PMC Bank Crisis: Bombay High Court Reserves Order On PIL Seeking Speedy Disposal Of HDIL’s Assets

The Bombay High Court reserved order on a public interest litigation seeking its direction for constitution of a committee for expeditious disposal of Housing Development and Infrastructure Ltd.’s assets and repayment to depositors of PMC Bank.

The PIL, filed by advocate Sarosh Damania, sought direction for setting up of a committee headed by a retired judge to auction HDIL’s properties. As per the PIL, the real estate company owes Rs 4,635 crore to PMC Bank.

A Bombay High Court bench comprising Justice Ranjit More and Justice Surendra Tavade had earlier asked HDIL’s directors Rakesh and Sarang Wadhawan to disclose details of the properties of the companies owned or promoted by them. The bench also directed the Economic Offenses Wing of the Mumbai Police and the Enforcement Directorate to disclose the details of HDIL’s attached properties.

The EOW had arrested the Wadhawans in the PMC Bank case. That came after the EOW filed an FIR, alleging that the bank faked loan records to underreport non-performing assets. The Wadhawans, however, sought bail, which so far has been denied by a special court under the Prevention of Money Laundering Act.

India’s Ministry of Corporate Affairs, too, is examining the book of accounts of HDIL to look for any irregularities. The probe was initiated after the Reserve Bank of India found that PMC Bank had total exposure of 73 percent to HDIL. The RBI had imposed regulatory restrictions and withdrawal limitations on PMC Bank over alleged financial irregularities in September this year. It also directed a forensic audit of the scam-hit cooperative lender.

Here are the key arguments made by the parties...

What The Petitioner Argued

The petitioner opposed the bail plea by the Wadhawans. He sought the high court’s direction for formation of a court-appointed committee on following grounds:

• A court-appointed panel will ensure that PMC Bank cannot use the money realised from sale or liquidation of HDIL’s encumbered and unencumbered properties for any other purpose than paying back the depositors’ money.
• Prioritised disposal of unencumbered properties will ensure expeditious return to the bank’s depositors as no third party will make claims over such properties.
• The Wadhawans can create further encumbrances on HDIL’s properties if they are released on bail.
• The Wadhawans have not fully disclosed the status and encumbrances on land owned by HDIL.

What HDIL And Wadhawans Said

Vikram Chaudhri, counsel representing HDIL and the Wadhawans, argued:

• The question of selling unencumbered properties would only arise if there is a shortfall after sale of encumbered assets. However, liquid value of the properties encumbered to PMC Bank and other financial institutions exceeds Rs 11,000 crore, according to the government’s ready-reckoner rates. Banks cannot sell unencumbered properties as they would have no legal right to do so.
• Properties that are solely encumbered in favour of PMC Bank can be sold first as the bank has first claim over title deeds.
• The Wadhawans’ release on bail will ensure their participation to get maximum value out of the encumbered properties.
• The Wadhawans have no objection to the formation of a high court-appointed committee and would ensure that no third-party rights are created if they are released on bail.
• Provisional attachment by the ED would lead to a lengthy trial, derailing the possibility of returning depositors’ money.

Enforcement Directorate’s Response

Hiten Venegaonkar, counsel appearing for the ED and EOW, said:

• The PMC Bank case is one of the few instances where the ED has held its hands back in interest of depositors. Therefore the ED has not proceeded under the Prevention of Money Laundering Act to attach properties encumbered to PMC Bank.
• Unencumbered land belonging to the Wadhawans or HDIL is valued at Rs 340 crore. Even in absence of a court-appointed committee, PMC Bank can go ahead and auction or sell the property encumbered in its favour.
• Around 840 acres of land is in the name of the Wadhawans. However, a sale of this land can be time-consuming as its value has not been ascertained. Similarly, third parties may claim rights over the land which would bring down its valuation and delay the process further.
• The Wadhawans can deposit conveyance deeds of the unencumbered properties with the high court-appointed committee.