TaxTMI 
TaxTMI 
2019 (8) TMI 1866
X X X X Extracts X X X X
X X X X Extracts X X X X
....he moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 has commenced, insofar as the Defendant No.1 is concerned, the suit will remain stayed. However, insofar as Defendant No. 2 is concerned, the suit shall proceed. Upon the end of the moratorium period, liberty is given to the Plaintiff to revive the suit qua Defendant No.1, depending upon the outcome of the proceedings in the NCLT. 3. I.A. is disposed of." 2. Defendant No.2 had filed I.A. No.13840/2018 seeking leave to defend. The same was filed with condonation of delay in re-filing being I.A. No.13841/2018. Delay in re-filing of the said application is condoned. I.A. is disposed of. 3. Submissions were heard on the application for leave to defend. 4. The case of the Plaintiff is that the Plaintiff is a Non-banking Finance Company (hereinafter "NBFC"). Defendant No.1 is, inter alia, engaged in the business of manufacturing of wires, TMT bars and steel. It had made supplies to various clients, who were the approved debtors. Defendant No.1 approached the Plaintiff for grant of domestic factoring facility (hereinafter "facility"). Defendant No.2 is a director of Defendant No.1. The faci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenses, including legal expenses, that may be payable to you by the Obligant under the said Agreement." 8. Defendant No.2 also executed undertakings on behalf of Defendant No.1 whereby cheques for a sum of Rs.10 crores were also issued and an undertaking was given to deposit all receivables in an Escrow account with HDFC Bank. 9. Defendant No.1 defaulted in its obligations and, accordingly, Plaintiff invoked the guarantee against Defendant No.2 vide notice dated 25th May, 2016. Along with the said notice, a complete statement of accounts was also annexed. 10. Defendant No.2 filed his leave to defend raising various pleas, which are as under: 1) That the suit is barred by limitation. 2) That the suit under Order XXXVII CPC not being for a liquidated sum is not maintainable. 3) Defendant No.2 has no liability to pay and is entitled to unconditional leave to defend. 4) The main borrower i.e. Defendant No.1 is facing insolvency proceedings under the IBC and there is a moratorium operating. 5) That a complaint under Section 138 of the Negotiable Instruments Act, 1888 has also been filed. 11. The submission of Mr. Tandon, ld. coun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the Plaintiff is entitled to recover money either from debtors or from the assignors. Ld. counsel for Plaintiff also seeks to distinguish the judgment in IFCI Factors Ltd. v. Vasudev Rao & Anr. (Supra) on the facts. Factoring services - Concept 13. In the 1980s, internationally, it was noticed, that small and medium scale businesses which used to supply goods and services to bigger enterprises were facing several difficulties due to belated recovery or nonrecovery of dues from their customers. This used to result in clogging up their capital and left lesser money in circulation for them. In order to better the liquidity of such businesses the concept of `Factoring' was formalised in the UNIDROIT Convention on International Factoring, adopted on 28th May 1988. This Convention defined a `factoring contract' as under: "Article 1 ... 2. For the purposes of this Convention, "factoring contract" means a contract concluded between one party (the supplier) and another party (the factor) pursuant to which: (a) the supplier may or will assign to the factor receivables arising from contracts of sale of goods made between the supplier and its custom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purposes of this clause - (i) the expression "agricultural produce" shall have the meaning assigned to it under clause (a) of section 2 of the Agricultural Produce (Grading and Marking) Act, 1937 (1 of 1937); and (ii) the expressions "goods" and "commission agent" shall have the meanings assigned to them respectively under clause (d) and Explanation (ii) of clause (i) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952);" 17. In every factoring transaction, there are at least three parties and sometimes four if there is a surety or a guarantor. They are - * the assignor i.e., the principal borrower, * the assignee i.e., the factor, * the approved debtor i.e., the purchaser of the goods or services; and * optionally, a surety or a guarantor. A factoring agreement is slightly different from a bill discounting facility in the sense that in the case of bill discounting the principal borrower has the responsibility of collecting the bills and remitting the proceeds to the financing agency whereas in a factoring arrangement the responsibility of collecting the bills and remitting after deducting the charge....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... clearly shows that the purpose of the legislation was to extend the benefit of availing summary procedure for 'recovery of debts‟ given under Factoring arrangements. The wording of the amendment brought about in the CPC as also Section 16 of the FRA, 2011, clearly shows that rights are conferred on the assignee to file a summary suit for recovery of receivables. The amendment in the CPC is not qualified in any manner as to against whom such a suit can be filed. Clearly, there is nothing in the wording of the amendment to raise any ambiguity that a suit is not maintainable against the assignor or guarantor and is only maintainable against the debtor. Section 16 of the FRA, 2011 provides broader rights to the assignee to sue the debtor. However, that does not mean that the suit cannot be filed against the assignor or guarantor. Since there is no privity of contract between the assignee and the debtor, the statute specifically confers a right to sue the debtor. Availability of the said remedy does not in any manner foreclose the remedy against the assignor and the guarantor. Recently in IFCI Factors Ltd. v. Gangotri Iron and Steel Co. Ltd., [C.S. (COMM) 1579/2016, Decided on Ja....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uarantee also clearly relates to a liquidated sum, which is clear from clause 6 of the guarantee extracted above. As per the said clause, the guarantee covers the sum of Rs.10 crores with interest at the agreed rate, costs, charges and other expenses, including legal expenses. The same is clearly a liquidated sum with interest and other charges being nothing but a percentage of the amount disbursed. Thus, the amount is clearly an ascertainable and not an unascertainable sum. The facts of IFCI Factors Ltd. v. Maven Industries Ltd. & Anr. (Supra) and IFCI Factors Ltd. v. Vasudev Rao & Anr. (Supra) are clearly distinguishable. IFCI Factors Ltd. v. Maven Industries Ltd. & Anr. (Supra), was based on a statement of account, which was required to be proved in order for the amount due to be arrived at. This is clear from a reading of paragraph 9 of the judgment wherein various sums were disbursed. The Defendants had made several payments and thereafter the suit was filed for a sum of Rs.10.45 crores. In the said judgment, the specific amendment, which was brought about in the CPC by FRA, 2011 is not brought to the notice of the Court. 24. Insofar as the ld. Division Bench judgment in IF....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble shall, as regards receivables existing at the commencement date, vest in the Factor on that date and, as regards future receivables, vest in the Factor automatically upon the same coming into existence. Provided that the Factor may refuse to purchase any further Receivable by giving due notice in writing to the client. If any receivable should fail to vest effectively in the Factor in equity the Client shall hold such receivable and any associated rights relating thereto in trust for the Factor. (2) Upon any receivable vesting in the Factor under sub-clause (1) there shall also automatically vest in the Factor all the associated rights in relation to such receivable. (3) The Client shall at the request of the Factor and at the Client's expense execute a formal written assignment to the Factor of the receivables and associated rights referred to in sub-clause (1) and (2) and deliver to the Factor any instrument or security included therein with any necessary endorsement or other signature. (4) The Client hereby irrevocably and unconditionally agrees that in the event of termination of this Agreement, if the Factor is yet to recover any dues from th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eferred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. (2) Where the management of the sick industrial company is taken over or changed in pursuance of any scheme sanctioned under section 18, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any othe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the declaration ceasing to have effect- (i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and (ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed. (5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded." 33. The Plaintiff was therefore entitled to exclude the period between 7th November, 2012 till 15th December, 2016, in calculating the limitation period for institution of the present suit. As the suit was instituted on 9th March, 2018, the Plaintiff is well within the three years' limitation period prescribed. 34. Further, it is well settled that filing of a complaint under S.138 of the Negotiable Instruments Act, 1888 does not bar the filing of a civil suit for recovery in respect of amounts due and payab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....court feels the justice of the case requires. 17.5. If the defendant has no substantial defence and/or raises no genuine triable issues, and the court finds such defence to be frivolous or vexatious, then leave to defend the suit shall be refused, and the plaintiff is entitled to judgment forthwith. 17.6. If any part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit, (even if triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the defendant in court." 36. The entire purpose of FRA, 2011 and the amendment to the CPC would be defeated, if lenders like the Plaintiff are not given the benefit of summary procedure. The suit under Order XXXVII CPC is within limitation and is maintainable as it is for an ascertainable and a liquidated sum. The amount for which recovery is sought is Rs. 32,02,90,309.32 along with pendente lite and future interest at 13% p.a. The liability of Defendant No.2, under the Guarantee is a sum of Rs. 10 crores along with interest and other charges. The terms of the Guarantee are clear that the liability is....