Justice GS Patel Initiates Contempt Action Against Litigants, Lawyers Who Committed Fraud On Bombay HC [Read Order]
There is some something very rotten in the state of our commercial litigation. It is exemplified by this case. If ever there was an example of a commercial fraud and a fraud on the court, this is it.
This is how Justice GS Patel of the Bombay High Court described the case at hand wherein a litigant named Jitenderpal Singh Chadha, his father-in-law Prithipal Chadha and a lawyer Chadha Dattatray Parab colluded to ‘play the system’ by contesting simultaneous cases regarding the same property.
Justice Patel was hearing chamber summons application filed by Fullerton India Credit Company Ltd. The applicants sought attachment of a flat in Mumbai’s posh Khar area as the owner, Jitenderpal Chadha had defaulted on his loan re-payment.
The flat was mortgaged to Fullerton as security for the repayment of a loan of a little over Rs.9,06,85,020 sanctioned by Fullerton under a sanction letter dated July 30, 2014, in favour of one Tornado Motors Pvt Ltd. Jitenderpal was the co-borrower and offered this flat as security.
Fullerton found from the society that the flat was already mortgaged to IndiaBulls Housing Finance Limited on March 26, 2013. Part of the loan amount sanctioned by Fullerton was thus agreed to be paid to IndiaBulls to release its claim, and mortgage on the flat.
Fullerton and Jitenderpal executed a facility agreement dated July 31, 2014. As part of this, an amount of Rs.4,06,02,793 was paid to IndiaBulls in redemption of the mortgage. Following this, IndiaBulls executed a registered Deed of Reconveyance dated August 20, 2014 with the respondent.
On August 20, 2014, Jitenderpal executed a deed of simple mortgage in favour of Fullerton. This deed was registered on the same date with the Sub-Registrar of Assurances, Andheri. Thereafter, Tornado Motors and Jitenderpal defaulted in repayment of Fullerton’s loan. Fullerton initiated measures under the SARFAESI Act 2002 and in the course of that applied to the Chief Metropolitan Magistrate under Section 14(2) of the SARFAESI Act for an order of forcible possession.
Jitenderpal appeared and filed an application before the CMM saying there was an arbitral award of November 6, 2014, against him in favour of claimant Prithipal Surenderpal Chadha. The CMM was told that Prithipal had put that award into execution in the high court and obtained an order of April 27, 2016, (Justice KR Shriram), by which the court receiver was appointed for the flat. The CMM was told that the flat was thus in custodia legis (in custody of the law) with this court, and therefore no order of possession ought to be passed.
Importantly, the court pointed out who Prithipal was and said:
“But who is this Prithipal Surendersingh Chadha? As it turns out he is none other than Jitenderpal’s father-in-law. As if that is not convenient enough, let us have look at the award itself and what it is that Prithipal says he obtained against his son-in-law.
The Arbitrator was, to my very great dismay, an Advocate of this Court, against whom I propose to issue notice quite separately for his role in what followed. The award is so astonishing and so utterly remarkable in what it set out to do, and actually did, as an entirely pre-planned exercise to perpetrate a fraud on the Court, that I can do better than quote the first two paragraphs of it.”
After going through the text of the award, the court pointed out certain takeaways crucial to the facts of the case. They were:
(i) This so-called claim of specific performance by Prithipal against his son-in-law Jitenderpal was supposedly an oral agreement for sale of the flat, and it is of this that specific performance was sought before the arbitrator;
(ii) The arbitrator, advocate Parab, was persuaded to act on the basis of a letter of 4th November 2014, which apparently references the oral agreement also conveniently said to be dated 4th November 2014;
(iii) It is alleged that some payment was made on 27th September 2012 but the most recent payment was the day before the so-called agreement, viz., on 3rd November 2014;
(iv)The total consideration was, and this cannot be a coincidence, an amount of Rs. 9.80 crores, roughly the amount of Fullerton’s loan to begin with.
“It does not end at that. The Award was made on 6th November 2014, i.e. precisely two days later; two days after the so-called agreement of 4th November 2014. It appears that this award was rendered on stamp paper of 29th September 2014 obtained by Advocate Parab. The operative portion of the award says that Jitenderpal was to pay an amount of Rs.3,94,48,954/- to his father-in-law with interest at 24% compounded monthly (itself utterly extraordinary), and, in default, the very flat in question was to be transferred to the name of the Jitenderpal’s father-in-law —without payment of the balance consideration,” the court noted.
This duo of father-in-law and son-in-law then come together to this court, Prithipal moved this Chamber Summons before Justice KR Shriram on April 27, 2016, inter alia seeking the appointment of the Receiver in Execution. The court pointed out how the father-in-law and son-in-law duo were careful to arrange separate legal representation.
“Jitenderpal, the son-in-law, through his counsel blithely and promptly told the Court that he was in financial difficulty, that the flat had already been attached and therefore persuaded the Court to grant the reliefs in the Chamber Summons. This was allowed,” Justice Patel observed.
“It is beyond all doubt that the entire process of invocation of Arbitration on a non-existent so-called oral agreement and obtaining, within one day, a reference to Arbitration, a hearing before the Arbitrator, and, within two days, an Arbitral Award, and then promptly obtaining an appointment of the Receiver, all had one and only one objective: to prevent Fullerton from recovering its dues. There was no other purpose.
In pursuing this objective, the process of this Court has been thoroughly comprised and corrupted. This is in its most flagrant and blatant form inference with the administration of justice,” the court concluded.
Thus, the court directed the registry to issue suo motu notice under the Contempt of Courts Rules, 1994, to both father-in-law and son-in-law and advocate Parab. The court also directed the court receiver to ensure that the property in question is vacated in the next 48 hours with necessary police assistance.
Advocate Mayur Khandeparkar appeared for Fullerton India in the matter.
Read the Order Here
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