Karnataka High Court
Punjab National Bank vs M/S B Fouress Private Limtied on 25 February, 2020
Bench: B.V.Nagarathna, N S Sanjay Gowda
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 25TH DAY OF FEBRUARY, 2020
PRESENT
THE HON'BLE MRS.JUSTICE B.V.NAGARATHNA
AND
THE HON'BLE MR.JUSTICE N.S.SANJAY GOWDA
R.F.A.No.1/2020 (MON)
BETWEEN:
Punjab National Bank,
A Body Corporate constituted
under the Banking companies
(Acquisition and Transfer of
Undertakings) Act, 1970, presently
Having its Head Office at Plot No.4,
Sector 10, Dwarka, New Delhi-110 075
and inter-alia, Branch called as
'Large Corporate Branch Office,
8-2-672, Sufi Chambers, Road No.1,
Banjara Hills, Hyderabad-500 034 and
having its Circle Office at No.26/2,
Raheja Towers, 1st Floor, M.G.Road,
Bengaluru-560 001. Represented by one
Of its Principal Officer of Large Corporate
Branch, Hyderabad, viz., Chief Manager-
Shri. Sunil K. Bagada, Aged about 35 years,
S/o Shri. Keshu Bhai. ... APPELLANT
(By Sri Harish Kumar S.R. and Sri K.V.Sathish, Advs.)
AND:
M/s. B. Fouress Private Limited,
A Company incorporated and functioning
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Under the provisions of the Companies Act,
1956, having its administrative Office
At Plot No.7, KIADB Industrial Area,
Hosakote-562 114, Bengaluru, Karnataka,
represented herein by its Manager
(Finance and Commercial),
Shri. Ravi Prakash. ... RESPONDENT
(By Sri Dhananjay Joshi, Adv.)
*****
This appeal is filed under Section 96 of CPC., 1908
against the Judgment and Decree dated:30.07.2019 passed
in OS.No.25772/2013 on the file of the LXXIII Additional City
Civil and Sessions Judge, Bengaluru(CCH-74) decreeing the
suit for recovery of money.
This appeal coming on for Orders this day, SANJAY
GOWDA, J., delivered the following:
JUDGMENT
The defendant - Punjab National Bank (hereinafter referred to as 'Bank') is in appeal challenging the judgment and decree dated 30.07.2019 passed against it in O.S.No.25772/2013, by which, it has been directed to pay a sum of Rs.66,82,551/- with interest at 12% p.a. from the date of filing of the suit till realization.
2. The case put forth before the Trial Court by the plaintiff was that the plaintiff - B. Fouress Private Limited (hereinafter referred to as 'Contractor') had been engaged by -: 3 :- M/s.Sagar Power (Neerukatte) Private Limited (hereinafter referred to as 'Sagar Power') to design, manufacture and supply small hydro plant equipment as well as for erection and commissioning of such equipment (known as E & M contract). It was stated that Sagar Power had obtained some financial assistance from a consortium of banks which was led by Punjab National Bank. Towards securing repayment of said amounts lent, a charge over the assets of Sagar Power had been created in favour of the Bank. It was stated that the plaintiff, in its capacity as the Contractor for Sagar Power and as per the terms of its contract with Sagar Power, had taken out an insurance policy covering all the risks and damage of the equipment supplied by it with New India Assurance Company Limited and it had also paid the premium in respect thereof. It was stated that the Contractor was required to provide insurance cover for all the equipments supplied until the project was commissioned as per the terms of the contract with Sagar Power. It was the further case of the plaintiff that the equipment supplied got damaged due to heavy flood during implementation of the project and in view of the insurance cover, a claim was made, under which an -: 4 :- initial ad-hoc payment was released by the Insurance Company. It was averred that this initial ad-hoc payment was shared between the Contractor and the bank and ultimately, the claim was settled for a sum of Rs.3,12,53,419/- and the Insurance Company issued a cheque drawn on Central Bank of India in favour of Punjab National Bank, Banjara Hills, Hyderabad A/c. Boving Fouress Limited.
3. It was averred by the Contractor that it forwarded the cheque to the Bank with a request to the Bank to encash the cheque and thereafter, to transfer a sum of Rs.66,82,551/- by RTGS to the Contractor's Bank Account. It was pleaded that the Contractor had instructed the Bank to credit the balance amount to the account of Sagar Power, which it could utilize towards repayment of some of the dues owed to it by Sagar Power. It was averred that the Contractor had specifically instructed the Bank to encash the cheque and credit a sum of Rs.66,82,551/- and thereafter, credit the balance into the account of Sagar Power and the Bank ought to have acted in accordance with the instructions of the -: 5 :- Contractor or it should have returned the cheque to the Contractor expressing its inability to process the cheque as instructed.
4. It was pleaded that the Bank did not comply with the request of the Contractor and it proceeded to encash the cheque and retain the entire proceeds of the cheque for itself and it declined to hand over the Contractor's entitlement of Rs.66,82,551/- and despite repeated reminders and request, the Bank did not comply with the same. It was stated that the Bank had kept aside the sum of Rs.66,82,551/- but it had claimed that it had a charge on the entire insurance amount. It was pleaded that this action of the Bank in refusing to return sum of Rs.66,82,551/- prompted the Contractor to file a suit, since their request to the Banking ombudsman to entertain their grievance was not acceded to.
5. The suit was resisted by the Bank by filing written statement. Apart from denying the plaint averments, in general, the Bank stated that it had along with a consortium of Banks lent a sum of Rs.77.75 crores to Sagar Power for setting up of 15 MW hydro power project in Neerukatte MHP, -: 6 :- Dakshina Kannada District and Sagar Power had created a charge in favour of consortium Banks by way of hypothecation of its assets including equipment used for hydro power project. The Bank admitted that it had come to know that the equipment purchased out of the Bank funds and had installed had been damaged due to heavy flood at the project site. It stated that since Sagar Power had undertaken to insure the entire equipment pertaining to hydro power plant against damage or loss and to pay the insurance claim made on account of any damage or risk to the equipment directly to the Bank, it had a right to secure all the payments from the Insurance Company. The Bank placed reliance on Clause 6.9 of the loan agreement (Ex.D.3 ), which reads as under:
"6.9.Insurance by the Borrower:
(a) The Borrower shall at all times obtain and maintain at its own expense the insurance on the terms as may be stipulated by the Lenders in consultation with the Insurance Consultant. The Borrower shall keep its present and future properties and business insured with financially -: 7 :- sound and reputable insurers in each case satisfactory to the Lenders.
(b) The Borrower shall maintain and ensure maintenance of the insurance coverage required under the terms of each of the Project Documents.
(c) If the Borrower fails to obtain or maintain the full insurance, the Lenders upon 15 days prior notice (unless such insurance coverage would lapse within such period, in which event notice should be given as soon as reasonably possible or need not be given at all if the time for the lapse of coverage does not permit it) to the Borrower of any such failure, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums for the same. The Borrower shall reimburse all amounts so advanced there for by the Lenders and the Borrower shall pay such amounts to the Lenders together with interest thereon from the date so advanced in accordance with the provisions of Section 2.12.
(d) Without the prior approval of the Lenders (acting in consultation with the Insurance Consultant) which approval not to be unreasonably withheld or delayed the Borrower shall not make any -: 8 :- compromise, adjustment or settlement in connection with any loss or any other event entitling the Borrower to claim any policy or policies of insurance and shall not do, or omit to do or permit to be done or not done any other thing that might prejudice any right to claim or recover under any such policy or policies. The Borrower shall promptly notify the relevant insurer of any claim by the Borrower under each policy written by that insurer and shall diligently pursue that claim.
(e) The Borrower shall promptly notify the Lenders of any loss or other event entitling the Borrower to make a claim under anyone or more insurance policies. The Borrower shall promptly notify the Lenders of each written notice received by it with respect to the cancellation of, adverse change in or default under, any insurance policy required to be maintained in accordance with Section 6.9.
The Borrower shall not vary, rescind, terminate or cancel any insurance policy.
(f) The Borrower shall provide written instructions to all insurers to pay and deposit any and all insurance proceeds and payments directly into the Retention Account."
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6. It was stated that the Contractor, by letter dated 17.12.2008 addressed to it, had undertaken to ensure that any insurance claim amount received by it from the Insurance Company would be paid to the Bank on the account of Sagar Power and consequently when the insurance claim was settled at Rs.3,12,53,419/-, it appropriated a sum of Rs.2,45,70,868/-to the consortium account of Sagar Power as per the collective decisions of the Banks and it kept the amount claimed in the plaint in the form of a Fixed Deposit.
7. It was the case of the Bank that Sagar Power had unconditionally undertaken to directly credit all amounts received by it from the Insurance Company under Clause 6.9 of the loan agreement and the Contractor which received the insurance claim had accordingly deposited the same with the Bank. It was stated that since the Bank was entitled to appropriate the entire amount arising out of the assets charged in its favour, it was not liable to pay any amount to the Contractor and that the amount that was received by the Contractor arising out of the claim was required to be entirely -: 10 :- appropriated by the Bank and thus, the Contractor had no right to seek apportionment of the insurance claim amount.
8. On consideration of the rival pleadings, the Trial Court framed the following four issues:
1. Whether the Plaintiff proves that the defendant has retained Rs.66,82,551/- and declined to hand over the Plaintiffs entitlement illegally?
2. Whether the suit is not valued properly and court fee paid is insufficient?
3. Whether the Plaintiff is entitled to the reliefs as sought?
4. What order or decree?
9. In order to substantiate its case, the Contractor examined one of its employees as P.W.1 and got marked ten documents through him.
10. The Bank examined its Assistant General Manager as D.W.1 and marked three documents through him. -: 11 :-
11. The Trial Court, on consideration of evidence, proceeded to hold that the Contractor had proved that the Bank had retained a sum of Rs.66,82,551/- illegally and it had acted illegally in refusing to hand it over to the Contractor and answered the 1st issue in favour of the Contractor.
12. The Trial Court also held that the suit was valued correctly and answered the 2nd issue also in favour of the Contractor.
13. The Trial Court, ultimately, proceeded to decree the suit and directed the Bank to pay to the Contractor a sum of Rs.66,82,551/- along with interest at 12% p.a. from the date of filing of the suit till its realization.
14. Aggrieved by this decree, the Bank is before this Court in appeal filed under Section 96 of the Code of Civil Procedure.
15. We have heard learned counsel for the appellant and learned counsel for the respondent and perused the material on record.
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16. The submission of the learned counsel for the appellant - Bank is that there was a clear understanding of the Bank and Sagar Power (the Borrower) that all the assets in relation to hydro power plant would stand hypothecated to the Bank and as a necessary consequence, when the insurance claim for the hypothecated equipment were paid by the Insurance Company, the entire proceeds will be considered as the amount to which the Bank would be entitled to exclusively. It is his contention that the insurance taken out by the Contractor on the equipment will not enure to the Contractor's benefit and it would not entitle the Contractor for any portion of the proceeds which has been paid by the Insurance Company due to the damage caused to the equipment.
17. It is the basic case of the Bank that all the equipment in relation to hydro power plant stand hypothecated to it and since the term of the loan agreement was that the assets of the Sagar Power were to be insured, the proceeds arising out of an insurance claim would have to -: 13 :- be necessarily considered as the amount to which the Bank was entitled.
18. The Bank seeks to contend that the equipment was basically purchased by the Contractor using the funds advanced by the Banks and therefore, notwithstanding the fact that the equipments were insured by the Contractor, the equipment would stand hypothecated to it by virtue of its loan agreement it had entered into with its borrower i.e., Sagar Power.
19. Learned counsel, therefore, contended that the Bank had a legal right to retain all the sums that became payable by the Insurance Company.
20. Learned counsel for the Bank lastly contended that the Trial Court did not have jurisdiction since the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (hereinafter referred to as 'Commercial Courts Act') was amended in the year 2018, by which all suits specified in the said Act were to be decided by the Commercial Courts and since in the instant case, the Trial -: 14 :- Court had adjudicated upon the claim, the same was without jurisdiction.
21. On the contrary, learned counsel for the Contractor contended that only the assets of the borrower i.e., Sagar Power were required to be hypothecated and since, in the instant case, the equipment which was damaged belonged to the Contractor, the question of those equipment being hypothecated to the Bank, by implication, would not arise at all. He contended that there was no privity of contract with the Bank and merely because it had, in good faith, presented the entire cheque arising out of the insurance claim to the Bank, the same did not by itself tantamount to admitting or conceding that the equipment in question were hypothecated to the Bank. He submitted that the cheque had been issued by the Insurance Company in its name and even on the earlier occasion, when the ad-hoc or part payment was paid, the cheque had been drawn in its name and the Bank had encashed the said cheque on its behalf and had retained a portion of the claim as per the request of the Contractor and refunded the said amount specified by the Contractor. It was, -: 15 :- therefore, his contention that the Bank had clearly agreed and acted earlier also that it did not have hypothecation over the equipment of the Contractor and the Bank cannot take advantage of the understanding between the Contractor and the borrower - Sagar Power to appropriate the monies of the Contractor.
22. It was his submission that the Bank was essentially trying to recover the amount that was due from the borrower by appropriating the amount belonging to the Contractor, though there was no privity of contract or a legal obligation on the part of the Contractor to pay any sum to the Bank.
23. As far as contention regarding jurisdiction was concerned, learned counsel for the respondent - Contractor contended that initially when the Commercial Courts Act was enacted in the year 2015, the specified value was Rs.1,00,00,000/- and when the suit had been filed in the year 2013 for recovery of a sum of Rs.66,82,551/-, it fell outside the purview of the Commercial Courts Act and therefore, the suit was not amenable to transfer to the Commercial Court. He submitted that subsequently in the year 2018, the -: 16 :- Commercial Courts Act was amended and the specified value for a commercial dispute was reduced from Rs.1,00,00,000/- to Rs.3,00,000/-. However, by virtue of Section 19 of the Amending Act No.28/2018, the provisions of the amending Act would apply only to commercial disputes filed on or after the date of commencement of amending Act and since the amending Act came into force only from 03.05.2018, the provisions of the Commercial Courts Act as amended in 2018 would not apply and it was only the Civil Court which would have jurisdiction to try the suit and thus, the contention regarding jurisdiction was liable to be rejected.
24. Having heard learned counsel for the respective parties and having perused the materials on record as well as original record secured from the Trial Court, the questions to be considered in this case are as under:-
(i) Whether the Bank possessed a right over the equipment supplied by the Contractor towards the execution of the Project?
(ii) Whether the equipments supplied by the Contractor, by implication, stood hypothecated to the Bank?-: 17 :-
25. On a perusal of the pleadings and the evidence adduced before the Trial Court, the crux of the matter is as follows:
It was the case of the Bank that the assets relating to hydro power project had been hypothecated to it and as per the terms of the loan agreement, the equipment were required to be insured and any proceeds arising out of any insurance claim made in respect of the equipment relating to the Hydro Power Plant would have to be paid to it.
26. At the very outset, it has to be understood that in order to prove that a movable property is hypothecated, it will have to be essentially proved that the property belonged to the person who was hypothecating it. If title to the property is not with the person hypothecating it, then, in law, it cannot be termed as a Hypothecation. This is because if a property is given as security for repayment of a debt, that property is required to be sold in the event of a default and if the person selling the property does not have title over it, he cannot obviously sell it to recover the money due to him. In other words, if a movable property belongs to 'X', it cannot be -: 18 :- hypothecated by 'Y' in favour of 'Z' because 'Z' will have no title to sell the property in the event of default by 'Y'. This is based on the principle that a person cannot convey a title that he himself does not possess. Thus, it will have to be primarily seen if Sagar Power had title over all the equipment of the Project in order to subject it to hypothecation in favour of the Bank.
27. The specific plea of the Contractor in its plaint at paragraphs 6 and 7 regarding hypothecation and the insurance is extracted as under:-
"6. Sagar Power obtained some financial assistance from a consortium of banks led by the Defendant Bank, towards securing the repayment of which Sagar Power has, apparently, created a charge over its assets in favour of the Defendant.
7. In its capacity as the E&M Contractor for Sagar Power, as per the terms of the contract, the Plaintiff was required to take an insurance policy covering all risks and damages for the equipments supplied by the plaintiff with New India Assurance Company Limited and pay the premia in respect thereof. The Plaintiff is required to provide the insurance over for -: 19 :- all the equipments supplied until the project is commissioned."
As could be seen from the said plea, the Contractor basically stated that in order to secure repayment from Sagar Power, the Bank had created a charge over the assets of Sagar Power. The Contractor nowhere admitted, either directly or indirectly, that, its equipment was also the subject matter of the charge, nor did it state that equipment supplied by it were the equipment belonging to Sagar Power.
28. The Contractor categorically stated in its plaint that in its capacity as a Contractor for Sagar Power, as per the terms of the contract it had entered into with Sagar Power, it had taken out an insurance policy to cover all risks and damages for the equipment supplied by it and it had paid the premium in respect thereof. It was thus stated clearly that the Contractor had taken out insurance cover for all the equipment supplied by it until the project was commissioned. Therefore, it was clear that the Contractor had basically taken an insurance cover for the equipment supplied by it and it -: 20 :- had not taken out an insurance cover on the equipment belonging to Sagar Power.
29. It is to be noticed here that the contract with the Sagar Power basically created an obligation on the Contractor to not only supply the equipment, but also erect and commission the same. It is, therefore, clear that the equipment supplied by the contractor would always be its own equipment and it did not become the equipment of the borrower - Sagar Power.
30. The Bank in its defence contended as follows:
"9. The aforesaid Sagar Power (Neerukatte) Private Limited has towards securing repayment of the aforesaid credit facilities, has created necessary charge in favour of the Consortium Banks, including all its assets including equipments used for the hydro power project, by way of hypothecation of its assets.
11. The aforesaid Sagar Power Neerukatte Private Limited had undertaken to insure the entire equipments pertaining to the Hydro Power Project against damage/loss and to pay insurance claim -: 21 :- made towards any damage or risk to the equipments directly to the Defendant Bank. Accordingly, the said Sagar Power (Neerukatte) Private Limited had insured all its equipments by obtaining comprehensive Insurance Policy covering all risks and damages to the same with New India Assurance Company Limited."
(emphasis by us)
31. A mere reading of the aforesaid plea would go to show that the Bank admitted that it had a charge in respect of assets of Sagar Power but the Bank was trying to include all the equipment used for hydro power plant as being the subject matter of the charge it had. In other words, the Bank was trying to contend that all the equipment used for the purpose of execution of the project had been hypothecated to it, irrespective of whether it belonged to Sagar power or not.
32. The Bank in order to establish that the entire equipment supplied for the project was hypothecated to it did not produce any Agreement of Hypothecation it had entered into with Sagar Power. To a pointed query by the Court as to whether such an agreement actually existed, learned counsel for the Bank submitted that there was an Hypothecation -: 22 :- Agreement, but the same was not produced. It is thus clear that the Bank for reasons best known to it, chose not to produce the Hypothecation Agreement that it claimed to possess. If the agreement under which all the equipment of the project stood hypothecated to it was not produced before the Court, the Court could not obviously accept the plea of the Bank that the entire equipment of the Hydro Power project had stood hypothecated to the Bank.
33. In our view, the Bank probably chose not to produce the Hypothecation Agreement because it would have clearly stated, only those equipment which were hypothecated to it and it did not mention the equipment belonging to the Contractor as also being the subject matter of hypothecation.
34. The entire argument of the Bank is on the basis of supposition that the entire equipment used for the project were required to be insured and the insurance cover over all the equipment would enure to its benefit. This supposition cannot be accepted for the simple reason that Clause 6.9 of the loan agreement (Ex.D.3) states that Sagar Power was -: 23 :- required to keep its present and future properties and business insured with financially sound and reputable insurers. Thus, the only requirement under the loan agreement was that Sagar Power to keep its own properties insured.
35. If Sagar Power had directed or contracted with one of its Contractors to keep the Contractor's equipment insured, that by itself would not amount to a charge being created in favour of the Bank. It should be borne in mind that the equipment of the Contractor would be its own and the ownership of the equipment would be guided by the contract that it had entered into with Sagar Power. The Bank cannot by any stretch of imagination claim a right over the properties of the contract, unless the Contractor had entered into a specific contract to that effect.
36. It would be relevant to state here that Article III of the Loan Agreement (Ex.D.3) relates to Security and Article 3.1 relates to Security for Loans and the said Article reads as under:
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"(A) The Loans together with all interest, liquidated damages/penal interest, premium on prepayment, costs, expenses and other monies whatsoever stipulated in this Agreement shall be secured by:
i. a first mortgage and charge in favour of the Lenders, in a form satisfactory to the lenders of all the Borrower's immovable properties, both present and future;
ii. a first charge by way of hypothecation in favour of the Lenders of all the Borrower's moveable properties including moveable machinery, machinery spares, equipment, tools, accessories, receivables, receivables arising out of sale of certified Emission Reduction units (Carbon Credits) under Clean Development Mechanisim, Accounts and book debts, both present and future;
iii. an assignment by the borrower by way of first charge in favour of the Lenders of:
a) all the rights, title and interests of the Borrower in, to and under all the Receivables, Accounts and book debts, both present and future.
b) The right, title and interest of the Borrower in, to and under all (a) of the Project Documents, and -: 25 :-
(b) the guarantees, letters of credit other performance warranties, indemnities and securities that may be furnished in favour of the Borrower by the various counter-parties under the Project Documents such as PPA and EPC Contracts, after obtaining the written consent of the parties thereto, if necessary, and iv. the right, title and interest of the Borrower in, to and under all the government Approvals, insurance policies and uncalled capital of the Borrower; and v. a first charge on all intangible assets of the Borrower including but not limited to goodwill, undertaking and uncalled capital of the Borrower in favour of the Lenders.
The aforesaid mortgages, charges and assignments shall (i) in all respects rank paripassu interse B. Additional Securities:
In addition to the creation of the aforesaid securities the Borrower shall create or cause to create the following securities in favour of the Lenders and to their satisfaction.-: 26 :-
a. Personal Guarantee of Sri D.Surendranath Reddy, Sri. N.Manohar Reddy, and Smt. S.Jyothi along with the title deeds, property valuation reports and unencumbrance certificate for such property issued by relevant authorities.
b. Corporate Guarantee by M/s Sai Spurthi Power Private Limited and M/S New Age Infrastructure Private Limited for total outstanding dues of Lenders, after obtaining N.O.C. from all other institutions and banks to whom M/s Sai Spurthi Power Private Limited and M/s New Age Infrastructure Private Limited have provided such guarantees.
c. The borrower shall make out a good and marketable title to the Project Assets and its other properties to the satisfaction of the Lenders and comply with all such formalities as may be necessary or required for the said purpose.
d. The borrower shall enter into a shareholder's agreements with all equity contributors to the satisfaction of the Lenders.
e. The borrower shall open a Trust and Retention Account with its bankers to which the entire loan amount advanced by the lenders herein, money received by the borrower by way of subscriptions to Equity shall be paid in and credited maintaining all -: 27 :- proceeds at the operational stage of the plant and sale of power and the money or monies so credited shall be utilized both for construction and operation of the Plant/Project facility in a manner as may be indicated by the Lenders indicating the priority. The borrower shall appoint a Trust and Retention Agent as approved by the Lenders and shall enter into a separate agreement for that purpose.
f. The borrower shall subscribe to an Escrow Mechanism through which a tripartite agreement shall be executed amongst KPTCL/MESCOM, the borrower and lenders by which the parties agree to route the sale proceeds of the power generated by the borrower through PNB directly from KPTCL/MESCOM.
g. A first mortgage and charge in favour of the Lenders in a form satisfactory to the lenders of all the immovable properties of Sri.N.Manohar Reddy situated at Golithottu and Bandaru Villages of South Canara District, Karnataka, both present and future."
37. As could be seen from Article 3.1 (A) (i) and (ii), the Security for the Loan granted by the Bank in favour of Sagar Power was only a first mortgage and charge on the immovable properties of Sagar Power and a first charge by -: 28 :- hypothecation on all the movable properties of Sagar Power. Thus, in order, to enable the Bank lay a claim on the properties on the basis of the hypothecation, the Bank had to first establish that the movable properties did in fact belong to Sagar Power. This, by clear and express implication means, if the movable property is not the property of Sagar Power, the Bank will have no right over the movable properties.
38. Further, as could be seen from Article 3.1 (A) (iii)
(b), the Bank by way of an assignment would have the right, title and interest of Sagar Power on the Project Documents and guarantees, letters of credit, other performance warranties, indemnities and securities that have been furnished to it by various counter parties under the Project Documents such as Power Purchase Agreements (PPA) and Equipment Procurement Construction Contracts (EPC contracts) after obtaining the written consent of the parties thereto. It is to be stated here that as defined under Clause 1.1 i.e., Definitions in the Loan Agreement, the Contractor -: 29 :- (the plaintiff herein) is clearly stated to one of EPC Contractors (at page 4 of the Loan Agreement, Ex D-3).
39. Admittedly, it is not the case of the Bank that Sagar Power had assigned any interest it had in its favour from an EPC Contractor such as the Plaintiff to the Bank and thus as a consequence, the Bank can have no right over the interest of the Contractor over the Insurance claim payment.
40. It is also to be observed here that even if there was an assignment in favour of the Bank by Sagar Power, the said clause required the counter parties to give their written consent to the assignment of only the guarantees, letters of credit, other performance warranties, indemnities and securities that it had originally agreed to furnish to Sagar Power. Thus, the Bank was required to prove that the Contractor had guaranteed to Sagar Power the remittance of all the insurance proceeds and Sagar Power, in turn, by way of an assignment had assigned that right in favour of the Bank.
-: 30 :-
41. However, this is not the case either pleaded or proved by the Bank and therefore the Bank can have no claim over the proceeds of the Insurance Claim in respect of the Insurance Policy taken out by the Contractor over its equipment.
42. The argument of the learned counsel for the Bank that the letter dated 17.12.2008 - Ex.D1 had created a legal obligation on the Contractor to pay the entire sum it received from the Insurance Company and having issued Ex.D1, the Contractor could not claim any portion of the said amount cannot be accepted. Ex.D1 is a letter, by which, the Contractor informed the Bank that it had been contracted to supply certain equipment and there had been damage to the project equipment due to heavy floods and in that regard, an insurance claim had been lodged. No doubt, the said letter also states that the Contractor had undertaken to ensure that any insurance claim amount received by it from the Insurance Company for refurbishment works done by its suppliers and which had been duly paid for by Sagar Power would be returned by an Account Payee cheque drawn on Punjab -: 31 :- National Bank Account/Sagar Power (Neerukatte) Private Limited. But the said undertaking is clearly qualified in the very next paragraph in which it is stated that letter was issued without assuming any responsibility or liability on the part of the Contractor. The said undertaking basically would mean that the Contractor would pay the amount in respect of refurbishment work done by its suppliers/service providers and for which the amounts were duly paid by Sagar Power. It, therefore, follows that this is not a letter whereby the Contractor admitted that all the equipment which it had got insured belonged to Sagar Power and thereby the said equipment stood hypothecated to the Bank.
43. In our view, the Bank cannot quote this letter out of context and contend that the said letter creates a legal obligation on the part of the Contractor to remit the entire insurance proceeds to it. It should be borne in mind that the Bank only has a right to seek for recovery of the amount due to it from its borrower. The Bank cannot proceed against the Contractor of the borrower on the assumption that the assets of the Contractor are the assets of the borrower. It was the -: 32 :- good fortune of the Bank that the Contractor voluntarily agreed to pay a portion of the insurance proceeds but that by itself cannot embolden the Bank to contend that it was entitled to lay a claim on the entire insurance proceeds. We are, therefore, of the view that the Bank was bound to pay the sum of Rs.66,82,551/- to the Contractor.
44. Learned counsel, nevertheless, contended that it was admitted during the course of cross-examination that the Contractor was aware of the financial assistance given by it to Sagar Power and Sagar Power had become a defaulter at the time of submission of the claim and therefore, the Contractor was required to hand over the entire amount it had received from the Insurance Company. It is to be mentioned here, that to a pointed question during the Cross examination that the Bank had asked the Contractor to take an insurance on behalf of Sagar Power, the Contractor's witness clearly stated, it had taken insurance cover as per the terms of the contract between the Contractor and the Sagar Power. The witness has gone on to say that the Bank was not a party to the contract that it had entered with Sagar Power. -: 33 :- This leads to an inference that the insurance policy taken out by the Contractor has no relationship whatsoever with the claim of the Bank against Sagar Power.
45. It is to be borne in mind that in case of hypothecation of goods, the entity to which the goods are hypothecated would have a right to receive the amount due on account of any calamity to the goods. If there was no hypothecation of goods in favour of the Bank, the Bank cannot lay a claim on the insurance proceeds secured out of the damage to the goods which are not hypothecated to it. In the instant case, since there is absolutely no proof that the equipment of the Contractor were hypothecated to the Bank, the Bank cannot have a legal right to claim the amount that are paid by the Insurance Company due to the damage to the equipment supplied by the Contractor.
46. Lastly, learned counsel for the Bank contended that the Trial Court did not have jurisdiction to adjudicate the suit in view of the Commercial Courts Act, 2015 being amended by Act No.28/2018. The Commercial Courts 2015 Act was enacted on 31.12.2015, in order to adjudicate upon the -: 34 :- commercial disputes and as on the date of enactment, the Commercial Court would get jurisdiction only if the subject matter of the proceedings was more than a crore. However, this pecuniary limit was reduced to Rs.3,00,000/- by the Amending Act No.28/2018 with effect from 03.05.2018. Learned counsel for the Bank, therefore, contended that by virtue of amendment in the year 2018, the Trial Court ought to have transferred the matter to the Commercial Court. This submission cannot be accepted in view of Section 19 of the Amending Act 28/2018 which states that the provisions of the Amendment Act would apply only to cases relating to commercial disputes filed on or after the date of commencement of the Amending Act. Since in the instant case the suit had been filed prior to coming into force of the Amending Act 2018, the Trial Court could not obviously transfer the matter to the Commercial Court. Therefore, the contention of the learned counsel in this regard cannot be entertained.
47. In the result, we are of the view that the judgment of the Trial Court directing refund of sum of Rs.66,82,551/- is -: 35 :- just and proper and does not call for any interference. Accordingly, the appeal is dismissed.
No costs.
Sd/-
JUDGE Sd/-
JUDGE PKS