9911796707
TMI Blog1989 (5) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 30 of the Act; Century Metals Ltd., a company incorporated under the Companies Act, 1956 (hereinafter referred to as "the company"), with its registered office at 86/87, Model Basti, New Delhi, respondent No. 1 herein, is an industrial concern within the meaning of the Act. It approached the IFCI, petitioner No. 1 herein, for a loan/advance to finance its project consisting of construction equipment and operation of its plant to be located at 24/3, Milestone, Delhi Hapur Road, Meerut District, U.P. The agreement between the IFCI and the company was finalised whereby the IFCI agreed to finance a loan of Rs. 29,00,000 to the company on the terms and conditions which were incorporated in the agreement of loan entered into on August 19, 1972 (hereinafter referred to as "the loan agreement"). As security for the payment of the said loan together with interest stipulated therein, and commitment charges as well as other monies which may become due and owing by the company to the IFCI in terms of the agreement, the former created in favour of the latter on March 29, 1973, a mortgage by deposit of title deeds in respect of their immovable properties, and this t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,26,579.41 20-03-1981 1,95,151.00 20-03-1977 1,30,165.00 20-09-1981 1,96,620.00 20-09-1977 1,38,228.00 20-03-1982 2,02,190.00 20-03-1978 1,42,143.00 31-05-1982 85,186.00 20-09-1978 1,50,949.00 23,17,717.33 20-03-1979 1,55,224.00 ( iii ) Commitment charges 20-03-1975 Nil 20-03-1979 1,984.00 20-05-1975 Nil 20-09-1979 2,017.00 20-03-1976 1,994.52 20-03-1980 1,995.00 20-09-1976 2,016.00 20-09-1980 2,016.00 20-03-1977 1,984.00 20-03-1981 20-09-1977 2,017,00 (up to 3-11-1980) 482.00 20-03-1978 1,984.00 20,506.96 20-09-1978 2,017.00 Besides the aforementioned defaults in payment of installments on account of principal and interest, as and when due, various other breaches of the covenants of the loan agreement are imputed to respondent No. 1, and it stated that eventually a notice dated June 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1973, and the deed of hypothecation dated March 29, 1973. It is further revealed in the petition that respondent No. 1 had also taken a loan from the Industrial Development Bank of India, a body corporate established under the Industrial Development Bank of India Act, 1964 (hereinafter referred to as "the bank"), which loan was secured under indenture of mortgage dated March 2, 1974, executed by respondent No. 1 in favour of the bank with the result that the properties of respondent No. 1 are mortgaged to the IFCI and the bank on a pari passu basis. The said bank has been impleaded in the petition as respondent No. 2, only for the reason that the properties in regard to which this petition is being made, also stand mortgaged in their favour, as security for the loan of Rs. 15,00,000 granted by respondent No. 2 to respondent No. 1. No relief is claimed against this respondent. It was, however, added that any order passed in this petition would also enure to the benefit of respondent No. 2 and protect its interest to the extent of the loan secured by respondent No. 1 from respondent No. 2, and petitioner No. 1 was willing to have the sale proceeds of the mortgaged properties dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in section 30 of the Act is onerous, unreasonable and arbitrarily restrictive of the normal procedural law as prescribed in the Civil Procedure Code, and that it incorporated provisions which are absolutely unjust and against rules of natural justice and fair play. The plea is that the provisions of section 30 of the Act are discriminatory and violative of the fundamental rights granted to the company under article 14 of the Constitution, and that the right of defence against the claim, vested in the present respondent, cannot be unreasonably curtailed or abridged by the arbitrary provisions of section 30 of the Act. The jurisdiction of this court to entertain and try the present petition is also questioned for the reason that only that High Court has jurisdiction to entertain and try the petition within the local limits of whose jurisdiction the respondent carries on the whole or a substantial part of its business and that it was within the knowledge of the petitioners that respondent No. 1 was not carrying on the whole or a substantial part of the business within the local limits of the High Court of Delhi. Another preliminary objection has been raised as to the rate of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment arrived at in the joint meeting held on April 7, 1978, and consequential action taken pursuant thereto by the petitioner and all concerned. For the same reason, the notice dated June 15, 1982, is also assailed as being illegal or arbitrary and the rate of interest is challenged as being exhorbitant, besides being erroneous in its calculation. The contents of paras 17 and 21 of the petition which related to respon dent No. 2 have been simply denied as wrong. There is no specific denial about advance of loan by respondent No. 2 of Rs. 15,00,000, as set out in the petition, or creation of the equitable mortgage in its favour of the properties as described in the petition. Respondent No. 2, namely, the Industrial Development Bank of India, also filed a reply by way of an affidavit confirming the fact that it had granted a loan of Rs. 15,00,000 to respondent No. 1, which was for the purpose of setting up a factory at Delhi-Hapur Road near Ghaziabad and that, in conside ration of the said loan, respondent No. 1 executed a loan agreement dated March 2, 1974, setting out the terms and conditions of the said loan. It further averred that, on the same day, i.e ., March 2, 1974, res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plant and machinery has been lying idle and rapidly deteriorating in value for want of proper use and maintenance, reserving its right as a secured creditor to exercise the rights and remedies available to them under the mortgaged securities executed or created by respondent No. 1 in favour of respondent No. 2, and to enforce the same but prayed that, in the interest of justice, equity and fair play, the receiver appointed by this court in the present petition filed by IFCI be directed to sell the entire property of respondent No. 2, and to hold the realisation of the sale proceeds of the said mortgaged property for the benefit of petitioner No. 1 and respondent No. 2, and to distribute the same pro rata on pari passu basis between the two. A counter-affidavit was filed on behalf of respondent No. 1 to the reply affidavit filed on behalf of respondent No. 2 where, besides reiterating the challenge to the legality and validity of the provisions of section 30 of the Act and the maintainability of the present petition, it was asserted that the claim of respondent No. 2 is not legally maintainable as the so-called charge created by respondent No. 2 bank, over the movable and immo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eiterated that, out of the sanctioned loan of Rs. 15,00,000, a loan of Rs. 14,95,000 was disbursed by respondent No. 2 to respondent No. 1. The petitioner also filed a rejoinder to the reply filed on behalf of respondent No. 1 in response to notice issued on this petition where all the assertions made in the petition were reiterated. The preliminary objections were controverted as being wholly untenable and devoid of merits on the plea that the vires of section 30 of the Act was not liable to challenge and that it has been upheld by the High Court of Punjab and Haryana. It was further pleaded that the provisions of sections 31 and 32 of the State Financial Corporations Act, 1951, which were identical to those of section 30 of the Act, have been upheld by various High Courts in the country and were even considered by the Supreme Court, and thus the objections raised by respondent No. 1 were not maintainable. The objection raised as to the authority of petitioner No. 2 to institute this petition was also met by reiterating that he had been duly authorised by the board of directors by means of a resolution passed on January 31, 1979, and the petition had been duly and properly signe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act which have an overriding effect over any other law for the time being in force in terms of section 41A of the Act. The following issues were formulated, pursuant to various contentions raised by the parties, as reproduced below: 1.Whether the application has been properly signed and filed by a duly authorised person? 2.Whether the provisions of the Usurious Loans Act are applicable to the loan sanctioned by the petitioner to respondent No. 1 ? If so, whether the rate of interest stipulated under the loan agreement violates the provisions of the Usurious Loans Act? If so, to what effect? 3.Whether the mortgage by deposit of title deeds and the hypothecation created by respondent No. 2 in favour of the petitioner are illegal? 4.Whether section 30 of the Industrial Finance Corporation Act is ultra vires the Constitution? 5.Whether the petitioner is disentitled from bringing the present proceedings as alleged in paragraph 4 of the preliminary objections of respondent No. 1's reply? 6.Did failure to pay rupees four lakhs out of the promised sum of rupees twenty nine lakhs hamper the viability of the project of the industry concerned? If so, to what effect? 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the amount advanced, and interest that has accrued in terms of the loan agreement, exhibit P-3. An officer of the Corporation, namely, Shri K.R. Rajora, appearing as PW-4, who is the assistant manager of the IFCI working in the accounts department has deposed that, according to the books of account maintained by the petitioner, the maximum rate of interest charged from respondent No. 1 is 9% per annum. He further added that as long as respondent No. 1 remained punctual in payment, interest charged was at 81/2% per annum and it was only when defaults were committed in repayment that the petitioner charged interest at 9 % per annum on compounding basis. Not a single question was put to this witness that the Corporation was not entitled to claim this rate. Learned counsel for the petitioner, at the time of hearing, referred to clause 3.2 of the loan agreement, exhibit P-3, where the term as to interest is incorporated as under: "3.2 Interest The borrower shall pay interest on the principal amount of the loan outstanding from time to time at the rate of 9% (nine per cent.) per annum with a rebate of 1/2% (half per cent.) per annum for punctual payment of installments of princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with that of institution of a civil suit and that as such the provisions of section 34 of the Code of Civil Procedure would not apply to these proceedings. Learned counsel placed reliance on a judgment of the Supreme Court, Gujarat State Financial Corporation v. Natson Manufacturing Co. Pvt. Ltd, AIR 1978 SC 1765; [1979] 49-Cbmp Cas 187, to press his point that the petition under section 30 of the Act was not in the nature of a civil suit nor was the prayer made for enforcement of the terms of the agreement for recovery of the amount of loan advanced or interest accrued in the nature of a civil decree, and as such the powers of this court, while disposing of a petition under section 30 of the Act, was not to be circumscribed by other statutory provisions. Dr. Ghosh pointed out that the Supreme Court, in the aforesaid case, was dealing with the matter arising out of a petition under section 31 of the State Financial Corporations Act (for short "the State Act"), but submitted that these provisions are pari materia in all material particulars with those of section 30 of the Act and as such the ratio of that judgment would squarely apply in the present case. On a comparati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor is the relief claimed or awarded to be termed to be in the nature of a decree. Reference has been made to these decisions to highlight the point that the proceedings on a petition under section 30 of the Act are of a special nature and the Act provides an exclusively self-contained procedure, with the result that any reference to any other statutory provision is altogether precluded and misconceived. I say so, in view of the provisions of section 41A of the Act which is in the nature of a non obstante clause and lays down that: the provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. It has been held by a Division Bench of the Kerala High Court in the case of Rahima Beevi v. Kerala Financial Corporation [1987] Bank J. 241, that the provisions of section 60 of the Code of Civil Procedure would not apply to proceedings under section 31 of the State Act, and that the District Judge could proceed with the application for sale of the properties, unhampered by the protection provided to. various types of properties under the proviso to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and this issue is decided against the respondents. Issues Nos. 3 and 4 : These issues which relate to the legality of the transaction as evidenced by the loan agreement, as well as the vires of section 30 of the Act, were not pressed during arguments, and thus require no further discussion. Issue No. 5: The contention of respondent No. 1 as set out in preliminary objection No. 4 of the reply is that the IFCI is not entitled to bring any legal action against the company for the reason that it was always deemed, and considered to be, a joint industrial concern of the petitioner and other financial institutions, and that the petitioner had, on the board of directors of the company, two representatives since 1972 besides representatives of other institutions, such as UPSIDC, and as such the management and affairs of the company were controlled by the board of directors constituted by joint representatives of all concerned, and consequently respondent No. 1 could not be burdened with financial liability for its failure to pay off the advances and loans. It is further pleaded that since May 9, 1978, particularly, the affairs of the company were being managed by a management commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that, pursuant to the decision taken jointly by all concerned, the management committee was' being constituted to look after the day-to-day affairs of the company in accordance with the decision taken in the meeting held on April 7, 1978, and that the constitution of this management committee would be as under: 1.Shri O.P. Berry, chief technical and administrative manager of the company. 2.A representative of IFCI. 3.A representative of the Union Bank of India. 4.Shri G.D. Saraogi, chairman of the company. It was further intimated that the IFCI nominee would be Shri K.K. Kathuria. The power and functions of the management committee were also set out in detail. Finally, by letter dated June 13, 1978 (exhibit PW-5/7-X), respondent No. 1 conveyed to the IFCI that the board of directors had confirmed the decision, taken in the meeting of April 7, 1978, in their meeting held on June 5, 1978. The plea is that, pursuant to this decision taken in 1978 in which the board of directors of the company fully co-operated, the day-to-day affairs went to the hands of the joint management committee, and thus the company should be treated to have become absolved of any exclusive liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al concern, shall arrange to the satisfaction of the IFCI for the appointment of a wholetime technical director. It is in the evidence of PW-5 that the company never appointed a whole time technical director. There was also a default in the discharge of the terms of the agreement in respect of insurance of the security offered to the IFCI, as against the advance taken, as per condition incorporated in para 6.1, clause( d ) of the agreement, exhibit P-3. It is also not a case where the company could plead that it was taken unawares because, as far back as in October/November, 1974, this point was raised by the IFCI in the context of a request made by the company for disbursement of the balance amount of Rs. 4,00,000, out of the loan sanctioned by the IFCI, by their letter dated October 4, 1974 (exhibit PW-5/6-X), in which the IFCI raised detailed queries by letter dated November 3, 1974 (exhibit PW-5/8-X), asking, inter alia, what steps had been taken by the company in appointing a technical director, as required by them. The reply given was, as per exhibit PW-5/9-X sent on February 2, 1975, that due to worldwide recession, with no hope of recovery in the near future, the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue is, therefore, answered against the respondents. Issue No. 6: The plea of the respondents in this respect is that failure to disburse the balance amount of the loan of Rs. 4,00,000 hampered the financial viability of the industrial concern, and as such, petitioner No. 1 was disentitled to bring this action under section 30 of the Act. The circumstances under which the amount of Rs. 4,00,000 was not paid have been discussed in the foregoing issue, as noticed above. After a requisition for the remaining amount of Rs. 4,00,000, was made, vide letter dated October 4, 1974 (exhibit PW-5/6-X), certain queries were made which had a bearing either on the terms of the agreement such as appointment of a wholetime technical director, or as to the utilisation of the capital as also in regard to the working of the company, seeking details of capital expenditure and of the future plans of the company in relation to its finances. The reply sent on February 2, 1975 (exhibit PW-5/9-X), did not satisfy petitioner No. 1. The request was repeated on February 5, 1975, vide exhibit DW-2/1, enclosing a note of financial requirements and it was then revealed that the finances were required i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being an agency or instrumentality of the State within the meaning of article 12 of the Constitution, a writ of mandamus can be issued directing the Corporation to perform its statutory duties. That was a case where, on the assurance held out by the Corporation that an amount of Rs. 30,00,000 would be advanced as loan to the company (respondent therein), that company took steps for setting up a four-star hotel, which was the project for which the loan was agreed to be advanced, but subsequently the Corporation declined to finance the project and it was in that setting of facts that the Supreme Court held that a writ of mandamus could be issued against the Corporation because the principle of promissory estoppel would apply and the Corporation could not be allowed to back out of its obligations. The case here is entirely different inasmuch as the IFCI did release a major part of the loan inasmuch as out of the agreed finance of Rs. 29,00,000 towards project loan, a sum of Rs. 25,00,000 was released by the IFCI by September, 1973, itself. It has come in the statement of Shri H.C. Sharma, petitioner No. 2, as PW-5, that, out of the sanctioned loan of Rs. 29,00,000, Rs. 25,00,000 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan by the IFCI to the tune of Rs. 25,00,000 in the year 1973 itself, and as such it-cannot be urged by respondent No. 1 with any degree of credibility or plausibility that failure to disburse the balance amount of Rs. 4,00,000 affected the financial viability of the company or that this will disentitle the petitioner from enforcing the terms of the agreement or taking recourse to the statutory provisions of section 30 of the Act. Even if it were so, by virtue of section 41A of the Act, as already noticed, the provisions of section 30 are fully available to the IFCI to bring this petition for recovery of the amount outstanding against the company, by sale of the mortgaged property as well as hypothecated assets, in terms of the loan agreement. In view of the aforesaid statutory provisions which have an overriding effect, the company has no defence in these proceedings, by way of alleging breaches on the part of the Corporation, or resist the claim by setting up the plea of failure to advance the remaining part of the loan. I say so, on a cumulative reading of the provisions of the Act which, as already held, provide a self-contained procedure, and also on the strength of a decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Issue No. 7: The terms and conditions which the company is alleged to have failed to comply with have been discussed in detail while disposing of some of the contentions raised by respondent No. 1 during discussion on the foregoing issues. It has already been noticed that there is an uncontroverted statement of Shri H.C. Sharma as PW-5 that the breaches committed by the company consisted of: (1) failure to appoint a wholetime technical director, (2) failure to pay the installments on account of principal as well as interest on the due dates, (3) failure to take out adequate insurance cover, (4) closure of the factory, (5) involvements such as money suits against the company by Union Bank of India, and (6) issuance of notice to the company by the Company Law Board as to why it should not be wound up, and also outstanding loans of the company to IDBI and that all these created a reasonable apprehension that respondent No. 1 would not be in a position to pay its debts or that proceedings for its liquidation may be commenced in the near future. The IFCI took the necessary steps first by notice dated November 3, 1980 (exhibit PW-5/1), whereby the balance amount of Rs. 4,00,000 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The statements of account, exhibit PW-4/1 to exhibit PW-4/4, have been proved by PW-4, Shri K.R. Rajora, duly certified under the Bankers' Books Evidence Act which is applicable to the Corporation in terms of section 31 of the Act. The right of the petitioner to recover interest up to the date of realisation at the stipulated rate has also been upheld while discussing issue No. 2. I, therefore, find it as established that the company owed a sum of Rs. 49,13,715.29 to petitioner No. 1 as on July 31, 1982, and that petitioner No. 1 is entitled to recover this amount from respondent No. 1 by invoking the terms of the agreement, by sale of the securities created in its favour, along with interest till realisation, at the agreed rate of 9% per annum compounded, as per the terms of clause 3.2 of the agreement, exhibit P-3. Relief: As a result of the foregoing findings, the petition is allowed. I, therefore, in exercise of the power under section 30(9) of the Act, confirm the order of attachment passed on September 24, 1982, and direct recovery of the amount, held realisable by petitioner No. 1 while answering issue No. 8, by sale of the properties, both movable and immovable, of res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the company in not furnishing the proper details required by the Registrar of Companies, and it could not now take advantage of its own failure to get the charge registered and to contend that the charge was not enforceable. It is further pleaded that the charge, in terms of section 125 of the Companies Act, if not registered, was void only against the liquidator and creditors of the company and that in this petition filed under the special provision, section 30 of the Act, where the Corporation-petitioner No. 1 was conceding the pari passu claim of respondent No. 2, this plea was not open to the petitioner. It is, however, to be noted that, during the pendency of this petition, winding up proceedings had been initiated against respondent No. 1, and on an objection being raised, petitioner No. 1 made an application to the company judge for leave to continue the proceedings. That leave was granted by order dated May 20, 1985, in the following terms: " C.A. No.- 673 of 1984: Leave as prayed, subject, however, to the direction that the final order in the proceedings would not be executed without the prior permission of this court. C.A. is disposed of in these terms". Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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