9911796707
TMI Blog1989 (5) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 transaction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1982, was served by petitioner No. 1 on respondent No. 1 recalling the entire principal amount of Rs. 25,00,000 besides interest amount of Rs. 23,17,717.33, calculated up to May 31, 1982, making together Rs. 48,38,224.29 as also further interest stipulated in the loan agreement up to the date of payment, further intimating respondent No. 1 that the terms of the loan agreement as well as the deed of hypothecation, and of the Act, would be enforced without any further reference to respondent No. 1. But there has been no response to the said notice by payment of any of the dues, as claimed. At the time when this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 disbursed towards discharge of the outstanding amounts on a pari passu basis to respondent No. 2. On notice being served, respondent No. 1 filed a written reply raising some preliminary objections to the effect that the petition has not been signed, verified and instituted by a duly authorised person and that the petitioner was not otherwise entitled to claim these reliefs because the management of the industrial concern was taken over by the managing committee appointed by petitioner No. 1 pursuant to a joint meeting of the representatives of the financial institutions and bankers including petitioner No. 1, having been held on April 7, 1978. It is contended that the petitioner was not entitled to even otherwise i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interest claimed in the petition. The contention is that the rate of interest stipulated in the loan agreement is usurious under the Usurious Loans Act, and, therefore, violates the provisions thereof and the whole loan transaction was liable to be reopened by this court and the claim of interest is also liable to be reduced to 6% per annum under the provisions of the Interest Act. On facts, the statutory status of petitioner No. 1 is not disputed nor the execution of the loan agreement or the creation of the charge as security for repayment of the loan and other dues by way of equitable mortgage as well as the deed of hypothecation dated March 29, 1973. It was, however, denied that the charge was duly registered with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment 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 consideration 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, respondent No. 1 executed a registered deed of mortgage in favour of respondent No. 2 in respect of the movable and immovable properties of respondent No. 1 company for the said term loan of Rs. 15,00,000 together with interest, commitment charges, costs, expenses and all other monies payable by respondent No. 1 to respondent No. 2, and that in terms of the said loan agreement, a sum of Rs. 14,95,000 was disbursed to respondent No. 1. It was further asserted that as respondent No. 1 had failed to pay the installments of principal as well as interest in accordance with the said loan agreement, respondent No. 2 called upon respondent No. 1 by its notice dated August 7, 1981, to pay forthwith a sum of Rs. 24,07,802.06 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffidavit 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 immovable properties of respondent No. 1 by virtue of mortgage deeds, was not enforceable for the reason that the alleged mortgage deeds had not been got registered with the Registrar of Companies, as required under the law. The execution of the loan agreement dated March 2, 1974, and the sanction of the loan amount of Rs. 15,00,000 was not denied as a fact nor the receipt of the loan amount of Rs. 14,95,000; the only plea being that the bank had not acted in accordance with the terms of the loan agreement. The plea that respondent No. 2 held any pari passu charge with the petitioners for any term loan of Rs. 15,00,000 was repudiated on the contention that the mortgage was not duly registered with the Registrar of Companies, as per the requirement of law. In reply to this contention, a rejoinder affidavit has been filed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 signed and verified by petitioner No. 2 who was then assistant general manager, now deputy general manager of petitioner No. 1, and its principal officer. On facts, it was denied that petitioner No. 1 had ever been in charge of the management of respondent No. 1 or was jointly responsible for its affairs or that the management of respondent No. 1 company had been taken over by the managing committee. It was pleaded that although Mr. G.D. Saraogi resigned as managing director of the respondent company, he continued to be a member of the board of directors and chairman of the company, and he continued to function even after constitution of the management committee and that its operations were being looked after by its chief executive under the supervision and control of Shri G.D. Sarogi. It is also contended that the management commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.Whether respondent No. 1 failed to comply with the terms and conditions of the loan agreement? If, so, to what effect? 8.What is the amount due to the petitioner in respect of the loan and from whom? 9.Relief. Issue No. 1: The present petition has been instituted under the provisions of section 30 of the Act through Shri H.C. Sharma, assistant manager of the IFCI who is also petitioner No. 2 in the proceedings. He has appeared as PW-5 and deposed that he had sworn an affidavit in support of the petition and that he has filed this petition on behalf of the IFCI, having been authorised in this behalf by the board of directors of the corporation by means of a resolution passed in his favour. This resolution has been proved by Shri P.N. Arora, assistant manager on the board and co-ordination department of the IFCI as PW-2, as copy exhibit P-2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement, 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 principal and interest subject to the borrower complying with the provisions and convenants of these presents. Such interest shall be paid with half-yearly rests on 20th March and 20th September, each year. In default of regular payment of interest on the due date(s) compound interest shall become payable on monies due". There is not a whisper or suggestion to repudiate the existence of this term of the loan agreement or its binding nature by way of cross-examination of any of the witnesses of the petitioner nor during statement of the witnesses examined on behalf of respondents including Mr. K.K. Bhagaria who, as one of the directors of the company, appeared as DW-2. Mr. Paul, however, pressed the objection as to the entitlement of the petitioner to claim interest as worked out in the statement of account incorporated in the petition, and vehemently pleaded th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 comparative reading of the Central Act as well as the State Act, I find force in the plea of Dr. Ghosh, and as such the principles enunciated by the Supreme Court in the case of Gujarat State Financial Corporation, AIR 1978 SC 1765; [1979] 49 Comp Cas 187, shall apply in the case of a petition under section 30 of the Act also. It has been held in very clear terms in the aforesaid decision that, looking at the whole conspectus of the provisions of the State Act, it becomes clear that a special provision is made for certain types of reliefs that can be obtained by the Corporation, by an application under section 31(1) of the Act which could not be styled as action for repayment of mortgage money by sale of mortgaged property, nor can it be said to be a proceeding to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss. The High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 60 of the Code of Civil Procedure. This is a judgment referred to by Mr. Paul, learned counsel for respondent No. 1, but this rather supports the contention of the petitioners' counsel to the effect that the provisions of section 34, Civil Procedure Code, cannot be made applicable to an application under section 30 of the Act. It has already been noticed that the provisions of section 31 of the State Act are identical in all material respects to that of section 30 of the Act, and the same principles would govern here also. That being so, another judgment referred to by Mr. Paul in State Bank of India v. B. Gupta (Tea ) P. Ltd. [1987] Bank J. 394, a Division Bench judgment of the Calcutta High Court also can be of no assistance to him because all that it lays down is that section 34 of the Civil Procedure Code vests a discretion in a court in the matter of awarding of interest pendente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatives 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 committee in which the petitioner had an active participation and as such it was estopped from initiating the present proceedings inasmuch as it was the duty of all concerned to join hands for providing the requisite resources for revival of the sick unit, and no one could be permitted to take advantage of the industrial concern which has not been able to pull itself out of the relapse in productivity, resulting in its becoming sick. Mr. Paul, arguing for respondent No. 1, first invited attention to the initial constitution of respondent No. 1, which shows that the financial institutions including the IFCI had a shareholding in the industrial concern, and had its nominees on its board of directors. He contended that in the face of this effective representation of the IFCI on the board of directors, it was as much responsible for the affairs of the company, as the promoters and as such any financial liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 liability, and if in spite of this, the industrial concern became or remained sick, the company should not be burdened with the financial liability, as the petitioner had to share the responsibility for the affairs of the company. This contention has to be noticed only to be rejected for the short reason that the agreement in terms of which the present petition has been brought, took place in August, 1972, and it was a contract between IFCI as a financing institution, and Century Metals Ltd., a company incorporated under the Companies Act, 1956, having its own legal entity, as the loan agreement, exhibit P-3, executed on August 19, 1972, is between the IFCI and Century Metals Ltd. as two separate entities irrespective of the factual position as to who constituted the board of directors of the industrial concern, and as to what was the shareholding of the private institutions. In the rejoinder, petitioner No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 was passing through a period of struggle and it was a question of survival by minimizing the facilities. There was thus an admission that no wholetime technical director had been appointed, as per terms of the agreement as also as per requisition by the IFCI. The plea that the company had on its board of directors persons renowned in the field of aluminium industry, namely, Shri S.C. Jain and K.K. Bhasin, was no answer to the requirement of a wholetime technical director. The tone and tenor of this letter, exhibit PW-5/9-X, is so apologetic that it clearly shows that the management of the company was conceding the defaults but was only offering explanations and excuses, and pleading with the Corporation to bear with them. The IFCI has had recourse to its statutory rights after giving full opportunity to the company. The fact that it had a representative on the board of directors of the company or had agreed to j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nances. 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 in connection with capital expenditure. This position has been elucidated by Mr. K.K. Bhagaria, appearing as DW-2, when he stated that because of failure of the IFCI to release the balance loan of Rs. 4,00,000, the company was handicapped in raising further finances because, had this amount been disbursed, then the company would have been able to raise a loan of Rs. 16,00,000, from the Union Bank of India, on the strength of Rs. 4,00,000 being shown as marginal money, and that because of the lack of finances, the company could not get this further loan from the said bank which had agreed to advance credit facilities of Rs. 16,00,000 against a marginal money of Rs. 4,00,000, and thus it was prevented from achieving financial viability. Dr. Ghosh rightly pointed out that, apart from the fact that it was admitted by Mr. Bhagaria that this fact was not specifically brought to the notice of the petitioner, otherwise also, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 released in two installments inasmuch as the first installment was released in March, 1973, and the second in September, 1973, under cover of letters exhibit P-9 and exhibit P-10. He further deposed that the second installment was released despite the fact that breach of the term for appointment of a wholetime technical director had been committed. It is also shown that respondent No. 1 was put on notice in this respect, because by letter dated August 29, 1973, the Corporation conveyed in unequivocal terms that the balance loan amount of Rs. 4,00,000 will be released only after the company had appointed suitable persons as technical director and general manager with their approval and further that the company start availing of the loan sanctioned by the Industrial Development Bank of India. Mr. H.C. Sharma has also gone on record in listing other breaches committed by the company, besides this condition of appointment of a wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision by a Division Bench of the Allahabad High Court, Mirza Javed Murtaza v. U.P. Financial Corporation, Kanpur, AIR 1983 All 234, where it was held that, in reply to a petition filed under section 31 of the State Act which, as already noticed, is pari materia with section 30 of the Central Act, the debtor cannot be absolved from liability to repay the loan with interest, in terms of the loan agreement, on the plea of any breach of contract by the Corporation, although it may have a right to institute a separate suit for damages for breach of contract by recourse to the provisions of section 73 of the Contract Act. A similar view was expressed by a Division Bench of the Himachal Pradesh High Court in its judgment Bhawani Parshad Kapur v. Himachal Pradesh Financial Corporation, AIR 1983 HP 43, where also it was held that a bare reading of the provisions of section 31 of the State Act would suggest that the law requires the industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition 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 was cancelled and thereafter a notice in writing as required by section 29 of the Act was served on June 15, 1982 (exhibit P-11). Before that also, a notice had been served on the company bringing to their notice the breaches committed on their part in the matter of payment of installments on account of principal as well as interest as and when they fell due, as well as other terms of certain other covenants, by their letter dated September 21, 1981 (exhibit DW-2/4) which was duly received by the company, as evidenced by letter dated October 30, 1981 (exhibit DW-2/5). It is thus a case where all events of default, contemplated by clause 10 of the agreement in so far as breaches are concerned, took place, and thus, the IFCI was perfectly within its statutory rights to terminate the loan which it did by its notice dated November 3, 1986 (exhibit PW 5/1), in which it was clearly stated that the company had committed various breaches of the terms and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 respondent No. 1, in terms of the provisions of section 30(10) of the Act ; which are the subject-matter of the equitable mortgage, evidenced by the deed of mortgage by deposit of title deeds dated March 29, 1973, as per exhibit P-7, and confirmed by letter dated March 30, 1973 (exhibit P-8), addressed by respondent No. 1 to petitioner No. 1, and the deed of hypothecation dated March 29, 1973, in respect of movable assets of respondent No. 1 (exhibit P-5). As per the averments in the petition, respondent No. 1 had also raised a loan from the IDBI, respondent No. 2, by creating an equitable mortgage in their favour and it is conceded that properties of respondent No. 1 are mortgaged to petitioner No. 1 and respondent No. 2 on a pari passu basis. The prayer is that the realisations made by sale of the mortgaged properties as well as hypothecated goods may be ordered to be shared on a pari passu basis between petitioner No. 1 and respondent No. 2. In the repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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". The result is that the order now being passed on this petition under section 30 of the Act is not executable without prior permission of the company judge. I, therefore, do not think it fit to pass an}' further order detailing the directions and the manner in which the properties, which are the subject-matter of mortgage and hypothecation with petitioner No. 1, are to be sold, or the sale proceeds disbursed. Petitioner No. 1 shall approach the company judge for appropriate directions in this regard, in terms of the aforesaid order dated May 20, 1985. The question as to whether respondent No. 2 has a claim along with petitioner No. 1 on a pari passu basis on the basis of the charge created in its favour is also left open to be determined by the company judge because it appears from the rejoinder filed by the IDBI to the reply of respondent No. 1, that no intimation of registration of the charge by the Registrar of Companies had been communicated to them. The winding-u ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
