Forties Financial Services Ltd. v. M/S Good Value Marketing Co.Ltd. and Anr.

Bombay HC11 Jul 2005SJ/705/2003

Case brief

AI extract

What is this about?

In a summary suit, the court held that Section 22 of the Sick Industrial Companies Act does not apply to guarantees for lease dues. Regarding limitation, the court found an acknowledgement of liability but granted conditional leave to defend upon deposit, refusing unconditional leave.

What did the court decide?

Conditional leave to defend granted against defendant no.2 upon deposit of Rs.85.00 lakh within 16 weeks.

Forties Financial Services Ltd. Vs M/S Good… — Contract and Commercial Disputes | Bombay HC (2005)

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 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 ORDINARY ORIGINAL CIVIL JURISDICTION

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 SUMMONS FOR JUDGEMENT NO.705 OF 2003
 IN
 SUMMARY SUIT NO.829 OF 2003

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 Fortis Financial Services Ltd. Plaintiff

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 versus

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 M/s.Good Value Marketing Co.

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 Ltd. and another Defendants

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 Ms.Dholakia i/by Dholakia Gupte & Co. for
 plaintiff.
 Mr.Cyrus Ardeshir i/by Madekar & Co. for
 defendants.

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 CORAM : S.C.DHARMADHIKARI, J.
 DATE : 11th July 2005
 PC :

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 1. This Summons for Judgement is in a summary
 suit instituted by a non banking finance company.
 The business of plaintiff non banking finance
 company is set out in para 1 of the plaint.

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 2. Present Summons for Judgement is directed
 against both defendants. However, it is pointed
 out that defendant no.1 has approached BIFR and a
 reference being Case No.140 of 2003 is pending.
 It is pointed out that as long as the reference
 is pending, the relief namely decree as against
 first defendant cannot be granted. Reliance is
 placed upon Section 22 of the Sick Industrial
 Companies (Special Provisions) Act, 1985

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 (hereinafter referred to as "SICA" for short).
 Learned counsel appearing for plaintiff agrees
 that unless the necessary consent or approval of
 the Board is obtained or the reference is
 disposed off otherwise, present Summons for
 Judgement praying for judgement/decree against
 first defendant cannot proceed. Therefore,
 hearing of Summons for Judgement and the summary
 suit is adjourned sine die insofar as defendant
 no.1.

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 3. Now, the Summons for Judgement survives as
 against defendant no.2. Learned counsel
 appearing for plaintiff submits that Section 22
 can have no application insofar as claim against
 defendant no.2. She submits that defendant no.2
 has been sued as Guarantor who has guaranteed
 payment of amount due and payable to the
 plaintiff under a Lease Agreement. She submits
 that to such a transaction provisions of section
 22 of the SICA can have no application. In this
 behalf she places strong reliance upon a decision
 of this Court reported in AIR-2002-Bombay-8. She
 submits that the words "suspension of legal
 proceedings" can by no stretch of imagination
 cover amounts guaranteed by a guarantor under a
 lease agreement. She submits that the words "or

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 of any guarantee in respect of any loans, or
 advances granted to the Industrial Company"
 clearly demonstrate that Section 22(1) of SICA
 would apply only if guarantee is given in respect
 of any loans or advances granted to the
 industrial company. Present guarantee is in
 respect of amounts due and payable under a lease
 agreement and to such a guarantee, bar under
 section 22(1) of SICA would not apply. She
 submits that a Division Bench of this Court also
 had an occasion to consider this aspect of the
 matter in a decision reported in 2004(4)-BCR-578.
 In fact, view of learned Single Judge (supra) is
 taken note of by the Division Bench.

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 4. On the other hand, Mr.Ardeshir appearing for
 defendant no.2 contends that Section 22 of SICA
 is clear and the words appearing therein have to
 be interpreted literally. So interpreted, there
 is no scope for making any distinction on the
 basis of a lease agreement or otherwise. He
 submits that Section 22 has provided for suits
 for recovery of money and in the present case
 even against the guarantor a money decree is
 claimed. Therefore, when the said provision
 deals with guarantee and protection thereof is
 not denied to the guarantors as well, then the

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 bar must apply squarely. He relies upon a
 judgement of Supreme Court in the case of Patheja
 Brothers Forgings and Stamping Limited Vs. ICICI
 limited reported in 2000(6)-SCC-545.

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 5. I am unable to accept contention of
 Mr.Ardeshir. The law laid down by Division Bench
 apart from binding upon me has my respectful
 concurrence. The provisions only apply when
 guarantee is given to secure claims arising out
 of loans or advances granted to the industrial
 company. In other words, only if the guarantee
 is in respect of any loans or advances granted to
 the industrial company, only then the guarantor
 is protected. It is only in such cases that no
 suit for recovery of money or for the enforcement
 of any guarantee would lie against the guarantor
 or can proceed except with the consent of the
 Board or, as the case may be, the appellate
 authority. No reference is necessary to any
 decisions. In the present case, the averments in
 the plaint that the guarantee pertains to amounts
 due and payable by first defendant under a lease
 agreement, are not denied. Defendant is sued in
 his capacity as a guarantor because he has
 guaranteed repayment of amounts under the lease
 agreement. Once this is the position, then

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 Section 22(1) of SICA can have no application and
 the Summons for Judgement and the summary suit
 can proceed.

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 6. Coming to the merits, Ms.Dholakia - learned
 counsel appearing for plaintiff vehemently
 contends that there is no dispute that a lease
 agreement was executed between plaintiffs and
 first defendant. There is no dispute that in
 consideration of this facility, defendant no.2
 who is the Chairman and Managing Director of
 defendant no.1, executed at Mumbai the Deed of
 Guarantee. Inviting my attention to the Deed of
 Guarantee which is annexed to the plaint at
 Exhibit-B, she submits that the guarantor
 (defendant no.2) has guaranteed repayment of the
 dues and the guarantee is enforceable. She
 submits that clauses 9, 12 and 16 are absolutely
 clear. In the light of this admitted position,
 second defendant cannot escape the liability.

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 7. Ms.Dholakia further contends that apart from
 making payment of only Rs.10,42,424/-, the first
 defendant made no payment under the lease
 agreement. In these circumstances, letters were
 addressed to defendants 1 and 2. Defendants 1
 and 2 have admitted their liability to make

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 payment but have sought extensions. Therefore,
 on 11th April 1997 a letter was addressed to
 second defendant calling upon him as guarantor to
 make payment of the sum then outstanding i.e.
 Rs.90,41,623/-. Second defendant has not
 disputed his liability nor has he complied with
 the demand raised on him. It is in these
 circumstances that the present summary suit is
 filed and the Deed of Guarantee being a written
 contract and the liability admitted, a decree
 against second defendant must follow.

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 8. Mr.Ardeshir, on the other hand, has raised
 several contentions. His first submission is
 that the claim in the suit is time barred. He
 submits that the guarantee has been invoked by
 the plaintiff vide demand notice dated 11th April

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 1997. However, the suit is filed on 25th
 February 2003. He submits that in para 16 of the
 plaint part payment is relied upon. However,
 that part payment is beyond the period of three
 years from the date of invocation of guarantee,
 and therefore, that aspect would not save
 limitation. Thus, period of limitation being
 three years, the suit filed admittedly after
 three years of invocation is time barred. He
 relies upon judgements of this Court and the

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 Hon’ble Supreme Court as well as other Courts in
 this behalf. His second contention is that
 averments in para 16 of the plaint in any event
 would not save the bar of limitation. He has
 taken me through the affidavit in reply and
 submitted that triable issue is raised insofar as
 limitation is concerned, and therefore,
 unconditional leave to defend should be granted.

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 9. He submits that no machineries were delivered
 to defendant no.2 under the lease agreement. No
 machineries of whatsoever description were
 installed by the plaintiff at any point of time.
 In other words, the suit transaction is not a
 lease transaction but a finance arrangement. For
 all these reasons he submits that unconditional
 leave be granted.

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 10. Ms.Dholakia with a view to clarify the
 averments in para 16 of the plaint has filed a
 further affidavit. She states that this further
 affidavit is filed only as and by way of
 precaution. She states that averments in para 16
 cannot be read to mean that payment was made on
 24th August 2001. On the other hand, the
 averments are clear inasmuch as payment was made
 till 24th August 2001 but thereafter no payment

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 has been made. This aspect becomes clear if one
 peruses the details of part payments made from
 time to time. The figure of Rs.12,32,424/-
 appearing in para 16 is correct. Only details of
 payments are set out in this further affidavit.
 These payments are reflected in a statement as
 well as entries in that behalf are made in the
 accounts of plaintiff’s bankers. She, therefore,
 submits that because of acknowledgement of
 liability by defendants 1 and 2 by letter dated
 29th January 1998 and the part payments made from
 time to time, the bar of limitation would not
 apply.

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 11. With the assistance of learned counsel
 appearing for both sides I have perused the
 plaint, annexures thereto and affidavits filed in
 reply and rejoinder. In my view, there is no
 substance in the contention of Mr.Ardeshir that
 the transaction in question was not a transaction
 of lease but a finance transaction. Such plea is
 taken for the first time in the affidavit filed
 in 2005. On the other hand, both, company as
 well as second defendant, have consistently taken
 a stand that transaction in question is a lease
 transaction, that the liability is towards lease
 rentals and that assets/equipments are supplied

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 pursuant thereto. In this view of the matter, a
 bald statement on affidavit about nature of
 transaction is, therefore, unacceptable.

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 12. The contention that the suit claim is barred
 by limitation, prima facie, does not appear to be
 sound. Although reliance is placed on Sections
 18, 19 and 20 of the Limitation Act and
 judgements rendered by several Courts and the
 Hon’ble Supreme Court, in my view, in the latest
 decision the Supreme Court has held that Courts
 generally lean in favour of a liberal
 construction of such statements though an
 acknowledgement shall not be inferred where there
 is no admission. So long as the statement
 amounts to an admission, acknowledging the jural
 relationship and existence of liability, it is
 immaterial that the admission is accompanied by
 an assertion that nothing would be found due from
 the person making the admission or that on an
 account being taken something may be found due
 and payable to the person making the
 acknowledgement by the person to whom the
 statement is made (See - 2004(12)-SCC-360).

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 Further, the earlier view seems to be some what
 diluted inasmuch as the Supreme Court observed
 that the rigour of Section 3 of the Limitation

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 Act, 1963 is required to be construed in a broad
 based and liberal manner (See - 2004(2)-SCC-749).
 In the present case, it is clear that the letter
 dated 29th January 1998 is addressed by the
 company and after setting out details of post
 dated cheques this is what is stated :-

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 "We once again remind you not to deposit
 the aforesaid cheques on the due dates as
 the company in financial crisis which was
 not foreseen by us at the time of issue
 of the post dated cheques. We also want
 to inform you by the enclosed letter the
 names of the Executive Directors and
 Directors who have already resigned from
 the directorship of the company.

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 As soon as the company will arrange for
 finance we will inform you and thereafter
 resolve the problems of the outstanding
 dues by mutual consent."

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 Thus, there is acknowledgement and admission of

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 liability. That post dated cheques in due
 discharge thereof are handed over is also

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 admitted. Part payments are, therefore, clearly
 made after the invocation of guarantee till 24th
 August 2001. Therefore, in my view, there is no
 reason to disbelieve the version set out in para
 16 of the plaint. However, with a view to grant
 opportunity to the defendant to make good his
 case on limitation, conditional leave can be
 granted. This is because once liability is

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 acknowledged and there is evidence of part
 payment, unconditional leave should not be
 granted. Therefore, insofar as applicability of
 Section 22 of SICA is concerned, that issue is
 concluded against defendant no.2. He is a
 guarantor. His version is not that the guarantee
 was not executed. Since technical plea of
 limitation is raised, in my view, following order
 would meet the ends of justice.

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 13. ORDER :- A) Suit is adjourned sine-die as
 against defendant no.1 in the light of Section
 22(1) of SICA.. Liberty to apply to plaintiffs
 to have this Summons for Judgement placed for
 hearing and final disposal after proceedings
 before BIFR are disposed off or the BIFR grants
 necessary sanction under section 22(1) of SICA..
 Insofar as defendant no.2 is concerned,
 conditional leave to defend is granted on deposit
 of Rs.85.00 lakh (Rs.Eighty five lakh only)
 within a period of 16 weeks from today. If the
 amount is deposited within the time stipulated
 above, suit shall stand transferred to the list
 of commercial causes with usual directions to
 file written statement, discovery and inspection.
 Needless to state that if the amount is not so
 deposited, further consequences in law would

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 follow.

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 B) Liberty to plaintiffs to apply for withdrawal
 of the amount if deposited and such application
 would be dealt with on its own merits and in
 accordance with law.

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 (S.C.DHARMADHIKARI, J.)

Forties Financial Services Ltd. v. M/S Good Value Marketing Co.Ltd. and Anr.

Case brief

What is this about?

What did the court decide?

Forties Financial Services Ltd. v. M/S Good Value Marketing Co.Ltd. and Anr.

Case brief

What is this about?

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What the court decided

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