Himachal Pradesh High Court
The H.P. State Industrial Development ... vs Kesri Roller Flour Mills And Ors. on 20 September, 2001
Equivalent citations: II(2003)BC388
Author: M.R. Verma
Bench: M.R. Verma
ORDER M.R. Verma, J.
1. The plaintiff has instituted the present suit for recovery of Rs. 19,97,474/- with future interest at the rale of 19%. The case of the plaintiff as made out in the plaint is that it is a Company registered under the Companies Act, 1956 and M.K. Chaudhari its Financial Adviser is the authorised officer to institute suits on behalf of the plaintiff. One of the functions of the plaintiff is to provide financial assistance in the form of term loan, equity and soft loan under Seed Capital Scheme of Industrial Development Bank of India / Small Induslries Development Bank of India. Defendant No. 1 through its Director, defendant No. 2 on 6-5-1992 applied to the plaintiff for grant of term loan of Rs. 14,00,000/- for setting up a unit for manufacturing Atta etc. which was sanctioned on 9-6-1992. The interest was to be paid by the defendants at the rate of 19% per annum with half yearly rests. To secure repayment of the said loan and the interest thereon, the defendants executed loan agreement, hypothecation agreement and also created an equitable mortgage by depositing the title deeds of the properties of the concern. Out of the sanctioned loan the defendants were paid Rs. 13.74 lacs during the period July, 1992 to Dec. 1992. Defendants No. 2 to 4 stood guarantors for the payment of the loan and executed deeds of guarantee. The loan was to be repaid in the half yearly instalments commencing from 10-6-1994 and the last instalment was payable on 10-12-2001. The defendants also availed term loan assistance of Rs. 60 lacs from pro forma defendant No. 5 who was co-financier. The defendants failed to comply with the terms and conditions of the loan and also failed to pay the instalments of the principal amount and the interest thereon on due dates, therefore, the defendants were served recall notice on 23-8-1994 and the hypothecated/mortgaged assets were taken over by defendant No. 5 and were sold on 27-1-1997 for Rs. 46,00,000/-. Out of the sale proceeds the plaintiff got Rs. 11,62,113/-. After adjustment of the sale proceeds so received the defendants are liable to pay Rs. 16,86,019 to the plaintiff. In addition to this amount there is liability of Sales Tax of Rs. 16,71,521/-on the defendants. It is payable to the Excise and Taxation Department, Government of Hirnachal Pradesh which department has claimed first charge on the assets of the defendant Company for realisation of the said Salex Tax. The share of the plaintiff in proportion to term loan works out the Rs. 3,11,455/-. The defendants are, therefore, liable to pay this amount also to the plaintiff. The defendants were asked to pay the aforesaid amount but they have failed . Hence the present suit.
2. Defendants Nos. 2 and 3 contested the suit. In their written statement they raised the preliminary objections that the suit was not maintainable against them, it is time barred and bad because of the act, conduct acquiescence of the plaintiff and is beyond the Jurisdiction of this Court. On merits, the plaintiffs being a Registered Company under the Companies Act and execution of the loan documents and creation of equitable mortgage have been denied. The execution of any deeds of guarantee have also been denied. Receipt of any default notice/re-call notice has also been denied and it is claimed that the suit is premature.
3. On the pleadings of the parties, the following issues were framed :-
1. Whether the plaintiff is entitled to the suit amount as prayed for ? OPP
2. Whether the present suit is not maintainable in its present form, as alleged ? OPD 2 & 3
3. Whether the suit is time barred, as alleged ? OPD 2 & 3.
4. Whether this Court has no jurisdiction to entertain the present suit as alleged ? OPD 2 & 3.
5. Whether the suit is bad because of acts, conduct and acquiescence of the plaintiff, as alleged ? OPD 2 & 3.
6. Relief.
4. Parties led evidence. Arguments were heard. My findings on the above issues are as follows .
5. Issue No. 1To prove this issue the planintiff relies on documentary as well as oral evidence consisting of the statements of Pawan Kumar Ball (PW 1) and R.K. Varshney (PW 3).
6. PW 1 has produced and proved in evidence the original application of defendant No. 1 for grant of loan in the sum of Rs. 14. 25 lacs, photo copy whereof is Ext. PW 1/ A. He has stated that on the basis of the said application the loan of Rs. 14 lacs was sanctioned in favour of defendant No. 1 on 9-6-1992. A copy of the sanctioned letter is Ext. PW-l/C. The agreed rate of interest was 19% per annum with half-yearly rests and the acceptance letter in this regard is Ext. PW -1/D. The terms and conditions of the loan were accepted by the defendant vide Ext. PW-l/D and Ext. PW 1/E which are the true copies of the original acceptance. The witness has further stated that the agreement copy whereof is Ext. PW 1 /F, hypothecation agreement a copy whereof is Ext. PW-l/G, deed of guarantee a copy whereof is Ext. PW-l/H, another guarantee deed a copy whereof is Ext. PW/1-J were executed by the defendants and the loan facility the extent of Rs. 13.74 lacs was availed of . He has further stated that certain payments were made by defendant No. 1 on account of interest , however, defendant No. 1 also borrowed money from pro forma defendant No. 5 in the sum of Rs. 60 lacs. On failure to pay the amount a re-call notice was served on the defendants on 23-8-1994 a photo copy whereof is Ext. PW-l/K. The witness has further stated that when the defendants failed to repay the loan despite recall notice, its assets were taken over on 11-10-1994 and were finally sold and out of the sale proceeds a sum of Rs. 11,62,113/- fell to the share of the plaintiff and the remaining amount fell to the share of the pro forma defendant. It is further stated by the witness that the Excise & Taxation Department served the plaintiff with a notice for payment of Rs. 17.71 lacs on account of the sale proceeds and the copies of the notice so received are Ext. PW-I/O and Ext. PW-l/P. The plaintiff, therefore, served the defendants with a notice for payment of the remaining amount inclusive of the Sales Tax liability to the extent of the liability which devolved upon the plaintiff as a consequence of the sale of the assets of defendant No. 1. There is nothing material in the cross-examination of this witness which may create any doubt about his credence.
7. PW 3 has stated on the basis of the accounts of the defendant Company, as maintained by the plaintiff, that the statement of account Ext. PW 3/A has been prepared under his supervision and is signed by him. He has further stated that at the time of suit a sum of Rs. 19,97,475/- i.e. a sum of Rs. 8,17,000/- on account of principal, Rs. 8,69,019/- on account of interest and Rs. 3,11,455/- on account of tax liability was payable by the defendants to the plaintiff.
8. In view of the aforesaid statements and the documents referred therein, the claim of the plantlff for recovery of Rs. 19,97,474/- is established.
9. To rebut the evidence led by the plaintiff, the defendants relied on the statement of Vijay Sharma (DW 1). However, instead of rebutting the evidence of the plaintiff, he virtually supports the claim of the plaintiff. In his examination in chief he has admitted that as Managing Director of defendant No. 1 he applied for grant of loan but he is not aware as to how much loan was sanctioned. He has further stated that he did not receive any notice from the plaintiff and that amount claimed in the suit is on the higher side. He has further stated that the rate of interest agreed between the parties was 12% per annum. However, in his cross examination he has admitted that loan in the sum of Rs. 14 lacs was taken from the plaintiff and loan in the sum Rs. 60 lacs was taken from defendant No. 5. He has admitted his signatures on letter Ext. PW 1/D, agreement Ext. PW-l/F, Ext. PW-1/ G. and Ext. PW-l/H . He has further admitted receipt of notice from the plaintiff a copy of whereof is Ext. PW-l/K. He is not in a position to deny that at the time of institution of the suit a sum of Rs. 19,97,474/-was payable by the defendants to the plaintiff. Thus, his statement, instead of rebutting above discussed evidence of the plaintiff, corroborates it on most of the material particulars.
10. In view of the above discussion, I hold that the plaintiff is entitled to the suit amount and this issue is accordingly decided in favour of the plaintiff.
11. Issue No. 2At the time of arguments nothing has been pointed out which may render the suit not maintainable in the present form nor apparently there is anything wrong in the form of the suit. This issue is, therefore, decided against the defendants.
12. Issue No. 3.
The plaintiff vide para 11 of the plaint has averred that the cause of action arose in its favour first on 9-6-1992 when the loan was sanctioned then on 29-9-1992 when the loan documents were executed, then on 23-8-1994 when the recall notice was issued, then on 11-10-1994 when the mortgaged/hypothecated assets were taken over under Section 29 of the State Financial Corporation Act, 1951 and then on 27-1-1997 when the hypothecated/mortgaged assets were sold, then when the entire suit amount became payable at once on 9-2-1997 when the suit amount became due after adjustments of the sale proceeds and finally on 3-5-1997 when the defendants were asked to pay the balance amount but failed to pay this amount. In para 4 of the written statement on merits the aforesaid dates regarding accrual of cause of action to sue have not been disputed. According to PW 1. recall notice was served on the defendants on 23-8-1994 and a photo copy of such notice is Ext. PW/K. This notice is dated 22nd/23rd August, 1994. DW 1 in his cross-examination has admitted receipt of this recall notice. As per the contents of loan agreement Ext. PW-l/F, the loan amount was to be repaid in Instalments and the first instalment was to be paid on 10-6-1994 and the last on 10-12-2001.
13. Clause (2) of Part II of agreement Ext. PW-l/F provides as follows :-
"2. The company shall repay the loan Amount (irrespective of dates of drawals) in accordance with the repayment schedule and subject to the other terms and conditions of these presents."
14. Clause 5 of the Part VIII of the said agreement provides as under :-
"5. If a default shall have occurred in the payment of principal or interest on any other payment required under this Agreement or in any of the events mentioned in Sub-clause (2) hereof HPSIDC may at its option, by notice in writing to the company, declare the principal of the Loan Amount then outstanding to be due and payable immediately and upon any such declaration the security referred to in Schedule III hereto shall become enforceable and such principal, interest and all other monies payable under this Agreement shall become due and payable immediately, notwithstanding anything In.this Agreement and/or in any other document(s). The HPSIDC will be entitled to take any actions as is available to it under the Agreement and the provisions of the Companies Act, 1956 as amended from time to time and also under the provisions of State Financial Corporations Act, 1951."
15. In view of the above clause, the plaintiff had option to declare the principal due at the time of default to be payable immediately by serving a notice in writing and on such declaration the principal amount then payable, the interest and all other monies payable under the agreement would become due and payable Immediately irrespective of any other terms and conditions in the agreement. Thus, by virtue of the recall notice Ext. PW 1/K dated 22nd/23rd August, 1994, the amount then payable became immediately recoverable and the cause of action accrued to the plaintiff to Institute the present suit on 23-8-1994. The present suit was Instituted on 10-7-1997, i.e., within the prescribed period of limitation of three years. The defendants have , therefore, failed to prove that the suit is barred by limitation . This Issue is accordingly de-
cided against the defendants.
16. Issue No. 4The case of the defendants is that in view of the provisions of Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereafter referred to as 'the Act'), this Court has no jurisdiction to entertain the suit as the value of the suit for the purpose of jurisdiction is more than 10 lacs, therefore, the remedy of the plaintiff was to institute appropriate proceedings before the Debts Recovery Tribunal (hereinafter referred to as 'the Tribunal') under Section 17 of the Act.
17. Section 18 of the Act reads as under :
"18. Bar of Jurisdiction . - On and from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under Articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17."
18. In view of the above provisions, the Courts (except the Supreme Court and the High Court exercising Jurisdiction under Arts. 226 and 227 of the Constitution ) are debarred from exercising any jurisdiction, powers or authority in relation to the matters specified in Section 17 of the Act.
19. Section 17 of the Act provides as under :-
"17. Jurisdiction , powers and authority of Tribunals. - (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction , powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.
(2) An Appellate Tribunal shall exercise. on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act."
20. Sub-section (4) of Section 1 of the Act provides as under :
"(4) The provisions of this Act shall not apply where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than ten lakh rupees or such other amount, being not less than one lakh rupees, as the Central Government may, by notification, specify."
21. On a combined reading of the provisions of Sections 1(4) and 17 of the Act it is clear that a claim for recovery of debt of rupees ten lakhs or more due to a bank or financial institution will be made by an application before the Tribunal and in such claim which lay to the Tribunal under Section 17 of the Act, the jurisdiction of the Court to entertain a suit in respect of that claim is barred.
22. The plaintiff in this suit has claimed a decree for recovery of Rs. 19,97,474/-, i.e. more than rupees ten lakhs. The question however, remains as to whether the plaintiff is one of such financial institutions to which Section 17 of the Act applies ?
23. Financial institution has been defined under Section 2(h) of the Act as follows :
"(h) "financial institution " means -
(i) a public financial institution within the meaning of Section 4-A of the Companies Act , 1956 (1 of 1956);
(ii) such other institution as the Central Government may, having regard to its bust' ness activity and the area of its operation in India, by notification, specify;"
24. In view of the aforesaid definition, a financial institution which will have to lay its claim before the Tribunal under Section 17 of the Act and the institution of a suit for claim in a Court is barred must be a public financial institution as defined.in Section 4-A of the Companies Act, 1956 or should be an institution specified by the Central Government by a notification as such institution to which the provisions of the Act will apply.
25. Section 4-A of the Companies Act, 1956 reads as follows :
"4A. (1) Each of the financial institutions specified in this sub-section shall be regarded, for the purposes of this Act, as a public financial institution . namely :-
(i) the Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913 [7 of 1913) ;
(ii) the Industrial Finance Corporation of India, established under Section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948);
(iii) the Industrial Development Bank of India, established under Section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964);
(iv) the Life Insurance Corporation of India, established under Section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);
(v) the Unit Trust of India, established under Section 3 of the Unit Trust of India Act. 1963 (52 of 1963).
(2) Subject to the provisions of Sub-section (1), the Central Government may, by notification in the Official Gazette, specify such other Institution as it may think fit to be a public financial institution :
Provided that no institution shall be so specified unless -
(i) it has been established or constituted by or under any Central Act. Or
(ii) not less than-fifty one per cent of the paid up share capital of such institution is held or controlled by the Central Government."
26. In view of the above provisions, public financial institutions for the purposes of Sections 17 and 18 of the Act will be those institutions as specified under Section 4A supra and such other institutions which may be specified as such institutions by the Central Government by a notification subject to the limtiations provided in the proviso.
27. There is no dispute that the plaintiff I is not an institution specified by the Central Government as a financial institution in exercise of its powers either under Section 2(h) of the Act or 4A of the Companies Act. Evidently, the plaintiff is also not one of the public financial institutions as specified in Section 4A(1)(i) to (v) of the Companies Act. Thus, the plaintiff is not one of such financial institutions which has to lay its claim for recovery of debts from its debtors before the Tribunal under Section 17 of the Act. therefore, this Court has the jurisdiction to entertain the suit. This issue is accordingly decided against the defendants.
28. Issue No.5 The defendants have not led any evidence to prove such act, conduct or acquiescence on the part of the plaintiff which may render the present suit bad in law as alleged in the written statement. This issue is, therefore, decided against the defendants.
29. Issue No. 6In view of the findings on the above Issues, the plaintiff is entitled to the relief claimed. Accordingly, a decree in the sum of Rs. 19,97,474/- with cost of the suit and future interest at the rate of 19% per annum with effect from 10-7-1997 till the realisation of the decretal amount , is passed in favour of the plaintiff and against the defendants jointly and severally.