2015 (7) TMI 1418 - HC - Indian Laws

Suits for prosecution in summary fashion under order 37 applications for leave to sue - non-speaking order merely adverting to the plea raised on behalf of the plaintiff that the leave to defend might be granted subject to furnishing bank guarantees - violation of principles of natural justice - HELD THAT - While holding that there is anything really substantial at all or there is any defense as with reference to some debit notes which the plaintiff has issued to the defendant, even this amount is denied by the plaintiff as still due and according to the plaintiff a right to enforcement claimed by the defendant in a separate suit was lost. The defendant denies that the suit represented liability of the debit note now. The moneys claimed are fairly large and the defendant company is in a bad way by, the defendants own showing. The principal asset which was the running unit has been lost which has not even discharged in full the liability to a public sector financial company. The money lost in a transaction in business causes a serious dent in the resources of not only the company which has lost its business and unable to reap, it causes serious hardship as much to the creditor who would depend on the regeneration of the amount lent by return of capital with interest. In this case, if the first defendant must have leave to defend that defense shall be possible only if the defendant furnishes security to the tune of 90% of the amount claimed in all the suits and the additional amount of Rs. 25 lacs towards cost and expenses for all suits and splitting it proportionately to the claims made in the previous suits. The security can be either by means of bank guarantee comprehensively for all the 8 suits or by means of immovable property. The property that is offered by the company shall be duly decided by the Court for its worth before its acceptance and if it is satisfied the Court assessment of the value for which the security is ordered the Court may allow for the defense to be given and take up the matter for trial. If the defendant company is unable to furnish security or offer guarantee in the manner directed the defense shall be struck off and the Court will proceed to consider the case for defendant Nos. 2 and 3 and dispose it in accordance with law. The security that is directed shall be furnished shall be deposited within two weeks from the date of the passing of the order - Application disposed off.

Summary

Issues Involved:
1. Impleadment of a third party purchaser under the SARFAESI Act.
2. Conditional leave to defend granted to the defendant company.
3. Personal liability of the directors of the defendant company.

Issue-wise Detailed Analysis:

1. Impleadment of a Third Party Purchaser under the SARFAESI Act:
The defendant company sought to implead a third party purchaser, arguing that the purchaser had undertaken to discharge all the debts of the defendant company under an agreement with the secured creditor. The defendant cited Section 13(7) of the SARFAESI Act to support this contention. However, the court found that the suits were for the enforcement of amounts covered through cheques issued by the company, making the company primarily liable under the Negotiable Instruments Act. The court held that the liability was on the drawer of the cheques, and the plaintiff had the right to elect whom to sue. The court concluded that the third party purchaser could not be forced to be impleaded if the plaintiff did not wish it. The court also noted that the agreement with the secured creditor did not explicitly cover the unsecured liabilities of the defendant company. The court emphasized that impleadment of the third party would create unnecessary confusion and derail the enforcement of the monetary claim. Therefore, the petition to implead the third party purchaser was dismissed.

2. Conditional Leave to Defend Granted to the Defendant Company:
The trial court had granted conditional leave to defend to the defendant company, requiring them to furnish bank guarantees for the amounts claimed. The defendant company contended that the cheques were issued merely as security and did not represent a fixed liability. They also argued that they had several counter-claims against the plaintiff. The court reviewed the legal principles for granting leave to defend, referencing the Supreme Court's judgment in M/s Mechalec Engineers and Manufacturers Vs. M/s Basic Equipment Corporation. The court determined that the defendant company had not provided a substantial defense and that the claims involved high-value transactions between sophisticated parties. The court imposed a condition for the defendant company to furnish security to the tune of 90% of the claimed amount and additional costs. The security could be in the form of a bank guarantee or immovable property. If the defendant company failed to furnish the security, their defense would be struck off.

3. Personal Liability of the Directors of the Defendant Company:
The directors of the defendant company sought unconditional leave to defend, arguing that they had no personal liability on the cheques issued on behalf of the company. The court acknowledged that the suit was for the enforcement of amounts mentioned on the cheques, not for enforcing any agreement. The court found that the directors had a tenable defense to contend that there was no personal liability. The court set aside the order requiring the directors to furnish bank guarantees and granted them unconditional leave to defend. The court noted that the extent of liability under any agreement would be a matter for trial.

Conclusion:
The court dismissed the petition to implead the third party purchaser, granted conditional leave to defend to the defendant company with specific conditions, and allowed unconditional leave to defend to the directors of the defendant company. The court emphasized the need for a smooth trial process and the importance of upholding the legal principles governing negotiable instruments and joint liability.