TaxTMI 
TaxTMI 
TaxTMI 
2019 (8) TMI 1895
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.... Project") by Shirpur Power Pvt. Ltd. (hereinafter referred to as "the first petitioner/borrower"), the original cost whereof was Rs. 1762.92 crores. The respondents No. 1, 2 and 3, viz., State Bank of India, Bank of Baroda and IDBI Bank, claim to have executed the COR Common Loan Agreement (COR Facility Agreement) dated 8th December, 2012 with the first petitioner for the same. Thereafter, on account of factors beyond the control of the borrower, there was a cost overrun. To meet this cost overrun, the borrower, the respondents and the SBICAP Trustee Company Limited (hereinafter referred to as "the SBICAP") entered into a COR Facility Agreement dated 9th February, 2016, whereby the borrower availed an additional financial assistance of Rs. 192 crores from the banks. 2.1. On or around 4th July, 2018, the respondents filed Original Application No. 551 of 2018 before the Debts Recovery Tribunal against the petitioners No. 2 and 3 (arrayed as defendants No. 1 and 2 therein), based on personal guarantee agreements dated 9th February, 2016 executed by the petitioners No. 2 and 3 in favour of the respondents and the SBICAP Trustee Company Limited. Thereafter, somewhere around 11th Septe....
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....37,10,140/- as on 25th June, 2018 within interest thereon at 18% interest from 26th June, 2018 till payment and/or realisation and other ancillary reliefs. 2.4. Subsequently, the respondents filed Original Application No. 678 of 2018 against the petitioner No. 1 before the Debts Recovery Tribunal, Ahmedabad. The petitioners thereafter filed their interim affidavit-in-reply to the aforesaid Original Application No. 551 of 2018 stating that the original application, as framed, is not maintainable and no reliefs sought therein can be granted for the reasons set out in paragraph GG of the memorandum of petition. 2.5. The petitioners No. 2 and 3 filed Interim Application No. 1159 of 2018 in Original Application No. 551 of 2018 raising several issues to be considered as preliminary issues. It appears that the said application was not heard and at the same time, the Debts Recovery Tribunal insisted on proceeding with the original application. The petitioners thereafter moved another application being Interim Application No. 1427 of 2018 on 13.11.2018 in Original Application No. 551 of 2018, essentially seeking similar reliefs as sought for in Interim Application No. 1159 of 2018 and req....
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....bts Recovery Appellate Tribunal to expedite the hearing of the Appeal No. 3 of 2019 and dispose of the same within a period of three weeks. Since the Debts Recovery Appellate Tribunal did not hear the appeal and on the other hand, the Debts Recovery Tribunal continued to insist on proceeding with the original application, the petitioners once again approached this court by way of a writ petition being Special Civil Application No. 4900 of 2019. By an order dated 7.3.2019, this court disposed of the writ petition, while once again not going into the merits as the proceedings were pending before the Debts Recovery Appellate Tribunal, observing that the Debts Recovery Appellate Tribunal may prepone the hearing, while in the meantime the proceedings before the Debts Recovery Tribunal may be adjourned. The Debts Recovery Appellate Tribunal heard the appeal on 27.3.2019 and 9.4.2019, and the matter was kept CAV for orders on 2.5.2019. 2.10. The petitioners once again approached this court by way of Miscellaneous Application No. 1 of 2019 in Special Civil Application No. 4900 of 2019 praying that the Debts Recovery Tribunal adjourn the original application as the Debts Recovery Appellate....
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....nary issue. The learned counsel for the petitioners has placed reliance upon various decisions of the Supreme Court and has made submissions on the merits of these issues; however, considering the fact that the respondents have now paid the so-called deficit court fees without prejudice to their right to contend that the court fee paid initially was adequate, this question no longer survives and hence, it is not necessary to delve any further into the matter. 3.2. It was submitted that issues III and IV relate to the locus of the respondent banks to file such applications in the absence of there being any privity of contract between the petitioners No. 2 and 3 and the respondent banks. It was submitted that the personal guarantees as executed by the petitioners No. 2 and 3 are purportedly in favour of the security trustee SBICAPS and not in favour of the banks. The petitioners No. 2 and 3 have not entered into any agreement with the banks. Thus, no enforcement can be sought by the banks who are not parties to the purported personal guarantees. It was submitted that the banks have no right to sue and/or locus standi to initiate or maintain the present proceedings as there is no pri....
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....and does not require the leading of any evidence. It was urged that the question whether the banks have any right to sue as suggested vide question IV can be decided on a perusal of the pleading and documents and upon consideration of the relevant law and judgments, relied upon by the parties, making it a question of law. 3.6. The attention of the court was invited to section 19(1) of the Act to point out that the same contemplates making of an application by a bank or financial institution only. Reference was made to section 2(d) and 2(h) of the Act, which define "bank" and "financial institution" respectively, to submit that SBICAPS, namely, the security trustee, is neither a bank nor a financial institution and is, therefore, not competent to institute proceedings under section 19 of the Act. It was contended that the respondent banks being beneficiaries, while keeping the trust alive, cannot make an application under section 19 of the Act and therefore, the application as moved, is not competent. 3.7. Referring to the impugned orders passed by the Debts Recovery Tribunal and the Debts Recovery Appellate Tribunal, it was submitted that both the Tribunals have failed to underst....
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.... of facts or leading of evidence. It was submitted that it is an admitted position that no independent consideration flowed from the respondent banks in favour of the purported personal guarantors, viz., the petitioners No. 2 and 3 herein. The question that, therefore, arises is as to whether the purported personal guarantees can be said to be backed by any consideration as required under section 25 of the Indian Contract Act, 1872, which is a neat question of law. The connected issue as to whether, in the absence of any consideration for the execution of the purported personal guarantees, would these be enforceable at law, is a question which has to be decided on the basis of the relevant law and judgments relied upon by the parties, without necessitating the leading of any evidence, making it a question of law. In support of such submissions, reliance was placed upon the decision of the Rajasthan High Court in the case of Ram Narain v. Lt. Col. Hari Singh, 1963 SCC 430, wherein the court held thus: "13. From all the cases aforesaid as well as from the language of Section 127 it clearly emerges that the creditor must have done some thing for the benefit of the principal debtor t....
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.... lender, borrower and the guarantor, can at all be considered to be a guarantee, does not require the leading of any evidence, but can be decided on the appreciation of the relevant documents, of law and upon consideration of the judgments relied upon by the parties, making it a question of law. 3.11. Adverting to suggested issues IX and XII, which relate to the amount not having become due and therefore, the demand made by the banks being premature, it was submitted that these issues for their adjudication, only need reading and appreciation of the documents produced by the banks themselves and no leading of evidence is required. 3.12. Reference was made to article 2.12 of the COR Facility Agreement to submit that the same contemplates that the repayment obligation is to be in accordance with the repayment schedule set forth in Schedule IV. It was submitted that in terms of Schedule IV, a tentative repayment schedule is contemplated therein, but it ultimately provides that the repayment schedule is tentative and shall be fixed based on COD to be fixed at the time of project completion. The COD or Commercial Operation Date is defined as the date on which the project commences the....
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....s also placed upon the decision of the Orissa High Court in the case of Sri Bireswar Das Mohapatra and another v. State Bank of India, , wherein the court held that the DRT proceedings cannot proceed ignoring the winding up proceeding initiated on the recommendations of BIFR given under section 20 of SICA. The court accordingly directed the DRT to decide whether, in view of the objections taken before it, the proceedings can continue despite the pendency of winding up proceedings before the High Court. 3.15. In conclusion, the learned counsel submitted that these arguments do not need any evidence to be led and hence, the issues be directed to be decided as preliminary issues. 4. Opposing the petition, Mr. Gaurav Mohanty, learned advocate for M/s. Shardul Amarchand Mangaldas & Co., learned advocates for the respondent banks, submitted that the Act does not contain any provisions requiring the Debts Recovery Tribunal to frame and decide preliminary issues of law separately before dealing with issues of facts and that the Act does not contemplate the consideration of preliminary issues of law separately before dealing with the issues of facts. According to the learned advocate, sec....
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....first. 4.3. It was contended that the procedure contemplated under section 19 of the Act is a summary procedure envisaged for expedited resolution of recovery cases to allow banks to recover enormous amounts of public money which used to be earlier held up in protracted litigations. Therefore, if the provision for framing of preliminary issues is read into section 22 of the Act, the entire object and purpose of the Act will stand defeated. It was argued that on a conjoint reading of section 19 and section 22 of the Act, it is clear that the Debts Recovery Tribunal has not been vested with the discretionary power of a civil court under the Code to frame and try issues of law first before trying issues of fact. It was submitted that in view of the exhaustive provisions of the Act, it is clear that the Act does not contain any provisions requiring the Tribunal to frame and decide preliminary issues of law separately before dealing with the issues of fact. 4.4. Next it was submitted that without prejudice to the contention that the Tribunal is not empowered to decide issues as preliminary issues, even otherwise the proposed issues are not pure questions of law, but are merely questio....
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....ary issue; (2) Even as a pure issue of law, a preliminary issue can be framed and tried only if it touches upon the question of jurisdiction of the court; or (3) Such pure issue of law raises the question about proceedings being barred by any provision of law." 4.5. It was submitted that the preliminary issues of lack of consideration for a contract, locus standi of the lenders, etc., constitute an investigation into the relevant clauses of the personal guarantees and ipso facto are not pure questions of law. It was submitted that the concept of pure question of law envisaged by the mandate of Order XIV rule 2 of the Code is borrowed from the English law concept of demurer, whereas in the present case the concept of demurrer would not be applicable as the petitioners have not accepted the averments made by the respondents in the original application. Reliance was placed upon the decision of the Rajasthan High Court in the case of Prithvi Raj v. Munnalal, 1957 RLW 323, wherein the court held thus: "7. The next question, which immediately arises, is whether issues of jurisdiction are issues of law pure and simple. In this connection, we may refer to the observations of Beaumon....
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.... the petitioners, namely, the personal guarantors have on numerous occasions in their petition, pleadings in the original application, written submissions as well as oral arguments during the course of hearing of the writ petition, submitted that the lenders have made an incorrect statement in the original application that there are personal guarantees executed by the personal guarantors in favour of the lenders. It was submitted that this is the first critical point of dispute on which the entire axle of the defence of the personal guarantors rest. Therefore, the "facts alleged in the plaint" are not "accepted as correct by the defendant" in terms of the aforesaid decision of the Rajasthan High Court. 4.7. Adverting to the individual issues raised by the petitioners as preliminary issues, it was submitted that the issue whether the invocation of purported personal guarantees by the lenders is maintainable when the purported personal guarantees are not issued in favour of the lenders is concerned, while the petitioners submit that there exists no personal guarantee in favour of the lenders; the lenders submit that the personal guarantees have been executed in their favour. It was ....
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....to the petitioners, the amounts due under the COR Facility Agreement has not become due and payable yet; whereas the respondents are disputing such facts, and hence, these are basically questions of fact requiring examination of the relevant clauses of the personal guarantees. 4.12. It was submitted that therefore, even if it is assumed that the petitioners/personal guarantors have indeed raised pertinent questions of law, all the alleged preliminary issues of law raised by the personal guarantors are inextricably linked to issues of fact in the present original application and must be tried together by the Debts Recovery Tribunal. 4.13. To bolster his submissions, the learned advocate placed reliance upon the decision of the Supreme Court in Ramesh B. Desai v. Bipin Vadilal Mehta, (2006) 5 SCC 638, wherein the court held thus: "13. Sub-rule (2) of Order 14 Rule 2 CPC lays down that where issues both of law and of fact arise in the same suit, and the court is of the opinion that the case or any part thereof may be disposed of on an issue of law only, it may try that issue first if that issue relates to (a) the jurisdiction of the court, or (b) a bar to the suit created by any l....
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....ring on the jurisdiction of the Tribunal that can be determined without examination of evidence. 4.15. It was submitted that the issue of privity of contract has categorically been denounced as a preliminary issue of pure law. In this regard, reliance was placed upon the decision of the Delhi High Court in the case of Utair Aviation v. Jagson Airlines Limited, 2012 (129) DRJ 630, wherein the court held thus: "28. A reading of the aforementioned judicial opinion coupled with well recognized exceptions that the privity can be created by virtue of conduct acknowledgment and admission, it becomes clear that any case where one party is made aware about the relationship of the other party with that of a stranger and the said party proceeds to contract out only with other party in question, knowing fully well the participation and role of the said stranger, further, it corresponds with the said third party/stranger, and conduct suggests kind of relationship, then there can be said to be a nexus or a privity which can be said to have been created by virtue of conduct. The said question essentially becomes a question of fact and basing upon the said fact finding, the law has to be necess....
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....i Rasulbhai Mandali rendered on 19.9.2018 in Second Appeal No. 236 of 2018, wherein the court held thus: "38. Only an issue of law can be decided as a preliminary only where it is such that its decision does not necessitate investigation into the facts and it relates either to the jurisdiction of the court or to the suit being barred under any prevailing law, and that, in the opinion of the court the decision of the issue will result in the decision of the whole or a part of the suit. The discretion in this regard must always be exercised on the basis of sound judicial principles. It may, however, be made clear that even if an issue of law can be decided as a preliminary issue as aforesaid, the court is not always bound to decide it as a preliminary issue and can, in its discretion, postpone its decision also along with other issues, whether of law or fact. The whole purpose behind the amended provision is to restrict piecemeal decision and unnecessary multi-tier appeals at intermediate stages on preliminary issue alone and thus avoid procrastination of litigation. The new provision justly aims at abridging the proceeding in the suit rather than permitting prolongation thereof." ....
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....ues that might be framed for the purpose of a proper and just decision on the application for revocation." 4.22. It was further submitted that the petitioners have prayed for the Debts Recovery Tribunal to use powers of a civil court under Order XIV rule 2 of the Code on the ground that grave prejudice would be caused to them if they were to appeal the order before the Debts Recovery Appellate Tribunal and pay the required pre-deposit under section 21 of the Act, however, such submission is flawed on the following grounds: (1) A party cannot be allowed to use the possibility of an appeal in the future to claim prejudice as it tantamounts to anticipating an order against the party before the forum has had any opportunity to deal with the issues of fact and law involved in the case. (2) A party cannot be allowed to use the condition to deposit under section 21 of the Act as an excuse to compel the Debts Recovery Tribunal to hear the alleged preliminary issues first. Any alleged hardship caused due to extant provisions cannot be used as an excuse or a pressure tactic to obtain relief from a court. (3) It is settled law that the requirement of pre-deposit under the Act was enact....
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....mitted that the requirements under Order VII rule 1 of the Code which require disclosure of cause of action are starkly different from the requirement of a pure question of law touching upon the jurisdiction of a court under Order XIV rule 2 of the Code. It was further pointed out that in the facts of the said case, the case was instituted before the Act came into force and was subsequently transferred to the Debts Recovery Tribunal. In terms of section 31(2)(b) of the Act, transfer cases continued from where they were in the civil court before the transfer took place. As such, all the provisions of the Code applicable to a plaint in the Code become applicable to the transferred application before the Debts Recovery Tribunal. 4.26. Dealing with the decision of the Supreme Court in Industrial Credit and Investment Corporation of India Ltd. v. Grapco Industries Ltd. (supra), it was submitted that the case dealt with the Debts Recovery Tribunal invoking powers of section 22 of the Act to grant injunction on ex-parte basis. It was submitted that firstly, section 22(2)(f) of the Act expressly allows the Debts Recovery Tribunal to proceed on ex-parte basis, whereas section 22 contains n....
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....t joining the trustee. It was contended that all the issues raised by way of preliminary issues can be decided on the basis of admitted documents and cannot be relegated to be decided at a later stage. 5.1. Dealing with the decisions on which reliance has been placed by the learned advocate for the respondents, it was submitted that insofar as the decision of this court in Saurashtra Cement and Chemicals Industries Ltd. and others v. Esma Industries P. Ltd. and others (supra) is concerned, the same issue does not in any manner support the case of the respondents, inasmuch as it has been held therein that the concerned issue must be a pure issue of law, meaning thereby, no question of leading evidence to prove or disprove the issue would be countenanced. It is submitted that it is exactly the case of the petitioners that the present case relates only to pure questions of law wherein no evidence is required to be adduced. 5.2. As regards the decision of the Supreme Court in Ramesh B. Desai v. Bipin Vadilal Mehta (supra) as well as the decision of the Rajasthan High Court in Prithvi Raj v. Munnalal (supra), it was submitted that in fact, the petitioners are saying exactly what is st....
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....Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Tribunal and the Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:-- (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) issuing commissions for the examination of witnesses or documents; (e) reviewing its decisions; (f) dismissing an application for default or deciding it ex parte; (g) setting aside any order of dismissal of any application for default or any order passed by it ex parte; (h) any other matter which may be prescribed. (3) Any proceeding before the Tribunal or the Appellate Tribunal shall be deemed to be ....
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....Tribunal to decide the case is involved. 8. Proceeding to the second question, viz., whether the issues proposed by the petitioners can be said to be pure questions of law; the petitioners have suggested in all twelve preliminary issues, which read thus: I. Whether adequate court fees have been paid on the Original Application No. 551 of 2018 by the defendants? II. Whether the Original Application No. 551 of 2018 can at all be heard finally, without payment of adequate court fee? III. Whether the invocation of purported personal guarantees by the defendants is maintainable, when the purported personal guarantee are not issued in favour of the defendants - original applicants - banks? IV. Whether the defendants - original applicants - banks have any right to sue, on the purported personal guarantees? V. Whether the purported personal guarantees are backed by any consideration, as required under section 25 of the Indian Contract Act, 1872? VI. Whether in absence of consideration, can the purported personal guarantees be enforceable in law? VII. Whether the purported personal guarantees, not being a tripartite arrangement or agreements, be at all considered as guarantee....
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....s have any right under the personal guarantees and after giving a finding one way or the other, would be required to decide the question of law as to whether the respondent banks have a right to sue on the basis of the personal guarantees and whether the application is maintainable at the instance of the respondent banks. Thus, these questions involve firstly ascertainment of facts on the evidence adduced and then a determination of the rights of the parties on the application of the appropriate principles of law to the facts ascertained. While the questions as to whether the application under section 19 of the Act is maintainable or whether the respondent banks have the right to sue under the bank guarantees may be questions of law; however, for the purpose of deciding the same, firstly, the personal guarantees would be required to be examined and after ascertaining the facts on the basis of the admitted documents, a finding of fact would be required to be given as to whether the personal guarantees were issued in favour of the lenders and thereafter, the question of law as regards the maintainability of the application and the right of the respondent banks to sue can be answered.....
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....ue in the absence of the commencement of commercial operations of the Project; whether in the absence of the purported debt being due, whether the invocation of the purported personal guarantee is premature, and the issue as to whether in the absence of any amounts being either unpaid and/or outstanding, as a result of the project having yet to commence commercial operations, any acceleration of declaring the purported outstanding dues as being payable forthwith, is valid or legal; are in the opinion of this court essentially mixed questions of facts and law, which are required to be decided on the basis of the documents produced on record. 8.7. The submission of the learned counsel for the petitioners that any question which can be decided on the basis of admitted documents which does not require leading of oral evidence, is a question of law, deserves to be stated only to be rejected as being contrary to the settled legal position as laid down by the Supreme Court in a catena of decisions. In Sree Meenakshi Mills Ltd. v. Commissioner of Income Tax, AIR 1957 SC 49 : (1957) 31 ITR 28, the Supreme Court held thus: "8. It was next contended for the appellant that inference from fa....
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....ons therefor. Far from that being the case, both principle and authority are clearly adverse to it. 9. Considering the question on principle, when there is a, question of fact to be determined it would usually be necessary first to decide disputed facts of a subsidiary or evidentiary character, and the ultimate conclusion will depend on an appreciation of these facts. Can it be said that a conclusion of fact, pure and simple, ceases to be that when it is in turn a deduction from other facts? What can be the principle on which a question of fact becomes transformed into a question of law when it involves an inference from basic facts? To take an illustration, let us suppose that in a suit on a promissory note the defence taken is one of denial of execution. The court finds that the disputed signature is unlike the admitted signatures of the defendant. It also finds that the attesting witnesses who speak to execution were not, in fact, present at the time of the alleged execution. On a consideration of these facts, the court comes to the conclusion that the promissory note is not genuine. Here, there are certain facts which are ascertained, and on these facts, a certain conclusion ....
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....uch cases that an inference from facts is a question of law. In this respect, mixed questions of law and fact differ from pure questions of fact in which the final determination equally with the finding or ascertainment of basic facts does not involve the application of any principle of law. The proposition that an inference from facts is one of law will be correct in its application to mixed questions of law and fact but not to pure questions of fact. 8.8. Thus, the Supreme Court has held that in between the domains occupied respectively by questions of fact and of law, there is a large area in which both these questions run into each other, forming so to say, enclaves within each other. The questions that arise for determination in that area are known as mixed questions of law and fact. These questions involve first the ascertainment of facts on the evidence adduced and then a determination of the rights of the parties on an application of the appropriate principles of law to the facts ascertained. In the facts of the present case also, as discussed hereinabove, the issues suggested by the petitioners as preliminary issues, firstly involve the ascertainment of facts on the admit....
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.... 3 SCC 686, it was ruled that where an objection to the jurisdiction is raised by way of demurrer and not at the trial, the objection must proceed on the basis that the facts as pleaded by the initiator of the impugned proceedings are true. The submission in order to succeed must show that granted those facts the court does not have jurisdiction as a matter of law. In this case the decision of the High Court on the point of the jurisdiction was set aside as the High Court had examined the written statement filed by the respondents in which it was claimed that the goods were not at all sold within the territorial jurisdiction of the Delhi High Court and also that Respondent 2 did not carry out business within the jurisdiction of the said High Court. Following the same principle in Indian Mineral & Chemicals Co. v. Deutsche Bank, (2004) 12 SCC 376, it was observed that the assertions in a plaint must be assumed to be true for the purpose of determining whether leave is liable to be revoked on the point of demurrer." 8.10. Examining the facts of the present case in the light of the above principles, in the present case, the petitioners do not admit that the averments made in the appl....
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....n that the case or any part thereof may be disposed of on an issue of law only, it may try that issue first if that issue relates to (a) the jurisdiction of the court, or (b) a bar to the suit created by any law for the time being in force. The provisions of this Rule came up for consideration before this Court in Major S.S. Khanna v. Brig. F.J. Dillon, AIR 1964 SC 497, and it was held as under: "Under Order 14 Rule 2, Code of Civil Procedure where issues both of law and of fact arise in the same suit, and the court is of opinion that the case or any part thereof may be disposed of on the issues of law only, it shall try those issues first, and for that purpose may, if it thinks fit, postpone the settlement of the issues of fact until after the issues of law have been determined. The jurisdiction to try issues of law apart from the issues of fact may be exercised only where in the opinion of the court the whole suit may be disposed of on the issues of law alone, but the Code confers no jurisdiction upon the court to try a suit on mixed issues of law and fact as preliminary issues. Normally all the issues in a suit should be tried by the court; not to do so, especially when the de....