Delhi High Court
Jagson Airlines Ltd. vs Premium Int. Finance Ltd. on 25 April, 2011
Author: J.R. Midha
Bench: J.R. Midha
58
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS (OS) No.1468/1997
% Date of decision: 25th April, 2011
JAGSON AIRLINES LTD. ..... Plaintiff
Through : Mr. Jayant Nath, Sr. Adv. with
Mr. Amish Tandon and
Mr. Udit Gupta, Advs.
versus
PREMIUM INT. FINANCE LTD. ..... Defendant
Through : Mr. Rajender Dhawan,
Mr. Rajesh Arora and
Mr. Tauseef Akhtar, Advs.
CORAM :-
THE HON'BLE MR. JUSTICE J.R. MIDHA
1. Whether Reporters of Local papers may YES
be allowed to see the Judgment?
2. To be referred to the Reporter or not? YES
3. Whether the judgment should be YES
reported in the Digest?
JUDGMENT (ORAL)
I.A.No.6295/2009
1. The plaintiff has filed this suit for recovery of Rs.43,92,018/- along with interest thereon against the defendants under Order XXXVII of the Code of Civil Procedure.
2. The plaintiff advanced a loan of Rs.50,00,000/- to defendant No.1. Defendant No.1 executed an agreement and CS (OS)No.1468/1997 Page 1 of 11 promissory note dated 7th January, 1995 agreeing to repay the loan within 120 days along with interest thereon @ 20% per annum and defendant No.2 executed a personal guarantee to repay the loan amount along with interest thereon to the plaintiff.
3. On 24th January, 1995, the plaintiff advanced an additional loan of Rs.16,00,000/- whereupon defendant no.1 who executed an agreement and demand promissory note in favour of the plaintiff and defendant No.2 executed a personal guarantee in favour of the plaintiff.
4. On 9th June, 1995, defendant No.1 paid a sum of Rs.10,00,000/- to the plaintiff vide cheque No.080238 and requested the plaintiff to roll over the balance loan amount of Rs.56,00,000/- whereupon an addendum dated 24th July, 1995 was executed by defendant No.1 in favour of the plaintiff for rolling over the principal loan amount of Rs.56,00,000/- along with interest thereon @20% per annum and defendant No.2 executed a fresh personal guarantee for Rs.56,00,000/- in favour of the plaintiff.
5. After the expiry of the stipulated period mentioned in the aforesaid addendum, defendant No.1 requested the plaintiff to roll over the principal loan of Rs.56,00,000/- for further period in pursuance to which the principal loan amount of CS (OS)No.1468/1997 Page 2 of 11 Rs.56,00,000/- was rolled over four times and at the time of each roll over, addendums were executed by defendant No.1 and personal guarantees were executed by defendant No.2 in favour of the plaintiff.
6. Defendant No.1 issued three cheques bearing No.610635 dated 26th October, 1996 for Rs.1,64,278/-, No.610636 dated 31st October, 1996 for Rs.1,61,628/- and No.600395 dated 31st October, 1996 for Rs.56,00,000/- in favour of the plaintiff which were all dishonoured on presentation. Whereas the first cheque was dishonoured due to insufficient funds, the remaining two cheques were dishonoured because payment was stopped by defendant No.1.
7. The plaintiff issued two legal notices dated 9th November, 1996 and 15th November, 1996 to the defendants demanding the outstanding payment to which the defendants sent a reply dated 19th December, 1996 posted on 13th January, 1997.
8. The defendants had given 5,795 shares of Jai Prakash Industries, 7,000 shares of Gujarat Ambuja Cement and 1,800 shares of Wart Sila Diesels to the plaintiff as security which were disposed of by the plaintiff on 31st January, 1997, 8th February, 1997 and 10th February, 1997 for Rs.22,39,078/- which was adjusted by the plaintiff against the outstanding dues. The plaintiff has filed the suit for recovery of the balance CS (OS)No.1468/1997 Page 3 of 11 outstanding amount after adjusting of the aforesaid amount.
9. Defendant No.1 company has been wound up during the pendency of this suit in 1998 and vide order dated 6th November, 2006, defendant No.1 was deleted from the array of the parties and the plaintiff was permitted to proceed against defendant No.2 only.
10. Defendant No.2 is seeking leave to defend the suit on the following grounds:-
(i) Defendant No.1 company has been wound up under the orders of this Court.
(ii) The personal guarantees executed by defendant No.2 in favour of the plaintiff were without any consideration and, therefore, unenforceable.
(iii) It was not a condition of the agreement dated 7th January, 1995 and the other agreements executed subsequently between the plaintiff and defendant No.1 that defendant No.2 would be required to guarantee the repayment of loan and the plaintiff had not advanced the loan on the basis of the said guarantees.
(iv) The liability of defendant No.2 would arise only in case of inability of defendant No.1 to repay the loan.
(v) The defendants had transferred four lakh shares of Premium International Finance Ltd. in favour of the plaintiff CS (OS)No.1468/1997 Page 4 of 11 with the understanding that the same would be returned back to the defendants but the plaintiff have failed to return back the same to the defendants.
(vi) The defendants have already paid more than the amount due as claimed in the plaint.
11. During the course of the arguments, learned counsel for defendant No.2 does not dispute the repayment of Rs.10,00,000/- only to the plaintiff on 9th June, 1995. As such, the liability of defendant No.1 to repay the balance principal amount of Rs.56,00,000/- and the interest thereon to the plaintiff is not disputed. Learned counsel for defendant No.2 also does not dispute the execution of the loan agreements and addendums by defendant No.1 and personal guarantees by defendant No.2. Learned counsel for defendant No.2 submits that the personal guarantees have been executed by defendant No.2 without any consideration and are, therefore, not enforceable. It is further submitted that there was no term in the agreements and the addendums that the loan had been advanced by the plaintiff to defendant No.1 on the condition that defendant No.2 would guarantee the same.
12. Learned Senior Counsel for the plaintiff submits that defendant No.2 was the Managing Director of defendant No.1 at the time of execution of the agreements and the CS (OS)No.1468/1997 Page 5 of 11 addendums in question. It is further submitted that all the agreements and the addendums have been executed by defendant No.2 as the Managing Director of defendant No.1 and the loan amount was also taken by defendant No.2 on behalf of defendant No.1. The copies of the Board Resolutions of defendant No.1 authorizing defendant No.2 to take the loan from the plaintiff have been placed on record. Learned Senior Counsel for the plaintiff further points out that the personal guarantees have been executed simultaneously along with the agreements and the loan had been advanced after the execution of the agreements and the personal guarantees. With respect to four lakh shares of Premium International Finance Ltd., it is submitted that the same were agreed to be returned back after clearing all outstanding dues.
12. Learned counsel for defendant No.2 referred to the following judgments in support of his submissions:-
(i) Subhankhan vs. Lalkhan, AIR 1948 Nagpur 123 This case relates to a contingent guarantee which was sought to be enforced before the happening of the contingency. The Nagpur High Court held the invocation of the guarantee to be premature. There is no such contingency in the present case.
CS (OS)No.1468/1997 Page 6 of 11
(ii) Janki Nath vs. Dhokar Mall, AIR 1935 Patna 376 The Patna High Court observed that the contract of guarantee to discharge the liability of a third person in the case of default should be strictly proved.
13. Learned Senior Counsel for the plaintiff has referred to and relied upon the following judgments:-
(i) Bank of Bihar Ltd. vs. Dr. Damodar Prasad, AIR 1969 SC 297 The Hon'ble Supreme Court observed that under Section 128 of the Indian Contract Act, the liability of the surety is co-extensive with that of the principal debtor. The surety is liable to pay the entire amount immediately upon demand being made to the principal debtor and it was not deferred until the creditor exhausted all his remedies against the principal debtor.
(ii) M.S.E.B., Bombay vs. Official Liquidator, H.C. Ernakulam, AIR 1982 SC 1497 The Hon'ble Supreme Court observed that the liability of the guarantor was absolute and unconditional and the fact that the principal debtor company had gone into liquidation, would not absolve the liability of the guarantor.
CS (OS)No.1468/1997 Page 7 of 11
(iii) M. Ghulam Husain vs. M. Faiyaz Ali, AIR 1940 Oudh 346 In this case, it was urged that the surety bond was without consideration and cannot, therefore, be enforced which was rejected by the Court holding that in view of Section 127 of the Contract Act, the surety bond cannot be held to be without consideration. It was held that anything done or any promise made for the benefit of the principal debtor would be a sufficient consideration to the surety for giving the guarantee.
(iv) Poysha Oxygen vs. Ashwini Suri, 2009 (112) DRJ 169 This Court held the past consideration to be a sufficient consideration for a contract of guarantee under Section 127 of the Contract Act.
(v) Uma Shankar Kamal Narain vs. M.D. Overseas Ltd., (2007) 4 SCC 133 The Hon'ble Supreme Court reiterated the principles for grant of leave to defend as under:-
"8. The position in law has been explained by this Court in Milkhiram (India) (P) Ltd. v. Chamanlal Bros., AIR 1965 SC 1698 and Mechelec Engineers & Manufacturers v. Basic Equipment Corpn., (1996) 4 SCC 687 In Sunil Enterprises v. SBI Commercial & International Bank Ltd. (1998) 5 SCC 354 the position was again highlighted and with reference to the aforesaid decisions it was noted as follows (SCC pages 356 to 357, para 4):- CS (OS)No.1468/1997 Page 8 of 11
"(a) If the defendant satisfies the court that he has a good defence to the claim on merits, the defendant is entitled to unconditional leave to defend.
(b) If the defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence, although not a possibly good defence, the defendant is entitled to unconditional leave to defend.
(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is, if the affidavit discloses that at the trial he may be able to establish a defence to the plaintiff's claim, the court may impose conditions at the time of granting leave to defend-the conditions being as to time of trial or mode of trial but not as to payment into court or furnishing security.
(d) If the defendant has no defence, or if the defence is sham or illusory or practically moonshine, the defendant is not entitled to leave to defend.
(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine, the court may show mercy to the defendant by enabling him to try to prove a defence but at the same time protect the plaintiff imposing the condition that the amount claimed should be paid into court or otherwise secured."
14. In the facts and circumstances of this case and considering that defendant No.2 does not dispute the outstanding principal loan amount of Rs.56,00,000/- and CS (OS)No.1468/1997 Page 9 of 11 interest thereon and execution of the personal guarantees by defendant No.2, this Court is of the view that the defence of defendant No.2 is illusory, sham and practically moonshine. However, this Court is inclined to grant conditional leave to defend to defendant No.2 subject to deposit of entire suit amount by defendant No.1 with the Registrar General of this Court within a period of four weeks in terms of the principles laid down by the Hon'ble Supreme Court in the case of Mechelec Engineers and Manufacturers vs. Basic Equipment Corporations, AIR 1977 SC 577. Upon the aforesaid deposit being made, the Registrar General is directed to keep the said amount in fixed deposit initially for a period of one year to be renewed till the disposal of this suit.
15. The application is disposed of.
16. List for reporting compliance on 1st June, 2011. CS(OS) 1468/1997
1. Let the written statement along with all the original documents relating to this case within the power and possession of defendant No.2 be filed within 30 days. The replication thereto be filed within 15 days thereafter. CS (OS)No.1468/1997 Page 10 of 11
2. List for admission/denial of the documents before the learned Joint Registrar on 6th July, 2011.
3. List for framing of issues before Court on 1 st August, 2011.
J.R. MIDHA, J APRIL 25, 2011 aj CS (OS)No.1468/1997 Page 11 of 11