SC endorses Delhi HC order to attach BK Modis bungalow for loan default

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Jul 14 2012, 08:15am hrs
Businessman BK Modis prime central Delhi bungalow worth R150 crore will be soon up for auction following the Supreme Court dismissing his plea seeking quashing of a Delhi High Court order that directed attachment of his prime property in the Lutyens Zone for his failure to repay a R5 crore loan taken in March 2001.

While Morgan Securities & Credits had given the loan to Modi Rubber in the form of inter-corporate deposit, it rose to R18 crore, including interest of R13 crore. BK Modi, who was the managing director of tyre-manufacturer Modi Rubber and now runs the telecom to entertainment group Spice Global, and his brother VK Modi had stood guarantors for the loan and they were jointly and severally liable to repay the amount. Modi has since resigned from the board of the company.

The Delhi High Court on May 23 had passed an order of execution against BK Modi and attached his property 1, Prithviraj Road after considering his other three immovable properties one in Panchkula, near Chandigarh, and two in Delhi, including one on the leafy Amrita Shergill Marg. BK Modi had bought the Prithviraj Road bungalow, built on about an acre of land in central Delhi, in 2010.

An apex court bench headed by Justice Altamas Kabir while dismissing Modi's plea said that it was not inclined to take a view which was different from that of the High Court with regard to the withdrawal of the appeal, which had been filed by Modi under Section 37 of the Arbitration and Conciliation Act, 1996, particularly, when the decree which has been obtained by the respondent (lender), is joint and several in nature.

Recently, Modi has been in news for investing $200 million in acquiring two pristine Islands near Singapore in 2009. Modi, who is flush with funds after selling his stake in Spice Communications to Aditya Birla group for almost $600 million, had also bought a $10.5-million (R525 million) penthouse in recession-hit Singapore.

Modi has also plans to invest the money in telecom, real estate and entertainment ventures in Singapore and among them is an ambitious proposal to create a Hollywood meets Bollywood style of entertainment centre in the upcoming resort, Marina Bay Sands.

Senior counsel S Ganesh, appearing for Modi, argued that the loan amount of R5 crore and the bank guarantee of R13 crore towards the interest liability have been deposited by VK Modi and Modi Rubber with the Supreme Court, respectively. He further argued that in view of such deposits, the high court should have deferred the execution proceedings and waited for the outcome of the SLP filed by the company and VK Modi in the matter.

...the petitioner's (BK Modi) liability as a surety is co-extensive with principal debtor Modi Rubber. Consequently, if Modi Rubber gets the award of May 6, 2004 set aside, then the benefit of that decision will necessarily be available to the petitioner, as the arbitral award is a single indivisible award and the principal debtor is liable there under and BK Modi and VK Modi are only sureties thereof, the petition stated.

It also said that the property on Prithviraj Road was BK Modis only residential property in Delhi and the same has been mortgaged by him to a bank, and hence the property could not be attached.

Besides, Modi rubber is a sick company in respect of which a rehabilitation scheme was formulated by BIFR and the same is still in the process of implementation, Ganesh added.

When the company and its guarantors failed to repay the short-term loan, Morgan Securities had invoked an arbitration. The sole arbitrator had ruled in favour of the lender in May 2004 asking Modis to pay R6.72 crore along with interest, which they failed to do. The Modis then filed separate objections against the arbitral award. In 2009, the high court had rejected their objections that as the company had become a sick company and was before BIFR, the direction of the arbitration panel to repay the money to Morgan Securities would not be applicable. However, Modi Rubber was discharged from BIFR since its net worth turned positive as on March 2009.