2001(3) ALL MR 750
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

D.Y. CHANDRACHUD, J.

Boi Finance Ltd. Vs. Liquidator Of Siddhart Engg. Pvt. Ltd.

Summons for Judgment No.663 of 1994,Summary suit No. 2288 of 1993

12th February, 2001

Petitioner Counsel: Mr. FARZANA BEHRAM-KAMDIN, Ms. BHAKTI POPAT, WADIA GHANDHY
Respondent Counsel: Mr. D.H.MEHTA, Mr. M.P.WAMORKAR

(A) Companies Act (1956), Ss.446 and 642 - Companies (Court) Rules (1959), Rr.156, 227 - Summary suit filed by plaintiff for recovery of deposit money - Taking out summons for judgment - Steps taken beyond period of six months - Delay explained - Defendant cannot claim unconditional leave to defend suit 2001 Mh LJ 345 Relied on.

Civil P.C.(1908), O.37, R.3. (Para 9)

(B) Bombay Stamp Act (1958), Ss.33,37,52B - Stamp paper - Delay in using - Stamp paper used beyond period of six months - Authorities directed to examine and stamp duty and penalty recovered collected from plaintiff - There is no invalidity in execution of guarantee on such stamp paper. (Para 16)

(C) Companies Act (1956), Ss.446 and 642 - Companies (Court) Rules (1959), Rr.156,227 - Money deposited with company - Repayment of guarantee executed - On default in repayment suit filed - No dispute about rate of interest - Plaintiff is entitled to decree - Leave to defend cannot be granted.

Civil P.C. (1908), O.37, R.3, Bombay High Court (Original Side) Rules (1980), R.222.

As a general principle of law, there is no doubt about the proposition that in a Summary Suit where interest is claimed at a rate which is not agreed upon, the Defendant is entitled to unconditional leave to defend the suit. In case the defendant guarantor does not dispute the rate, the plaintiff is entitled to decree and no unconditional leave to defend the case can be guaranted. 1998(1) LJ 793 Rel.on. [Para 13,14]

Cases Cited:
Bankey Bihari Agarwal Vs. Bhagwanji Meghji, 2001(1) ALL MR 1=(2001) Mh.L.J. 345 [Para 9]
BOI Finance Ltd Vs. Padma Alloy Casting Pvt.Ltd., 1999(3) ALL MR 376=1999 (4) LJ 488 [Para 12]
Randerian & Singh Ltd. Vs. Indian Overseas Bank, Appeal No.1060 of 1986 [Para 13]
Hydraulic and General Engineering Ltd, 1998(1) LJ 793 [Para 13]


JUDGMENT

JUDGMENT :- The Summons for Judgment has been withdrawn as against Defendant No.3 and consequently, it is pressed only as against Defendant Nos.1, 2 and 4.

2. An order has been passed on 24th November, 1998 in Company Petition No. 397 of 1993 by which the First Defendant has been ordered to be wound up and the Official Liquidator came to be appointed as a Liquidator with usual powers under the Companies Act, 1956. The Plaintiff has obtained leave under Section 446 of the Companies Act, 1956, on 23rd March, 1999 in Company Application Lodging No.251 of 1999. Pursuant thereto the Official Liquidator has been impleaded as the Fourth Defendant to the suit. The Official Liquidator has filed a Written Statement which is permitted to be read and treated as a reply to the Summons for Judgment.

3. Briefly stated, the facts of the case are that on 28th June, 1990, the Plaintiff placed an intercorporate deposit with the First Defendant which was repayable with interest at the rate of 17% per annum with quarterly rests, compounded quarterly. The deposit was placed for a period of 90 days. The due date was 26th September, 1990. A letter of undertaking was executed by the First Defendant by which the First Defendant undertook to repay the principal amount with interest at 17% per annum. In order to secure the due repayment of the amount which was placed as deposit with the First Defendant, the Second and the Third Defendants executed a guarantee on 28th June, 1990 where under in their personal and individual capacities, the Second and the Third Defendants guaranteed the repayment of all the outstanding dues of the First Defendant in respect of the said intercorporate deposit, including by way of interest. The Guarantee executed by the Second and the Third Defendants permitted the Plaintiff the liberty, without affecting the liability of the Second and the Third Defendants, to vary the contract or any terms thereof in regard to the First Defendant. In so far as the rate of interest is concerned, the following provision is made tin the Guarantee:

"Provided always that the total amount which we shall be liable to pay under this Guarantee shall not exceed Rs. 15,00,000 together with interest thereon, or on such less sum as may be due at the rate of 17% p.a. Quarterly Compounded or at such other rate of interest which may then be payable by the principal (including the particular interest at an additional or penal rate in the event of default by the principal in punctual payment of any installment and/or interest) or which may have been notified to the principal from the date of the principal's default until payment."

4. In para 7 of the Plaint, it has been averred that the First Defendant failed and neglected to pay the amount of Rs.15 lakh on the due date. On 26th September, 1990, the First Defendant paid to the Plaintiff, a sum of Rs.49,295/- being the interest payable at the rate of 17% per annum with quarterly rests from 28th June, 1990 until 26th September, 1990. Thereafter, on 5th March, 1991, the First Defendant paid to the Plaintiff, a sum of Rs.1,55,978/- being interest at the rate of 21% per annum with quarterly rests from 27th September, 1990 to 28th February, 1991. On 12th July, 1991 the First Defendant paid a sum of Rs.81,071/- being interest at the rate of 21% per annum with quarterly rests from 1st March, 1991 to 30th June, 1991.

5. By a letter dated 18th July 1992, the Plaintiff addressed a demand notice to the Second and the Third Defendants calling upon them to pay the amount due under the terms of the Guarantee and a notice dated 27th August, 1992 was addressed to the First Defendant. A further notice dated 7th May, 1993 was addressed to the First Defendant.

6. The suit in the present case has been instituted for the recovery of a sum of Rs.22,49,811/- as on 21st June, 1993 with interest at the rate of 21% per annum with quarterly rests from 22nd June, 1993, the date on which the suit was instituted, until payment or realisation.

7. As stated earlier, a reply has been filed on behalf of the First Defendant by the Official Liquidator and in so far as the merits of the claim are concerned, the Liquidator has relied upon the provisions of Rule 156 of the Companies Court Rules. Rule 156 provided as follows :

"R.156. Interest - On any debt or certain sum payable at a certain time or otherwise, whereon interest is not reserved or agreed for, and which is overdue at the date of the winding-up order, or the resolution as the case may be, the creditor may prove for interest at a rate not exceeding four per cent per annum up to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed from the date of demand until the time of payment."

Rule 156 applies to a case where there is no agreement between the parties as regards the rate of interest and as will be pointed out a little later, it will have no application to the present case.

8. An affidavit has been filed on behalf of the Second defendant in which three defences have been sought to be urged. (1) The suit was lodged on 30th June, 1993, whereas the Summons for Judgment was taken out beyond the period of 6 months, on 9th November, 1994; (2) the Guarantee which has been executed by the Second and the Third Defendants has not been properly stamped; and (3) interest at the rate of 21% with quarterly rests was not payable and, therefore, the suit was not maintainable as a Summary Suit.

9. In so far as the first defence is concerned, it was not advanced or urged by the Learned Counsel, Shri. D.H.Mehta, who appears for the Second Defendant. However, the material dates have been adverted to by the Learned Counsel for the Petitioner. It may be noted that the Plaint was lodged in the present case on 22nd June, 1993 and an application for the issuance of the Writ of Summons was made on 24th June, 1993. Thereafter, in July 1993, an application was made to the Sheriff for effecting personal service on the Defendants. On 22nd March, 1994 the Writ of Summons is stated to have been transmitted by Registered Post to Defendant No.3. The Summons for Judgment was instituted on 9th November, 1994. In these circumstances, there has been a sufficient explanation for the time taken in taking out the Summons for Judgment. In any event, in view of the judgment of the Division Bench of this Court, presided over by my Learned Brother, Mr. Justice B.N.Srikrishna, a delay on the part of the Plaintiff in taking out the Summons for Judgment has to be evaluated together with merits of the defence on behalf of the Defendants. (Bankey Bihar Agarwal vs. Bhagwanji Meghji reported in (2001) Mh.L.J. 345). The Division Bench of this Court held that "a delay in taking out Summons for Judgment beyond the period of 6 months prescribed by Rule 227 does not automatically entitle the Defendant to unconditional leave to defend the suit; but it is a relevant factor to be considered in conjunction with the nature of the defence while granting conditional or unconditional leave to defend the suit or refusing the application for leave to defend." (para 54 at P.370).

10. In so far as the second defence is concerned, the submission that the Guarantee has not been properly stamped, came to be dealt with by the order dated 10th January, 2001. The submission that was urged was that the stamp paper on which the guarantee has been written down, was purchased on 25th October, 1989 and in view of the provisions of Section 52B of the Bombay Stamp Act, 1958, the same ought to have been utilised within a period of 6 months. The guarantees was executed on 25th June, 1990. Having regard to the provisions of the Bombay Stamp Act, 1958, a direction was issued to the Prothonotary & Senior Master in terms of clause (b) of the proviso to Section 52B of the Act to examine and impound the guarantee and thereafter, to take necessary steps in accordance with law. A certificate has accordingly been issued by the Prothonotary & Senior Master on 9th February, 2001 that in exercise of the powers conferred by Section 33 of the Act, the Prothonotary & Senior Master has duly collected the stamp duty as well as penalty payable in respect of the value of the guarantee and that in terms of Section 37 of the Act, the letter of guarantee has been duly stamped. In view of the aforesaid position, the objection as to the stamp is also not pressed any further on behalf of the Second Defendant.

11. The only point which is pressed in the Summons for Judgment, at the hearing, is that the claim of the Plaintiff to interest at the rate of 21% per annum is not referred to in the guarantee executed by the Second and the Third Defendants and, therefore, the Second Defendant would be entitled to unconditional leave to defend the suit. Having given my anxious consideration to this submission, I do not find any substance therein. The material clause in the guarantee in so far as the payment of interest is concerned, provides that interest would be computed "at the rate of 17% per annum quarterly compounded or at such other rate of interest which may then be payable by the principal, including the particular interest at an additional or penal rate in the event of default by the principal in punctual payment of any installment and/or of interest or which may have been notified to the principal from the date of the principal's default until payment". In other words, in so far as the Second Defendant as a guarantor is concerned, he agreed by the terms of the Guarantee to subject himself to interest quarterly compounded at 17% per annum or such other rate of interest as may become due and payable by the principal on whose behalf the Guarantee came to be executed. In para 7 of the Plaint, it has been averred that on 5th May, 1991 as well as subsequently on 12th July, 1991, the First Defendant with whom the deposit was placed, paid to the plaintiff interest at the rate of 21% per annum with quarterly rest for the period 27th September, 1990 to 28th February, 1991 and from 1st March, 1991 until 30th June, 1991. To this averment is concerned which has been made in para 7 of the Plaint, there is no denial in para 9 of the Reply, which has been filed on behalf of the Second Defendant, of the fact that increased interest of 21% with quarterly rests was in fact paid by the First defendant. The Second Defendant seeks to contend that the Plaintiff has varied the material terms of Guarantee, but again there is no substance in this contention for the simple reason that the Guarantee permits by its express terms the Plaintiff to vary or alter the terms of the contract with the principal. The First Defendant paid interest to the Plaintiff at the rate of 21% per annum. The claim of the Plaintiff as against the Second Defendant, a guarantor, for interest at the rate of 21% per annum is thus tenable on the terms of the Guarantee itself.

12. The Learned Counsel appearing on behalf of the Second Defendant submitted that the Defendant in Summary Suit is entitled to unconditional leave to defend the suit where interest has been claimed at a rate other than the agreed rate of interest. In this regard, the Learned Counsel appearing on behalf of the Second Defendant relied upon the judgment of a Learned Single Judge, F.I.Rebello, J., in BOI Finance Limited Vs. Padma Alloy Casting Private Ltd. 1999 (4) LJ 488 : (1999(3) ALL MR 376). In the case which arose before the Learned Single Judge, the Guarantee did not provide for quarterly compounding of interest and merely provided for payment of additional or penal interest. The question which arose for consideration was, whether the Plaintiff was entitled to claim interest on the basis of quarterly rests in the absence of a specific clause in the Guarantee to that effect. In para 13 of the Judgment, the submission in this regard was noted in the following words :

"13. As per particulars of claim the plaintiffs had calculated interest at the rate of 18% p.a. compounded with quarterly rests. Contention of defendants Nos.2 and 3 is that there is no agreement in writing between plaintiffs and defendants Nos.2 and 3 for compounding of interest. It is, therefore, contended that reliefs prayed for against defendants Nos.2 and 3 not being under any document or agreement or writing, suit itself is not maintainable as a summary suit." (emphasis supplied).

This submission was upheld by the Learned Single Judge holding that since the Guarantee did not contain a specific authorization for claiming compound interest with quarterly rest, it was not open to the Plaintiff to do so in the Summary Suit and that the Defendants would, therefore, be entitled to unconditional leave to defend the suit. The Learned Single Judge held as follows :

"Considering the above, in my opinion, the expression "additional or penal interest" would not cover a case of interest with quarterly rests (compounded quarterly). What the receipt and undertaking provide is that interest would be capitalised if installment is not paid on time. This would not fall within the expression "additional or penal interest"."

13. The facts of the present case are clearly distinguishable from the case which arose before the Learned Single Judge. There is no dispute about the fact that the Guarantee in the present case provides for compounding with quarterly rests. Apart from this, what the Guarantee provides is that the Second Defendant as a guarantor would be liable to pay interest at the rate of 17% per annum compounded quarterly or at such other rate which is payable by the principal or which may have notified to the principal on the date of default by the principal until payment. As already stated earlier, the principal has paid 21% per annum with quarterly rests in the present case. The liability of the guarantor is, therefore, to pay the said rate of interest as claimed by the Plaintiff and paid by the principal in the instant case. As a general principle of law, there is no doubt about the proposition that in a Summary Suit where interest is claimed at a rate which is not agreed upon, the Defendant is entitled to unconditional leave to defend the suit. This was laid down by a Division Bench of this Court in Randerian & Singh Ltd. Vs. Indian Overseas Bank in Appeal No.1060 of 1986 in Summons for Judgment No.307 of 1986 in Summary Suit No.3212 of 1985. The same view was taken by another Division Bench of this Court in the case of Hydraulic and General Engineering Ltd. & Anr. reported in 1998(1) LJ 793. The facts of the present case do not fall within the dictum and the principle laid down in these Judgments since the Second Defendant under the terms of the Guarantee is bound to pay interest at the rate at which it is payable by the principal or which has been notified to the principal.

14. That apart, in such a case regard should be had to Rule 222 of the High Court O.S.Rules which forms part of Chapter XIV dealing with Summary Suits. Rule 222 provides as follows :

"222. If it appears that the defence set up by the defendant applied only to a part of the Plaintiff's claim, or that any part of the claim is admitted, the plaintiff shall have judgment forthwith for such part of his claim as the defence does not apply to or as is admitted, subject to such terms, if any, as to suspending execution, taxation of costs, or otherwise, as the Judge may think fit; and the defendant may be allowed to defend as to the remaining claim of the plaintiff."

In the present case, the Second Defendant does not dispute his liability to pay the amount of principal in the sum of Rs.15 lakhs or interest thereon at the rate of 17% compounded quarterly. The dispute that is sought to be raised is only in regard to the payment of interest in excess of interest computed at the rate of 17% per annum with quarterly rests. Having regard to the said situation, in my view, the Plaintiff would be entitled to a decree prayed for. During the course of the hearing of the Summons for Judgment, the Learned Counsel appearing on behalf of the Plaintiff has stated on instructions that though the Plaintiff is justified in claiming interest at 21% per annum compounded quarterly, the plaintiff is confining the claim to 17% per annum compound with quarterly rests since, in any event the Second Defendant has admitted his liability to pay interest at this rate.

15. The learned Counsel appearing on behalf of the Plaintiff has tendered the original documents which are taken on record and marked Exh.A collectively. The Plaintiff will be at liberty to substitute the original documents by certified copies after the period of appeal is over. The original Deed of Guarantee is in the custody of the Prothonotary & Senior Master of this Court. The Prothonotary & Senior Master is directed to place the Guarantee together with the Certificate issued under Section 37 of the Bombay Stamp Act, 1958 on record.

16. In the circumstances, the Summons for Judgment is made absolute. The Plaintiff shall be entitled to a decree in respect of the principal amount of Rs.15 lakhs and interest thereon at the rate of 17% per annum until the date of the filing of the suit together with further interest at the rate of 17% per annum compounded with quarterly rests from the date of the suit until payment or realisation.

Order accordingly.