Agarwal Associates & Agencies v. Vinay Fabrics Pvt. Ltd.

1. The Plaintiffs have filed a Summary Suit in the Commercial Division of this Court. By the said Suit, the Plaintiffs seek to recover a sum of ₹. 4,02,40,000/- along with interest @ 18% p.a. from 18th July 2013 till payment or realization thereof.

2. The Plaintiff No.1 is a sole proprietary firm carrying on business of trading in packaging material. The Defendant ventured into a project of building construction at Jodhpur (Rajasthan). It was meant to be a commercial office complex and was named as “Umed Heights”. On account of cordial relations between the Defendant and the couple viz. the Plaintiff No. 2 and her husband, the Defendant sought an unsecured loan of Rs. 5 crores from the Plaintiffs. The Defendant agreed to pay interest @ 18% p.a. that would be calculated from the date of disbursement and to be paid after the completion of the project anticipated to be completed by April 2017. Although Rs 5 crores was contemplated, at the request of the Defendant a sum of ₹. 6,34,40,000/- was transferred between 16th August 2013 and 19th August 2014. The details of the amounts and disbursements along with dates are mentioned in paragraph 6 of the Plaint. The bank account statements evincing the payments made by the Plaintiffs are annexed to the Plaint as Exhibit ‘A’. The Defendant voluntarily repaid a sum of ₹. 2,32,00,000/- upto 2nd August 2016 as more particularly stated in the table in paragraph 7 of the Plaint.

3. It is the case of the Plaintiffs that on account of the cordial relationship, no loan agreement was entered into between the parties. The project was worth Rs. 25 crores, and therefore, the Plaintiffs presumed that they were fully secured. In accordance with the promises made by the Defendant in or around April 2017, the Plaintiffs demanded repayment. However, they were requested to await the completion of the project. Thereafter, in or about May 2018 the Plaintiffs called upon the Defendant to repay the entire loan amount along with interest. Upon enquiry, the Plaintiffs discovered that the Defendant had obtained a loan even from the Rajasthan Investment and Industrial Development Corporation (“RIICO”). Upon some further enquiry with regard to the project, the Plaintiffs discovered that the building project of the Defendant was in contravention with the sanctioned permission of 8 floors and the Defendant had put up 13 floors which was the cause of delay in completion of the project.

4. They had already issued a Completion Certificate to the Defendant. On seeking repayment, the Defendant assured the Plaintiffs that having received the Completion Certificate from RIICO, they would now be in a position to repay the entire loan by the last week of July 2018. The Defendant failed to repay even past the assured week of July 2018. Consequently, the Plaintiffs as advised, filed their claim before the NCLT under Section 7 of the Insolvency and Bankruptcy Code, 2016 for recovery of the principal outstanding of ₹. 4,02,40,000/- along with interest @ 18% p.a. aggregating to a sum of ₹. 7,37,24,467/- upto 31st September 2018 against the Defendant. However, the NCLT by its order dated 2nd August 2019 dismissed the application of the Plaintiffs on the ground that it was not maintainable before the NCLT. However, liberty to initiate action for the recovery of her dues as permissible in law was granted. Consequently, on 11th September 2019, the Plaintiffs filed the present suit against the Defendant.

5. Upon the writ of summons being served, Defendant entered his appearance. A Reply dated 12th December 2022 was filed by the Defendant.

INTERIM APPLICATION (L) NO. 32073 OF 2022:

6. The Defendant then filed an interim application. In its defense the Defendant by an IAL/32073 of 2022 seeks dismissal of the suit under Order VII Rule 11 (a) & (d) on the ground that both parties operated from Jodhpur, Rajasthan, the cause of action and the property sought to be attached for security were at Jodhpur, Rajasthan. According to them the limitation expired on 18th August 2017 and that the Application filed before the National Company Law Tribunal (NCLT) would not extend the limitation as it was heard and rejected on merits.

7. It is the case of the Defendant that the Plaintiffs and the Defendant had a long standing relationship and used to assist each other financially. It is submitted that the Directors of the Defendant were common directors in various concerns and private limited companies with the Plaintiffs. The Defendant stated that post 2016, the relationship between them started straining and it was the Plaintiffs who had sought to extort the money from the Defendant. They deliberately did not reconcile accounts amongst them.

8. According to the Defendant, this entire case of the Plaintiffs that amounts are due under a loan transaction and carry interest is clearly a concocted story. It is clearly an afterthought with a view to extort money from the Defendant. No amount was taken as loan from the Plaintiffs. The Plaintiffs have failed to produce any documentary proof or agreement to substantiate the loan transaction carrying interest. It is stated that, the Plaintiffs have approached the Court with unclean hands and not disclosed material facts viz. that there were several transactions between the parties and the sister concerns and affiliates.

9. The repayment, the Defendant states, was not towards the alleged loan transaction but one amongst many transactions which the Plaintiffs had with the Defendant from time to time. According to the Defendant, the project of the Defendant viz. ‘Umed Heights’ had nothing to do with the financial transactions between the Plaintiffs and the Defendant.

INTERIM APPLICATION NO. 724 OF 2023:

10. The Interim Application No. 724 of 2023 against the Defendant under Order 38 Rule 5 of the Code of Civil Procedure is for a disclosure on oath, all the movable and immovable assets and properties including the encumbered and unencumbered properties in the project known as “Umed Heights” from the Defendant. In addition thereto it also seeks attachment of all the movable and immovable assets as well as security in the sum of ₹.8,31,71,315.84/-.

11. The Defendant contends that the application for attachment before judgment is nothing else but a pressure tactic to fork out money without reconciliation of accounts. It is stated that the Defendant has inventories of more than 17 crores as reflected in the balance sheet and in view of such sound financial condition, there is no question of not being able to pay up the amount due nor would it be necessary to disclose the assets on an affidavit for securing the payment allegedly due to the Plaintiffs. Thus the Defendant is entitled to unconditional leave to defend.

12. I have heard both counsel. The Interim Application (L) NO. 32073 of 2022 under Order VII Rule 11 (a) & (d) is misconceived. The Plaintiffs are entitled to file a suit where the Defendant has its registered office which admittedly is in Mumbai.

13. The ground of limitation is also baseless as the Defendant have themselves admitted an outstanding amount of ₹. 3,25,00,000/- as on 31st March 2018 in their Balance Sheets annexed as Exhibit ‘B’ to ‘I’ at more particularly at page 176 of the Plaint. The Supreme Court in the case of Asset Reconstruction Co (India) Ltd vs Tulip Star Hotels Ltd and Ors.[1] in paragraph 85 whilst referring to various judgements has held that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgement under Section 18 of the Limitation Act.