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TMI Blog2019 (8) TMI 1866X X X X Extracts X X X X X X X X Extracts X X X X ..... ability is independent of the Principal borrower. None of the defences or grounds raised are either tenable, nor is evidence required to be recorded. The Factoring agreement is admitted, the execution of guarantee is admitted and the money disbursed by the Plaintiff is also admitted. The issuance of cheques for a sum of Rs.10 crores by Defendant No. 1 is also admitted. In the facts and circumstances of the present case, Defendant No.2 would not be entitled to any leave to defend insofar as the sum of Rs. 10 crores, which is a liquidated sum as per the guarantee, is concerned. Insofar as any other charges or expenses are concerned, the Plaintiff is free to file its claims before the NCLT against Defendant no.1, the principal borrower. Application disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... r expenses. Sometime in 2011, further approved debtors were added. The Plaintiff had disbursed 80% of the invoice value of the various approved debtors. A total sum of Rs.10,00,07,323/- was disbursed by the Plaintiff, to the Defendant No.1. Under the agreement, apart from the amounts disbursed, the charges payable were as under: … 6. Discount Charges (Clause 7) 13.00% p.a. 7. Handling charges (Clause 7) 0.15 % of the total amount of invoices factored on approved Debtors, payable monthly (with a minimum of Rs. 250.00 per invoice). + Service Tax as applicable. 8. Limit Set Up Charges (Clause 7) (Non- Refundable) 0.750 % of the prepayment limit + Service Tax as applicable. 9. Other Charges (Clause 7) (a) As applicable, from time to time. (b) Penal Charges @ 4 % over the discount charge, referred to in Clause No. 6 above, will be levied in case the account is irregular or payments are not made when demanded. 6. Notices of assignment of debts were also duly issued by Defendant No.1 to all the debtors and the acceptance was issued by the debtors in favour of the Plaintiff. 7. Under the guarantee issued by Defendant No.2 in favour of the Plaintiff it was clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainable against the Debtor. It is submitted that as per the judgment of the Supreme Court in GE Capital Services India v. Mayflower Healthcare Pvt. Ltd., [CS(OS)2859/2011, Decided on 31st August, 2012], entries would have to be proved under Section 34 of the Evidence Act, 1872 for the balance at the foot of the account to be arrived at and hence a suit, such as the present suit, claiming an amount which is only the balance due at the foot of the account is not maintainable under Order XXXVII CPC. 12. On the other hand, ld. counsel for the Plaintiff, Mr. Srivastava, has submitted that the agreement and the guarantee are admitted by the Defendants, including Defendant No.2. He relies upon two judgments, namely M/s Housing Development Finance Corporation Ltd. v. Vikas Garg, [CS (OS) 217/2011, Decided on May 20, 2014] and Bijender Chauhan v. M/s Financial Eyes (India) Ltd., ILR (2013) IV DELHI 3234 to argue that a suit based on a statement of account is maintainable under Order XXXVII CPC. It is further submitted by ld. counsel for the Plaintiff that the CPC was specifically amended and a provision was introduced to protect NBFC's like the Plaintiff to file a suit under Order XXXVII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development of factoring services for small scale industries in order to effectively trace the problem of liquidity for micro or small industries. It was in this background that the central government introduced a bill titled "The Regulation of Factor (Assignment of Receivables) Bill, 2011". The said bill was thereafter enacted as the FRA, 2011. 16. A factoring agreement is an agreement under which the receivables are assigned and the collection of amounts is contracted out, thereby reducing the cost, inconvenience and manpower employed in recovering dues, maintenance of accounts related to the same, management of the risks associated with the debts etc., The FRA 2011 defines a factoring business as under: "(j) "factoring business" means the business of acquisition of receivables of assignor by accepting assignment of such receivables or financing, whether by way of making loans or advances or otherwise against the security interest over any receivables but does not include "(i) credit facilities provided by a bank in its ordinary course of business against security of receivables; (ii) any activity as commission agent or otherwise for sale of agricultural produce or good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant No. 1. A diagrammatic representation of the factoring arrangement is set out below: 19. One of the objects of the said Act was to introduce an amendment in the CPC to make available the benefit of summary procedure for recovery of debts. Accordingly, CPC came to be amended and sub-section (iv) was inserted in Order XXXVII, Rule 1 (2) (b) by the FRA, 2011. Section 35 of the FRA, 2011 reads as under: "35. The enactments specified in the Schedule shall be amended in the manner specified therein." The amendment introduced in the CPC, reads as under: "In Order XXXVII, in rule 1, in sub rule (2), in clause (b), after sub clause (iii), the following sub-clause shall be inserted, namely :-- "(iv) suit for recovery of receivables instituted by any assignee of a receivable." The notes on clauses for clause 35 reads as under: "Clause 35. -- This clause relates to amendments of certain enactments. This clause provides to amend the Code of Civil Procedure, 1908 to make available the benefits of summary proceedings for recovery of debts or dues under a factoring arrangement to a factor and amends the Credit Information Companies (Regulation) Act, 2005 to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m to Defendant No.2. It is also a well settled position in law that the guarantee is an independent contract from the main factoring agreement. The guarantee provided in the present case clearly states that the guarantee is distinct from the main factoring agreement. The said clauses read as under: "2. That this guarantee shall be independent of the said Agreement and I/we shall be independently liable to you under this guarantee, notwithstanding any of the provisions of the said Agreement or any other contract or arrangement between you and the Obligant or any other person or persons. … 7. That my/our liability under this guarantee shall not be affected by any infirmity or irregularity on the part of the Obligant to enter into the said Agreement or to undertake all or any of the obligations thereunder or the winding up/dissolution/insolvency or appointment of Receiver of the assets/or part of the assets of or change in the constitution of the Obligant. … 16. That to give effect to this guarantee you may act as though I/we were the Obligant/s and my/our liability hereunder will be several." Defendant No.2, who has executed the guarantee, is thus bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure facility or services;" 26. In fact, the statement of objects and reasons also specifically mentions that one of the objects of this legislation is to provide for the process of assessment of receivables. The CPC having been specifically amended to enable summary procedures for recovery of `receivables', the argument that the suit is not maintainable as it is not an ascertained sum or a liquidated sum, would not be tenable. If such an argument is accepted, it would run contrary to the intent and purpose of the amendment itself. 27. The amount, thus, payable by the Defendants is clearly an ascertainable sum. From the said amount, any amount that has been paid would have to be given credit to. 28. Under the factoring agreement, Defendant No.1 assigned all its receivables which existed on the date of commencement to the Plaintiff. Clause 4 of the agreement reads as under: "4. TRANSFER OF RECEIVABLES (1) The Client agrees to sell and the Factor agrees to purchase the receivables, existing at the commencement date or arising thereafter during the currency of this Agreement, in relation to any Debtor of the class or description specified in paragraph 11 of the Schedule wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e guarantee of Defendant No. 2 was invoked by the Plaintiff on 25th May, 2016 and thereafter the present suit was filed on 9th March, 2018. 31. Under Clause 4(1) of the factoring agreement, the receivables could either be existing receivables on the date of agreement, i.e., on 31st December, 2009, or future receivables. The various invoices which have been confirmed by the approved debtors are of August, 2011. The transactions continued till November, 2011. The reference was filed on 7th November, 2012 before the BIFR, which was abated only on 15th December, 2016. When insolvency proceedings were pending, all pre-payment stopped. 32. Under the extant Sick Industrial Companies (Special Provisions) Act, 1985, the legal position as per Section 22 was that during the pendency of an enquiry under Section 16, the preparation/consideration/implementation of any scheme under Section 17 or an appeal under Section 25, any guarantee in respect of any loans or advance granted to the industrial company stood suspended. Section 22 of the Act reads as under: "22. Suspension of legal proceedings, contracts, etc.-- (1) Where in respect of an industrial company, an inquiry under section 16 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board: Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate. (4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,-- (a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and (b) on the declaration cea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend. 17.3. Even if the defendant raises triable issues, if a doubt is left with the trial Judge about the defendant's good faith, or the genuineness of the triable issues, the trial Judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security. 17.4. If the defendant raises a defence which is plausible but improbable, the trial Judge may impose conditions as to time or mode of trial, as well as payment into court, or furnishing security. As such a defence does not raise triable issues, conditions as to deposit or security or both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires. 17.5. If the defendant has no su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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