Case Note & Summary
The Plaintiff, Special Situation Advisors (India) Pvt. Ltd., a company registered under the Companies Act, 1956, engaged in providing financial advisory services, filed a Commercial Summary Suit against the Defendant, Bank of India, a nationalised bank, seeking a money decree of Rs.7,55,96,767/- with interest. The dispute arose from a Mandate Letter dated 1 July 2017 issued by the Defendant-Bank to the Plaintiff, appointing it as Financial Advisor for sale of Non-Performing Assets (NPAs). The Mandate Letter provided two options for success fee: option (a) at 0.50% on cash received from the bidder (excluding Bank SRs) and option (b) at 0.0749% on sale amount received from the bidder (including Bank SRs). The Plaintiff provided services from July 2017 to March 2019. Initially, the Bank accepted bids with a mix of cash and Security Receipts (SRs), and the Plaintiff raised invoices at 0.0749%. However, after March 2018, the Bank chose to accept only 100% cash bids. The Plaintiff raised four invoices on 2 April 2019 at the rate of 0.50% on cash received, totalling Rs.8,73,51,270/-. The Bank disputed the rate, asserting that the Plaintiff should have invoiced at 0.0749% as per option (b), and paid only Rs.1,17,54,518/- at that rate. The Plaintiff protested and filed a complaint with the MSME Facilitation Council, which was later withdrawn. The Plaintiff then filed the present suit. The Defendant was served and filed a reply to the Summons for Judgment. This Court granted conditional leave to defend on deposit of the suit amount or furnishing bank guarantee. The Defendant's appeal was dismissed, and the Supreme Court dismissed the SLP, directing the Defendant to file an affidavit expressing willingness to deposit the decretal amount if it fails in the suit. The suit was initially decreed orally on 25 January 2024, but the judgment could not be uploaded, and the coordinate bench recalled the order following the Supreme Court's decision in Ratilal Jhaverbhai Parmar v. State of Gujarat. The suit was reassigned to the present judge. The Court framed issues and heard final arguments without evidence. The Court held that the Plaintiff is entitled to success fee at 0.50% on cash received from 100% cash sales, as the Bank exercised its discretion to accept only cash bids, triggering option (a). The Court decreed the suit in favour of the Plaintiff for Rs.7,55,96,767/- with interest at 6% per annum from the date of the suit until realisation.
Headnote
A) Contract Law - Interpretation of Commercial Contracts - Mandate Letter Options - Expression of Interest and Mandate Letter dated 1 July 2017 - The dispute pertained to the interpretation of two options for success fee: option (a) at 0.50% on cash received from bidder (excluding Bank SRs) and option (b) at 0.0749% on sale amount received from bidder (including Bank SRs). The Court held that where the Bank exercised its discretion to accept only 100% cash bids, the Plaintiff's entitlement to fee under option (a) was triggered, as the bids did not involve any SR component. The Court reasoned that the options were mutually exclusive and the Bank's choice of bid type determined the applicable fee rate. (Paras 2-6, 11-15) B) Banking Law - Non-Performing Assets - Sale of NPAs to ARCs - RBI Guidelines - The Court considered RBI guidelines dated 28 July 2007 and 5 August 2014 regarding sale of NPAs and the nature of Security Receipts (SRs). It noted that SRs are quasi-equity instruments backed by impaired assets and that banks prefer cash sales for higher realisation. The Court held that the Plaintiff's efforts in facilitating 100% cash sales warranted the higher success fee under option (a). (Paras 11-12) C) Civil Procedure - Summary Suit - Order 37 CPC - Conditional Leave to Defend - The Court had earlier granted conditional leave to the Defendant to defend the suit on deposit of the suit amount or furnishing bank guarantee. The Supreme Court subsequently dismissed the Defendant's SLP and directed that the Defendant shall file an affidavit expressing willingness to deposit the decretal amount in the event of failing in the suit. (Paras 7-8)
Issue of Consideration
Whether the Plaintiff is entitled to success fee at the rate of 0.50% on cash received from 100% cash sales of NPAs, as per option (a) of the Mandate Letter, or at the lower rate of 0.0749% as per option (b), when the Bank chose to accept only 100% cash bids after March 2018.
Final Decision
Suit decreed in favour of the Plaintiff for Rs.7,55,96,767/- with interest at 6% per annum from the date of the suit until realisation. Defendant to pay costs.
Law Points
- Interpretation of commercial contracts
- Success fee entitlement
- Expression of Interest
- Mandate Letter
- Options for fee calculation
- 100% cash sales vs cash plus SR sales
- RBI guidelines on NPA sales
- MSME Facilitation Council
- Summary suit
- Conditional leave to defend
