2012 (12) TMI 159 - HC - Companies Law

Leave to defend filed by defendant no.2 - Non maintainability of suit - principal borrower is a sick company - Held that - As decided in Raheja Universal Ltd. Versus NRC Ltd. 2012 (10) TMI 233 - SUPREME COURT unless the suit proceedings are in the nature of execution, distress or the like , the suit can continue - scheme for rehabilitation or restructuring of a sick industrial company undertaken by a specialized body like the BIFR/AAIFR should, as far as legally permissible, remain obstruction free and the events should take place as pre-ordained, during consideration and successful implementation of the formulated scheme - suit has to continue and no permission is required under Section 22 of the SICA. No denial of the merits of the matter as stated in the plaint that the defendant no.1 executed the agreement dated 17.11.1998, and which binds the defendant no.1 to pay the amount of Rs. 65,00,000 plus interest. Since the debt is an unsecured debt, interest at 12 % will be payable. Plaintiff cannot therefore be allowed interest at 25% per annum simple in view of Usurious Loans Act as that plaintiff is not a banking company or other notified company as per the Usurious Loans Act hence not exempted from application of the provisions of Usurious Loans Act as applicable to Delhi and therefore the contractual rate of interest cannot prevail in the face of the statute. No doubt arises that for the liability of the defendant no.1 company, who was the principal borrower, the defendant no.2 stood as a guarantor for payment of the principal amount of the loan of Rs. 65 lacs. - The triable issues in law which entitle leave to defend are only bona fide triable issues. On every disputed question of fact an issue has to be framed, but, it is only a bona fide triable issue which entitles leave to defend. In my opinion, mere technical defences, and which of course are also without any basis in view of the categorical language of the agreement dated 17.11.1998, read with the averments in the plaint, shows that there does not arise a triable issue entitling leave to defend. The issues raised in the leave to defend application are only moonshine and do not entitle the defendant no.2 for leave to defend.

Issues Involved:
1. Adjournment Request
2. Maintainability of the Suit Against a Sick Company Under Section 22 of SICA
3. Leave to Defend by Defendant No.1
4. Leave to Defend by Defendant No.2
5. Interest Rate Applicability
6. Joint and Several Liability

Detailed Analysis:

1. Adjournment Request:
The court noted that there was no ground for adjournment in the present suit, where the application for leave to defend was listed. Despite the counsel for the defendant being unwell, the court scheduled the next hearing for 11th October 2012 and made it clear that no further adjournment would be granted.

2. Maintainability of the Suit Against a Sick Company Under Section 22 of SICA:
The defendant argued that the principal borrower was a sick company and thus, the suit could not proceed under Section 22 of SICA. However, the court referred to the Division Bench judgment in Sakethh India Ltd. Vs. W. Diamond and the Supreme Court judgment in Raheja Universal Ltd. Vs. NRC Ltd., which clarified that no permission under Section 22 of SICA was required unless the dues were admitted by the sick company in a sanctioned scheme or before the court. The court emphasized that Section 22 applies only to proceedings in the nature of "execution, distress or the like." Since the present suit was a simple recovery suit and not in the nature of execution or distress, it was maintainable without permission under Section 22 of SICA.

3. Leave to Defend by Defendant No.1:
Defendant No.1 filed an application seeking leave to defend, primarily arguing that it was a sick company. The court dismissed this application, stating that the only defense was the company's sickness, which was not a credible denial of the dues. The court noted that the defendant did not deny the merits of the plaintiff's claim and that the defense was merely a moonshine. Consequently, the suit was decreed against Defendant No.1, with the court clarifying that prior permission under Section 22 of SICA would be required for execution of the decree.

4. Leave to Defend by Defendant No.2:
Defendant No.2 also sought leave to defend, arguing that no personal guarantee had been executed. The court referred to Clause 4 of the agreement dated 17.11.1998, which clearly stated that Defendant No.2, in his personal capacity, guaranteed the repayment of the principal amount. The court found the language of the agreement unambiguous and dismissed the application for leave to defend, concluding that Defendant No.2 was liable as a guarantor. The court also noted that the defenses raised were mere technicalities and did not constitute bona fide triable issues.

5. Interest Rate Applicability:
The plaintiff claimed an interest rate of 25% per annum, which the court found to be excessively high. The court referred to the Usurious Loans Act, 1918, as amended by the Punjab Relief of Indebtedness Act, 1934, which caps interest rates at 12.5% per annum for unsecured debts. Consequently, the court decreed the suit amount along with interest at 12.5% per annum from 17.11.1998 until the date of filing the suit, as well as pendente lite and future interest at the same rate until realization.

6. Joint and Several Liability:
The court decreed the suit for a sum of Rs. 65,00,000/- along with interest at 12.5% per annum against both Defendant No.1 and Defendant No.2, holding them jointly and severally liable for the entire decretal amount. The decree sheet was ordered to be prepared accordingly.

Conclusion:
The court dismissed the applications for leave to defend filed by both defendants and decreed the suit in favor of the plaintiff for a sum of Rs. 65,00,000/- with interest at 12.5% per annum. The liability of the defendants was held to be joint and several, and the suit was disposed of with all pending applications also being disposed of.

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