Misc. Petition No.18 of 2009

14th November, 2014

Petitioner Counsel: Mr. RAJ PATEL, P. KUMAR JAIN, PRAKASH PANJABI
Respondent Counsel: Mr. RISHABH SHAH, Ms. EKTA TRIPATHI

Cases Cited:
Sait Tarajee Khimchand & Ors. Vs. Yelamarti Satyam alias Satteyya & Ors., (1972) 4 SCC 562 [Para 16]
Central Bank of India Vs. Ravindra & Ors., AIR 2001 SC 3095 [Para 16]

JUDGMENT

JUDGMENT :- This petition is filed by SICOM Ltd. which is a unit of State Financial Corporation (SFC) for liabilities incurred by the respondents as guarantors under four deeds of guarantee. The petition is filed under Section 31 (1) (aa) and Section 32 of the State Financial Corporations Act, 1951 (the Act) for enforcing liability of the sureties under the contract between the SICOM and the principal borrowers.

2. The principal borrower is the company of which the two guarantors, the respondents herein are directors. The company of the respondents executed agreements for bills discounting facility with the petitioner on 8th November, 2004 for Rs.5 Crores, on 15th March, 2005 for further Rs.5 Crores, on 19th July, 2005 for further Rs.5 Crores and an agreement for further Rs.5 Crores dated 5th May, 2008 totaling to Rs.20 Crores. Thus the earlier facilities were extended and renewed from time to time. The last of the agreement specified that the facility for Rs.15 Crores till then granted was further extended and was admitted and acknowledged by the company to be repaid with interest at the contractual rate along with cost, charges and expenses of the execution of the agreement. Under that agreement the terms and conditions of the earlier letters of the petitioner were to continue to apply to the enhanced facility.

3. The respondents along with company jointly and severally promised to pay the sums of Rs.5 Crores, Rs.10 Crores, Rs,15 Crores and Rs.20 Crores as per the facilities granted, the last of which was executed on 5th May, 2008 and it was payable with interest @ 12.75% pa.

4. The respondents herein executed separate guarantee agreements also on 8th November, 2004, 15th March, 2005, 19th July, 2005 and 5th May, 2008. The guarantees have been executed on stamp paper of Rs.100/-. The signature of the respondents on the guarantees are the same on the promissory notes as also the agreement of bill discounting facility.

5. The respondents had offered FDR of Rs.2 Crores as security. The bills were dishonored. The petitioner issued notice upon the principal borrower and the drawer of the bills as also acceptor, State Trading Corporation (STC) and the respondents herein as guarantors on 17th February, 2009. The petitioners set out the two bills drawn and accepted by the principal borrower and the STC respectively and demanded repayment of Rs.19.67 Crores based upon the amount of the bills discounted. The petitioners notified that that was the notice for demand under Section 434 of the Companies Act. The principal borrower the company has since been ordered to be wound up. An appeal there from is pending.

6. The petitioners thereafter again invoked the guarantee under a separate notice issued to the respondents on 25th July, 2009 after adjusting FDRs amount of Rs.2 Crores and calculating the principal outstanding along with the interest thereon and demanded payment.

7. The petition is filed for recovery of the principal amount along with interest after adjustment of the FDR amount towards principal as also interest as reflected in the particulars of claim Exh.F1 and statement of account Exh.F2 in the petition.

8. The petition has been filed under Section 37 (1) (aa) of the Act for enforcing the liability of the surety. Under section 31 upon any default and failure of repayment the petitioner is entitled to apply to the District Judge for several reliefs including the enforcing liability of any surety. The application has to state the nature and extent of the liability and the ground on which it is made under Section 31(2) of the Act. The petition is such an application. It shows the nature and extent of the liability under the aforesaid document and the ground of non payment despite invoking the guarantee.

9. Under section 32 (1-A) of the Act the District Judge is required to issue notice to the surety to show cause why his liability should not be enforced. This Court, as the District Judge, issued such a notice upon which the respondents have shown cause by their affidavit in reply titled "short affidavit in reply".

10. The affidavit shows that the company of the respondents is the borrower company which had entered into agreement with the STC for which it had issued bills acknowledging liability on the supply of goods. The STC accepted liability upon the purchase order of the foreign companies which were to be executed by the STC and which were assigned to the principal borrower (the principal debtor). The company obtained finance, manufactured goods, supplied the goods through STC to foreign companies and raised bills upon STC which were drawn by the company and accepted by the STC. The aforesaid advances were made by STC towards those bills under the bill discounting facility. Consequently, the execution of the bills as also agreements of bill discounting facility to the extent of Rs.20 Crores is expressly admitted in paragraph 3(b) of the reply to the notice to show cause filed by the respondents. Paragraph 3(c) shows how STC failed to honour the commitment and failed to invoke the credit insurance from the insurers (ECGC). Paragraph 3(d) shows the PDCs which were given and came to be dishonored and notice under Section 138 of Negotiable Instrument Act being given. Paragraph 3(e) shows the cash crunch and the liability of Rs.100 Crores of the principal debtor. Further BIFR case which came to be filed along with AAIFR appeal under the Sick Industrial Companies (Special Provisions Act) 1985. The income tax authorities took action. Dena Bank followed provisions under the The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and ultimately the company came to be wound up.

11. The reply of the respondents, therefore, shows the acceptance of the loan facility, the non repayment of the loan by the principal debtor, the execution of the guarantees by the respondents aside from various other proceedings with which this petition is not concerned.

12. Upon the admission of the amounts by principal debtor and the execution of the guarantee by the respondents their liability being co-extensive with the principal debtors, the guarantees are seen to be rightly invoked.

13. It is argued on behalf of the respondents that the guarantees are not sufficiently stamped because there are two guarantors which would imply two contracts and would require double the amount of stamp duty. The contention is wholly alegal. The liability under the contract is joint and several and hence execution would not imply two separate contracts for the amount specified in the guarantee; either of the guarantors may discharge the guarantee by payment of the amount thereunder and hence the guarantees are sufficiently stamped.

14. No other case is shown.

15. Though not required in an application to be made to the District Judge under the Act, the Court directed evidence to be led. Counsel on behalf of the respondents relied upon certain parts of the cross examination of the witness of the petitioner. He would contend that authority given by the Managing Director of the petitioner to the witness under the Power of Attorney is insufficient as the authority of the Managing Director to execute such POA is not shown. Aside from the fact that the Managing Director of a company as its principal officer has implicit authority to grant power on behalf of company as he acts as an agent of the company, a POA cannot otherwise be challenged under Section 85 of the Evidence Act also. The statement of account which was demanded in cross examination is Exh.F2 to the petition. Questions upon the aforesaid documents are wholly irrelevant in view of the express admission of receipt of the facilities. In view of the nonpayment thereof, interest has been charged at the rate mentioned in the last promissory note dated 5th May, 2008 and 4% additional interest which could be charged is not charged as is evidenced by the particulars of claim and the statement of account, Exh.F.1 and Exh.F2 to the petition. The cross examination therefore becomes wholly irrelevant in view of no case having been shown why the relief in the application should not be granted by this Court (as the District Judge, in Mumbai).

16. Reference to two judgments made by counsel on behalf of the respondents is also misconceived. The case of Sait Tarajee Khimchand & Ors. Vs. Yelamarti Satyam alias Satteyya & Ors. (1972) 4 Supreme Court Cases 562 is between private parties governed by the rigours of the CPC and the Evidence Act. It has no application to the statutory relief to a State Financial Corporation under the above Act. Similarly the reliance upon the case of Central Bank of India Vs. Ravindra & Ors., AIR 2001 Supreme Court 3095 is in an ordinary suit filed by the bank for decree for payment of money which deals with the interest under Section 34 of the CPC upon the principal amount adjudged. The Supreme Court's directions in paragraph 56 of the judgment to all the banks to show how the interest rates are charged and capitalized are wholly irrelevant to the provisions of the Act which call for summary remedy by way of an application. In fact the further directions in paragraph 56 of the judgment itself would show that even in a suit filed in a civil court or the DRT, once a statement of account is filed in the Court, the onus would be on the borrower to show why the amount of the debit balance appearing on the foot of the account and claimed as the principal sum cannot be accepted and adjudged. Hence the directions to narrow down the scope of controversy in suits of banks for an expeditious disposal of the suit would apply with greater force to a summary application under the Act, leaving the onus upon the respondents as the guarantors showing cause against the application to show why the amount claimed by the petitioner is not the correct principal amount with interest thereon at the contractual rate.

17. Consequently the petition is clear. There is no cause shown why the relief should not be granted.

18. The petition is made absolute in terms of prayer 'a' and 'f'.

Ordered accordingly.