# CASE DETAILS INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD v. HDFC BANK LTD. & ANR

- **Citation:** 2023 INSC 929
- **Court:** Supreme Court of India
- **Decided:** 2023-10-19
- **Case number:** Civil Appeal No. 4708 of 2022
- **Bench:** S. Ravindra Bhat, Dipankar Datta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-infrastructure-leasing-and-financial-services-ltd-v-hdfc-bank-ltd-36684
- **Pages:** 25

## Headnote

Issue for consideration: Whether the documents executed by the
borrower-appellant by which rents were made over to the lender-respondent
constituted an assignment and thus fell outside the scope of an asset and
security freeze order made by the NCLAT.
Transfer of Property Act, 1882 - Assignment of receivables -
Sanction of fi nancial facility of ₹400 crores to the borrower by the lender
- Parties entered into Master Facility Agreement-MFA and Assignment
Agreement-AA - As per MFA receivables or rents which borrower is
entitled to, form the security for the advance extended to it by the lender
and under AA the rents payable to borrower stood unconditionally
assigned to the lender - Thereafter, an asset and security freeze order
of the borrower by the NCLAT - Subsequently, NCLAT held that
the said freeze order did not negate the AA nor did it take away the
property right of the lender in the lease rental receivables - Execution
of documents by the borrower by which rents were made over to the
lender, if constituted an assignment and thus fell outside the scope of
an asset and security freeze order made by the NCLAT:
Held: Nature and the substance of the transaction is determinative -
Application of the rule that all the contemporaneous documents are to be read
together, to discern the true purport of the contract, it is evident that what
the parties intended was the assignment of the debt-rents payable - There
can be a transfer of debts, which are defi ned as actionable claims - Rents
payable by borrower-tenants, lessees and licensees are debts, which stood
[2023] 14 S.C.R. 1033 : 2023 INSC 929
1033
1034
SUPREME COURT REPORTS
[2023] 14 S.C.R.
transferred to the creditor Bank - Reference to pledge, in some places in
the documents, did not undermine the fact that the rents payable to and
receivable by the borrower stood absolutely assigned to the lender - Thus,
the NCLAT's conclusions are correct. [Para 28, 31, 39]
Deeds and document - Interpretation of - Principle of contract
interpretation:
Held: Substance of a document, is discernible from its terms, rather
than the label or its nomenclature - One document is styled or described in a
certain manner, or that it uses a certain expression, or term is not conclusive;
it is the eff ect of all the terms of the documents, which bring out the true
purport and intention of the parties - Also where the transaction is not the
subject of one document, but several, which refer to each other, or reading
of all, describe the entire contract, then, it is open to the court to consider
all of them together. [Para 26, 27]
Transfer of Property Act, 1882 - s.3 - Expression 'actionable
claim' - Meaning of:
Held: Is claim to an unsecured debt other than a debt secured by
mortgage of immovable property, or hypothecation or pledge, or benefi cial
interest in a movable property - Both these are recognised as enforceable -
Other claims do not fall within the expression "actionable claim". [Para 33]
LIST OF CITATIONS AND OTHER REFERENCES
Yellapu Uma Maheswari and Ors. vs. Buddha Jagadheeswararao &
Ors 2015 [11] SCR 849; Assam Small Scale Ind. Dev. Corp. Ltd. & Ors.
v. J.D. Pharmaceuticals & Anr 2005 [4] Suppl. SCR 232; V. Lakshmanan
v. B.R. Mangalagiri & Ors 1994 Supp [6] SCR 561; Super Poly Fabriks
Ltd. vs. Commissioner of Central Excise, Punjab 2008 (6) SCR 1076; S.
Chattanatha Karayalar v The Central Bank of India & Ors 1965 [3] SCR
318; Mewa Lal and Ors. vs. Tara Rani AIR 1973 All 165 : 1973 [2] SCR
377; Sunrise Associates vs Govt. Of NCT of Delhi 2006 Supp(2) SCR 421;
Noor & Ors. v G.S. Ibrahim (Dead) by Lrs 2003 Supp [2] SCR 204; ICICI
Bank v Offi cial Liquidator of APS Star Industries Ltd 2010 [12] SCR 644
- referred.
1035
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES

## Text

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CASE DETAILS
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES
LTD
v.
HDFC BANK LTD. & ANR.
(Civil Appeal No(s). 4708 of 2022)
OCTOBER 19, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
HEADNOTES
Issue for consideration: Whether the documents executed by the
borrower-appellant by which rents were made over to the lender-respondent
constituted an assignment and thus fell outside the scope of an asset and
security freeze order made by the NCLAT.
Transfer of Property Act, 1882 - Assignment of receivables -
Sanction of fi nancial facility of ₹400 crores to the borrower by the lender
- Parties entered into Master Facility Agreement-MFA and Assignment
Agreement-AA - As per MFA receivables or rents which borrower is
entitled to, form the security for the advance extended to it by the lender
and under AA the rents payable to borrower stood unconditionally
assigned to the lender - Thereafter, an asset and security freeze order
of the borrower by the NCLAT - Subsequently, NCLAT held that
the said freeze order did not negate the AA nor did it take away the
property right of the lender in the lease rental receivables - Execution
of documents by the borrower by which rents were made over to the
lender, if constituted an assignment and thus fell outside the scope of
an asset and security freeze order made by the NCLAT:
Held: Nature and the substance of the transaction is determinative -
Application of the rule that all the contemporaneous documents are to be read
together, to discern the true purport of the contract, it is evident that what
the parties intended was the assignment of the debt-rents payable - There
can be a transfer of debts, which are defi ned as actionable claims - Rents
payable by borrower-tenants, lessees and licensees are debts, which stood
[2023] 14 S.C.R. 1033 : 2023 INSC 929
1033
1034
SUPREME COURT REPORTS
[2023] 14 S.C.R.
transferred to the creditor Bank - Reference to pledge, in some places in
the documents, did not undermine the fact that the rents payable to and
receivable by the borrower stood absolutely assigned to the lender - Thus,
the NCLAT's conclusions are correct. [Para 28, 31, 39]
Deeds and document - Interpretation of - Principle of contract
interpretation:
Held: Substance of a document, is discernible from its terms, rather
than the label or its nomenclature - One document is styled or described in a
certain manner, or that it uses a certain expression, or term is not conclusive;
it is the eff ect of all the terms of the documents, which bring out the true
purport and intention of the parties - Also where the transaction is not the
subject of one document, but several, which refer to each other, or reading
of all, describe the entire contract, then, it is open to the court to consider
all of them together. [Para 26, 27]
Transfer of Property Act, 1882 - s.3 - Expression 'actionable
claim' - Meaning of:
Held: Is claim to an unsecured debt other than a debt secured by
mortgage of immovable property, or hypothecation or pledge, or benefi cial
interest in a movable property - Both these are recognised as enforceable -
Other claims do not fall within the expression "actionable claim". [Para 33]
LIST OF CITATIONS AND OTHER REFERENCES
Yellapu Uma Maheswari and Ors. vs. Buddha Jagadheeswararao &
Ors 2015 [11] SCR 849; Assam Small Scale Ind. Dev. Corp. Ltd. & Ors.
v. J.D. Pharmaceuticals & Anr 2005 [4] Suppl. SCR 232; V. Lakshmanan
v. B.R. Mangalagiri & Ors 1994 Supp [6] SCR 561; Super Poly Fabriks
Ltd. vs. Commissioner of Central Excise, Punjab 2008 (6) SCR 1076; S.
Chattanatha Karayalar v The Central Bank of India & Ors 1965 [3] SCR
318; Mewa Lal and Ors. vs. Tara Rani AIR 1973 All 165 : 1973 [2] SCR
377; Sunrise Associates vs Govt. Of NCT of Delhi 2006 Supp(2) SCR 421;
Noor & Ors. v G.S. Ibrahim (Dead) by Lrs 2003 Supp [2] SCR 204; ICICI
Bank v Offi cial Liquidator of APS Star Industries Ltd 2010 [12] SCR 644
- referred.
1035
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4708 of 2022.
From the Judgment and Order dated 13.05.2022 of the National
Company Law Appellate Tribunal, Principal Bench, New Delhi in I.A. No.
2196 of 2020 in Company Appeal (AT) No.346 of 2018.
Appearances:
Ramji Srinivasan, Sr. Adv., Kuber Dewan, Ms. Neeharika Aggarwal,
Kaustubh Srivastava, Ms. B. Vijayalakshmi Menon, Advs. for the Appellant.
Mukul Rohtagi, Kapil Sibal, Nakul Diwan, Sr. Advs., Pranaya Goyal,
R. Sudhinder, Sandeep Singhi, Udit Mendiratta, Ms. Ekta Bhasin, Ms.
Aastha Trivedi, Nikhil Rohatgi, Shashank Khurana, Ashok Mathur, Advs.
for the Respondents.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
S. RAVINDRA BHAT, J.
1. This appeal1, is preferred by Infrastructure Leasing and Financial
Services Ltd (hereafter "IL&FS" or "the borrower") aggrieved by an order
of the National Company Law Appellate Tribunal (hereafter, 'NCLAT')2.
The point in issue is whether the documents executed by IL&FS by which
rents were made over to the respondent, Housing Development Finance
Corporation Ltd (hereafter "HDFC" or "the lender") constituted an
assignment and thus fell outside the scope of an asset and security freeze
order made by the NCLAT.
2. IL&FS had approached the HDFC for fi nancial assistance. By
Sanction Letter dated 22.06.2018, the lender sanctioned a fi nancial facility
of ₹ 400 crores to the borrower. On 25.06.2018, a "Master Facility
Agreement" ("MFA") was entered between IL&FS and HDFC for ₹ 400
1
Under Section 432, the Companies Act, 2013
2
Dated 13.5.2022 in IA 2196/2020 [in CoAp. (AT) No. 346/2018]
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR.
1036
SUPREME COURT REPORTS
[2023] 14 S.C.R.
crores. The MFA envisioned the creation of a separate escrow account with
Housing Development Finance Corporation Bank Limited (hereinafter
'Escrow Bank') for opening of a separate escrow account with the Escrow
Bank. Along with MFA, an "Assignment Agreement" (hereafter "AA")
dated 25.06.2018 was also executed between the IL&FS and HDFC.
Under this document (i.e., the AA) the parties agreed that the authorised
indebtedness of IL&FS in terms of the MFA, by way of the facility
together with the interest thereon was payable from the gross income and
revenue to be derived from the operation of the Business Centre Services
Agreements/Lease/Leave and License Agreement/s. It was also agreed
that 'all the receivables derived/to be derived from the operation of the
Borrower's Contracts, a suffi cient portion of which, to pay the principal
and interest as and when the same shall become due' in terms of the said
MFA was assigned and pledged and was to be 'set aside for that purpose
on the same day' and a Power of Attorney by way of Security Interest was
also executed between the IL&FS and HDFC.
3. By an order, dated 01.10.2018, NCLT in a petition3, fi led by the
Union of India ("UoI") under Sections 241 and 242 of the Companies Act,
2013 (hereafter "the 2013 Act") ordered to supersede the existing board
of directors of the IL&FS. A new board of directors was also constituted,
to take charge of the aff airs of that company. Later, by its order dated
12.10.2018, the NCLT declined to issue a moratorium sought by the UOI,
(akin to a moratorium under Section 14 of the IBC) in respect of IL&FS
and its 348 group companies. Aggrieved, appeals were fi led before the
NCLAT. By order dated 15.10.2018 NCLAT, inter-alia, stayed: (i) the
institution or continuation of suits or any other proceedings against the
IL&FS or its 348 group companies, before any court/tribunal/arbitration
panel/arbitration authority; (ii) any action to foreclose, recover or enforce
any security interest created over the assets of the IL&FS or those of its
348 group companies; and (iii) the acceleration, premature withdrawal
or other withdrawal, invocation of any term loan, corporate loan, bridge
loan, commercial paper, debentures, fi xed deposits, guarantees, letter
3
No. 3638 (M.B.) of 2018
1037
of support, commitment or comfort and other fi nancial facilities or
obligations availed by the IL&FS and its 348 group companies.
4. After the interim order of NCLAT, the borrower informed the
Escrow Bank about it, by an email dated16.10.2018. On 19.10.2018, HDFC
instructed the Escrow Bank to transfer monthly instalments from the Escrow
Account to the Lender's Account. On 23.10.2018, IL& FS informed the
HDFC about the interim order from NCLAT (dated 15.10.2018). The letter
stated that the interim order restrained HDFC from appropriating IL& FS
account's with Escrow Bank. IL&FS called upon the lender by letter dated
27.10.2018 to reverse the debit of ₹ 6.24 crores and credit the amount back
into the account of the borrower. HDFC responded to IL&FS's letter, stating
that receivables (i.e. rents) in respect of the secured property were assigned
by IL&FS in its favour and that the asset ceased to belong to IL&FS.
5. On 04.01.2019, IL&FS called upon HDFC to reverse the amount
which was debited by the Escrow Bank in the escrow accounts. By the order
dated 04.02.2019, NCLAT directed the UOI and IL&FS to approach Justice
(Retd.) D.K. Jain ("former judge of this court") for consent and discuss the
terms and conditions to supervise the operation of the resolution process.
The UOI, through the Ministry of Corporate Aff airs, in an affi davit stated
that certain banks were still debiting amounts from IL&FS group entities
classifi ed as "Amber" and "Red" without authorization from the IL&FS
board and those debits fl outed the order dated 15.10.2018. Restraint orders
were sought against banks and fi nancial institutions enjoining them not to
debit the accounts of the IL&FS and its group entities and/or appropriate
the funds held in the said accounts without authorization of IL&FS and the
relevant group entities; and further return/refund/release such amounts that
have been debited. On 08.08.2019, NCLAT directed as follows:
"...If any of the Bank/Financial Institution has debited any amount in
violation of order of this Appellate Tribunal dated 15th October, 2018,
it will be open to Union of India/ILFS to bring the same to the notice
of Justice Shri D.K. Jain for appropriate orders and also intimate the
Bank/Financial Institution that it may amount to contempt of court."
6. IL&FS wrote, on 22.08.2019 to former judge of this court to make
an appropriate order. IL& FS made representation before the learned
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR. [S. RAVINDRA BHAT, J.]
1038
SUPREME COURT REPORTS
[2023] 14 S.C.R.
judge on 28.08.2019. A letter dated 03.09.2019 was sent by the HDFC
reiterating that monies in the escrow account were its exclusive property
and that IL&FS could not claim ownership over such property. The Escrow
Bank wrote on 04.09.2019 to IL&FS that it had acted in terms of Escrow
Agreement and was obliged to hold the money lying in trust for the purpose
for which it was received i.e. for the benefi t of HDFC. Former judge of
this court issued a show-cause notice dated 30.09.2019 to the HDFC and
issued a notice to the Escrow Bank on 10.10.2019. The Escrow Bank on
23.10.2019 wrote to former judge of this court stating that the receivables
stood assigned in favour of HDFC and monies received were not the assets
of the IL&FS. Former judge of this court granted a personal hearing to
the parties. On 12.05.2020, former judge of this court recommended the
Escrow Bank and HDFC to maintain the status quo in the Escrow Account
till a fi nal view was taken on the IL&FS's application. The Escrow Bank
stopped debiting any amount from the Escrow Account and informed the
IL&FS and HDFC about this. On 03.07.2020, former judge of this court
issued a fi nal order holding that the actions of the HDFC and Escrow Bank
in debiting the amount from the Escrow Account violated the orders passed
by NCLAT and thus HDFC and the Escrow Bank were directed to purge
themselves within two weeks.
7. HDFC and IL&FS claimed opposing reliefs: the lender, on the one
hand, claimed- predictably that the interpretation and directions of former
judge of this court in the orders/directions dated 12 May 2020 and 03 July
2020 were incorrect and had to be set aside; the borrower, IL&FS in its
applications sought directions that ₹ 112,79,18,348 (Rupees One Hundred
Twelve Crore Seventy Nine Lakh Eighteen Thousand Three Hundred Forty
Eight),appropriated from its accounts towards debt service payments, were
in violation of the order dated 15.10.2018 from NCLAT and in compliance
with the order passed by former judge of this court on July 3, 2020.
8. By the impugned order, NCLAT held that so far as part of the
receivables deposited in the Escrow Account which were suffi cient to
meet the principal and interest (payable by IL&FS) assigned by the said
borrower to HDFC, no proprietary interest continued -with IL&FS nor
could it exercise any right over that part of the Escrow Account which
was assigned. It was held, borrower "may have right and interest on the
1039
residual of deposits which is an excess of principal and interest for which
security interest is created in favour of the lender which Escrow Bank is
permitted to transfer to the borrower." IL&FS's argument that there was
no assignment of the receivables, but only the creation of security interest
in the receivables was rejected. It was also held that since there was an
express assignment of lease rental- suffi cient to meet the principal and
interest payments-, the "assignment has to be accepted as assignment" in
favour of HDFC and that 'pledge' in AA did not take away the nature of the
transaction documents which was the assignment of receivables. NCLAT
also held that the freeze order of 15.10.2018 did not negate the AA nor did
it take away the property right of HDFC in the lease rental receivables.
However, the right over receivables deposited in the Escrow Account to
the extent they were in excess of principal and interest, was retained by
the IL&FS and in the event, any amount in excess of the said principal
and interest was transferred to or debited in the HDFC's account and they
needed to be reversed, after adjusting the shortfall in debiting any interest
or principal of any earlier months.
Parties' contentions
9. Mr. Ramji Srinivasan, Sr. Advocate urged, on behalf of IL&FS that
the MFA (dated 25.06.2018) and other agreements executed on 25.06.2018
clearly indicate that the Facility advanced to the Borrower was loan repayable
within 96 months. The Security Interest was created by the Borrower and
the receivables were nothing but security for repayment of the loan. The
Escrow Account was created in the Escrow Bank to facilitate the repayment
of principal and interest as per the repayment schedule. There was no transfer
of title in the receivables from Borrower to Lender. The receivables deposited
in the Escrow Bank were the assets of the Borrower which were deposited in
the Escrow Bank as security for the repayment of the loan of ₹ 400 Crores.
Till 15.10.2018, the escrow agent was debiting the amount as in terms of the
Escrow Agreement. However, after the interim order (dated 15.10.2018), the
Escrow Bank was not entitled to debit any amount to the Lender's Account
which was prohibited by the interim order (dated 15.10.2018) of NCLAT in
the pending appeal. IL & FS secured repayment of the loan by assigning the
lease rental to the extent of principal and interest payable per month. The
MFA and all the agreements clearly depict the relationship between IL&FS
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR. [S. RAVINDRA BHAT, J.]
1040
SUPREME COURT REPORTS
[2023] 14 S.C.R.
and HDFC. The AA cannot be read in isolation. The Escrow Bank held the
amount in the account as a trustee and the Power of Attorney Agreement
executed on 25.06.2018 was by way of security interest. Repayment was
secured by receivables and other additional securities.
10. It was thus argued that the assignment of receivables is only security
and not transfer. It is submitted that detailed written submissions were fi led
before former judge of this court by the parties and after considering every
contention, the order dated 03.07.2020 was made by him. That order by
former judge of this Court, considered all the submissions by the lender, the
borrower and the Escrow Bank, and after examining the principal (and the
facility agreement) and all other agreements and attendant circumstances.
Under that order, the lender and Escrow Bank were obliged to return the
amount debited i.e. ₹112,79,18,348/-.
11. Learned senior counsel argued that the lender's claim that the
facilities extended are in the nature of lease rental discounting facility (LRD)
as argued by HDFC, and not covered by the injunction is not borne out from
the record. He argued that the facility is nothing but a type of term loan
off ered with security of rental income. The clear indicators that the Facility
is secured by charge created over the property and the receivables (rent)
can be gathered from the following: fi rstly, sanction letter for the term loan
and the Facility specifi cally refers to this as a loan for a term of 96 months
to be repaid by IL&FS from the lease rentals from commercial premises.
Secondly, the terms relating to security and repayment also establish this. In
fact, none of the documents contain any element or even a mention of the
sale and purchase of the debt of IL&FS. The transaction is a loan transaction
and not a sale of debt at all.
12. Learned counsel refers to Clauses 3 (sets out purpose of availing
facility) and 4 (Establishes nature of relationship between the parties) of the
MFA to argue that purpose of availing facility was merely re-fi nancing of the
existing debt and clause 4 of MFA clearly establish that nature of relationship
between the parties was that of lender-borrower and not that of seller and
buyer. It is also pointed out that pursuant to the execution of the fi nancing
documents IL&FS submitted form CHG-one4, which is confi rmed by HDFC
4
An application for registration, or modifi cation of charge.
1041
Ltd, i.e., the lender form for registration of creation of charge to secure the
Facility. Therefore, the lender in fact fi led its claim as a secured creditor of
IL&FS before Grant Thornton India, the client's management consultant.
13. It is argued that various conditions in the MFA and the Escrow
Agreement indicate that the transaction is essentially a loan transaction
between the lender and the borrower with the creation of a security. Counsel
points out that the documents which are part of the MFA nowhere use the
expression "lease rent discounting". It is also argued that in terms of the
Assignment and Administration Agreement (also executed on 25 June
2018), receivables which are relevant with respect to the security property
were created in favour of the lender bank. Because one clause5 uses the
word assignment and at the same time it also states that the amounts i.e.
receivables are pledged and will be set aside for that purpose. This clearly
indicates that the plain meaning of the term pledge and that the intention
of the parties was that this amount was to be treated as a security. The
expression assigned is clarifi ed later, in the words "shall be set aside for
that purpose". When used in conjunction with the expression "pledge",
what was contemplated was the creation of a security of the property and
not its transfer.
14. It is highlighted that the charge is a kind of security, whether the
creditor obtains possession of ownership of the assets or not; it is appropriated
to the satisfaction of the debt. From the provisions of the AA and the facility
agreement, it is absolutely clear that receivables were charged in favour of
HDFC Ltd, the lender, only for securing the obligations of the appellant
IL&FS under the Facility agreement and facilitation of repayment and it
did not amount to a transfer of the legal title over such receivables which
continues to vest with IL&FS. It is submitted that in these circumstances,
the holistic reading of all documents as resorted to by former judge of this
court was the correct approach. Lastly, it is pointed out that the receivables
or the rent paid into the account was to be held in trust by the escrow agent
which had to secure compliance with the tribunal's order dated 15.08.2018
and the judgement dated 12.03 2020.
5
Clause 1 of the Assignment and Administration Agreement dated 25.06.2018 -
Assignment and Pledge of Receivables.
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR. [S. RAVINDRA BHAT, J.]
1042
SUPREME COURT REPORTS
[2023] 14 S.C.R.
15. Mr. Mukul Rohatgi, learned Sr. Advocate appeared for HDFC Ltd.
and refuted the submissions of the learned senior counsel for IL&FS. It was
argued that a plain analysis of the transaction documents makes it clear
that the facility extended to the borrower is a Lease Rental Discounting
(LRD) loan transaction, which is materially diff erent from a traditional
loan transaction. An LRD loan transaction involves the assignment/sale of
the rent receivables by the landlord to the fi nancing entity at a discounted
value in terms of the transaction documents. A certain component of lease
rentals arising from the use of the TIFC Property (or Secured Property)
i.e., suffi cient for repayment of the facility, has been irrevocably assigned
in favour of the lender till repayment of the said Facility. Clause 5(c)6
of Schedule I of the Facility Agreement recognizes that the assigned
receivables are the exclusive property of HDFC Ltd. The assigned
receivables are clearly the property of HDFC Ltd. The borrower has no
right/title or interest in the monies/receivables/amount deposited in the
Escrow Account. The relief of release/refund/reversal of amounts debited
from the Escrow Account stating that the same is in line with the order
dated 03.07.2020 issued by former judge of this court is misplaced since
the same has not attained fi nality and was under scrutiny by the tribunal
in the applications fi led by the lender.
16. It was submitted that no judicial order or judgment prohibited the
licensees of the TIFC property from depositing monthly lease rent in the
Escrow Account, nor the orders held that the lender was disentitled from
using the assigned receivables/rents. The transaction was not prohibited by
the order dated 15.10.2018, which was restricted to the assets of the IL&FS.
Assigned receivables were not its assets. They were consequently outside the
purview of the order dated 15.10.2018. It was contended that former judge of
this court by the order (dated 03.07.2020) unduly broadened the ambit of the
order dated 15.10.2018. The committee overlooked that the distribution of
the rentals/receivables was property of the lender and therefore, fell outside
6
5. Security and Repayment Specifi c Covenants:
[..] (c) The Borrower agrees that the Receivables shall be exclusiveproperty of the
Lender for the purpose of secured repayment ofthe Facility and as such the Borrower
will not make any further borrowing on the strength of the Receivables on being
Borrower'sproperty.
1043
the scope of any direction of the 15th October 2018 order. The borrower was
not entitled to any reliefs as claimed in I.A. No 2196/ 20207.
17. It was contended by HDFC that the transfer of ownership of a
portion of the rent receivables by IL&FS in its favour was suffi cient to pay
the principal and interest whenever it became due in terms of the Facility
Agreement. It was not the entire rent receivables but only a portion of the
same suffi cient to cover the principal and interest, was assigned. The balance
portion was not assigned; it continues to be owned by IL&FS. The borrower
hence continues to have title and interest in the residual receivables which
too was secured.
Analysis and Conclusions
18. For appreciation of the transaction (to determine whether the
assignment or arrangement was a transfer, or security interest), it would be
convenient to peruse portions of the impugned order, which reproduced the
relevant conditions in the various documents.
19. The parties entered into a Master Facility Agreement (MFA) on
25.06.2018. The defi nition clause in the MFA, inter alia, defi ned [Cl. 2 (1)]
"due date"; Clause 2 (aa) defi ned "repayment" and clause 2 (cc) defi ned
"security". Per Clause 2 (cc),"Security"had to have the same "meaning as
described in Clause-8 of this Agreement and also described in the ScheduleIII". Likewise, secured property inter alia, included immovable property
described in Schedule III. The MFA envisioned that the borrower (IL&FS)
entersinto an escrow agreement "on such terms as agreed by the lender.
The power was to give irrevocable instructions to Escrow Bank. Clause 8
of the MFAdeals with the 'security interest'." Clause 8(8.1) is as follows:
"8. SECURITY INTEREST- DESCRIPTION/CREATION/
PERFECTION
8.1. The Borrower create Security Interest in such form and manner as
instructed by Lender on the asset/property more particularly described
in Schedule-III to this Agreement as the principal Security for securing
the repayment of the Facility.
7
Said IA was Filed for directions against Escrow Bank and lender seeking return of
amount debited.
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR. [S. RAVINDRA BHAT, J.]
1044
SUPREME COURT REPORTS
[2023] 14 S.C.R.
The Borrower hereby unconditionally and irrevocably undertakes and
confi rms to create security interest on the said Secured Property in
favour of the Lender and perfect the security creation as mentioned
herein above in favour of the Lender in such form and manner as may be
deem fi t by Lender within 6 months from the date of fi rst disbursement
of the Facility. The Company further undertakes and confi rms to open
an Escrow Account within 30 days of the fi rst disbursement of the
Facility for the assignment of receivables arising/accruing from the
TIFC Property and creating charge on the said Escrow Account in
manner and form as made be deem fi t by Lender."
20. Clause 13 of the MFA provided for 'Assignment/Transfer'. Clause
13.1 of MFA is as follows:
"13. ASSIGNMENT/TRANSFER
13.1. The Borrower shall not assign or transfer all or any of its
rights, benefi ts or obligations under the Facility Agreement and
the Transaction Documents without the approval of Lender. Lender
may, at any time, assign or transfer all or any of its rights, benefi ts
and obligations under the Facility Agreement and the Transaction
Documents. Notwithstanding any such assignment or transfer, the
Borrower shall, unless otherwise notifi ed by Lender, continue to
make all payments under the Facility Agreement to Lender and all
such payments when made to Lender shall constitute a discharge to
the Borrower from its liabilities only to the extent of such payments."
Clause 15 covers 'Event of Default'. Clause 15.2deals with
'Consequence of Default and remedies'.Schedule-1 of the MFA provides
for 'Special Conditions for Rental Discounting. 'Receivables' is defi ned in
Clause 1 of Schedule -I of the MFA in the following words:
"Receivables" shall mean and include gross income and revenue
derived from the operation of Client's Contracts and shall include
Deferred Receivables as stated in Appendix-1."
21. Clause 4 of Schedule-1of the MFA deals with 'Borrower's
Contracts Specifi c Covenants'. Clauses 4(c) and Clause 5 (a), (b) and (c)
provide as follows:
"4. [..] (c) The Borrower shall not alter, change or modify the terms
of the Borrower's Contracts in so far as it relates to such terms which
1045
would have an adverse eff ect or impact on the Receivables and/or
which shall otherwise detrimentally eff ect the Lender's interest in the
Secured Property and income thereof."
"5. SECURITY AND REPAYMENT SPECIFIC COVENANTS
a) The Borrower agrees that the Facility shall be secured by exclusive
security interest on the Receivables in such mode and manner as
deemed fi t and desired by the Lender.
b) The Borrower shall, on execution of this Facility Agreement, assign
the Receivables in favour of the Lender on such terms as would be
entered into between the Borrower and the Lender and pursuant thereto
shall execute a Power of Attorney and Assignment and Management
Agreement in line with the draft enclosed herewith in Appendix-3 to
the Special Conditions.
c) The Borrower agrees that the Receivables shall be exclusive property
of the Lender for the purpose of secured repayment of the Facility
and as such the Borrower will not make any further borrowing on the
strength of the Receivables as being Borrower's Property."
22. An 'Escrow Account Agreement' was also entered between the
lender and the borrower on the same date under which the borrower has to
open an Escrow Account with the Escrow Bank. Recital(C) of the Escrow
Account Agreement provided:
"(C) The Borrower has agreed that, the payments to be collected/
received by the Borrower from the clients of Business Service Centre/
License/Lessee of various Units/properties (hereinafter referred to as
"the said Units") built and/or to be built and leased/to be leased on
the Secured Property detailed in Schedule B hereunder (hereinafter
called "the said Property") for/against which the Facility granted/to
be granted by Lender as per the Off er Letter and Facility Agreement,
shall be credited to the said Escrow Account (hereinafter referred
to as "the Receivables") and the Lender shall on satisfaction of
the condition as described in Item No. 6 of Schedule A hereunder,
adjust all the amounts to be paid by the Borrower to the Lender
under the Facility Agreement, from time to time, out of the amounts
credited in the said Escrow Account, and permit the transfer in the
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR. [S. RAVINDRA BHAT, J.]
1046
SUPREME COURT REPORTS
[2023] 14 S.C.R.
Designated account of the Borrower opened with the Escrow Bank,
the amount as mentioned in Item No. 7 of Schedule A out of the
remaining balance in the said Escrow Account after such adjustment
as agreed hereunder."
Clause-3 of the Escrow Account Agreement provides 'Bank's
Covenants' which reads as follows:
"3. BANK'S COVENANTS:
(a) The Escrow Bank hereby agrees to act as such and to accept all
monies to be delivered to or held in the Escrow Account, pursuant to the
terms and conditions of this agreement. This Escrow Bank shall hold
and safeguard the Escrow Account, during the terms of this Agreement
and shall hold all cash in the Escrow Account, at the request of the
Borrower and to safeguard the repayment of the Facility and for the
benefi t of the Borrower and the Lender in accordance with the terms
mentioned herein.
(b) The Escrow Bank shall not be required to verify and ensure that the
money(ies) deposited is the Receivables and all money(ies) deposited
at any time in any quantum should be treated as the Receivables.
(c) The Escrow Bank agreed that during the currency of the term of
this Agreement as may be amended from time to time, the Escrow Bank
shall ensure that the Escrow Account is operated and maintained as
per the terms set out herein and shall not permit any deviation, without
the written consent of the Lender.
(d) The Escrow Bank agrees that all money(ies) received by it under this
Agreement shall, until transferred in accordance with this Agreement,
be held in trust for the purposes for which they were received, and
shall be segregated from other accounts of the constituents of the
Escrow Bank and from the funds and Property of the Escrow Bank, in
accordance with the banking law and practice.
(e) The Bank shall transfer such amounts to the account of the
Borrower which are in excess of the minimum balance required to
be maintained in the Escrow Account in accordance with the terms
stated herein."
1047
23. Clause 4(b) of the Escrow Account Agreement deals with
'Operation and Maintenance'. Clause 4(a), (c) and (e) provides as follows:
"4. OPERATION AND MAINTENANCE
(a) The Borrower agrees that, the payments to be collected/received
by the Borrower from the Business Service Centre/Licensee/lessee of
various Units/properties built and/or to be built and leased/to be leased
on the Property which is more particularly described in Schedule of
the said Facility Agreement (hereinafter called "the said Property")
for/against which the Facility granted/to be granted by Lender as per
the Off er Letter and Facility Agreement, shall be credited to the said
Escrow Account (hereinafter referred to as "the Receivables") and the
Lender shall on satisfaction of the condition(s) as described in Item
No. 6 of Schedule A hereunder, adjust all the amounts to be paid by
the Borrower to the Lender under the Facility Agreement, from time
to time, out of the amounts credited in the said Escrow Account, and
transfer to the Designated Account of the Borrower, the amount as
mentioned in Item No. 7 of Schedule A out of the remaining balance
in the said Escrow Account after keeping the minimum balance in the
Escrow Account.
(c) The Lender shall be entitled to instruct the Escrow Bank from
time to time to transfer amounts from the Escrow Account including
as stated hereinabove. The Lender shall appropriate these monies
towards the repayment of the Facility, as and when the same is due
and payable in full together with all other amounts payable under the
Facility Agreement.
-------------------------
(e) The Borrower hereby irrevocably authorizes the Escrow Bank to
pay and to transfer the money(ies) received in the Escrow Account to
the Lender as per the terms and conditions agreed in the Off er Letter,
Facility Agreement and this Agreement as may be applicable from
time to time."
24. An Assignment and Administration Agreement was also entered on
the same date i.e., 25.06.2018 with the lender and borrower. This agreement
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR. [S. RAVINDRA BHAT, J.]
1048
SUPREME COURT REPORTS
[2023] 14 S.C.R.
provided for the assignment of the receivables by the borrower to the lender.
Recital clause3 is as follows:
"3. It has been agreed that the authorised indebtedness incurred by
the Borrower in terms of the Facility Agreement by way of the Facility
together with the interest thereon shall be payable from the gross
income and revenue to be derived from the operation of the Business
Centre Services Agreements/Lease/Leave and License Agreement/s as
more particularly detailed in the Schedule-1 ("Borrower's Contracts")
to this Agreement (hereinafter referred to as "Receivables").
Xxxx
Further Clause 1 of the Assignment and Administration Agreement
reads as:
1. Assignment and Pledge of Receivables
All the Receivables derived/to be derived from the operation of the
Borrower's Contracts, suffi cient portion of which, to pay the principal
and interest as and when the same shall become due in terms of the
said Facility Agreement, is hereby assigned and pledged and shall
be set aside for that purpose and this Assignment and Pledge shall
extend to and include any assessments that may be levied pursuant to
Clause 4(a) hereof."
25. A Power of Attorney document too was executed by IL& FS on
25.06.2018. By the Power of Attorney, the borrower irrevocably nominated,
constituted and appointed HDFC as its true and lawful attorney on behalf of
the borrower. By recital clause 2 of the said Power of Attorney document,
HDFC could "appropriate the proceeds received towards the discharge of
the Facility"; recital clause 5 enabled the lender to put to use, the secured
property and give the business centre, etc, on leave, license or lease basis in
the event the borrower's existing arrangements were terminated or ended.
Recital clause 7 enabled HDFC to receive all rents and all other sums in
respect of such premises.
26. The eff ect of these documents is what the court is concerned
with. It is a known principle of contract interpretation, that the substance
of a document, is discernible from its terms, rather than the label or
1049
its nomenclature. In Yellapu Uma Maheswari and Ors. vs. Buddha
Jagadheeswararao & Ors.8, the court held:
"It is well settled that the nomenclature given to the document is not
decisive factor but the nature and substance of the transaction has to
be determined with reference to the terms of the documents and that
the admissibility of a document is entirely dependent upon the recitals
contained in that document but not on the basis of the pleadings set
up by the party who seeks to introduce the document in question."
In Assam Small Scale Ind. Dev. Corp. Ltd. & Ors. v. J.D.
Pharmaceuticals & Anr9 the court stated as follows:
"The nature of transaction is required to be determined on the basis
of the substance there and not by the nomenclature used. Documents
are to be construed having regard to the contexts thereof wherefor
'labels' may not be of much relevance."
This was also stated in V. Lakshmanan v. B.R. Mangalagiri & Ors10
(that the "nomenclature or label given in the agreement as advance is not
either decisive or immutable."). This principle of substance, over the form,
was followed in Super Poly Fabriks Ltd. vs. Commissioner of Central
Excise, Punjab11.
27. That one document is styled or described in a certain manner, or that
it uses a certain expression, or term is not conclusive; it is the eff ect of all
the terms, of the documents, which bring out the true purport and intention
of the parties. Likewise, another allied principle of contract interpretation,
is that where the transaction is not the subject of one document, but several,
which refer to each other, or a reading of all, describe the entire contract,
then, it is open to the court to consider all of them together. This principle
was stated in S. Chattanatha Karayalar v The Central Bank of India & Ors12
wherein this court held that:
8
2015 (11) SCR 849
9
2005 (4) Suppl. SCR 232
10 1994 Supp (6) SCR 561
11 2008 (6) SCR 1076
12 1965 (3) SCR 318
INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD
v. HDFC BANK LTD. & ANR. [S. RAVINDRA BHAT, J.]
1050
SUPREME COURT REPORTS
[2023] 14 S.C.R.
"The principle is well-established that if the transaction is contained
in more than one document between the same parties they must be
read and interpreted together and they have the same legal eff ect for
all purposes as if they are one document. In Manks v. Whiteley, [1912]
1 Ch. 735 Moulton, L.J. stated :
"Where several deeds form part of one transaction and are
contemporaneously executed they have the same eff ect for all purposes
such as are relevant to this case as if they were one deed. Each is
executed on the faith of all the others being executed also and is
intended to speak only as part of the one transaction, and if one is
seeking to make equities apply to the parties they must be equities
arising out of the transaction as a whole."
28. Undoubtedly as argued on behalf of IL&FS, there are certain
conditions in the MFA - [clauses 2 (cc) and 2 (dd)] which defi ne "security"
and "security interest". Read along with clause 8.1 and Schedule III, these
would lead one to infer those receivables or rents that which IL&FS is
entitled to, form the security for the advance extended to it by the lender.
Nevertheless, as discussed earlier, these conditions cannot be read in isolation
because the MFA itself adverts to other documents - all of which were
executed by the parties contemporaneously. The condition in the Assignment
and Administration agreement which [was also executed on the same
day, i.e. 25.06.2018], clearly indicates that rents payable to IL&FS stood
unconditionally assigned to HDFC. The use of the expression "pledge" in
this context cannot be made much of. This is because the assignment is not
hedged with any condition; it entitles HDFC to appropriate the proceeds,
to the extent of liability of IL&FS.
29.