Dismissed

Dr Mahendra Kumar Modi and 1 Other v. Gujrat State Fertilizers and Chemicals Ltd.

Bombay HC24 Aug 2016APP/579/2016

Case brief

AI extract

What is this about?

This appeal contested an order appointing a Court Receiver to manage a vacant mortgaged flat pending hearing of a recovery suit. The Court found the Single Judge's prima facie findings regarding the mortgage and debt were unassailable. Upholding the discretionary nature of the order as reasonable and not arbitrary, the appeal was dismissed.

What did the court decide?

The appeal is dismissed. The Court Receiver remains in symbolic possession for six weeks from today, with no further steps allowed.

Dr Mahendra Kumar Modi and 1 Other Vs Gujrat State… — Execution and Attachment | Bombay HC (2016)

osappeal 841

ssp

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO.841 OF 2015

¶5

IN

¶6

 SUIT NO.810 OF 2013

¶7

Dr.Mahendra Kumar Modi & anr. ...Appellants
vs.
Gujarat State Fertilizers &
Chemicals Ltd. ...Respondent

¶8

Mr.Mayur Khandeparkar a/w Mr.Rushabh Sheth and Ms
Pooja Batra i/b M.S.Bodhanwalla & Co. for the
appellants

¶9

Mr.Gaurav Joshi, Senior Counsel a/w Ms Snehal Shah,
Mr.Gaurav Shah, Ms Jigiisha i/b Negandhi Shah
Himayatullah for the respondent

¶10

CORAM : A.S.OKA, & P.D.NAIK,JJ.
DATE ON WHICH JUDGMENT IS RESERVED: APRIL 12, 2016
DATE ON WHICH JUDGMENT IS PRONOUNCED:AUGUST 24, 2016

¶11

JUDGMENT: (PER A.S.OKA,J.)

¶12

1By this appeal, the appellants who are the
original defendants have taken an exception to the
Judgment and order dated 1st October 2015 passed by
the learned Single Judge on a Notice of Motion taken
out by the respondent-plaintiff.

¶13

2With a view to appreciate the submissions made
across the bar, it will be necessary to make a brief
reference to the facts of the case. For the sake of
convenience, we are referring the parties with
reference to their status before the learned Single
Judge. A suit for recovery was filed by the
plaintiff seeking a decree against the first

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2 osappeal 841

¶15

defendant in the sum of Rs.3,98,02,466/- at the rate
of 13.50% p.a on the principal amount of
Rs.2,00,00,000/- from 1st August 2013. The second
prayer in the suit is for a declaration that the
suit property which is the flat No.2(the “suit
flat”) in Shreyas building, Madam Cama Road, Mumbai
400 020 and the shares issued by the Shreyas Co-
operative Housing Society Limited stand validly
mortgaged in favour of the plaintiff in respect of
the suit claim. The third prayer is for a decree
fixing a date for redemption of mortgage. There are
other consequential reliefs sought in the plaint.
The case made out by the plaintiff is that it was
supplying certain raw material required for
manufacturing polyester filaments to the second
defendant. Prior to 6th September 2005, the second
defendant was enjoying the credit exposure limit of
Rs.11.25 crores with the plaintiff. On 6th September
2005, by addressing a letter to the second
defendant, the exposure limit was offered to be
enhanced to Rs.13.25 crores subject to the condition
of reducing the exposure to the present level of
Rs.11.25 crores. This was subject to additional
condition of the first defendant mortgaging suit
property in favour of the plaintiff.

¶16

3According to the plaintiff, on 9th September
2005, a Memorandum was executed by the first
defendant recording deposit of title deeds in
respect of the suit property with the plaintiff.
The memorandum records that the mortgage shall
continue as security for the credit exposure granted

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to the second defendant which could be released only
upon reduction of additional credit exposure of
Rs.2,00,00,000/- by 31st March 2006.

¶19

4It is alleged that the second defendant
defaulted in its assurance of reducing credit
exposure limit from Rs.13.25 crores to Rs.11.25
crores by 31st March 2006 and in fact outstanding
amount on the said date payable by the second
defendant was Rs.16,79,09,732.62. The second
defendant according to the plaintiff admitted that
the account remained overdue and large amount was
payable to the plaintiff. Reliance is placed on
certain letters of the second defendant admitting
that the account had remained overdue. A summary
suit was filed by the plaintiff against the second
defendantforrecoveryofasumof

¶20

Rs.22,47,83,280/-. The plaintiff continued to be a
mortgagee of the suit property to secure repayment
of the enhanced credit limit of Rs.2,00,00,000/-
and the interest accrued thereon. According to the
case of the plaintiff, one of its Officers
Mr.P.A.Francis, Surveyor and valuer visited the suit
flat for conducting valuation. He was informed by
the manager of the housing society that the first
defendant had intimated the society that the
defendants had resolved their dispute with the
plaintiff by paying the outstanding amount and
therefore, a request was made to the society by the
first defendant to issue a duplicate Share
Certificate. On 27th May 2013, the plaintiff
addressed a letter to the said society repudiating

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the said representation made by the first defendant
and called upon the society not to entertain any
application made by the first defendant in respect
of the transfer of the suit property. Thereafter,
the present suit has been filed.

¶23

5In the suit, a Notice of Motion was taken out
by the plaintiff for appointment of Receiver of the
suit property and for injunction. On application
made for grant of urgent ad-interim relief, by order
dated 2nd September 2013 the learned Single Judge
recorded the statement of the first defendant that
it will not alienate the suit flat, will not create
third party interests therein and will not part with
possession thereof. As a preliminary issue of
limitation under section 9A was raised by the
defendants, the Notice of Motion could not be
decided finally. The plaintiff moved for further ad-
interim relief of appointment of Receiver in respect
of the suit flat. As the suit flat which was in
prime locality in Mumbai was lying vacant, a prayer
was made for issuing a direction to the Court
Receiver to let out the same on usual conditions as
to agency and payment of royalty. By the impugned
order dated 1st October 2015, further ad-interim
relief has been granted on the Notice of Motion.
The operative part of the impugned order reads thus:

¶24

“(i) The Court Receiver, High Court, Bombay, is
appointed Court Receiver in respect of the suit
Flat viz. Flatt No.2, Shreyas Building, 180,
Madam Cama Road, Mumbai 400 020.

¶25

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(ii)The Court Receiver shall after taking
possession of the Suit Flat let out the same to a
third party as agent/s of the Court Receiver,
upon payment of security and royalty.

¶28

(iii)The initial expenses of inviting offers,
etc shall be borne by the plaintiff.

¶29

(iv)Before executing the Agency Agreement, the
Court Receiver shall submit his report to this
Court and obtain confirmation of this Court qua
the terms of the agreement.”

¶30

6The learned Judge recorded a prima facie
finding that there was a mortgage of the suit flat
in favour of the plaintiff and considering the
amount due and payable to the plaintiff on 31st March
2006, it was entitled to enforce the mortgage. The
learned Judge observed that the suit flat was
admittedly vacant. The learned Judge observed that
by the time the suit is finally heard and disposed
of, the claim of the plaintiff would increase by
several crores. Therefore, the learned Judge
proceeded to pass the impugned order.

¶31

7The present Appeal came up before this Court on
11th December 2015. While granting ad-interim
relief, though this Court restrained the Court
Receiver from taking further steps, he was permitted
to take symbolic possession. We must note here that
the learned counsel for the appellant tendered a
draft amendment to the Memorandum of Appeal for
adding additional grounds. We permitted the learned
counsel to address us on the added grounds in view

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6 osappeal 841

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of provision of rule 2 of Order XLI of the Code of
Civil Procedure,1908 (for short “the said Code”).
His submission is that there is no debt due from the
first defendant as he is neither a borrower nor a
guarantor in respect of the credit exposure
allegedly availed by the second defendant. He
submitted that no personal decree can be passed as
against the first defendant and that there was no
special covenant so as to make the first defendant
liable as a borrower or guarantor in respect of the
credit exposure availed by the second defendant.
He submitted that there is no pleading that any such
implied covenant is present in terms of section 68
of the Transfer of Property Act,1882 (for short `the
said Act'). He submitted that the monitory claim in
terms of prayer clause (a) was barred. He urged
that ad-interim order of drastic nature could not
have been passed by the learned Single Judge. He
urged that the Memorandum of Mortgage was not
adequately stamped in accordance with law. He
submitted that the learned Single Judge had earlier
considered the prayer for grant of ad-interim relief
and there was no warrant to grant further ad-interim
relief. He submitted that the first defendant had
been already discharged having regard to the fact
that if any time credit exposure was below 11.25
crores, the security offered by the first defendant
stood discharged. He submitted that as of 31st March
2006, the credit exposure was reduced to an amount
less than Rs.11.25 crores. He submitted that there
are clear discrepancies in the statement of accounts
submitted by the plaintiff. He submitted that there

¶34

osappeal 841

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was assertion in the plaint that the plaintiff was
not claiming any relief against the second
defendant. But, findings have been recorded against
the said defendant. Reliance was placed on the
decision of this Court in the case of Anita
Venkatrao vs. Surendra Karsonal Dalal and others
dated 5th December 2015 in Writ Petition No.12036 of
2015. The submission is that such drastic ad-
interim order ought not to have been made by the
learned Single Judge especially when the issue of
jurisdiction was raised.

¶37

8The learned senior counsel appearing for the
plaintiff tendered across the bar photographs of the
suit flat showing that the entire furniture and
fixtures therein are ready and therefore, if the
premises are given on leave and licence, both the
first defendant and the plaintiff will be the
beneficiaries. He submitted that keeping the
premises vacant will not serve any one's purposes.
He relied upon the decision of a full Bench of this
Court in the case of State Bank of India Vs. Trade
Aid Paper and Allied Products (India) Pvt.Ltd and
others1. He urged that the law laid down by the
full Bench will squarely apply to the present case.
Reliance was also placed by the learned senior
counsel for the original plaintiff on a decision of
the Division Bench dated 2nd September 2014 in
Appeal (L) No.379 of 2014 (Prem Bhagwandas Harjani
vs. Naraindas Vensimal Harjani and others). He also
relied upon the Judgment and Order dated 17th July

¶38

1 AIR 1995 BOMBAY 268

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8 osappeal 841

¶40

2012 passed by the learned Single Judge of this
Court in the case of Freny Kersi Irani and another
vs. Soona Kali Contractor and others in Notice of
Motion No.748 of 2012 in Suit No.2761 of 2011. He
submitted that the learned Single Judge was
justified in granting ad-interim relief of
appointment of the Court Receiver.

¶41

9We have carefully considered the submissions.
It will be necessary to make a reference to the
Memorandum dated 9th September 2005 executed by the
first defendant in favour of the plaintiff. It is
executed on a stamp paper of Rs.100/-. Material
portion of the Memorandum reads thus:

¶42

“Ref: Additional Credit exposure of Rs.200
lacs granted by you to M/s.Modipon Fibres
Company a division of Modipon Ltd., Modinagar

¶43

Dear Sirs,

¶44

This is to place on record that in
consideration of a sum of Rs.200 lacs granted
as an additional credit exposure from
Rs.11.25 crores to Rs.13.25 crores by
M/s.Gujarat State Fertilizers & Chemicals
Ltd. (hereinafter referred as “MFC”) towards
purchase of Caprolactam, which is to be
reduced to Rs.11.25 crores by 31.3.2006.

¶45

I hereby declare that title deeds in respect
of flat office premises No.2 situated on

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osappeal 841

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ground floor, the Shreyas Co-operative
Housing Society Limited, 180, Madam Cama
Road, Mumbai 400 020 containing by
measurement built up areas of about 1000 sq
ft bet the same a little more less together
with proportionate interest in land and all
other rights and privileges are being
deposited as and by way of equitable mortgage
with GFC on 9.9.2005 as security for
additional credit exposure of Rs.200 lacs by
GFC which shall be released / returned upon
reduction of additional credit exposure of
Rs.200 lacs from Rs.13.25 crores to Rs.11.25
crores.

¶49

I further declare that the said title deeds
are the only document of title in respect of
our said immovable property situated on
ground floor, Shreyas Co-operative Housing
Society Limited, 180, Madam Cama Road, Mumbai
400 020 and I have a clear and marketable
title thereon.”

¶50

10Thus, the document provides that the security
for additional credit exposure shall be released on
reduction of additional credit exposure from
Rs.13.25 crores to Rs.11.25 crores. Prima facie,
there is no dispute about the execution of the
document. As far as the objection of inadequacy of
stamp is concerned, even assuming that there is some
merit in the same, by paying deficit stamp duty and
penalty in accordance with section 34 of the

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Maharashtra Stamp Act, the document can always read
in evidence. The issue as to legality of the
document can be gone into at the time of final
hearing. Suffice it to say that prima facie, there
is no dispute about the execution and the contents
of the document.

¶53

11 We must note here that the first defendant is
relying upon the letter dated 30th March 2006
addressed to the plaintiff by which the second
defendant informed the plaintiff that the credit
exposure granted to the said defendant has been
reduced and balance as on 30th March 2006 was
Rs.11.06 crores. A statement of account dated 29th
August 2013 has been annexed to the said letter.
The stand of the plaintiff is that the said letter
is a fabricated letter. It was submitted that in any
case, the statement of account dated 29th August
2013 could not have been attached to the said letter
of 30th March 2006. The contention of the plaintiff
was that the said letter was not received by it.
As far as this letter is concerned, in paragraph 6
of the impugned order, the learned Single Judge has
observed thus:

¶54

“6...It is submitted that it is impossible to
annex a statement of account dated 29th August
2013 to the alleged letter dated 30th March
2016. It is submitted by the plaintiff that
despite agreeing to provide inspection of the
said letter along with other documents
referred to and relied upon by Defendant No.2

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osappeal 841

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in its Affidavit-in-Reply, the Defendants
failed to provide inspection of the same.
This Court therefore called upon the Advocate
for the Defendants to produce proof of
dispatch and/or acknowledgment by the
Plaintiff of any such letter. However, the
Advocates for the Defendants on the adjourned
date admitted that there was no such proof of
dispatch to and/or acknowledgment of the
plaintiff for the said letter.”

¶58

12Apart from the fact that there is no evidence
to show that the letter dated 30th March 2006 was
dispatched and served to the plaintiff, the date
mentioned on the right hand corner of the first page
of the annexure to the said letter is 29th August
2013. We have already quoted the contents of the
Memorandum of deposit of title deeds. The
memorandum does not provide for automatic
cancellation or discharge of the security. Reliance
was placed by the first defendant on another letter
addressed by the Managing Director of the plaintiff
which is dated 8th June 2007 wherein it is mentioned
that as of that date, the plaintiff has exposure of
approximately 11+ crores. The learned Single Judge
rightly observed that the mention of the amount of
Rs.11+ crores does not necessarily suggest that
the amount was less than Rs.11.25 crores.

¶59

13Another interesting feature is noted by the
learned Single Judge. He has observed that though it
is claimed by the first defendant that the amount

¶60

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osappeal 841

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due and payable by the second defendant as on 30th
March 2006 were only Rs.11.06 crores, at no stage,
any demand was made by the first defendant to the
plaintiff for return of documents of title. This
aspect is very significant.

¶63

14From paragraph 9 of the impugned order, it
appears that the learned Judge permitted the parties
to furnish their respective statements of accounts
as on 31st March 2006. Accordingly, the accounts
were produced by the plaintiff showing that on 31st
March 2006, the amount payable by the second
defendant was Rs.16.79 crores. The second defendant
produced accounts showing that as on 31st March 2006
his liability was only Rs.11.06 crores. In
paragraph 9 of the impugned order, the discrepancies
in the accounts submitted by the second defendant
pointed out by the plaintiff have been set out.
There are four discrepancies pointed out by the
plaintiff in the accounts submitted by the second
defendant. The response of the defendants to said
discrepancies is in paragraph 15 of the written
submissions filed before the learned Single Judge.
Paragraph 15 has been quoted in the impugned order
which reads thus:

¶64

“The Defendant Nos.1 and 2 submit that a
reconciliation of the statement of accounts
of the plaintiffs with the statement of the
Defendant Nos.1 and 2 (as on March 30, 2006)
and the contention of the Plaintiffs that
some invoices of the Plaintiffs do not find

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osappeal 841

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place in the Statement of the Defendant Nos.1
and 2 and/or that some credits/payments in
the account claimed by the Defendant Nos.1
and 2 were never received by the Plaintiffs
are matters which with utmost respect cannot
be decided by submissions across the bar by
submission of compilations and without any
evidence being recorded in the matter. The
Plaintiffs submitted a compilation of certain
invoices and tendered the same across the bar
with a contention that these invoices do not
find place in the Statement of the Defendant
Nos.1 and 2. There could be a myriad of
reasons why that is so, assuming what the
Plaintiffs say is true. Likewise, the
veracity of the statements of the Plaintiffs
whether or do not they received the
credits/payments claimed to have been made by
the Defendant Nos.1 and 2 is to be tested in
the manner known to law. This can be
conveniently done under the umbrella of the
framing of the preliminary issue under
Section 9A of the Code of Civil
Procedure,1908.”

¶68

15Thus, the contention of the defendants seems to
be that evidence is necessary on aspect of accounts.

¶69

16Thus, there were discrepancies pointed out by
the plaintiff in the accounts submitted by the
second defendant. The main discrepancy pointed out
by the plaintiff was that all invoices produced by

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14 osappeal 841

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the plaintiff did not find place in the statement of
accounts of the defendants. It was specifically
pointed out that the payments of certain amounts
reflected in the accounts submitted by the
defendants was not received by the plaintiff. The
learned Judge is right when he held that the
defendants did not specifically respond to the said
deficiencies. In fact they avoided to deal with the
deficiencies.

¶72

17The documents produced by the plaintiff showed
that as of 30th March 2006, the amount of more than
Rs.11.25 crores was due and payable by the second
defendant.

¶73

18As stated earlier, the first defendant has
never asked for return of the title deeds or
discharge of the mortgage till the date of filing of
the present suit. The first defendant has not filed
any proceedings. Thus, prima facie, it can be said
that the mortgage is in subsistence. A preliminary
issue of jurisdiction under section 9A has been
raised by the defendants. Hearing of the issue will
take some time. Till the disposal of the
preliminary issue, the Notice of Motion pending
before the learned Single Judge cannot be finally
decided.

¶74

19The learned Single Judge has noted that in
August 2015 when the plaintiff noticed that the suit
flat was lying vacant, an application was was made
for grant of further ad-interim reliefs. The

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15 osappeal 841

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plaintiff could have always applied for grant of
further ad-interim reliefs as the decision on
preliminary issue will take considerable time.

¶77

20We do not find any error in the prima facie
findings recorded by the learned Single Judge that
the suit flat was mortgaged in favour of the
plaintiff and an amount of more than Rs.11.25 crores
was due and payable by the second defendant to the
plaintiff as on 31st March 2006. The said finding is
borne out from the record. The issue of
maintainability of the suit in view of bar of Rule 2
of Order II of the said Code can be decided at
appropriate stage.

¶78

21It cannot be disputed that as the suit flat is
situated at Madam Cama Road in south Mumbai, it will
fetch a very high amount of rent. The suit flat is
lying vacant. Therefore, the learned Single Judge
has rightly observed that it is not in the interests
of the either parties to keep the same vacant. In
paragraph 13, the learned Single Judge has observed
that by the time the suit is finally heard and
disposed of, the claim of the plaintiff would
substantially increase and it may not be possible
for the plaintiff to recover its dues by the sale of
the suit flat. We must note that if the suit flat
fetches substantial income pending the suit, even
the first defendant-mortgagor will be ultimately
benefited as the royalty amount will remain
deposited and invested.

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16 osappeal 841

¶80

22We find nothing wrong with the discretionary
order passed by the learned Single Judge. The
plaintiff has not been permitted to withdraw the
royalty amount.

¶81

23In the case of Wander Ltd and Anr vs Antox
India P. Limited2, the Apex Court was dealing with
the discretionary order passed by the learned Single
Judge which was taken in Appeal before a Division
Bench of High Court. In paragraph 14, the Apex
Court has observed thus:

¶82

“ 14. The appeals before the Division Bench were against the exercise of discretion by the Single Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be 2 1990 Supp (1) SCC 727

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17 osappeal 841

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justified in interfering with the exercise of
discretion under appeal solely on the ground
that if it had considered the matter at the
trial stage it would have come to a contrary
conclusion. If the discretion has been
exercised by the trial court reasonably and
in a judicial manner the fact that the
appellate court would have taken a different
view may not justify interference with the
trial court's exercise of discretion. After
referring to these principles Gajendragadkar,

¶85

J. in Printers (Mysore) Private Ltd. v. Pothan Joseph [(1960) 3 SCR 713 : AIR 1960 SC 1156] : (SCR 721)

¶86

“... These principles are well established, but as has been observed by Viscount Simon in Charles Osenton & Co. v. Jhanaton [1942 AC 130] ‘...the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles in an individual case’.”

¶87

The appellate judgment does not seem to defer to this
principle.”

¶88

 (emphasis added)

¶89

24We find nothing arbitrary or perverse in the
impugned order which is discretionary in nature.
The conclusions drawn by the learned Single Judge
are based on material on record.

¶90

25Hence, there is no merit in the Appeal and the
same is accordingly dismissed.

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osappeal 841

¶92

¶93

26The Court Receiver shall remain in symbolic
possession of the suit flat and no further steps
shall be taken on the basis of the impugned order
for a period of six weeks from today.

¶94

(P.D.NAIK,J.)(A.S.OKA,J.)

Dr Mahendra Kumar Modi and 1 Other v. Gujrat State Fertilizers and Chemicals Ltd.

Case brief

What is this about?

What did the court decide?

Dr Mahendra Kumar Modi and 1 Other v. Gujrat State Fertilizers and Chemicals Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

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