Explained: Why Orbit Ventures partners agreed to pay Axis Finance over Rs 100 cr in HC contempt case

The court initially sentenced the two partners to civil imprisonment for a period of 180 days. However, on a request from the brothers, the court suspended the sentence, after they promised to make payments of nearly Rs 103 crore in installments until September 30 under revised consent terms.

“If any default is committed in payment of any amount as agreed, the order sentencing respondents to civil imprisonment will automatically come into effect,” a division Bench of Justice Shahrukh J Kathawalla and Justice Milind N Jadhav said.

The court also asked Rajen and Hiren Dhruv to deposit their passports with the court till they had complied with the undertakings on the payment to the lender.

What is the dispute between Orbit Ventures and Axis Finance?

In September 2017, Axis Finance Ltd had lent nearly Rs 130 crore to the respondent developer. Security including 12 unsold flats in a project in Andheri (West), and receivables from 54 identified flats were created in favour of the lender against the amount disbursed. The company also took out a mortgage on a plot measuring about a half acre in Mumbai’s Vile Parle.

Senior Advocate Venkatesh Dhond for the petitioner Axis Finance had said that the lender’s security and interest was compromised and nullified as the receivables were systematically siphoned off or pocketed by the respondent developer.

The developer defaulted in repayment, and the account turned into a Non-performing Asset (NPA) on December 31, 2019. Axis Finance then commenced recovery action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, and the developer was restrained from alienating any of the securities.

On July 30, 2020, the developer assured Axis Finance that they were expecting to receive Rs 100 crore from the sale of unsold flats and Rs 90 crore towards balance receivables. Despite this, as no payments were forthcoming, the petitioner took symbolic possession of the security under the SARFAESI Act on October 23, 2020.

The developer informed the lender Axis Finance on January 1, 2021, that receivables from the sale of the flats were expected to generate approximately Rs 47.36 crore, and that the nine unsold flats would be sold by August 2021 for approximately Rs 95 crore.

No explanation was given by the respondents as to how the receivables had reduced from Rs107.78 crore to Rs 47.36 crore, and how the number of unsold flats had gone down from 12 to nine. Axis Finance moved the HC on January 6, 2021, seeking various reliefs to protect its interests.

On what grounds did the High Court hold the developer guilty of contempt of court?

On January 3, the court had restrained the developer from creating third party rights in their properties or taking loans against assets that had been secured to the petitioner Axis Finance, and had directed the Court Receiver to take “forcible possession” of all the flats marked by the petitioner and to seal them.

“It appears that there is a complete violation of law and order in the complex where the subject project is coming up. We are aghast to note that some of the so-called flat purchasers who are themselves builders are moving around in the complex with revolver/s with a view to threaten those who are obstructing their entry in the subject complex,” the bench had observed while ordering “forceful possession” of flats.

On February 15, the court took on record the consent terms for amicable settlement between the parties, wherein the developer agreed to pay an aggregate settlement amount of Rs 126.03 crore (Rs 120 crore plus Rs 6 crore towards balance construction work), plus an agreed interest of Rs 5 crore to the applicant Axis Finance.

On March 23, the lender told the Bench that the respondents had committed breaches and wilful disobedience of the court’s orders, and had, therefore, committed contempt of the court.

The Bench perused the material on record and observed that the respondents had created multiple rights in relation to properties secured in favour of the petitioner. It added that the matter had a “chequered history” and that the conduct of the respondents had “throughout been dubious” as “they have repeatedly made false statements”, Thus, “the security of the Petitioner is being systemically and fraudulently diluted”.

The Bench observed, “On being caught out, the respondents have repeatedly played fast and loose with the Court. False statements have been made to the Court, and every attempt was made to perpetuate the fraud. The Respondents were given indulgence, and accommodated when time was sought to come up with a suitable settlement contemplating repayment of monies to the Petitioner. The undertakings are clear, unconditional and unequivocal; the breach of the said undertakings is also clearly deliberate, wilful and contumacious.”