Delhi High Court
Ifci Factors Limited vs Gangotri Iron & Steel Co. Ltd & Ors on 13 December, 2017
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 13th December, 2017.
+ CS(COMM) 1579/2016
IFCI FACTORS LIMITED ..... Plaintiff
Through: Mr. Anupam Srivastava, Ms.
Shreya Mehta and Mr. Arjun
Saxena, Advs.
Versus
GANGOTRI IRON & STEEL CO. LTD & ORS ..... Defendants
Through: Mr. Amit Pawan and Mr. Akshat
Srivastava, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. On 23rd November, 2017, the following order was passed in this
suit:
"1. This suit, filed under Order XXXVII of the Code of
Civil Procedure, 1908 (CPC) for recovery of
Rs.16,80,42,022.88/- jointly and severally from the four
defendants, namely, Gangotri Iron & Steel Co. Ltd.,
Mr.Sanjiv Choudhary, Mr.Ankit Choudhary and M/s
Gangotri Electrocasting Limited was entertained under
Order XXXVII of the CPC and summons for appearance
ordered to be issued to the defendants.
2. The order dated 11th October, 2017 records that the
defendants had not entered appearance and the plaintiff was
thus entitled to a decree under Order XXXVII of the CPC.
However, decree was not passed on that date as the counsel
for the plaintiff sought time to place on record the tabulation
of the liquidated debts against the defendants.
CS(COMM) 1579/2016 Page 1 of 10
3. Today, Mr. Akshat Srivastava appears for all the
defendants and states that he has already filed vakalatnama
on behalf of defendants no.2 & 3, namely, Mr. Sanjiv
Choudhary and Mr. Ankit Choudhary.
4. The defendants having not entered appearance within
the statutory time and the advocate for the defendants having
appeared today for the first time, the said appearance is of no
avail.
5. The suit file has been perused and doubts expressed as
to maintainability of the Suit under Order XXXVII of the
CPC.
6. The counsel for the plaintiff has argued that once the
suit has been entertained under Order XXXVII of the CPC
and summons for appearance have been ordered to be issued,
the question, whether the suit is maintainable under Order
XXXVII of the CPC should not be gone into at this stage and
a decree should follow.
7. The said argument cannot be accepted. The Court
cannot be blind while passing a decree and has to
necessarily, even when the defendant has failed to enter
appearance or file leave to defend, before passing a decree,
satisfy itself whether the plaintiff is entitled to a decree under
Order XXXVII of the CPC. It is a different matter, if at the
time of issuing summons of the suit, a speaking order, after
making the requisite enquiry as to the maintainability of the
suit under Order XXXVII, is made and in which case the said
aspect cannot be gone into again.
8. However, summons in the present Suit are found to
have been ordered to be issued vide order dated 13 th
February, 2017 of the learned Joint Registrar and without
going into the aspect of maintainability of the suit under
Order XXXVII of the CPC and treating the claim of the
plaintiff, that the suit lies under Order XXXVII of the CPC as
gospel truth.
9. The plaintiff has instituted the suit claiming itself to be
a "factor" under Section 2(i) of the Factoring Regulation
CS(COMM) 1579/2016 Page 2 of 10
Act, 2011 and for recovery of receivables as an assignee
under Section 2(b) of the Act.
10. Though as per my recollection, order XXXVII Rule 1 of
the CPC was amended by Section 35 read with the Schedule
to the Factoring Regulation Act aforesaid by providing that
Rule 1 of Order XXXVII applies to "suit for recovery of
receivables instituted by the assignee of a receivable" but
Universal‟s CPC, 2017 edition is not found to contain the
said amendment to Order XXXVII Rule 1.
11. The counsel for the plaintiff on enquiry has handed
over his own „Universal‟s‟ CPC, 2016 edition and which is
found to contain the said amendment. The Court‟s copy of
the 2015 edition is also found to contain the said amendment.
The counsel for the plaintiff, on enquiry whether the said
amendment has been struck down or declared to be not
applicable, replies in the negative. He however informs that
a Coordinate Bench of this Court in IFCI Factors Limited
vs. Maven Industries has held Order XXXVII to be not
applicable to such a suit filed by the plaintiff, but without
noticing the amendment aforesaid and the appeal against the
said order is pending.
12. I have thus proceeded to examine the Factoring
Regulation Act and the plaint.
13. The Factoring Regulation Act defines the expression
„factor‟ vide Section 2(i) thereof, as meaning "a non-banking
financial company as defined in clause (f) of Section 45-I of
the RBI Act, 1934 which has been granted a certificate of
registration under sub-section (1) of Section 3 or any body
corporate established under an Act of Parliament or any
State Legislature or any Bank or any company registered
under the Companies Act, 1956 engaged in the factoring
business. Section 3(1) of the said Act provides that "no factor
shall commence or carry on the factoring business unless it
obtains a certificate of registration from the Reserve Bank to
commence or carry on the factoring business under this Act".
14. The plaintiff though in para 1 of the plaint has pleaded
that it is a factor under Section 2(i) but has not placed before
CS(COMM) 1579/2016 Page 3 of 10
this Court the certificate of registration as required under
Section 3(1) of the Act. Without the said certificate of
registration, the plaintiff cannot be held to be entitled to
maintain a summary suit under the amended Order XXXVII.
15. Section 19 of the aforesaid Act also requires every
factor to file, for the purposes of registration, the particulars
of every transaction of assignment of receivables in his
favour with the Central Registry to be set-up under Section
20 of the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, within
a period of thirty days from the date of such assignment or
from the date of establishment of such registry, as the case
may be, in the manner and subject to payment of such fee as
may be prescribed in this behalf.
16. The present suit has been filed by pleading: i) that the
plaintiff vide agreement dated 19th August, 2011 agreed to
provide the domestic sales bill factoring facility to the
defendant no.1 Gangotri Iron and Steel Company Limited; ii)
that the defendants No.2 to 4, namely, Sanjiv Choudhary,
Ankit Choudhary and M/s Gangotri Electrocasting Limited
vide deed of guarantee dated 19th August, 2011 agreed to be
jointly and severally liable to the plaintiff along with the
defendant no.1; iii) in the terms of the above mentioned
agreement, the plaintiff disbursed 80% of the invoice value of
the invoices of the total value of Rs.15,22,44,257.25/- to the
defendant no.1; iv) that the defendants are liable to pay Rs.
6,81,47,639.88/- towards discount charges, service charges,
administrative charges; and v) that a total sum of
Rs.16,80,42,022.88/- is due from plaintiff to defendants.
17. I have enquired from the counsel for the plaintiff that
the plaintiff having sued for recovery of receivables, whether
the assignment is registered as assignee under Section 19.
18. The counsel for the plaintiff states that the plaintiff has
not instituted the suit against the persons whose invoices the
plaintiff has so discounted as an assignee of the defendant
no.1 but has chosen to file the suit against the defendants
only. He thus states that the plaintiff was not required to
CS(COMM) 1579/2016 Page 4 of 10
register the assignment. He contends that registration
required is of assignment by the defendant no.1 of the debts
owed to defendant no.1 by the persons whose invoices the
plaintiff discounted (and which persons are called debtors).
19. On further enquiry, it is stated that the plaintiff has
neither pleaded such registration nor filed any document in
respect thereof.
20. The amended CPC under Rule 1 of Order XXXVII
provides for the suit for recovery of receivables instituted by
any assignee of a receivable to be a class of suit to which
Order XXXVII applies. I have enquired from the counsel for
the plaintiff, whether the plaintiff can sue under Order
XXXVII without pleading and placing before the Court the
document of registration under Section 19(1) of the
assignment. Prima facie it appears that only an assignment
which has been so registered can be the subject matter of
Order XXXVII of the CPC.
21. A question also arises whether the suit under Order
XXXVII Rule 1(2)(b)(iv) can be instituted only against the
debtor aforesaid or also against the assignor. If the words of
the amendment to CPC are not found to include the suit
against the assignor, the said suit will again have to be
instituted as an ordinary suit.
22. It is deemed appropriate to grant an opportunity to the
counsel for the plaintiff to study the matter and if so desires
make up the deficiencies aforesaid in the plaint.
23. List on 13th December, 2017."
2. The counsel for the plaintiff, with respect to the queries raised on
23rd November, 2017 and recorded in the order of that date, has stated:
(i) that for a factoring transaction, there are three parties, namely
(a) the factor or an assignee; (b) assignor; and, (c) debtor;
CS(COMM) 1579/2016 Page 5 of 10
(ii) that the plaintiff is a factor or an assignee and has instituted
this suit for recovery of money due, not against the debtor but
against the assignor;
(iii) that the registration of the plaintiff as a factor under Section 3
is exempted under Section 5 of the Factoring Regulation Act, 2011,
as the plaintiff is a Government Company as defined under Section
617 of the Companies Act, 1956;
(iv) that assignment of the debts owed by the debtors to the
defendant No.1 and assigned in favour of the plaintiff as assignee,
are not registered under Section 19 of the Act;
(v) that Section 21 of the Act providing for effect of such non-
registration only provides for fine extending to Rs.5,000/- and does
not vitiate the assignment or the underlying transaction;
(vi) Section 24 of the Act provides that cognizance of such
offence can be taken only on the complaint of an officer of the
Reserve Bank of India;
(vii) that Order XXXVII Rule 1(2)(b)(iv) of the Code of Civil
Procedure, 1908 (CPC) permitting suit under Order XXXVII to be
filed for recovery of receivables instituted by assignee of a
receivable, only provides for the plaintiff in such a suit to be an
assignee and does not provide against whom the suit is to be
instituted; the same would thus cover a suit by the plaintiff as an
assignee, not only against the debtor but also against the assignor
i.e. the defendant No.1;
CS(COMM) 1579/2016 Page 6 of 10
(viii) that the plaintiff has sued the defendants No.2 to 4 as
guarantors under Order XXXVII Rule 1(2)(b)(iii) of CPC.
3. I have enquired from the counsel for the plaintiff, whether the
plaintiff has pleaded that it is a Government Company within the meaning
of Section 617 of the Companies Act, which, for a company to be
qualified as a Government Company, requires not less than 51% of the
paid-up share capital to be held by the Central Government or by the State
Government or a company which is a subsidiary of a Government
Company so defined.
4. The counsel for the plaintiff states that though the plaint does not
expressly plead so but it is pleaded in para 1 of the plaint that the plaintiff
is a Government Undertaking. It is also stated that the plaintiff is a
subsidiary of IFCI Limited initially established by IFCI Act, 1948 and on
repeal thereof registered as a company under the Companies Act.
5. I have enquired from the counsel for the plaintiff, as to how the
factoring transaction as contended by him is different from a bill purchase
or a bill discounting transaction as prevalent since time immemorial.
6. Though the counsel for the plaintiff states that it is different but on
explanation of the counsel, there does not appear to be any difference.
7. It is also the contention of the counsel for the plaintiff that the
plaintiff, even if unable to fall under Order XXXVII Rule 1(2)(b)(iv) of
CPC for the reason of non-registration of the assignment under Section 19
of the Factoring Regulation Act, would in any case be entitled to institute
the suit against the defendant No.1 on the basis of a written contract with
the defendant No.1.
CS(COMM) 1579/2016 Page 7 of 10
8. I have drawn the attention of the counsel for the plaintiff to
judgment dated 16th August, 2017 of this Court in C.R.P. no.79/2016 titled
Shradha Wassan Vs. Kamal Arora where, referring to earlier judgments,
it has been held that once a suit under Order XXXVII of CPC cannot be
maintained on the basis of a cheque not presented for payment, the same
cannot be permitted to fall under Order XXXVII of CPC by treating the
cheque as a written contract and that the Legislature having provided a
specific classification for a suit under Order XXXVII of CPC to lie on the
basis of a cheque, if as per law, it does not lie on the basis of a cheque, it
cannot be made to so lie treating the same as a written contract. I have
thus enquired from the counsel for the plaintiff that if the suit under Order
XXXVII Rule 1(2)(b)(iv) of CPC, which has been incorporated in the
CPC by the Factoring Regulation Act only, is not maintainable for the
reason of the plaintiff having not complied with the requirements for
maintaining a suit thereunder, why should the same be permitted to lie
under Order XXXVII CPC by treating the transaction as a written contract
and on which basis, the suit could in any case have been filed without the
said amendment to the CPC.
9. I also entertain doubts, whether the suit by the plaintiff as a factor
or assignee against its assignor i.e. the defendant No.1 would qualify as a
suit for recovery of receivables within the meaning of Order XXXVII
Rule 1(2)(b)(iv) of CPC. 'Receivables' is defined in Section 2(p) of the
Factoring Regulation Act as under:
"(p) "receivables" mean all or part of or undivided interest
in any right of any person under a contract including an
international contract where either the assignor or the debtor
CS(COMM) 1579/2016 Page 8 of 10
or the assignee is situated or established in a State outside
India; to payment of a monetary sum whether such right is
existing, future, accruing, conditional or contingent arising
from and includes, any arrangement requiring payment of toll
or any other sum, by whatever name called, for the use of any
infrastructure facility or services."
10. Section 7 of the Factoring Regulation Act provides for assignment
of a receivable due and payable by any debtor to any factor. The same
leads to the conclusion that it is only a suit against the 'debtor' which
would qualify as a suit for recovery of receivables and not a suit against
the assignor.
11. The counsel for all the defendants, on being asked to respond, states
that the defendants do not dispute their liability to the plaintiff. It is
however stated that the defendant No.1 has been declared as a sick
industry under the Reserve Bank of India Guidelines and a technical
consultant has been appointed for rehabilitation of the defendant No.1. It
is contended that an investor for the defendant No.1 is being searched for
and whereafter the dues of the plaintiff will be paid.
12. In view of the aforesaid, though there is no impediment to a decree
as sought being passed jointly and severally against the defendants,
whether the suit were to be maintainable under Order XXXVII of CPC or
not, but I deem it appropriate to clarify that my conclusions hereinabove
about a suit under Order XXXVII Rule 1(2)(b)(iv) being maintainable by
a factor against the debtor (and not against an assignee) and with respect
to assignments registered under Section 19, be not treated as conclusive
but only as highlighting the various issues. The counsel for the plaintiff
CS(COMM) 1579/2016 Page 9 of 10
states that the said aspects have not been considered in any of the
judgments.
13. Accordingly, a decree is passed in favour of the plaintiff and jointly
and severally against the defendants for recovery of Rs.16,80,42,022.88
paise together with interest @ 13.75% per annum pendente lite and future.
The plaintiff shall also be entitled to costs of the suit.
Decree sheet be drawn up.
RAJIV SAHAI ENDLAW, J.
DECEMBER 13, 2017 bs (corrected & released on 17th January, 2018) CS(COMM) 1579/2016 Page 10 of 10