Summons For Judgment No.47 of 2017,Commercial Suit No.188 of 2017

31st October, 2017.

Petitioner Counsel: Mr. GIRISH B. KEDIA
Respondent Counsel: Mr. ASISH KAMAT, Mr. AKSHAY PURANIK, Mr. ASHWIN BHADANG & Ms. DIPALI CHIMANE i/b S.K. SRIVASTAV & CO.

Cases Cited:
Parekh Aluminex Ltd Vs. M/s. Ashok Commercial Enterprises and Another, 2015(2) ALL MR 679=2014 SCC Online Bom 2304 [Para 13,18]

JUDGMENT

B. P. COLABAWALLA, J. :- This Summons for Judgment has been filed on behalf of the Plaintiff seeking a judgment against the Defendant in the sum of Rs.1.65 Crores as per the particulars of claim (Exhibit-J to the plaint) and further interest @15% per annum on the principal sum of Rs.1.50 Crores from the date of the suit till payment and/or realization.

2. The brief facts giving rise to the present controversy are that the Plaintiff is a company duly incorporated and registered under the provisions of the Companies Act, 1956. The principal business that is carried on by the Plaintiff is of trading and dealing as stock brokers and investors. There are other ancillary businesses also carried out more particularly set out in the Memorandum of Articles and Memorandum of Association of the company. The Defendant is also a company duly incorporated and registered under the provisions of the Companies Act, 1956 and carries on the business of construction and development at various places in Mumbai and Thane.

3. It is the case of the Plaintiff that pursuant to the request made by one Jagdish Ahuja, (a Director of the Defendant company), the Plaintiff granted financial assistance to the Defendant for their business and construction activities. This financial assistance was granted on 1st March, 2016 and an amount of Rs.1.50 Crores was disbursed, by RTGS through Kotak Mahindra Bank Limited. In lieu of the financial assistance given by the Plaintiff to the Defendant, the Defendant agreed to pay interest @15% per annum to the Plaintiff and in fact it paid this interest to the Plaintiff for the period of four months. The details of the payment of this interest is more particularly set out in paragraph 4 of the plaint.

4. Along with the post dated cheques that were issued for the payment of interest, the Plaintiff also issued a post dated cheque for the payment of the principal amount of Rs.1.50 Crores dated 30th June, 2016. The details of the cheques that were issued for the payment of interest as well as for the principal amount are as under:-

Cheque No. Cheque Drawer's name Drawer's bank Cheque date Amount Rs.

Cheque No.	Cheque Amount Rs.	Drawer’s name	Drawer’s bank	Cheque date
244022	174, 375/-	Tulip Land and Developers Pvt Ltd.	Cosmos Bank, Vile Parle Br.	11th March, 2016
244023	511, 875/-	Tulip Land and Developers Pvt Ltd.	Cosmos Bank, Vile Parle Br.	1st April, 2016
244024	1,50,00,000/-	Tulip Land and Developers Pvt Ltd.	Cosmos Bank, Vile Parle Br.	30th June, 2016

5. In addition to the aforesaid cheques being issued towards repayment of the interest as well as the principal amount, the Defendant also executed a demand promissory note in favour of the Plaintiff confirming the receipt of the principal amount and the payment of interest thereon. Thereafter, vide its letter dated 1st April, 2016, the Defendant confirmed its liability towards the payment of the principal amount.

6. It is the case of the Plaintiff that pursuant to the instructions of the Defendant, the Plaintiff deposited the cheque in the sum of Rs.1.50 Crores for repayment of the principal amount on 1st July, 2016. This cheque was however dishonoured. In these circumstances, the Plaintiff through their advocate's letter dated 21st July, 2016 issued a demand notice calling upon the Defendant to make the payment under the aforesaid dishonoured cheque failing which the Plaintiff would be constrained to adopt appropriate legal proceedings. This advocate's letter of the Plaintiff was replied to by the Defendant through their advocates letter dated 2nd August, 2016. In this reply, the Defendants did not dispute the liability or the issuance of the dishonoured cheque. However, they contended that the cheque issued for repayment of the loan was a blank cheque and was to be retained by the Plaintiff only as a security and was never to be presented.

7. Be that as it may, as the Defendant failed to make payment of the dishonoured cheque in the sum of Rs.1.50 Crores, the Plaintiff filed a complaint under Section 138 of the Negotiable Instruments Act, 1881 before the learned Metropolitan Magistrate, 42nd Court, Borivali, Mumbai being C. C. No.359/SS/2016 and which is pending till date. Since no payment was forth coming from the Defendant, the Plaintiff thereafter filed the present suit on 14th March, 2017. In paragraph 14 of the plaint, it is averred that the suit is for recovery of the amount due and payable by the Defendant to the Plaintiff as confirmed in the confirmation letter annexed to the plaint and the cheque issued by the Defendant which was dishonoured on presentation. It is further averred that the present suit is based on the Negotiable Instruments Act and the written confirmation and as such is maintainable as a summary suit.

8. After this suit was filed, the writ of summons was served upon the Defendant. After the service of the writ of summons, the Defendant filed its appearance through an advocate. Thereafter, the present Summons for Judgment was filed by the Plaintiff. To oppose this Summons for Judgment, the Defendant has filed an affidavit in reply of one Jagdish Bhagwandas Ahuja dated 15th May, 2017. The principal defence that has been raised in this affidavit in reply and that was the only contention that was canvassed before me by Mr. Kamat, was that the present suit was barred under the provisions of the Maharashtra Money-Lending (Regulation) Act, 2014 (for short the "MML Act, 2014"). As far as the merits of the matter are concerned, even in the affidavit in reply, it has not been disputed that the loan of Rs.1.50 Crores has been availed of by the Defendant and that the Defendant had agreed to also pay interest on this loan @15% p. a.

9. In this factual backdrop, Mr. Kedia, the learned advocate appearing on behalf of the Plaintiff submitted that admittedly the Defendant had availed of the loan of Rs. 1.50 Crores from the Plaintiff on 1st March, 2016. The Defendant had also admittedly agreed to pay interest @15% p.a. on this loan. He submitted that in fact at the time when this loan was granted, the Plaintiff issued three post-dated cheques, two of which were towards payment of interest and one was for repayment of the principal amount of Rs.1.50 Crores. In this regard he brought to my notice paragraph 4 of the plaint which clearly shows that though the dates mentioned in these cheques were of different dates, they were issued simultaneously as all of three cheques were serially issued, namely cheque Nos. 244022, 244023 and 244024. The cheque that was issued for repayment of the principal amount was cheque no. 244024.

10. Over and above this, Mr Kedia also brought to my attention the notice dated 25th July, 2016 (Exhibit-H to the plaint) and more particularly paragraph 2 thereof wherein it was specifically stated that as a part of the arrangement and in discharge of the Defendant's liability, the Defendant had issued post-dated cheque bearing no. 244024 dated 30th June, 2016 drawn on Cosmos Bank, Ville Parle Branch for a sum of Rs.1.50 Crores towards repayment of the principal amount. He stated that in reply to this notice, the Defendant had stated, and according to Mr. Kedia, dishonestly, that the disputed cheque was issued at the Plaintiff's instance as a blank cheque in good faith and which was to be retained by the Plaintiff as a cancelled cheque. He submitted that looking to all these facts, two things became quite clear. Firstly, that the transaction in question has never been disputed by the Defendant and that monies are admittedly due and payable by the Defendant to the Plaintiff. Secondly, the issuance of this cheque was contemporaneous with the loan transaction and was on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881. He, therefore, submitted that the defence taken that the suit is barred under the provisions of the MML Act, 2014 is wholly misconceived. In this regard, Mr. Kedia placed reliance on the definition of the word "loan" as defined in Section 2 (13) of the Act. Placing reliance on this definition Mr Kedia submitted that "loan" means an advance at interest whether of money or in kind but does not include any advance of any sum exceeding Rs.3,000/- made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881, other than a promissory note. He submitted that in the facts of the present case, the advance namely, the loan of Rs. 1.50 Crores, was made on the basis of a negotiable instrument namely, the post-dated cheque issued by the Defendant to the Plaintiff in the sum of Rs.1.50 Crores dated 30th June, 2016. This being the case, he submitted that the monies advanced by the Plaintiff to the Defendant would not fall within the definition of the word "loan" as appearing in Section 2 (13) of the MML Act, 2014 and consequently the bar of passing any decree by this Court as contemplated under Section 13 of the Act cannot and does not arise. Mr. Kedia submitted that under Section 13 no Court can pass a decree in favour of the money lender in any suit unless the court is satisfied that at the time when the loan or any part thereof to which the suit relates was lent, the money lender held a valid licence and if the court is satisfied that the money lender did not hold valid licence, it shall dismiss the suit. He submitted that for a bar as contemplated under Section 13 to apply, it would first have to be established that the advance made by the Plaintiff to the Defendant was a "loan" as defined under the Act. According to Mr. Kedia, in the facts of the present case, the advance made by the Plaintiff to the Defendant fell within the exclusion as more particularly set out in Section 2 (13)(j) of the MML Act, 2014, and therefore, this defence had absolutely no merit. This being the only defence raised, Mr. Kedia submitted that the Summons for Judgment be made absolute and a decree be passed against the Defendant as prayed for in the Summons for Judgment.

11. On the other hand, Mr. Kamat, the learned counsel appearing on behalf of the Defendant, submitted that by virtue of Section 13 of the MML Act, 2014, the suit was barred in as much as admittedly the Plaintiff did not have a money lending licence on the date when the loan was granted by the Plaintiff to the Defendant. He submitted that it was incorrect on the part of Mr Kedia to submit that the present transaction would fall within the exclusion as contemplated under Section 2 (13) (j) of the Act which defines the term "loan". According to Mr. Kamat, for this particular transaction to fall within the exclusion it had to be established that the loan that was given of Rs. 1.50 Crores was on the basis of a negotiable instrument, namely, the cheque that was issued for Rs. 1.50 Crores. In other words, Mr. Kamat submitted that it has to be established that it was part of one composite transaction and only then can the Plaintiff fall within the exclusion as contemplated under Section 2 (13) (j) of the MML Act, 2014.

12. In the facts of the present case, Mr. Kamat submitted that the cheque that was issued was not a part of one composite transaction but was issued only for the purpose of repayment. In fact, the advance of Rs. 1.50 Crores made by the Plaintiff to the Defendant was on the basis of a promissory note which is at Exhibit-D to the plaint. This being the case, he submitted that the Defendant could not claim the exclusion as contemplated under Section 2 (13) (j) of the MML Act, 2014 and therefore clearly this suit was barred under the provisions of Section 13 of the Act. He, therefore, submitted that the present Summons for Judgment be dismissed and unconditional leave be granted to defend the suit.

13. Before dealing with these submissions, I must mention that both the parties have placed reliance on a decision of a Division Bench of this Court in the case of Parekh Aluminex Ltd Vs. M/s. Ashok Commercial Enterprises and Another, 2014 SCC Online Bom 2304 : [2015(2) ALL MR 679] I will deal with this decision of the Division Bench a little later in the judgment.

To understand the present controversy, it would be necessary to refer to certain provisions of the MML Act, 2014. The word "loan" has been defined in Section 2 (13) to read as under:-

"(13) " loan" means an advance at interest whether of money or in kind but does not include,-

(a) a deposit of money or other property in a Government Post Office bank or in any other bank or in a company or co-operative society ;

(b) a loan to, or by, or a deposit with any society or association registered under the Societies Registration Act, 1860 or any other enactment relating to a public, religious or charitable object;

(c) a loan advanced by the Government or by any local authority authorized by the Government ;

(d) a loan advanced to a Government servant from a fund, established for the welfare or assistance of Government servants, and which is sanctioned by the State Government ;

(e) a deposit of money with, or a loan advanced by, a co-operative society ;

(f) an advance made to a subscriber to, or a depositor, in a provident fund from the amount standing to his credit in the fund in accordance with the rules of the fund ;

(g) a loan to, or by, an insurance company as defined in the Insurance Act, 1938 ;

(h) a loan to, or by, a bank ;

(i) a loan to, or by, or deposit with, any corporation (being a body not falling under any of the other provisions of this clause), established by or under any law for the time being in force which grants any loan or advance in pursuance of that Act ;

(j) an advance of any sum exceeding rupees three thousand made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881, other than a promissory note ;

(k) an advance of any sum exceeding rupees three thousand made on the basis of a hundi (written in English or any Indian language) ;

(l) an advance made bonafide by any person carrying on any business, not having for its primary object the lending of money, if such advance is made in the regular course of his business;

(m) except for the purposes of sections 29 and 31,-

(i) a loan, by a landlord to his tenant for financing of crops or seasonal finance, of not more than Rs. 1,000 per acre of land held by the tenant ;

(ii) a loan advanced to an agricultural labourer by hisemployer ;

Explanation.- The expression "tenant" shall have the meaning assigned to it in the Maharashtra Tenancy and Agricultural Lands Act, or any other relevant tenancy law in force relating to tenancy of agricultural lands, and the expressions "financing of crops " and " seasonal finance " shall have the meanings assigned to them in the Maharashtra Agricultural Debtors' Relief Act ;" (emphasis supplied)

14. As can be seen from the aforesaid definition, a loan means an advance at interest whether of money or in kind but inter alia does not include an advance in the sum exceeding Rs.3,000/- made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881, other than a promissory note. An advance made bonafide by any person carrying on any business, not having for its primary object the lending of money, if such advance is made in the regular course of his business, shall also not be included in the definition of the term "loan".

15. Section 13 of the Act deals with suits filed by money lenders not holding a valid licence. Section 13 reads as under:-

"13. (1) No court shall pass a decree in favour of a money-lender in any suit unless the court is satisfied that at the time when the loan or any part thereof, to which the suit relates was lent, the money-lender held a valid licence, and if the court is satisfied that the money-lender did not hold a valid licence, it shall dismiss the suit.

(2) Nothing in this section shall affect the powers of a Court of Wards, or an Official Assignee, a receiver, an administrator or a Court under the provisions of the Presidency Towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920 or any other law in force corresponding to that Act, or of a liquidator under the Companies Act, 1956, or the Companies Act, 2013, as the case may be, to realise the property of a money-lender."

16. As can be seen from sub-section (1) of Section 13, no court shall pass a decree in favour of a money-lender in any suit unless the court is satisfied that at the time when the loan or any part thereof to which the suit relates was lent, the money-lender held a valid licence and if the court is satisfied that the money-lender did not hold a valid licence, it shall dismiss the suit. What is important to note, and as correctly stated by Mr Kedia, is that Section 13 would apply only when firstly it is established that the Plaintiff is a money-lender and secondly that the monies advanced by the Plaintiff to the Defendant would fall within the definition of the word "loan" as contemplated under Section 2 (13) of the MML Act, 2014.

17. Coming to the facts of the present case, what is clear is that on 1st March, 2016 an amount of Rs.1.50 Crores was disbursed by the Plaintiff to the Defendant by RTGS through Kotak Mahindra Bank Limited. This fact is not disputed. It is also not disputed that at the time when this disbursement was made, the Defendant issued three post-dated cheques for the repayment of the interest as well as the principal amount. The post-dated cheque no. 244024 dated 30th June, 2016 was the cheque issued for repayment of the principal amount of Rs.1.50 Crores. In addition to this, the Defendant had also executed a demand promissory note whereby it confirmed the receipt of the principal amount and the payment of interest thereon. What is important to note is that it is even the case of the Defendant that these cheques were issued at the time when the disbursement of Rs.1.50 Crores was made by the Plaintiff to the Defendant. This is clear from the Defendant's advocates letter dated 2nd August, 2016 and more particularly paragraph 2 thereof wherein the Defendant has contended that these post-dated cheques were issued at the Plaintiff's instance and were issued blank in good faith which was to be retained by the Plaintiff as a cancelled cheque. It is not the case of the Defendant that these cheques were issued only subsequently and did not form part of the composite transaction, namely that they were not issued contemporaneously along with the disbursement of the loan by the Plaintiff to the Defendant. This also becomes quite clear when one sees that all three cheques that were issued were serially numbered (namely cheque nos. 244022, 244023, 244024), despite all these three cheques being of different dates namely 11th March, 2016, 1st April, 2016 and 30th June, 2016 respectively. Over and above this, even in the affidavit in reply the Defendant has admitted that at the time of disbursement of the amount of Rs.1.50 Crores several postdated cheques and promissory note/bills of exchange were given as security to the finance broker Mr. Vinod Saraf. All this material on record leads to the irresistible conclusion that these cheques were issued at the same time when the advances were granted by the Plaintiff to the Defendant of Rs.1.50 Crores. This being the factual position, it is clear that this forms a part of one composite transaction and the advance of Rs.1.50 Crores given by the Plaintiff to the Defendant was made on the basis of a negotiable instrument as defined in the Negotiable Instruments Act, 1881, other than a promissory note. The negotiable instrument in the facts of the present case was cheque no.244024 dated 30th June, 2016 drawn on Cosmos Bank, Vile Parle Branch in the sum of Rs.1.50 Crores.

18. This being the factual position, I find considerable force in the argument of Mr. Kedia that the present transaction would not be hit by the provisions of Section 13 of the MML Act, 2014, in view of the fact that the monies advanced by the Plaintiff to the Defendant would not fall within the definition of the term "loan" as contemplated in Section 2 (13) of the MML Act, 2014. In this regard it would be apposite for me to refer to the Division Bench judgment of this Court in the case of Parekh Aluminex Ltd, 2014 SCC Online Bom 2304 : [2015(2) ALL MR 679] (supra). A similar argument as the one that was canvassed before me was raised before the Division Bench as can be seen from paragraphs 11 to 15 thereof. After analyzing certain provisions of the Bombay Money Lenders Act, 1946 and which provisions are pari-materia to the provisions of the MML Act, 2014, this Court in paragraphs 17 to 21 held as under:-

"17. The Bombay Money-Lenders Act was intended to do away with a very serious evil in our society. It was intended to keep control over money-lending transactions and to see that excessive rate of interest was not charged by money-lenders and the only way that such control could be maintained was by providing penalties for doing money-lending business without a proper license from the State. Therefore, in construing an Act of this nature which takes away vested rights and curtails freedom of contract in order to give relief to a particular class, the Court should guard against giving it an interpretation which would extend its scope. The provisions of the Act should be interpreted literally and strictly. Section 2(9)(f) expressly excludes an advance made on the basis of the negotiable instrument as defined under the Negotiable Instruments Act, from the definition of the term 'loan'.

18. Section 10 provides that no Court shall pass a decree in favour of a money-lender to which the Act applies unless the money-lender held a licence at the relevant time. Section 2(17) states that the expression "suit to which this Act applies" means any suit or proceeding of the nature mentioned in clauses (a), (b) and (c) thereof. Clause (a) refers to a suit or proceeding "for the recovery of a loan made after the date on which the Act comes into force." Thus if a loan falls within the ambit of the expression "suit to which this Act applies" in section 2(17), a suit or proceeding to recover the same would have to be dismissed in view of section 10 unless the money-lender holds a licence at the relevant time.

19. The question therefore, is whether the loan in the present case falls within the ambit of sections 2(17) and (10). The appellant's contention that the suit is barred by the provisions of the Bombay Money Lenders Act is not well founded. Section 2(9) defines a loan to mean an advance at interest whether of money or in kind, but does not include a loan or advance of the nature stipulated in clauses (a) to (f2) thereof. The above suit is not hit by the Bombay Money Lenders Act in view of clause (f) of section 2(9) of the Bombay Money Lenders Act. In view of clause (f), the loans do not fall within the purview of the Act as they were advances made on the basis of the negotiable instrument as defined in the Negotiable Instruments Act, 1881 viz. the cheques and the bills of exchange.

20. In our view, in the present case, the loans were advanced by the respondents to the appellants on the basis of negotiable instruments other than promissory notes. This is clear from the facts and circumstances of this case especially the manner in which the amounts were advanced and cheques were drawn. The fact that the cheques were forwarded by the appellants to the respondents after the loans were advanced by RTGS transfers makes no difference. The amounts were advanced by the respondents to the appellants and the cheques and the bills of exchange were issued by the appellant to the respondents as a part of one composite agreement. In other words, this agreement was entered into at the same time. This is not a case where the amounts were first advanced and thereafter the parties agreed that the borrower would draw the cheques and bills of exchange and execute the said writings. The entire arrangement was agreed upon at the same time. The cheques and bills of exchange were forwarded subsequently in accordance with and pursuant to this agreement which had already been arrived at. There is nothing on record that militates against this view. The appellant has not even pleaded anything to the contrary. It is not the appellant's case that the cheques and the bills of exchange were drawn and the writings were executed independent of the loan pursuant to any understanding arrived at subsequently. It follows therefore that the said loans were made on the basis of the said negotiable instrument viz. the cheques and the bills of exchange drawn by the appellants in favour of and payable to the respondents.

21. The mere fact that a negotiable instrument is handed over subsequent to the loan being disbursed makes no difference if the loan was made on the basis of the negotiable instrument. Where it is agreed as part of a composite agreement to advance a loan against a negotiable instrument covered by section 2(9)(f), it makes no difference that the negotiable instrument is handed over subsequently. (emphasis supplied)

19. I find that the ratio of this decision and more particularly the findings given in paragraph 20, would squarely apply to the facts of the present case. In the present case also the loan was advanced by the Plaintiff to the Defendant on the basis of the negotiable instrument other than the promissory note, namely, the cheque of Rs.1.50 Crores. This is clear from the facts and circumstances as mentioned earlier and especially the manner in which the amounts were advanced and the cheques were drawn. In the facts of the present case, it has been admitted by the Defendant that it had issued the post-dated cheques but the defence taken was that they were blank and were only as a collateral security. This would clearly establish that the amounts advanced by the Plaintiff to the Defendant and the cheques that were issued for repayment, were all issued by the Defendant to the Plaintiff as a part of one composite agreement. In other words, this agreement was entered into at the same time. This being the clear position, I find that even if the Plaintiff was to be held to be a money-lender, this transaction would not fall within the definition of the word "loan" and consequently, the present suit was not hit by bar as contemplated under Section 13 of the MML Act, 2014.

20. Mr Kedia also contended before me that in any event this is a one off transaction and therefore would not fall within the rigors of the MML Act, 2014. He submitted that under Section 2 (13)(l) of the Act an advance made bonafide by any person carrying on any business not having for its primary object the lending of money, if such advance is made in the regular course of its business, would not fall within the definition of word "loan". In the facts and circumstances of the present case, he submitted that the Defendant has not brought anything on the record to show that the Plaintiff was regularly carrying on the business of money lending. In any event, he submitted that the primary object for which the company was incorporated was for trading in shares and operating as a stock broker. He submitted that the reliance placed by Mr. Kamat on the balance-sheet of the Plaintiff was wholly misconceived. In fact, the balance-sheet itself showed that the primary business of the Plaintiff was not of money lending but was of dealing in shares and securities. This being the case, he submitted that even otherwise the provisions of the MML Act, 2014 cannot come to the assistance of the Defendant.

21. I find considerable force even in this argument. On going through the annual report which contains the balancesheet as well as the profit and loss account of the Plaintiff company, I do not find that the primary business of the Plaintiff is of money lending. Merely because the balancesheet shows that there are certain loans and advances granted by the Plaintiff to four or five parties does not by itself, without anything more, make the Plaintiff a moneylender as contemplated under the MML Act, 2014. Even on this ground, therefore, I find that the defence raised by the Defendant to be without any merit.

22. As mentioned earlier, as far as the merits of the matter are concerned, there is no dispute raised by the Defendant. However, despite the defence raised being completely moonshine and illusory, purely out of mercy, the Defendant is granted leave to defend the present suit on the condition that they deposit in this Court a sum of Rs.1.65 Crores within a period of six weeks from today. After the aforesaid deposit is made, the Plaintiff shall thereafter file its Written Statement within a period of eight weeks therefrom and the suit shall be transferred to the list of Commercial Causes. If the deposit of Rs.1.65 Crores is not made within a period of six weeks from today, the Plaintiff shall be entitled to apply for an ex-parte decree.

23. The Summons for Judgment is disposed of in the aforesaid terms.

Ordered accordingly.