M/S IFCI FACTORS LIMITED v. JAGANNATH SARANGAPANI & ORS

Delhi High Court · 22 May 2014 · 2014:DHC:2751

G.S. Sistani

CS(OS) 2548/2011

2014:DHC:2751

civil appeal_allowed Significant

AI Summary

The Delhi High Court granted defendants unconditional leave to defend a suit under Order 37 CPC based on personal guarantees, holding that triable issues including non-joinder and disputed liquidated demand preclude summary judgment.

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CS(OS) 2548/2011
HIGH COURT OF DELHI
CS(OS) 2548/2011 & I.A. 2860/2012 & 1990/2013

JUDGMENT

dated 22.05.2014 M/S IFCI FACTORS LIMITED ..... Plaintiff
Through: Mr.P.S. Bindra, Advocate

versus

JAGANNATH SARANGAPANI & ORS ..... Defendant
Through: Ms.Divya Jain, Adv. for D=1 Mr.Prakash Kumar, Adv. for defendants 2 & 3

CORAM:

HON'BLE MR. JUSTICE G.S.SISTANI G.S.SISTANI, J (ORAL)

I.A. 20680/2012 (Leave to defend by defendant no.1)

I.A. 1989/2013 (Leave to defend by defendant no.2)

I.A. 1944/2013 (Leave to defend by defendant no.3)

1. Plaintiff has filed the present suit under the Provisions of Order 37 of the Code of Civil Procedure for recovery of Rs.7,56,22,030/-. The suit is based on a personal guarantee executed by the defendants No.1 to 4. As per the plaint, the defendants stood as guarantors guaranteeing the payment of amount due and payable by one M/s.R.N. Infra Communications Pvt. Ltd. in respect of an agreement for factoring of receivables dated 19.12.2008 executed between the plaintiff and M/s.R.N. Infra Communications Pvt. Ltd. The plaint further discloses that vide a sanction letter dated 11.12.2008, the plaintiff conveyed to M/s.R.N. Infra Communications Pvt. Ltd. its readiness to provide domestic factoring facilities of Rs.7.50 crores and various documents were executed between 2014:DHC:2751 the plaintiff and M/s.R.N. Infra Communications Pvt. Ltd. Pursuant to the arrangement between the plaintiff and M/s.R.N. Infra Communications Pvt. Ltd. the defendants executed deeds of guarantees which according to the plaint are independent and unconditional guarantees for payments due to payments to the plaintiff and all amounts due and payable by M/s.R.N. Infra Communications Pvt. Ltd.

2. It is submitted by counsel for the plaintiff that the payments were not made by M/s.R.N. Infra Communications Pvt. Ltd. to the plaintiff, which has led to the filing of the present suit against the defendants, who are guarantors.

3. Mr.Bindra, counsel for the plaintiff has relied upon the terms of the guarantee which are identical in all the guarantees, which have been placed on record. In support of his argument that reading of the guarantees would show that it is an independent document of any agreement between the plaintiff and M/s.R.N. Infra Communications Pvt. Ltd.. The amounts due of M/s R.N. Infra Structure Communications Private Limited were to be paid by the guarantors without any protest or demur, which is evident upon reading of paragraphs, 1, 3, 10 and 11 of the guarantee.

4. By the present applications, the leave is sought by defendants on the ground that the present suit is not maintainable on account of non-joinder of parties, as M/s.R.N. Infra Communications Pvt. Ltd. has not been be impleaded as a party in the present suit.

5. Further, as per the applications for leave to defend, this Court lacks territorial jurisdiction, as the defendant no.1 resides and works for gain at Hyderabad. According to defendant no.1, the guarantee was signed at Hyderabad and thereafter sent to Delhi for the signatures of the M/s.R.N. Infra Communications Pvt. Ltd. Counsel for the defendant no.1 also submits that substantial cause of action has arisen in Hyderabad and merely because the M/s.R.N. Infra Communications Pvt. Ltd. had signed the guarantee at Delhi, this Court would not have jurisdiction to entertain the present suit.

6. In support of her plea that the suit is not maintainable for non-joinder of parties, counsel has relied on Bhim Singh & Ors. Vs. Sukhbir Singh & Ors. reported at 152 (2008) DLT 36 and more particularly on the portions, which is reproduced below: “In the absence of any necessary party, no effective order or decree be passed. In view of the provisions of Order 1 Rule 9 it is clear that non-joinder of a necessary party would be fatal to the suit. This aspect of the matter has also to be borne in mind. The plaintiff has not been joined necessary parties and has taken the risk by not doing so. In the absence of necessary parties, no effective order or decree can be passed and the plaintiff must bear the consequences of his adventure. Non-joinder of necessary parties in a partition suit is fatal.”

7. The grounds raised by defendant no.1 in the affidavit filed with the application for leave to defend have been reproduced below:

“D. Furthermore, without prejudice to the contentions raised by the deponent herein, it is stated that even otherwise the liability of deponent, if any, is limited under the alleged Guarantee only to the amount „payable by the „Obligant‟, i.e. RNI herein. Clause 1, 5 and 12 of the alleged Guarantee specifically provide that the liability, if any, of the deponent is determined by the amount which is due and payable by the Obligant. Hence, until the liquidated demand is ascertained, liability to pay the amount claimed by the plaintiff herein cannot be fastened on Deponent. Clause 1, 5 and 12 of the alleged Guarantee are reproduced herein for ready reference: “1. I /We hereby independently and unconditionally guarantee the due payment to you, of all the amounts payable by the Obligant to you in respect of the purchase of the said Receivables or under the said Agreement and together with interest (at the rate(s) determined by you from time to time) and other charges, including all legal charges and expenses payable by the Obligant under the said Agreement.

5. That any forbearance or omission on your part in enforcing any of the conditions of the said Agreement or any compliance by the Obligant of any of the terms and conditions stipulated therein or granting of time or other indulgence to the Obligant or in any other matter connected therewith, shall not discharge me/ us in any way of my / our obligations under this guarantee and my / our said obligations under this guarantee shall be discharged only upon payment of the amounts for which we are liable and to the extent of the payment only.

12. That this guarantee shall be a continuing security to you and shall not be determined by me/ us except by performance and this guarantee shall be applicable to the ultimate balance that may be due to you from the Obligant under the said Agreement and until repayment of the said balance, you shall be entitled to retain, realize or otherwise dispose of in such manner as you may think fit any securities now or hereafter held by you in respect of your agreeing to purchase Receivables and associated rights from the Obligant and without any liability to account to me/ us for any proportion of such securities or any proceeds thereof until the said ultimate balance shall have been satisfied.”

E. The suit is liable to be dismissed as it does not comply with the mandatory statutory requirements laid down under Order 37 of CPC. IT is stated that the said Order compulsorily require that the claim under the said provision can be preferred (or recourse to the summary proceedings can be taken) only when the amount sought to claim is a certain sum i.e. the liquidated demand of money is towards a crystallized amount. It is stated that the amount claimed in the plaint is not a crystallized demand. Furthermore, the plaintiff has neither annexed any bills or invoices against which the payments were due and payable nor any claim has been made by the plaintiff against RN Infra Communications, and has rather, annexed its internal working sheet with the plaint to invoke the guarantee. It is essential to state here that the conduct of plaintiff does not invoke any confidence and on the contrary raises suspicion with respect to plaintiff itself being at default. It would be appropriate to accept as true the fact that invoices / Vouchers have not been put forth before this Hon‟ble Court is that the same are prejudice to the rights of the plaintiff and in favour of the deponent. Adverse inference must be drawn against the plaintiff for non-production of voucher / Invoices before this Hon‟ble Court.

F. It is stated that no pecuniary liability arises upon deponent till this Hon‟ble Court determines that the plaintiff is entitled to damages. Therefore, until damages are assessed, it would not be true to say that what this Hon‟ble Court is dong is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the deponent is liable and then proceed to assess what that liability is. But, till that determination there is no liability at all upon the deponent. Claim for damages does not constitute a liquidated demand or a debt payable. The Supreme Court has in catena of judgments held that the law is settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. Reliance in this regard may be placed on the judgment of the Supreme Court in Union of India vs. Iron Foundry [1974 AIR 1265] and Bombay High Court judgment in Iron and Hardware (India) Co. vs. Firm Shamlal and Bros [AIR 1954 Bom 423] wherein Chief Justice, M.C. Chagla, (as he then was held that, “Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority.” It is humbly submitted that, the liquidated demand being an uncertain demand, leave to defend ought to be granted to the deponent herein.

H. That even otherwise, the Guarantee is not binding on the

Applicant / Defendant no.1 as the same was procured by Plaintiff Company in furtherance of its intention to cheat and play fraud, induced the Deponent into believing that Guarantee was being executed in favour of Foremost Factors Ltd. It is stated that the consent of the Deponent for execution of the Decree of Guarantee dated 19.12.2008 was procured by misrepresentation.

I. That the malicious intent of the plaintiff company to play fraud upon the Deponent is further ascertained from the fact that though Deponent executed in Hyderabad, but plaintiff amended and alerted the Guarantee subsequently and inscribed by hand the place of execution as New Delhi.”

8. An application for leave to defend has also been filed by defendants no.2 and 3, raising almost on identically similar grounds. Additionally reliance is placed by counsel for the defendants no.2 and 3 on Union of India Vs. Iron Foundry reported at 1974 AIR 1265 and Iron and Hardware (India) Co. Vs. Firm Shamlal and Bros reported AIR 1954 BOM, 423, wherein it has been held: “Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority.

9. Counsel for the defendants No.2 and 3 also submits that the liquidated demand being an uncertain demand, leave to defend ought to be granted to the defendants no.2 and 3.

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10. I have heard learned counsel for the parties and considered their rival submissions.

11. Before dealing with the rival submissions of counsel for the parties, it would be useful to re-visit the law laid down by the Apex Court with regard to dealing with an application for leave to defend. The Apex Court in the case of M/s.Mechelec Engineers & Manufacturers Vs. M/s.Basic Equipment Corporation AIR 1977 SC 577 has drawn up the parameters to be considered by the court while dealing with the application for leave to defend. Relevant paras of the judgment read as under:

“8. In Smt. Kiranmoyee Dassi and Anr. v. Dr. J. Chatterjee 49 C.W.N. 246 , Das. J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 37 C.P.C. in the form of the following propositions (at p. 253):

(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend. (b) If the Defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.

(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shews such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

(d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend. (e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plaintiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to prove a defence.”

12. The present suit is based on guarantees executed by the defendants. Plaintiff has submitted that once the defendant had agreed to furnish an unconditional guarantee to the plaintiff, the present suit is maintainable, and all amounts claimed by the plaintiff in the suit are liable to be paid by the defendants without any protest and demur.

13. Prima facie, the plaintiff has not placed a single document on record to show that what is the amount due and payable by M/s R.N. Infra Communications Private Limited to the plaintiff coupled with the fact that the plaintiff has even failed to implead M/s R.N. Infra Communications Private Limited as a party. Thus, in my view, the defendants have been able to raise fair, triable, honest, bonafide and good defence.

14. The grounds raised in the applications for leave to defend require consideration, which can only be decided on the basis of evidence on record and not in summary proceedings. Consequently, the applications for leave to defend are allowed. Defendants are granted unconditional leave.

15. Applications are accordingly stand disposed of. CS(OS) 2548/2011 & I.A. 2860/2012 & 1990/2013

16. Defendants shall file their written statement within one week from the date of re-opening of the Courts after Summer Vacation. Replication be filed within 30 days thereafter. Parties to file documents within the same period.

17. List the matter before the Joint Registrar for admission /denial of documents on 29.8.2014.

18. List the matter before Court on 25.9.2014 for framing of issues and for hearing of pending applications. Parties shall bring suggested issues to Court on the next date of hearing. Parties will strictly adhere to the time schedule fixed by the court. G.S.SISTANI, J MAY 22, 2014 ssn /pdf

M/S IFCI FACTORS LIMITED v. JAGANNATH SARANGAPANI & ORS

AI Summary

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JUDGMENT

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