2020 (2) TMI 1702 - HC - Indian Laws

Dishonour of cheque - Legally unenforceable debt - Insufficiently Stamped Instrument - Recovery of the sums advanced by the plaintiff to the defendants on the basis of written contracts, negotiable instrument and documents evidencing acknowledgment of liability - HELD THAT - In the backdrop of the material on record, including the SFIO Report, the extent to which the plaintiff would be entitled in law to enforce the liabilities, especially as regards the quantum of interest, when the creditworthiness of the debtor was in a serious doubt, warrants consideration. Whether the infraction on the part of the plaintiff is totally immaterial or inconsequential and the plaintiff is entitled to recover the entire loan amount alongwith interest as if the transaction is in conformity with all the norms? Can the plaintiff be permitted to recover the loan amount along with interest at the agreed rate at 16% p.a., with additional interest, penal interest, delayed payment interest at 2% p.a., each, de hors the circumstances in which the transactions were entered into? These are the questions, which warrant adjudication. The defence of alleged in-action on the part of the plaintiff in not invoking the shares at a specified time, despite agreeing to do so, resulting in loss to the defendants also raises an issue which requires consideration. It would be appropriate to direct the defendants to deposit the amount which was actually disbursed to the 'borrower company' in each of the suits. Hence, the defendants are entitled to conditional leave to defend the suit; subject to deposit of the principal amount which came to be disbursed in each of the transactions. Leave to defend the suit is granted to defendant nos. 1 to 8 subject to deposit of a sum of Rs. 2,33,16,04,691/- in the Court within eight weeks from today - Summon disposed off.

Issues Involved:
1. Legally unenforceable debt
2. Claim based on insufficiently stamped instrument
3. Loan Agreement legally unenforceable due to fraud
4. Entire amount disbursed returned to the plaintiff
5. Failure to sell pledged shares at an opportune time

Issue-wise Detailed Analysis:

1. Legally unenforceable debt:
The defendants argued that the debt was unenforceable as it breached RBI directives, rendering the contract void under Section 23 of the Indian Contract Act. They cited a Serious Fraud Investigation Office (SFIO) report indicating fraudulent activities by the plaintiff, including "ever-greening of loans" to avoid classifying them as non-performing assets (NPAs). However, the court held that non-compliance with RBI directives does not invalidate the debt. The court referenced the Supreme Court's judgment in B.O.I. Finance Ltd. vs. Custodian, which stated that non-compliance with RBI's directives does not render a contract void. The court concluded that the defendants' acknowledgment of the debt and the absence of any resistance to the loan facility until the affidavit-in-reply indicated that the debt was enforceable.

2. Claim based on insufficiently stamped instrument:
The defendants contended that the Loan Agreement and related documents were insufficiently stamped under the Maharashtra Stamp Act, 1958, making them inadmissible in evidence. The court acknowledged the requirement to impound and adjudicate the stamp duty on these documents but held that this technical defense did not warrant unconditional leave to defend. The court cited the Supreme Court's judgment in Hindustan Steel Limited vs. Messrs Dilip Construction Company, which emphasized that the Stamp Act is a fiscal measure and should not be used as a technicality to defeat a legitimate claim. The court decided to impound the documents and send them for adjudication while proceeding with the case.

3. Loan Agreement legally unenforceable due to fraud:
The defendants asserted that the loan transaction was tainted with fraud, as evidenced by the SFIO report. They argued that the loan was advanced to "ever-green" existing loans, which is prohibited by law. The court, however, noted that the purpose of the loan facility included refinancing existing loans and advancing loans to group companies. The court found that the defendants had acknowledged the debt and had not resisted the loan facility. Therefore, the court concluded that the loan transaction was not void due to fraud.

4. Entire amount disbursed returned to the plaintiff:
The defendants claimed that the entire loan amount was returned to the plaintiff on the day of disbursement or soon thereafter, indicating no outstanding debt. The court found this argument unpersuasive, noting that the loan facility was intended for refinancing existing loans and advancing loans to group companies. The court held that the end use of the loan amount did not constitute a failure of consideration and that the debt was enforceable.

5. Failure to sell pledged shares at an opportune time:
The defendants argued that the plaintiff failed to sell the pledged shares when their prices were high, resulting in a loss. The court acknowledged that the plaintiff had a duty to act in good faith but noted that the pledgee is not obligated to sell the pledged shares at a particular time. The court found that the defendants had raised the issue of selling the pledged shares before the events of default were notified, indicating a triable issue.

Conclusion:
The court granted conditional leave to defend the suits, subject to the defendants depositing the principal amounts disbursed in each transaction. The court directed the impounding and adjudication of the insufficiently stamped documents and ordered the plaintiff to pay the adjudicated stamp duty and penalty. The court emphasized that the defendants' acknowledgment of the debt and the existence of balance confirmation letters and OTS proposals supported the enforceability of the debt. The court also highlighted that the SFIO report and the defendants' arguments raised genuine triable issues, particularly regarding the quantum of interest and the plaintiff's conduct in not selling the pledged shares at an opportune time.

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