Brace Iron and Steel Private Limited v. Tata Steel BSL Limited

16. Further, it is stated by the petitioner that the respondent vide its letter dated April 27, 2020 informed the petitioner to claim moratorium from Lender Banks, re-visit the terms of the Lease Agreement and accept unilaterally decided lease rentals pending negotiations.

17. As per the petitioner, the respondent for the first time demanded, (i) a payment of Rs. 41,79,48,852/- towards repair and maintenance of the leased equipment vide letter dated June 23, 2020; (ii) a payment of Rs. 10,19,91,600/- towards alleged outstanding for a period prior to CIRP vide its letter dated July 5,

2020. That apart, it is stated by the petitioner that it is on the basis of these assertions that the respondent started excusing its OMP (I) (COMM) 285/2020 10 | 58 defaults in payments of rent under the Lease Agreement.

18. It is stated by the petitioner that it duly intimated the respondent on June 25, 2020 inter-alia that the payment of lease rentals under the Lease Agreement is an unconditional and strict obligation on the respondent and since the respondent is in possession and usage of the plants, it is liable to pay the rent without any delay. On the alleged claim of the respondent on the maintenance and repair unilaterally carried out by the respondent without any prior intimation or consent, it is stated by the petitioner that the said demand is nothing but an after-thought to illegally set-off the outstanding rentals. Further, on the nonfunctionality of the machinery of the last five years, it stated by the petitioner that the Oxygen Plants were run and exclusively operated by the respondent and since Steel Plants cannot function without proper functioning of Oxygen Plants, respondents have failed to show any instance where Plant had stopped due to malfunctioning of the Oxygen Plants.

19. Various correspondence and meetings between the petitioner and the respondent ensued without any finality and all negotiations regarding the terms of the Lease Agreement stood OMP (I) (COMM) 285/2020 11 | 58 exhausted by the petitioner’s letter dated July 20, 2020 wherein refusal for any reduction during the term of the Lease Agreement was intimated to the respondent. It is stated by the petitioner that the respondent even made a proposal to buy-back the Leased Equipment.

20. It is averred by the petitioner that by August 31, 2020, the respondent (i) defaulted in making payment of Rs.49,54,00,000/as a part of the lease rentals committing breach of the Agreement;

(ii) the respondent defaulted in paying the GST on the above amounts; (iii) thereafter in the month of September, 2020, i.e., during the pendency of the instant petition, the respondent further defaulted to the tune of Rs. 10,74,00,000/-. And further as on September 30, 2020, the total defaulted amount towards unpaid rent and GST under the Lease Agreement amounts to Rs.60,28,00,000/-.

21. It is also averred by the petitioner that since the Government of India has deferred filing of an application for financial default under IBC on September 24, 2020 till December 25, 2020 and also due to moratorium, the banks could not claim the default in payment of three EMIs totaling to OMP (I) (COMM) 285/2020 12 | 58 Rs.38,77,60,809/-. However, the petitioner would be bound to pay compound rate of interest on interest. It is at this juncture, that the petitioner has filed the present petition as the respondent could not be allowed to self-determine the claims to money due and payable as per existing obligation of admitted lease rentals.

22. Reply to this petition has been duly filed by the respondent. A preliminary objection has been taken against the relief sought by the petitioner as it is stated by the respondent that a final relief is sought in the garb of an interim relief.

23. It is stated by the respondent that the petitioner is attempting to virtually seek the final relief in the garb of interim relief, which is not permissible in law. There would be nothing left to arbitrate on the purported dispute between the parties, if the relief of immediate payment of Rs. 49,54,00,000/- along with interest on delayed payment amounting to Rs.78,74,446/- totaling to Rs.50,32,74,446/- in the TRA account maintained by the lead Lender bank is granted by this Court.

24. It is stated by the respondent that the present petition has been filed while negotiation/talks were ongoing between the parties and the payments were being made in good faith to the OMP (I) (COMM) 285/2020 13 | 58 petitioner and that the power of the Court under Section 9 of the Act is not unbridled to militate the power which is ultimately vested in the Arbitral Tribunal to grant reliefs in the nature of final reliefs.

25. Further, it is also stated that the present petition is premature as the mandatory pre-arbitration steps contemplated in Clause 11.[1] of the Lease Agreement was not resorted to.

26. It is averred by the respondent that after taking over control of business by the new management after the completion of the CIRP, it was during the process of regularizing the affairs of the respondent, comprising inter-alia the review of contracts entered into by the erstwhile Bhushan Steel Limited that it had realized the payment obligations under the Lease Agreement are not in line with market standard and hence required revision, that the petitioner had failed to carry out the maintenance, and there are amounts receivable from the petitioner. The respondent, thereafter, pursued active communication with the representatives of the petitioner beginning with the takeover by the new management until September 2020 when to the surprise and dismay of the respondent, the petitioner filed the present petition. OMP (I) (COMM) 285/2020 14 | 58

27. It is also stated by the respondent that it has time and again asserted (a) the lapses of the petitioner in the maintenance of the Oxygen Plants; (b) the cost incurred on repair and maintenance by the respondent since the inception of the contract; (c) failure to appoint a plant manager by the petitioner since 2015; (d) Operating rentals not in line with the market standard; and (e) outstanding receivables from the petitioner discovered pursuant to the review of the past ledger maintained for the period prior to CIRP reflecting a receivable of Rs. 10,19,91,600/- pertaining to the sale and lease back transaction remained outstanding and had been duly acknowledged by the petitioner.

28. On grounds entitling the petitioner to any interim relief, it is stated by the respondent that no prima facie case / balance of convenience or irreparable harm is caused to the petitioner as negotiation / discussions were ongoing till September 7, 2020 and pending discussions on outstanding amounts and other obligations, the respondent was releasing part payment of lease rentals w.e.f April, 2020 under protest but on good faith basis, every month. A table to that effect has been relied upon and OMP (I) (COMM) 285/2020 15 | 58 same is reproduced as under:

1. March, 2020 INR 17,70,00,000

2. April, 2020 INR 11,82,41,667

3. May, 2020 INR 11,93,66,667

4. June, 2020 INR 11,93,66,667

5. July, 2020 INR 10,77,00,000

6. August, 2020 INR 10,77,00,000

7. Total Amount INR 74,93,75,000

29. It is stated that the petitioner has conveniently kept aside the claims of the respondent which exceeds the amount claimed by the petitioner and that if an interim order in the nature of restraining the respondent is granted, it would cause irreparable damage to the respondent.

30. It is also stated, even the petitioner has categorically admitted that the respondent Plant cannot function without Oxygen Plants, which are being supplied by the petitioner. Despite having been successfully emerged from CIRP if the Plant OMP (I) (COMM) 285/2020 16 | 58 is made to shut down for want of oxygen by restraining respondent, this would set at naught the very resolution of the respondent as approved the National Company Law Tribunal, Principal Bench vide its Order dated May 15, 2018. Moreover, it is stated if the petitioners stand that it is going through precarious financial situation and is on the verge of insolvency is taken on its face value, then the respondent’s rights / interests need to be also protected.

31. It is stated by the respondent that the petitioner has failed to undertake any maintenance obligations as contractually envisaged in terms of Clause 6.1.(vii) of the Lease Agreement as an express obligation had been cast on the petitioner to maintain the Oxygen Plants in good working condition in accordance with best industry practice and also to undertake routine maintenance of damage caused to the equipment. Similar obligation was also stipulated as per Clause 6.1.[7] of the Common Loan Agreement dated February 26, 2015 entered into between petitioner, State Bank of India, Federal Bank and State Bank of India (as Lenders’ Agent), (‘Common Loan Agreement’, for short). Despite these specific obligations, the respondent has failed to demonstrate its OMP (I) (COMM) 285/2020 17 | 58 plan to adhere to the maintenance of such an integral part of the Steel Plant and had even failed to appoint a single technical person to oversee the operations of the respondent since the inception of the Lease Agreement until a technical appointee was provided in July, 2020.

32. It is stated by the respondent that it had demanded certain critical spare parts in terms of the letter dated March 27, 2020 and despite repeated reminders, this requirement has not been fulfilled till date which has left the respondent with no option but to consistently spend monies at their own accord for maintenance purpose.

33. In this regard, it is stated that the respondent has evaluated the expense incurred on the repair and maintenance of Oxygen Plants including on spares and services till date minimum at INR 41,79,48,852 (approx.).

34. On reliance placed by the petitioner upon Lender’s Unit Inspection Report of November 20, 2019 during the course of discussions / communications, it is stated by the respondent that this report was does not have within its scope review of all technical and mechanical aspects of the continuous operation of OMP (I) (COMM) 285/2020 18 | 58 the Oxygen Plants. It is also stated that at the relevant time period, the upkeep and repair was completely been undertaken by the respondent themselves and no credit can go to the petitioner for the upkeep.

35. It is also stated that the maintenance costs amounting to INR 41 Crore (approx.) and the outstanding amount of INR 10 Crores (approx.) (admittedly pending due) is merely in the nature of an ‘adjustment’ and therefore it cannot be deemed as an ‘unliquidated claim’, as alleged by the petitioner, thereby curtailing the respondent from adjudicating the same against the outstanding rentals. In this regard, the respondent stated that it is trite law that where two parties have certain amounts and monies payable to each other, they are both entitled to mutual adjustments of the said amounts.

36. Rejoinder has been filed by the petitioner.

37. Mr. Kapil Sibal, learned Sr. Counsel, appearing on behalf of the petitioner, stated that strong prima facie case is made out by the petitioner, against the respondent as the Lease Agreement with all its Clauses is admitted between parties, and therefore, quantum of rental obligations of the respondent is also settled and OMP (I) (COMM) 285/2020 19 | 58 admitted. It is also submitted by Mr. Sibal that respondent has admittedly defaulted in its obligations towards payment of rent and therefore is in material breach of the Agreement as Clause 5.[2] mandates the respondent to make timely and full payment of rent notwithstanding any other terms of the Agreement.

38. On the aspect of balance of convenience, it submitted by Mr. Sibal that the same lies in favour of the petitioner as, (i) the Lease Agreement is the sole asset of the petitioner; (ii) as per Clause 5.[1] read with Schedule 2 of the Lease Agreement, the monthly rent amount is admitted and undisputed; (iii) the rents received from the respondent are utilized for servicing the loans taken from banks and other financial institutions, the cost of financing for acquisition of the Leased Equipment; (iv) the respondent is in continued possession and in commercial usage of the Leased Equipment worth over Rs. 1000 Crores; (v) the respondent is in continued commercial usage of the Leased Equipment while depreciating the same, no prejudice whatsoever is being cause to it; (vi) the respondent has been operating at 100% capacity by its own account and unjustly enriching itself at cost of the petitioner; (vii) the respondent has recently reported OMP (I) (COMM) 285/2020 20 | 58 an EBIDTA of Rs.1,140 Crores and net profit of Rs. 328 Crores as per a document titled ‘Financial Performance for Quarter and Half Year Ended September 30,2020’ while utilizing the Leased Equipment of the petitioner and avoiding its contractual obligation; (viii) non-payment of rentals by the respondent adversely affects the petitioner’s capability to service its loans thereby causing grave prejudice to the assets and credibility of the petitioner; (ix) whilst the respondent has security in form of possession of the Leased Equipment, the petitioner has no such security for ensuring payments of lease rentals.

39. Similarly, on irreparable injury likely to be caused to the petitioner, if relief is denied to the petitioner, it is stated by Mr. Sibal that (i) due to non-payment of rent by the respondent, the petitioner will be rendered unable to pay back its monthly instalments to the banks and other financial institutions; (ii) the petitioner is also liable to pay Goods and Service Tax @ Rs. 3.24 Crores per month on the full invoiced amount despite the default of the respondent; (iii) being the only source of revenue for the petitioner, the wilful non-payment by the respondent has resulted in resulting in forced liquidity crunch; (iv) this may lead to OMP (I) (COMM) 285/2020 21 | 58 default by the petitioner, which may in turn lead to legal proceedings in addition to damaging the credit rating and reputation to the petitioner; (v) the petitioner is already saddled with penal interest on account of moratorium opted due to nonpayment by the respondent.

40. In support of his submissions that the relief sought by the petitioner is within the ambit of Section 9, Mr. Sibal has relied upon the following Judgments:

1. Value Source Merchantile v. M/s. Span Mechnotronix, (2014) 143 DRJ 505

2. Friends Motels Pvt. Ltd. v. Supertrack Hotels Pvt. Ltd., 2016 SCC OnLine Del 2547

3. Supertrack Hotels Pvt. Ltd. v. Friends Motels Pvt. Ltd., 2017 SCC OnLine Del 11662

4. Sona Corporation India Pvt. Ltd. v. Ingram Micro India, 2018 SCC OnLine Del 10238

41. It is also submitted by Mr. Sibal that the relief sought by the petitioner in this petition is not final in nature, as contended by the respondent, and the dispute that have to be settled by Arbitration are exclusive of the predetermined rent which is necessary for the petitioner to survive. It is also submitted that OMP (I) (COMM) 285/2020 22 | 58 the petitioner has a further claim of damages and interest on account of non-payment by respondent.

42. Dr. Abhishek Manu Singhvi and Mr. Arivind Nigam learned Sr. Counsels (‘Counsels’, for short) appearing for the respondent, submitted that the prayers as sought by the petitioner cannot be granted within the scope of Section 9. In this regard, it is stated by the Counsels that the prayer seeking injunction is wholly misconceived, bad in spirit of law and against the statutory regime of IBC as the respondent bona fidely took over a sick asset to revive it into an operational unit by investing thousands of Crores by means of resolution plan. Further, it is submitted by them that the respondent facility has been deemed to be a Public Utility Service vide a Government of Odisha Notification dated July 16, 2020. As per this notification, the respondent facility is deemed to be a public utility service in the times of COVID-19 and therefore, no injunction or restraint from using the Oxygen Plants can be granted considering the fact that the Steel Facility cannot be run without its Oxygen Plant.

43. It is also submitted by the Counsels that the prayers sought by petitioner tantamount to a decree that the respondent OMP (I) (COMM) 285/2020 23 | 58 must pay INR 18 Crores monthly, before these disputed facts are even decided by the Ld. Arbitrator.

44. It is submitted by the Counsels that for grant of relief under Section 9 it is to be shown that not only is there a prima facie case and balance of convenience in favour of the petitioner, but also the respondent is acting in a manner to defeat the realization of future award. In this regard, they have placed his reliance upon a Judgment of this Court in the case of Goodwill Non-Woven Ltd. v. X Coal Energy & Resourced LLC in OMP (I) (COMM) 120 of 2020, wherein it was inter-alia held that disputed factual positions cannot be decided in a Section 9 petition, more so when there is no threat of frittering away of the properties either or before during the pendency of the Arbitration proceedings.

45. It is also submitted by the Counsels that the petitioner in the present case has failed to even establish how the denial of interim relief would be likely to frustrate the arbitration proceedings (Ref: Nirbhay Pratap Singh v. Sumitomo Electric Industries and Anr., OMP (I) (COMM) 275/2020.

46. That apart, it is submitted by the Counsels that in the OMP (I) (COMM) 285/2020 24 | 58 present case the scope of Section 9 petition is being misused as there exist no immediate threat of any nature to the subject matter and further highlighted the disputed facts during the course of the submissions which cannot be decided in a petition filed under the said Section. They also contended that the petitioner is seeking to circumvent judicial dicta and established principles surrounding Section 9 as the said provision cannot be used to secure a decree to the tune of a final relief, nor can it be misused to nullify the arbitration proceedings by seeking a final relief. On the scope and applicability of Section 9, the Counsels have placed reliance on the Judgment of this Court in the case of Avantha Holdings Limited v. Vistra ITCL India Limited, OMP (I) (COMM) 177/2020.

47. On the merits, it is submitted by the Counsels that this entire transaction was clearly not at an arm’s length but rather a friendly one which has led to payments of exaggerated amounts as lease rentals that were artificially fixed to meet the requirement of INR 1000 Crore (sale price), making it further into the nature of a financial lease. In this regard, they stated that prior to February 13, 2015, erstwhile Bhushan Steel Limited OMP (I) (COMM) 285/2020 25 | 58 had the ownership of Oxygen Plants and in order to provide funds to erstwhile Promoters of Bhushan Steel Limited, the Joint Lender Forum (‘JLF’, for short) gave NOC for the sale and lease back of Oxygen Plants. JLF approved that funds to the tune of INR 1000 Crore would be infused from sale of this Oxygen Plants. Since the erstwhile promoters did not want to sell the Oxygen Plants to any outside entity as it would adversely affect the running of the steel plant, they identified one of their controlled entities, i.e., Brace Iron and Steel Private Limited (current petitioner). It is submitted that the four Oxygen Plants were purchased by ‘SREI Infrastructure Limited’ through the Petitioner at a consideration amount of INR 1000 Crore and given back on lease to erstwhile Bhushan Steel Limited (current Respondent) against the payment of monthly lease rent. Lease Agreement under Clause 5.[1] read with Schedule 2 provides for a monthly lease rental of INR 15 Crores till march 31, 2020 and subsequently INR 18 Crores excluding the appliable taxes. The transaction, when entered into by the erstwhile Bhushan Steel Limited, was not as per the market value of leased equipment and that it was primarily entered into for the reason that an amount of OMP (I) (COMM) 285/2020 26 | 58 INR 1000 Crore was needed, lest erstwhile Bhushan Steel Limited would have turned into a Non-Performing Asset. It is submitted that keeping these considerations in mind, rentals were pegged to the loan amount / finance cost, and hence do not represent the true and correct lease rental amount as per the prevailing market standard.

48. It is also submitted by the Counsels that the entire transaction of sale and lease back of Oxygen Plants is itself questionable, being mentioned in a SFIO Complaint and Investigation Report.

49. It is further contended by the Counsels that Annual Reports of a Company are public documents as per the statutory position and judicial precedence under Indian Evidence Act, 1972 and as per the same, it is a matter of public knowledge that the respondent in its new Avtar was reviewing and analyzing all existing agreements in its domain. It was during this exercise that the Lease Agreement was reviewed and later realized by the respondent that Rs.18 Crore per month lease rental was not in accordance with the prevalent market standard but far in excess of it. Consequently, the respondent had approached the petitioner OMP (I) (COMM) 285/2020 27 | 58 to streamline the rentals with current market standards. In this regard, it is stated by the Counsels that communications between the petitioner and the respondent started in formally way back in December, 2018 and subsequently, took shape in the form of formal communications. They has also relied upon extracts from Annual Reports of the respondent for the years 2017-18 and 2018-19.

50. On terms of payment of lease rental under the Lease Agreement, it is submitted by the Counsels that Clause 5.2, which imposes an unconditional obligation on the petitioner to pay the lease rentals cannot be read in an isolation. More so, the said clause must be read along with Clause 5.[1] of the Lease Agreement, which states that “Lessor and Lessee may mutually decide to increase or decrease the prevalent rent (and / or other payables) at any time during the subsistence of this Lease Deed”.

51. Thus, it is contended by the Counsels that Clause 5.[1] read with Schedule 2 provides that lease rental can be increased or decreased mutually and Clause 5.[2] in no way dilute clause 5.1and this Clause is absolute in nature which can be invoked by either party to the Lease Agreement. It is their submission that the OMP (I) (COMM) 285/2020 28 | 58 respondent’s parent company is also operating integrated steel plants in two other places viz. Jamshedpur and Kalinganagar and it was during the review and regularizing of affairs (as disclosed in the annual reports) that the respondent realized that the lease rentals are not in accordance with the prevalent market standards. It was subsequent thereto that the respondent wrote to the petitioner on April 27, 2020 stating the need to immediately engage and discuss about the payment obligations not being in line with market standards. Petitioner also agreed to mutually engage in discussions in its own accord vide response dated April 30, 2020. It is submitted that these negotiations / discussions regarding existing lease rentals were ongoing till September 7, 2020, after which the present petition was filed to the complete surprise of the respondent.

52. It is also submitted by the Counsels, the plea of the petitioner that the respondent is attempting to force the petitioner into being declared an NPA by the lender bank is ill-founded as the petitioner had undertaken the moratorium on debt repayment and has also received close to 70% of the rental amount from the respondent through part payment made every month. Moreover, OMP (I) (COMM) 285/2020 29 | 58 declaration of an NPA is a two-stage process done in accordance with RBI circulars and the petitioner has not crossed even the first stage. It is further submitted, the Supreme Court vide the order dated September 03, 2020 passed in Writ Petition (Civil) 825 of 2020 in Gajendra Sharma v. Union of India has also indefinitely stayed declaration of loan facilities as NPA until further orders.

53. Clause 6.1.(vii) of the Lease Agreement and Clause 6.1.[7] of the Common Loan Agreement casts obligation on the petitioner to maintain the Oxygen Plants in accordance with best industry practice and undertake routine repairs. Clause 6.1.[5] of the Common Loan Agreement also mandates the petitioner to maintain a comprehensive insurance coverage of the Oxygen Plants. Relying upon these contractual obligations, it is contended by the Counsels that each representation, warranty, undertaking and covenant of the petitioner under Lease Agreement and Common Loan Agreement is an independent obligation of the petitioner. Therefore, meeting the insurance obligation under Clause 6.1.(viii) and 6.1.[5] of the Lease Agreement and Common Loan Agreement respectively will not OMP (I) (COMM) 285/2020 30 | 58 discharge the petitioner’s maintenance obligations under 6.1.(vii) of the Lease Agreement and 6.1.[7] of the Common Loan Agreement. The insurance is primarily to mitigate the risk of the petitioner and preserve the underlying security for the loan of Rs.850 Crores given to the petitioner.

54. It is further contended by the Counsels that despite there being specific contractual obligations, the petitioner had failed to undertake any routine maintenance measures. Since the inception of the contract in February, 2015 till May 31, 2020, the respondent has evaluated an expense incurred at Rs. 41,79,48,852/- towards maintenance of the Oxygen Plants. The petitioner’s plea that the respondent did not object to the question of maintenance is without merit as there can be no question of acquiescence or waiver since there is a direct contractual obligation in the Lease Agreement.

55. The Counsels have also relied upon various communications between the parties whereby the respondent informed the petitioner about required repairs, requirement of spares and maintenance cost due from petitioner since 2019. It is also submitted that till September, 2020, the petitioner did not OMP (I) (COMM) 285/2020 31 | 58 even provide a single technical person to oversee the functioning of the Oxygen Plants.

56. Based on past ledger / statement of accounts maintained with the Company as well as stand-alone financial statements of the petitioner for FY 2017-18 wherein an outstanding amount of Rs. 10,19,91,600/- is payable by the petitioner to the respondent in view of the sale and lease back transaction, it is submitted by the Counsels that vide communication dated July 3,2020, the respondent had in fact demanded that the outstanding sum of Rs. 10,19,91,600/- be paid by the petitioner. It is also submitted by them that the same has been acknowledged by one Mr. Ajay Gupta, Vice-President (Accounts and Operations) SREI Equipment Finance Limited vide e-mail dated July19, 2019 sent to Manager, Finance and Accounts of the respondent. The Counsels have relied upon Judgments of this Court in the cases of ESPN Software India Pvt. Ltd. v. Modi Entertainment Network Ltd., 2012 SCC Online 3836 as well as Shahi Exports Pvt.Ltd. v. CMD Buildtech Pvt. Ltd., 2013 SCC Online Del 2535, wherein it is inter-alia held that admission in balance sheet is per se an admission of liability. OMP (I) (COMM) 285/2020 32 | 58

57. The Counsels also submitted that the allegation of the petitioner that the respondent is trying to take over the Oxygen Plants of the petitioner through CIRP is also ill-founded. Moreover, the lack of clarity on the accounts that are payable to the Lenders, intention to not arbitrate the present dispute by seeking final relief, it is submitted by them, are all illustrative of the fact that the petitioner has approached the Court with unclean hands.

58. Rebutting the pleas raised by the Counsels, Mr. Sibal contested that the respondent has paid the lease rentals at the documented rate until February, 2020 and even thereafter. The respondent claimed a discount based only on the stress on its liquidity due to COVID-19. It is also stated by Mr. Sibal that the respondent has even deducted tax at source under the Income Tax Act and has paid to the Government of India based on the documented lease rentals while paying to the petitioner a reduced amount. Moreover, the entire transaction was appraised by seventeen banks led by SBI, subsequent to which Rs.10,00,12,50,000/- was paid by the petitioner to the respondent to reduce its liability and no dispute was raised by the committee OMP (I) (COMM) 285/2020 33 | 58 of creditors, respondent RP on the petitioner’s Lease Agreement during the CIRP process. In this regard, anchorage has been made on the Apex Court Judgment in Alopi Parshad and Sons Ltd. v. Union of India, (1960) 2 SCR 793, wherein it was interalia held that the Indian Contract Act, 1872 (‘Indian Contract Act’, for short) does not enable a party to a contract to ignore the express covenants thereof.

59. Mr. Sibal on the plea of the Counsels that by way of an interim order a final relief of payment of lease rentals is sought, submitted that the respondent has defaulted in making the payment of these lease rentals by taking umbrage under its own unadjudicated disputes and claims and if such a plea is allowed, it would lead to anomalous situation where a party will be able to default in making payment of its contractual dues and claim that the other party cannot receive its contractual dues by way of interim order. In the facts of the present case, Mr. Sibal states it results in the respondent getting an unjust gain out of breaching Clause 5.[2] and 6.3(a) of the Lease Agreement.

60. On the allegation of SFIO proceedings and charge sheet being filed, it is submitted by Mr. Sibal that the petitioner has no OMP (I) (COMM) 285/2020 34 | 58 concern or connection with the erstwhile Bhushan Steel Group and the petitioner’s entire shareholding is owned by SREI Alternate Investment Trust and that the petitioner is not even named in the charge sheet filed by SFIO to the relevant court.

61. Mr. Sibal has also distinguished the Judgements relied upon by the Counsels namely Goodwill Non-Woven Ltd. (supra), and Nirbhay Pratap Singh (supra) in the facts of the present case.

62. On the counter-claims of the respondent towards maintenance and admitted claim it is submitted by him that the claim of maintenance is unadjudicated and not an actionable claim which cannot be adjusted / set off against existing liability of rent payment (Ref: NHAI v. Jetpur Somnath Tollways Ltd., FAO (OS) (COMM) 166/2017). On the cost of alleged repairs, it is submitted by Mr. Sibal that the same is inflated and it should have been claimed under the comprehensive insurance policy covering the leased equipment. On the prior intimation by either party the Insurance Company would have assessed the amount to be spent on maintenance and repair after survey.

63. By relying upon the Division Bench Judgement of this OMP (I) (COMM) 285/2020 35 | 58 Court in Durga Builders Pvt. Ltd. v. Motor and General Finance Ltd. and Anr., (2014) 140 DRJ 575, Mr. Sibal contended that the petitioner has not admitted any claim of the respondent even in its balance sheet, as the law requires the same to be put to trial. He further stated that the statement in the standalone financial statement, which reads as ‘Balance receivable of Rs. 21,94,96,885 and payable of Rs. 10,19,91,600 from Bhushan Steel Limited is subject to confirmation’, is neither unequivocal, nor clear or categorical for it to be an admission. Rather, it is qualified by two factors, i.e., ‘Balance receivable of Rs. 21,94,96,885’ and ‘subject to confirmation’. The alleged claim for Rs.10,19,91,600/-, it is also contested by Mr. Sibal on the ground that the same does not arise under the Lease Agreement and accordingly, not covered within the ambit of arbitral proceedings.

64. On non-invocation of Clause 11.[1] which mandated prearbitration negotiations, Mr. Sibal submitted that the said plea is not sustainable in view of the Apex Court Judgement in Visa International Ltd. v. Continental Resources (USA) Ltd., (2009) OMP (I) (COMM) 285/2020 36 | 58

65. Having heard learned counsels appearing for the parties, I shall encapsulate their submissions in brief. The submissions of Mr. Sibal are as follows:

1. There is an admitted obligation to pay rent on part of the respondent as per the Lease Agreement. (Reference to Clause 5.[1] and 5.2).

2. Being an undisputed fact, prima-facie case is made out by the petitioner;

3. On the balance of convenience, it is stated that:

3.1. Rent collected is utilized towards servicing the loans taken for acquiring the leased equipment;

3.2. Respondent is in possession and continued commercial usage of the leased equipment worth over Rs. 1000 crores, without paying rent;

3.3. Owing to the non-payment respondent is unjustly enriching itself whereas the petitioner is suffering financially;

3.4. The respondent has security in form of possession of the Leased Equipment, the petitioner has no such security for ensuring payments of lease rentals; OMP (I) (COMM) 285/2020 37 | 58

4. On irreparable injury, it is stated that:

4.1. The non-payment has resulted in forced liquidity crunch for the petitioner;

4.2. This might lead to petitioner facing legal proceedings and damaged credit ratings;

4.3. In addition to the penal interest on account of moratorium opted due to non-payment by the respondent.

5. Relief sought is not final in nature and falls within the scope of Section 9 of the Act. Reliance is placed on Value Source Merchantile (supra), Friends Motels Pvt. Ltd. (supra), Supertrack Hotels Pvt. Ltd. (supra) and Sona Corporation India Pvt. Ltd. (supra).

6. Lease Rentals have been paid at the documented rate till February 2020. If the relief sought is not allowed, it would lead to an anomalous situation where a party would default in making payment of contractual dues and claim the other party cannot receive its contractual due by way of interim order.

7. The entire transaction was appraised by over 17 Banks and no dispute was raised by CoC, RP on the Lease