TaxTMI 
TaxTMI 
1989 (5) TMI 283
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....petition to this court, invoking the provisions of section 30 of the Act; Century Metals Ltd., a company incorporated under the Companies Act, 1956 (hereinafter referred to as "the company"), with its registered office at 86/87, Model Basti, New Delhi, respondent No. 1 herein, is an industrial concern within the meaning of the Act. It approached the IFCI, petitioner No. 1 herein, for a loan/advance to finance its project consisting of construction equipment and operation of its plant to be located at 24/3, Milestone, Delhi Hapur Road, Meerut District, U.P. The agreement between the IFCI and the company was finalised whereby the IFCI agreed to finance a loan of Rs. 29,00,000 to the company on the terms and conditions which were incorporated in the agreement of loan entered into on August 19, 1972 (hereinafter referred to as "the loan agreement"). As security for the payment of the said loan together with interest stipulated therein, and commitment charges as well as other monies which may become due and owing by the company to the IFCI in terms of the agreement, the former created in favour of the latter on March 29, 1973, a mortgage by deposit of title deeds in respect of the....
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.... 1,42,143.00 31-05-1982 85,186.00 20-09-1978 1,50,949.00 23,17,717.33 20-03-1979 1,55,224.00 (iii) Commitment charges 20-03-1975 Nil 20-03-1979 1,984.00 20-05-1975 Nil 20-09-1979 2,017.00 20-03-1976 1,994.52 20-03-1980 1,995.00 20-09-1976 2,016.00 20-09-1980 2,016.00 20-03-1977 1,984.00 20-03-1981 20-09-1977 2,017,00 (up to 3-11-1980) 482.00 20-03-1978 1,984.00 20,506.96 20-09-1978 2,017.00 Besides the aforementioned defaults in payment of installments on account of principal and interest, as and when due, various other breaches of the covenants of the loan agreement are imputed to respondent No. 1, and it stated that eventually a notice dated June 15, 1982, was served by petitioner No. 1 on respondent No. 1 recalling the entire principal amount of Rs. 25,00,000 besides interest amount of Rs. 23,17,717.33, calculated up to May 31, 1982, making together Rs. 48,38,224.29 as also further interest stipulated in the loan agreement up to the date of payment, further intimating respondent No. 1 that the....
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....pondent No. 1 in favour of the bank with the result that the properties of respondent No. 1 are mortgaged to the IFCI and the bank on a pari passu basis. The said bank has been impleaded in the petition as respondent No. 2, only for the reason that the properties in regard to which this petition is being made, also stand mortgaged in their favour, as security for the loan of Rs. 15,00,000 granted by respondent No. 2 to respondent No. 1. No relief is claimed against this respondent. It was, however, added that any order passed in this petition would also enure to the benefit of respondent No. 2 and protect its interest to the extent of the loan secured by respondent No. 1 from respondent No. 2, and petitioner No. 1 was willing to have the sale proceeds of the mortgaged properties disbursed towards discharge of the outstanding amounts on a pari passu basis to respondent No. 2. On notice being served, respondent No. 1 filed a written reply raising some preliminary objections to the effect that the petition has not been signed, verified and instituted by a duly authorised person and that the petitioner was not otherwise entitled to claim these reliefs because the management of the i....
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.... under article 14 of the Constitution, and that the right of defence against the claim, vested in the present respondent, cannot be unreasonably curtailed or abridged by the arbitrary provisions of section 30 of the Act. The jurisdiction of this court to entertain and try the present petition is also questioned for the reason that only that High Court has jurisdiction to entertain and try the petition within the local limits of whose jurisdiction the respondent carries on the whole or a substantial part of its business and that it was within the knowledge of the petitioners that respondent No. 1 was not carrying on the whole or a substantial part of the business within the local limits of the High Court of Delhi. Another preliminary objection has been raised as to the rate of interest claimed in the petition. The contention is that the rate of interest stipulated in the loan agreement is usurious under the Usurious Loans Act, and, therefore, violates the provisions thereof and the whole loan transaction was liable to be reopened by this court and the claim of interest is also liable to be reduced to 6% per annum under the provisions of the Interest Act. On facts, the statu....
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....hich related to respon­dent No. 2 have been simply denied as wrong. There is no specific denial about advance of loan by respondent No. 2 of Rs. 15,00,000, as set out in the petition, or creation of the equitable mortgage in its favour of the properties as described in the petition. Respondent No. 2, namely, the Industrial Development Bank of India, also filed a reply by way of an affidavit confirming the fact that it had granted a loan of Rs. 15,00,000 to respondent No. 1, which was for the purpose of setting up a factory at Delhi-Hapur Road near Ghaziabad and that, in conside­ration of the said loan, respondent No. 1 executed a loan agreement dated March 2, 1974, setting out the terms and conditions of the said loan. It further averred that, on the same day, i.e., March 2, 1974, respondent No. 1 executed a registered deed of mortgage in favour of respondent No. 2 in respect of the movable and immovable properties of respondent No. 1 company for the said term loan of Rs. 15,00,000 together with interest, commitment charges, costs, expenses and all other monies payable by respondent No. 1 to respondent No. 2, and that in terms of the said loan agreement, a sum of Rs. 14,....
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....resent petition filed by IFCI be directed to sell the entire property of respondent No. 2, and to hold the realisation of the sale proceeds of the said mortgaged property for the benefit of petitioner No. 1 and respondent No. 2, and to distribute the same pro rata on pari passu basis between the two. A counter-affidavit was filed on behalf of respondent No. 1 to the reply affidavit filed on behalf of respondent No. 2 where, besides reiterating the challenge to the legality and validity of the provisions of section 30 of the Act and the maintainability of the present petition, it was asserted that the claim of respondent No. 2 is not legally maintainable as the so-called charge created by respondent No. 2 bank, over the movable and immovable properties of respondent No. 1 by virtue of mortgage deeds, was not enforceable for the reason that the alleged mortgage deeds had not been got registered with the Registrar of Companies, as required under the law. The execution of the loan agreement dated March 2, 1974, and the sanction of the loan amount of Rs. 15,00,000 was not denied as a fact nor the receipt of the loan amount of Rs. 14,95,000; the only plea being that the bank had no....
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....ires of section 30 of the Act was not liable to challenge and that it has been upheld by the High Court of Punjab and Haryana. It was further pleaded that the provisions of sections 31 and 32 of the State Financial Corporations Act, 1951, which were identical to those of section 30 of the Act, have been upheld by various High Courts in the country and were even considered by the Supreme Court, and thus the objections raised by respondent No. 1 were not maintainable. The objection raised as to the authority of petitioner No. 2 to institute this petition was also met by reiterating that he had been duly authorised by the board of directors by means of a resolution passed on January 31, 1979, and the petition had been duly and properly signed and verified by petitioner No. 2 who was then assistant general manager, now deputy general manager of petitioner No. 1, and its principal officer. On facts, it was denied that petitioner No. 1 had ever been in charge of the management of respondent No. 1 or was jointly responsible for its affairs or that the management of respondent No. 1 company had been taken over by the managing committee. It was pleaded that although Mr. G.D. Saraogi resi....
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....espondent No. 1 ? If so, whether the rate of interest stipulated under the loan agreement violates the provisions of the Usurious Loans Act? If so, to what effect? 3.Whether the mortgage by deposit of title deeds and the hypothecation created by respondent No. 2 in favour of the petitioner are illegal? 4.Whether section 30 of the Industrial Finance Corporation Act is ultra vires the Constitution? 5.Whether the petitioner is disentitled from bringing the present proceedings as alleged in paragraph 4 of the preliminary objections of respondent No. 1's reply? 6.Did failure to pay rupees four lakhs out of the promised sum of rupees twenty nine lakhs hamper the viability of the project of the industry concerned? If so, to what effect? 7.Whether respondent No. 1 failed to comply with the terms and conditions of the loan agreement? If, so, to what effect? 8.What is the amount due to the petitioner in respect of the loan and from whom? 9.Relief. Issue No. 1: The present petition has been instituted under the provisions of section 30 of the Act through Shri H.C. Sharma, assistant manager of the IFCI who is also petitioner No. 2 in the proceedings. He has appeared as ....
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....s respondent No. 1 remained punctual in payment, interest charged was at 81/2% per annum and it was only when defaults were committed in repayment that the petitioner charged interest at 9% per annum on compounding basis. Not a single question was put to this witness that the Corporation was not entitled to claim this rate. Learned counsel for the petitioner, at the time of hearing, referred to clause 3.2 of the loan agreement, exhibit P-3, where the term as to interest is incorporated as under: "3.2 Interest-The borrower shall pay interest on the principal amount of the loan outstanding from time to time at the rate of 9% (nine per cent.) per annum with a rebate of 1/2% (half per cent.) per annum for punctual payment of installments of principal and interest subject to the borrower complying with the provisions and convenants of these presents. Such interest shall be paid with half-yearly rests on 20th March and 20th September, each year. In default of regular payment of interest on the due date(s) compound interest shall become payable on monies due". There is not a whisper or suggestion to repudiate the existence of this term of the loan agreement or its binding nature by ....
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....it nor was the prayer made for enforcement of the terms of the agreement for recovery of the amount of loan advanced or interest accrued in the nature of a civil decree, and as such the powers of this court, while disposing of a petition under section 30 of the Act, was not to be circumscribed by other statutory provisions. Dr. Ghosh pointed out that the Supreme Court, in the aforesaid case, was dealing with the matter arising out of a petition under section 31 of the State Financial Corporations Act (for short "the State Act"), but submitted that these provisions are pari materia in all material particulars with those of section 30 of the Act and as such the ratio of that judgment would squarely apply in the present case. On a comparative reading of the Central Act as well as the State Act, I find force in the plea of Dr. Ghosh, and as such the principles enunciated by the Supreme Court in the case of Gujarat State Financial Corporation, AIR 1978 SC 1765; [1979] 49 Comp Cas 187, shall apply in the case of a petition under section 30 of the Act also. It has been held in very clear terms in the aforesaid decision that, looking at the whole conspectus of the provisions of the S....
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....ection 41A of the Act which is in the nature of a non obstante clause and lays down that: the provisions of this Act and of any rules or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. It has been held by a Division Bench of the Kerala High Court in the case of Rahima Beevi v. Kerala Financial Corporation [1987] Bank J. 241, that the provisions of section 60 of the Code of Civil Procedure would not apply to proceedings under section 31 of the State Act, and that the District Judge could proceed with the application for sale of the properties, unhampered by the protection provided to. various types of properties under the proviso to section 60 of the Code of Civil Procedure. This is a judgment referred to by Mr. Paul, learned counsel for respondent No. 1, but this rather supports the contention of the petitioners' counsel to the effect that the provisions of section 34, Civil Procedure Code, cannot be made applicable to an application under section 30 of the Act. It has already been noticed that the provisions of section 31 of the State Act are identical in all material respects to th....
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....n against the company for the reason that it was always deemed, and considered to be, a joint industrial concern of the petitioner and other financial institutions, and that the petitioner had, on the board of directors of the company, two representatives since 1972 besides representatives of other institutions, such as UPSIDC, and as such the management and affairs of the company were controlled by the board of directors constituted by joint representatives of all concerned, and consequently respondent No. 1 could not be burdened with financial liability for its failure to pay off the advances and loans. It is further pleaded that since May 9, 1978, particularly, the affairs of the company were being managed by a management committee in which the petitioner had an active participation and as such it was estopped from initiating the present proceedings inasmuch as it was the duty of all concerned to join hands for providing the requisite resources for revival of the sick unit, and no one could be permitted to take advantage of the industrial concern which has not been able to pull itself out of the relapse in productivity, resulting in its becoming sick. Mr. Paul, arguing for re....
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....he Union Bank of India. 4.Shri G.D. Saraogi, chairman of the company. It was further intimated that the IFCI nominee would be Shri K.K. Kathuria. The power and functions of the management committee were also set out in detail. Finally, by letter dated June 13, 1978 (exhibit PW-5/7-X), respondent No. 1 conveyed to the IFCI that the board of directors had confirmed the decision, taken in the meeting of April 7, 1978, in their meeting held on June 5, 1978. The plea is that, pursuant to this decision taken in 1978 in which the board of directors of the company fully co-operated, the day-to-day affairs went to the hands of the joint management committee, and thus the company should be treated to have become absolved of any exclusive liability, and if in spite of this, the industrial concern became or remained sick, the company should not be burdened with the financial liability, as the petitioner had to share the responsibility for the affairs of the company. This contention has to be noticed only to be rejected for the short reason that the agreement in terms of which the present petition has been brought, took place in August, 1972, and it was a contract between IFCI as a ....
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....bit P-3. It is also not a case where the company could plead that it was taken unawares because, as far back as in October/November, 1974, this point was raised by the IFCI in the context of a request made by the company for disbursement of the balance amount of Rs. 4,00,000, out of the loan sanctioned by the IFCI, by their letter dated October 4, 1974 (exhibit PW-5/6-X), in which the IFCI raised detailed queries by letter dated November 3, 1974 (exhibit PW-5/8-X), asking, inter alia, what steps had been taken by the company in appointing a technical director, as required by them. The reply given was, as per exhibit PW-5/9-X sent on February 2, 1975, that due to worldwide recession, with no hope of recovery in the near future, the company was passing through a period of struggle and it was a question of survival by minimizing the facilities. There was thus an admission that no wholetime technical director had been appointed, as per terms of the agreement as also as per requisition by the IFCI. The plea that the company had on its board of directors persons renowned in the field of aluminium industry, namely, Shri S.C. Jain and K.K. Bhasin, was no answer to the requirement of a w....
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....foregoing issue, as noticed above. After a requisition for the remaining amount of Rs. 4,00,000, was made, vide letter dated October 4, 1974 (exhibit PW-5/6-X), certain queries were made which had a bearing either on the terms of the agreement such as appointment of a wholetime technical director, or as to the utilisation of the capital as also in regard to the working of the company, seeking details of capital expenditure and of the future plans of the company in relation to its finances. The reply sent on February 2, 1975 (exhibit PW-5/9-X), did not satisfy petitioner No. 1. The request was repeated on February 5, 1975, vide exhibit DW-2/1, enclosing a note of financial requirements and it was then revealed that the finances were required in connection with capital expenditure. This position has been elucidated by Mr. K.K. Bhagaria, appearing as DW-2, when he stated that because of failure of the IFCI to release the balance loan of Rs. 4,00,000, the company was handicapped in raising further finances because, had this amount been disbursed, then the company would have been able to raise a loan of Rs. 16,00,000, from the Union Bank of India, on the strength of Rs. 4,00,000 bein....
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....the loan was agreed to be advanced, but subsequently the Corporation declined to finance the project and it was in that setting of facts that the Supreme Court held that a writ of mandamus could be issued against the Corporation because the principle of promissory estoppel would apply and the Corporation could not be allowed to back out of its obligations. The case here is entirely different inasmuch as the IFCI did release a major part of the loan inasmuch as out of the agreed finance of Rs. 29,00,000 towards project loan, a sum of Rs. 25,00,000 was released by the IFCI by September, 1973, itself. It has come in the statement of Shri H.C. Sharma, petitioner No. 2, as PW-5, that, out of the sanctioned loan of Rs. 29,00,000, Rs. 25,00,000 was released in two installments inasmuch as the first installment was released in March, 1973, and the second in September, 1973, under cover of letters exhibit P-9 and exhibit P-10. He further deposed that the second installment was released despite the fact that breach of the term for appointment of a wholetime technical director had been committed. It is also shown that respondent No. 1 was put on notice in this respect, because by letter da....
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....f it were so, by virtue of section 41A of the Act, as already noticed, the provisions of section 30 are fully available to the IFCI to bring this petition for recovery of the amount outstanding against the company, by sale of the mortgaged property as well as hypothecated assets, in terms of the loan agreement. In view of the aforesaid statutory provisions which have an overriding effect, the company has no defence in these proceedings, by way of alleging breaches on the part of the Corporation, or resist the claim by setting up the plea of failure to advance the remaining part of the loan. I say so, on a cumulative reading of the provisions of the Act which, as already held, provide a self-contained procedure, and also on the strength of a decision by a Division Bench of the Allahabad High Court, Mirza Javed Murtaza v. U.P. Financial Corporation, Kanpur, AIR 1983 All 234, where it was held that, in reply to a petition filed under section 31 of the State Act which, as already noticed, is pari materia with section 30 of the Central Act, the debtor cannot be absolved from liability to repay the loan with interest, in terms of the loan agreement, on the plea of any breach of contract ....
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....ctor, (2) failure to pay the installments on account of principal as well as interest on the due dates, (3) failure to take out adequate insurance cover, (4) closure of the factory, (5) involvements such as money suits against the company by Union Bank of India, and (6) issuance of notice to the company by the Company Law Board as to why it should not be wound up, and also outstanding loans of the company to IDBI and that all these created a reasonable apprehension that respondent No. 1 would not be in a position to pay its debts or that proceedings for its liquidation may be commenced in the near future. The IFCI took the necessary steps first by notice dated November 3, 1980 (exhibit PW-5/1), whereby the balance amount of Rs. 4,00,000 was cancelled and thereafter a notice in writing as required by section 29 of the Act was served on June 15, 1982 (exhibit P-11). Before that also, a notice had been served on the company bringing to their notice the breaches committed on their part in the matter of payment of installments on account of principal as well as interest as and when they fell due, as well as other terms of certain other covenants, by their letter dated September 21, 1....
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.... of Rs. 49,13,715.29 to petitioner No. 1 as on July 31, 1982, and that petitioner No. 1 is entitled to recover this amount from respondent No. 1 by invoking the terms of the agreement, by sale of the securities created in its favour, along with interest till realisation, at the agreed rate of 9% per annum compounded, as per the terms of clause 3.2 of the agreement, exhibit P-3. Relief: As a result of the foregoing findings, the petition is allowed. I, therefore, in exercise of the power under section 30(9) of the Act, confirm the order of attachment passed on September 24, 1982, and direct recovery of the amount, held realisable by petitioner No. 1 while answering issue No. 8, by sale of the properties, both movable and immovable, of respondent No. 1, in terms of the provisions of section 30(10) of the Act ; which are the subject-matter of the equitable mortgage, evidenced by the deed of mortgage by deposit of title deeds dated March 29, 1973, as per exhibit P-7, and confirmed by letter dated March 30, 1973 (exhibit P-8), addressed by respondent No. 1 to petitioner No. 1, and the deed of hypothecation dated March 29, 1973, in respect of movable assets of respondent No. 1 (exhibi....
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....l provision, section 30 of the Act, where the Corporation-petitioner No. 1 was conceding the pari passu claim of respondent No. 2, this plea was not open to the petitioner. It is, however, to be noted that, during the pendency of this petition, winding up proceedings had been initiated against respondent No. 1, and on an objection being raised, petitioner No. 1 made an application to the company judge for leave to continue the proceedings. That leave was granted by order dated May 20, 1985, in the following terms: "C.A. No.- 673 of 1984: Leave as prayed, subject, however, to the direction that the final order in the proceedings would not be executed without the prior permission of this court. C.A. is disposed of in these terms". The result is that the order now being passed on this petition under section 30 of the Act is not executable without prior permission of the company judge. I, therefore, do not think it fit to pass an}' further order detailing the directions and the manner in which the properties, which are the subject-matter of mortgage and hypothecation with petitioner No. 1, are to be sold, or the sale proceeds disbursed. Petitioner No. 1 shall approach the comp....