgency, the matter was kept
yesterday on December 19, 2024.

4. Yesterday, when the Application was taken up for hearing, Senior

Counsel Mr. Shiraz Rustomjee, instructed by Shardul Amarchand
Mangaldas & Co. appeared for the Defendant, and sought time to
file a reply to the Application. Senior Counsel Mr. Janak Dwarkadas,
for the Plaintiff, did not object to the same, however, pointed out
the urgency in the matter. He stated that there is a serious
apprehension of diversion of Receivables from the borrowers of
Defendant.

5. It was pointed out that the Plaintiff, being the Assignee of the
Hypothecated Assets, was the rightful owner and was entitled to the
Receivables which were hypothecated to it in its favour.

6. The Ld. Senior Counsel for the Plaintiff submitted until an affidavit
in reply to the Interim Application is filed, the Receivables be
deposited in a designated account, in trust for the Plaintiff. This
suggestion was accepted by Senior Counsel Mr. Shiraz Rustomjee
instructed by Shardul Amarchand Mangaldas & Co.

7. The mater was stood over to December 20, 2024, for tendering the
minutes of the order, in terms of which an order could be passed.

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8. Today, Senior Counsel Mr. Shiraz Rustomjee, Counsel Mr. Rohan

Cama and Shardul Amarchand Mangaldas & Co. have informed the
Court that the Defendant has instructed them to not appear any
further in the present proceedings. No other advocate or counsel or
representative seems to have been appointed by the Defendant in
their place in the present proceedings.

9. It is in these circumstances that I have heard the Plaintiff for urgent

ad-interim reliefs.

10. The Plaintiff submits that the present action is for specific
performance of an Assignment Agreement dated December 1, 2024.
By this Agreement, the Plaintiff has stepped into the Defendant’s
shoes, and it unconditionally and irrevocably acquired the latter’s
right, title and interest in the ‘Assigned Assets’, viz. Receivables and
title to affordable housing loans inter alia advanced by the
Defendant to various borrowers and which had originated from
monies advanced by the Plaintiff.

11. The Plaintiff submits that the Defendant and it are Non-Banking
Finance Companies regulated by the RBI. The Defendant is
additionally regulated by the National Housing Bank. The Plaintiff
submits that it had advanced a term loan of Rs. 30 crores to the
Defendant under a Facility Agreement dated June 19, 2023. This
loan was advanced for the purpose of enabling the Defendant to
further lend and/or advance affordable housing loans to various
borrowers. This Facility Agreement defined various events of default

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including a default on making any payment, a default relating to

any indebtedness of the borrower, misrepresentation of financial
statements and Material Adverse Events.

12. The Parties agreed that the facility was to be secured by a first and
exclusive charge by hypothecation on the Receivables and monies
that accrued and/or were to accrue from the affordable housing
loans that had been originated from the facility given by the
Plaintiff. To this end a Deed of Hypothecation was executed by the
parties on June 19, 2023. This Deed enables the Plaintiff, in the
event of defaults by the Defendant under the Facility Agreement, to
take possession of and/or sell the Hypothecated loan assets without
the intervention of the Court. The Defendant further executed a
Special Power of Attorney dated June 19, 2023, under which the
Plaintiff was enabled to execute all documents and/or effect all
actions on the Defendant’s behalf, for exercising its rights under the
Hypothecation Deed, including for sale.

13. A series of recent events have led to the Plaintiff exercising its rights
under the Hypothecation Deed.

14. The Plaintiff submits that the Defendant had issued three
communications on 22nd November 2024. Two of these were issued
generally to all its lenders. The third was a disclosure made to the
Bombay Stock Exchange. All three communications were alarming
in their content. By these communications, the Defendant admitted
that it was currently being forensically audited by the NHB after a

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snap inspection by the latter had found that its mutual fund
statements were fabricated. It disclosed that its erstwhile auditors
had declared that the Financial Statements for the last three years
were unreliable. The Defendant claimed to have filed a complaint
alleging fraud with the EOW and a Fraud Management Report with
the NHB. It further disclosed that its current auditors were taking
steps under Section 143(12) of the Companies Act, 2013 to report a
fraud to the Central Government, that had been discovered during
audit of the Defendant’s books of account. The Defendant indicated
that it was unable to raise funds because of these events and the
NHB audit, impacting its ability to honour extant financial
commitments. By its disclosure to the Stock Exchange, the
Defendant admitted that it would not be in a position to service
interest installments.

15. The Plaintiff wrote to the Defendant on 22 nd November 2024 calling

upon it to transfer all Receivables hypothecated to it to a no lien
account with a non-lender bank. It further called upon the
Defendant to irrevocably transfer all cashflows secured to the
former and to tender proof of assignment of all Hypothecated
Assets forthwith. Lastly, the Plaintiff made a request to the
Defendant to facilitate a smooth and expeditious transfer of the
hypothecated loan assets to the Plaintiff.

16. No response was received to this letter. On 25 th November 2024,

the Defendant defaulted on its installments owed to the Plaintiff.
The Defendant further intimated the Bombay Stock Exchange that
it had defaulted on certain listed non-convertible debentures. This

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communication is annexed at Exhibit P to the Plaint.

17. On 1st December 2024, the Plaintiff exercised its rights as the
Defendant’s Attorney, and it executed the Assignment Agreement on
behalf of the latter. By this Assignment, the Plaintiff has stepped
into the Defendant’s shoes, and it unconditionally and irrevocably
acquired the latter’s right, title and interest in the ‘Assigned Assets’
from the ‘Commencement Date’ of 30th September, 2024.

18. On 2nd December 2024, the Plaintiff informed the Defendant of the
Assignment and that it had set off a purchase consideration of INR
17,95,59,222/- against the amounts due by the Defendant under
the facility. The Defendant was thereafter called upon to hold all
Receivables received in trust and to forthwith deposit the same in
the Plaintiff’s Stipulated Account. It was further directed to ensure
that all future Receivables were to be transferred to the same
account. Lastly, the Defendant was called upon to pay the balance.
This was followed by a reminder issued by the Plaintiff on
December 3, 5, 8 2024. On 5th December 2024, the Defendant
issued a holding response.

19. The Plaintiff received a communication dated 10 th December 2024

from the Defendant. This letter doesn’t dispute that there has been
a default but suggests that the Plaintiff’s actions were ‘unilateral’
and an invitation was extended to join a joint lender’s meeting. The
Suit was filed shortly after on 12 th December 2024 after this Court
granted leave under Clause XII of the Letters Patent on12 th
December, 2024.

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20. Mr. Dwarkadas, the learned Senior Counsel for the Plaintiff, states
the same reasons for executing the Assignment Agreement also
justify the case for ad-interim reliefs. He submits that the
Defendant had availed of the facility on the basis of its audited
financial statements. It had solemnly undertaken that these
statements were accurate. It continued to warrant these
representations to the Facility Agreement and further agreed that a
breach of this representation would be an Event of Default. The
Defendant has now admitted that its Financial Statements are
unreliable and false. Thus the very basis upon which the Facility
was advanced, Mr. Dwarkadas submits, has been vitiated. It has
admitted to being unable to pay its lenders. It has in fact, defaulted
on the Plaintiff’s dues and to dues owed to others. It is being
forensically audited by the NHB and will likely be investigated for
fraud by the Central Government pursuant to a report made by its
current auditors under Section 143 (12) of the Companies Act.
These events more than justified the Assignment of the
hypothecated loan assets. Mr. Dwarkadas submits that the balance
of convenience is in the Plaintiff’s favor. Since the subject matter of
the Agreement is the underlying loans of various borrowers, there is
a grave likelihood and possibility of the receivables being frittered
away, siphoned off and/or transferred. He argues that this will
render the very basis of the Suit for performance of the Assignment
Agreement infructuous.

21. Mr. Dwarkadas further contends that the events of the previous day
and today bolster the application for ad-interim reliefs. The
Advocates appearing for the Defendant submitted that their

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instructing clients had resigned from their respective positions in

the Defendant and that they no longer had instructions to appear in
these proceedings. This state of flux, Mr. Dwarkadas argues, makes
it all the more necessary to protect the Plaintiff in the interregnum.

22. Having heard Mr. Dwarkadas, I am satisfied that this is a fit case for
granting ad-interim relief. The communications of 22 nd November
2024 issued by the Defendant admit to the inaccuracy of its
financial statements, the fictitious entries made in its mutual fund
statements, its forensic audit by the NHB and the likelihood of
action by the Central Government pursuant to report by its current
auditors under Section 143(12) of the Companies Act. It appears
that the Defendant has since defaulted on its dues to the Plaintiff
and to other lenders. I am prima facie satisfied that the Plaintiff has
rightly acquired the Defendant’s right, title and interest in the loan
assets acquired under the Assignment Agreement. The balance of
convenience prima facie appears to lie in the Plaintiff’s favour since
it appears to have rightly stepped into the Defendant’s shoes and
acquired the latter’s right title and interest in the loan assets
assigned under the Assignment Agreement. In view of the facts set
out above and the fraud that appears to have been admitted by the
Defendant itself, I am satisfied that this is a fit case for issuing
measures to secure the receivables that have accrued and/or may
accrue from the assigned loan assets. In the backdrop of the
admitted defaults of the Defendant and the emergent circumstances
set out above, I am of the view that protective measures with
respect to the loan receivables are warranted in order to preserve

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the subject matter of the Suit. I agree with Mr. Dwarkadas that at
this stage, the non-grant of ad-interim reliefs may render the Suit
infructuous. This will likely cause the Plaintiff irreparable injury
since its right title and interest in the assigned loan assets will be
obliterated and/or impaired.

23. In these premises, I find it fit to pass the following ad-interim Order.

24. The Defendant shall disclose to the Plaintiff, the details of all
receivables and/or monies received from September 30, 2024 until
December 19, 2024 (“Period 1”), arising out of and/or in relation to
each of the Assigned Assets (defined in the respective Interim
Applications). This disclosure shall also be made by filing an
Affidavit on or before January 2, 2025 in this Hon’ble Court.

25. The Defendant is directed to disclose to the Plaintiff, the details of

all receivables and / or monies that are received from and after
December 20, 2024, arising out of and/or in relation to each of the
Assigned Assets (at Exhibit R to the Plaint) (“Period 2”). This
disclosure shall also be made by filing an Affidavit on a monthly
basis in this Hon’ble Court.

26. The Defendant is directed to disclose to the Plaintiff, the details of

the vendors with whom the Underlying Documents underlying the
Assigned Assets (at Exhibit R to the Plaint) are lying on or before
January 2, 2025. This disclosure shall also be made by filing an
Affidavit in this Hon’ble Court on or before 2nd January, 2025.

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27. The Defendant is directed to allow the Plaintiff’s representatives

and agents to inspect and take copies of the documents relating to
the Assigned Assets (including documents in relation to the
underlying security/mortgages).

28 The Court Receiver, High Court Bombay is appointed as the

Receiver of the ‘Assigned Assets’ (Exhibit R to the Plaint) with all
powers under Order XL of the Code of Civil Procedure,1908 on the
following terms;

a. The Defendant is directed to disclose to the Court Receiver,

High Court Bombay, the details of all receivables and/or
monies received from September 30, 2024 until December
19, 2024 (“Period 1”), arising out of and/or in relation to
each of the Assigned Assets (at Exhibit R to the Plaint). This
disclosure shall also be made by filing an Affidavit on or
before January 2, 2025 in this Hon’ble Court.

b. The Defendant is directed to disclose to the Court Receiver

on a monthly basis, the details of all receivables and / or
monies that are received from and after December 20, 2024,
arising out of and/or in relation to each of the Assigned
Assets (at Exhibit R to the Plaint) (“Period 2”).
c. The Court Receiver, High Court Bombay is directed to
forthwith open a no-lien bank account with Federal Bank,
Fort branch, in trust for the plaintiff. The said escrow account
will be opened in the name of the Plaintiff i.e., “Northern Arc

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Capital Ltd. Escrow Account”. It shall be opened forthwith and

on or before December 30, 2024.

d. The Defendant shall, within 10 days of this Order, deposit all

receivables received during Period 1; and deposit all
receivables that are received during Period 2, within 2 days of
the receipt thereof; in the aforementioned bank account
opened by the Court Receiver, High Court Bombay.

29. This Order shall continue till further Orders of this Hon’ble Court.
This Order shall not impact the rights of the end borrowers.

30. The Defendant shall file an Affidavit in Reply within four weeks on
or before 17th January, 2025. The Plaintiff may file a Rejoinder
within 2 weeks thereafter, on or before 31st January, 2025.

31. All rights and contentions of the Parties are kept open. Plaintiff is
given liberty to apply.

32. Place the Interim Application on 3rd February, 2025.

(FIRDOSH P. POONIWALLA,J.)

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