Case Note & Summary
The appeals arose from a suit filed by United Breweries (Holdings) Limited (UBHL) and Kingfisher Finvest (India) Limited against ICICI Bank Limited and 3i Infotech Trusteeship Services Limited, seeking an injunction to restrain the sale of 20,14,000 shares of United Breweries Limited deposited under a Non‑Disposal Agreement (NDA). The dispute originated from a debt restructuring of Kingfisher Airlines Limited, which owed Rs 573.72 crores to a consortium of banks including ICICI Bank. In 2010, the debt was recast into two components: a loan of Rs 403.72 crores secured by pledged shares, and Rs 170 crores represented by compulsory cumulative preference shares later converted to equity. Three agreements were executed on 21 December 2010: a Master Debt Recast Agreement, a Preference Share Subscription Agreement, and a Loan Purchase Agreement (LPA). Under the LPA, UBHL undertook to recompense ICICI Bank for any shortfall arising from the sale of the equity shares. To further secure its obligations, UBHL executed an NDA on 12 November 2011, depositing 20,14,000 shares of United Breweries Limited and appointing 3i Infotech as its power of attorney. ICICI Bank subsequently assigned its loan of Rs 403.72 crores along with the pledged shares to IGCF for Rs 428 crores. After selling the equity shares, a shortfall of Rs 146 crores remained. ICICI Bank demanded payment from UBHL and, upon default, declared an event of default under clause 9.1(c) of the LPA and directed 3i Infotech to sell the NDA shares. UBHL and Kingfisher Finvest filed the suit, contending that the NDA shares were provided solely to secure the loan and that the LPA had been discharged by the assignment. The single judge granted an ex‑parte injunction, later confirmed, holding that the NDA was not meant to secure the recompense amount and that the LPA had worked itself out after the assignment. On appeal, the Division Bench examined the NDA and LPA. Recital (C) of the NDA explicitly stated that the shares were deposited to provide assurance of UBHL’s ability to fulfill its obligations under the LPA, which included the recompense undertaking in clause 10.1. The court held that the intention of the parties, gathered from the terms, was that the NDA shares secured all obligations under the LPA, not just the loan. Furthermore, the assignment of the loan did not terminate the LPA; the agreement continued to govern the residual rights and obligations, including the recompense undertaking. Consequently, the event of default entitled ICICI Bank to enforce the NDA. The appeals were allowed, the impugned order was set aside, and the injunction was vacated, permitting the sale of the shares to recover the shortfall.
Headnote
A) Contract Law - Interpretation of Commercial Agreements - Intention of Parties - Not mentioned - The Non-Disposal Agreement recital (C) indicated that shares were deposited to provide assurance of ability to fulfill obligations under the Loan Purchase Agreement (LPA). The LPA required UBHL to recompense ICICI Bank for any shortfall from sale of Kingfisher equity shares. Held that the NDA shares secured the recompense obligation as well as the loan, and assignment did not extinguish the LPA (Un-numbered summary).
B) Contract Law - Performance and Discharge - Effect of Assignment - Not mentioned - Assignment of the loan and pledged shares by ICICI Bank to IGCF did not discharge UBHL from its obligations under the LPA, including the recompense undertaking. Even after assignment, the LPA continued to govern the residual rights of ICICI Bank to claim shortfall and enforce security. Held that the LPA remained operative and the bank could invoke the NDA to recover shortfall (Un-numbered summary).
Issue of Consideration
Whether the Non-Disposal Agreement shares were intended to secure the recompense amount payable under the Loan Purchase Agreement, and whether the Loan Purchase Agreement ceased to operate after the assignment of the loan by ICICI Bank.
Final Decision
Appeals allowed; judgment and order of the learned Single Judge set aside; interim injunction vacated; shares under Non-Disposal Agreement may be sold to recover shortfall of Rs 146 crores.
Law Points
- Contractual obligations survive assignment unless otherwise specified
- Non-Disposal Agreement interpreted to secure recompense obligation
- Intention of parties to be gathered from recitals and terms of agreements
- Interim injunction not warranted on interpretation of contract
Case Details
2015 LawText (BOM) (12) 43
Appeal (L) No.409 of 2015 in Notice of Motion (L) No.905 of 2015 in Suit (L) No.290 of 2015 with Notice of Motion (L) No.1285 of 2015 AND Appeal No.312 of 2015 in Notice of Motion (L) No.905 of 2015 in Suit (L) No.290 of 2015 with Notice of Motion (L) No.1305 of 2015
V. M. Kanade, Dr. Shalini Phansalkar-Joshi
Iqbal Chagla, Janak Dwarkadas, Anikt Lokia, Anuj Menon, Shreevardhini Parchure, V.R. Dhond, Ashish Kamat, Rahul Jain, N.H. Seervai, M.S. Doctor, Ankita Singhania
ICICI Bank Limited, 3i Infotech Trusteeship Services Limited
United Breweries (Holdings) Limited, Kingfisher Finvest (India) Limited, Kingfisher Airlines Limited (pro forma)
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Nature of Litigation
Suit for permanent and interim injunction restraining sale of 20,14,000 shares of United Breweries Limited deposited under Non-Disposal Agreement.
Remedy Sought
Injunction against Defendant Nos. 1 and 2 from assigning or dealing with the said shares.
Filing Reason
Plaintiffs contended that the shares were deposited solely to secure the loan and not the recompense amount, and that after assignment of the loan, the Loan Purchase Agreement ceased to apply, so ICICI Bank could not sell the shares to recover shortfall.
Previous Decisions
Ex parte ad-interim injunction granted by single judge; later confirmed by impugned order dated 16/04/2015.
Issues
Whether the Non-Disposal Agreement shares were intended to secure the recompense amount payable under the Loan Purchase Agreement.
Whether the Loan Purchase Agreement continued to operate after the assignment of the loan by ICICI Bank.
Submissions/Arguments
ICICI Bank contended that the Non-Disposal Agreement shares were meant to secure the recompense amount for shortfall in equity sale, as per Recital (C) and Clause 10.1 of LPA, and that failure to pay constituted event of default enabling sale of shares.
UBHL contended that the shares were given solely to secure the loan, not the recompense, and that upon assignment of the loan, the Loan Purchase Agreement had worked itself out, so ICICI Bank could not recover the shortfall from those shares.
Ratio Decidendi
The intention of the parties as gathered from the terms of the Non‑Disposal Agreement and the Loan Purchase Agreement was that the NDA shares secured all obligations under the LPA, including the recompense obligation. Assignment of the loan did not discharge the LPA or the recompense undertaking; the agreement continued to operate until all obligations were fulfilled. An event of default entitled the bank to enforce the NDA and sell the shares to recover the shortfall.
Judgment Excerpts
Recital (C) reads as under:- “(C) In terms of the LP Agreement and in order to provide assurance that it has the ability to fulfill its obligations under the LP Agreement , the NDU Provider has agreed not to divest or deal with the shares of the Company held by the NDU Provider unless such divestment or dealing is required to make payments as and when called upon by the Lender in terms of this Agreement and/or the LP Agreement , and undertakes to irrevocably appoint and authorize the Attorney to fulfill the obligations of the NDU Provider under this Agreement.”
We have, after interpreting the provisions of Loan Purchase Agreement and Non-Disposal Agreement, held that intention of the parties can be gathered from the terms and conditions of Non-Disposal Agreement. We have further held that till the entire obligation cast on Plaintiff No.1 – UBHL was not fulfilled, the Loan Purchase Agreement would continue to exist and, secondly, the Loan Purchase Agreement also secured the recompense amount which was payable by Plaintiff No.1 – UBHL in the event of there being a short-fall after equity shares of Kingfisher Airlines Limited were sold by the ICICI Bank.
The Appeals are therefore allowed and Judgment and Order of the learned Single Judge is set aside.
Procedural History
Plaintiffs filed Suit (L) No.290 of 2015 with Notice of Motion (L) No.905 of 2015 seeking injunction. Single Judge granted ex parte ad-interim injunction despite caveat by defendants, and later confirmed it by order dated 16/04/2015. Defendants ICICI Bank and 3i Infotech preferred appeals under Clause 15 of Letters Patent. Appeals heard together; judgment reserved on 29/09/2015 and pronounced on 03/12/2015, allowing appeals and setting aside the injunction.
Acts & Sections
- Companies Act, 1956:
- Banking Regulation Act, 1949:
