STCI Finance Ltd v. Cedar Infonet Pvt Ltd & Ors.

1. This application is filed by the plaintiff under Order 37 Rule 6(b) read with section 151 CPC seeking a decree in terms of the prayers made in the accompanying suit.

2. The accompanying suit is filed by the plaintiff under Order 37 seeking recovery of Rs.80,82,38,057.51 along with pendente lite and future interest and costs.

3. The case of the plaintiff in the plaint was that a Loan Facility Agreement was executed between plaintiff company and defendant No.1 company on 17.11.2010 whereby loan facility of an amount of Rs.50,00,00,000.00 was granted by the plaintiff on a revolving basis at rate of interest @ 12% per annum with monthly rests. To secure the aforesaid 2019:DHC:2916 Local Facility, the defendants executed various documents and pledged certain shares, mutual fund units and other securities. Defendant Nos.[2] and 3 are the guarantors of the Loan Facility. Vide letters dated 19.05.2014 and 23.07.2014 the plaintiff requested the defendants to pay the entire overdue amount. As there is default on the part of the defendants in making payment, the present suit was filed.

4. On 08.05.2018 this court granted unconditional leave to defend to the defendants noting that defendant No.1 had availed financial assistance from the plaintiff and pledged with the plaintiff the shares held by the defendant Nos.[1] and 2 in Tulip Telecom Ltd. The shares of pledged were in dematerialised from and the pledge was created in accordance with the Securities & Exchange Board of India(Depositories & Participant) Regulations, 1996. This court noted that the plaintiff as pledgeE/pawnee, on invocation of pledge and on transfer of the pledged shares from the account of the depository participant of the defendants to the account of the depository participant of the plaintiff was entitled to sell the shares at the then prevalent value thereof and to appropriate the sale proceeds in satisfaction of the amounts due to it from the defendants. The court hence concluded that an opportunity has to be given to the defendants to prove that the plaintiff, in spite of having invoked the pledge and being entitled to sell the pledged shares to satisfy the debt owed by the defendants, have not done so, is not entitled to recover the debt or the entire debt. The same constitutes a substantial defence, which if proved is likely to succeed and the defendants are thus entitled to unconditional leave to defend.

5. In an SLP was filed before the Supreme Court by the plaintiff. The Supreme Court however set aside the aforesaid judgment of this court dated 08.05.2018. The Supreme Court passed the fowling directions: “ Hence, at the present stage, we are of the view that the interest of justice would demand that the first, second and third respondents should be granted conditional leave to defend subject to the deposit of an amount of Rs.34 crores. This amount shall be deposited within a period of three months from today. Of the above amount, an amount of Rs.10 crores shall be deposited on or before 15 May 2019, an amount of Rs.10 crores shall be deposited on or before 15 June 2019 while the balance of Rs.14 crores shall be deposited on or before 15 July 2019. On the deposit of the above amount, the first, second and third respondents shall be entitled to leave to defend. Upon deposit before the Registry of the Delhi High Court, the amount shall be invested in a fixed deposit of a nationalised bank, to abide by the final result of the suit.”

6. The admitted fact is that the defendants have failed to deposit the first instalments of Rs.10 crores on or before 15.05.2019.

7. I have heard the learned counsel for the parties.

8. The learned senior counsel appearing for the defendants submits that they would like to file a reply to the present application despite service of advance copy some days back. An advance copy of this application was served on the defendant some days back. They chose not to file a reply. As the issue centres around compliance of the order of the Supreme Court dated 16.04.2019, I do not think there is any need for the defendant to file a reply for adjudication of this application.

9. The learned senior counsel for the defendant states that the admitted fact is that the plaintiff has received share worth Rs.16.79 crores as part of pledge which stood transferred to the plaintiff. He relies upon the judgments of the Bombay High Court in the case of Jry Investment Pvt. Ltd. v. Deccan Leafine Services Ltd. & Ors., 2004 121 Comp. Cas. 12 (Bom) and M/s. SICPC India Pvt. Ltd. v. M/s. Brushman (India) Ltd, 2013 XAD (Delhi) 136 to contend that on invocation of the said pledged shares, the plaintiff was entitled to sell the shares and accordingly liability of the defendants would get correspondingly reduced by the said value of the pledge shares, which is amounting to Rs.16.79 crores.

10. In my opinion, there is no merit in the plea of the learned senior counsel for the defendants. This court had granted unconditional leave to defend to the defendants only based on the contentions raised by the learned counsel for the defendants. This is clear from the para 25 of the order dated 08.05.2019 of this Court, which reads as follows: “25. I am at this stage unable to distinguish on facts, the present case from Tendril Financial Services Pvt. Ltd. supra. Once the liability of defendant no.l is disputed at this stage," the liability of defendants no.2 and 3 also cannot be said to be without any plausible defence. It has thus but to be held that the defence of the defendants, that the plaintiff as pledge/pawnee, on invocation of pledge-and on transfer of the pledged shares from the account of the depository participant of the defendants to the account of the depository participant of the plaintiff was entitled to sell the shares at the then prevalent value thereof and to appropriate the sale proceeds in satisfaction of the amounts due to it from the defendants, is such which within the meaning of IDBI Trusteeship Services Ltd. Vs. Hubtown Ltd. 2017 (1) SCC 568 entitles the defendants to leave to defend. Opportunity has to be given to the defendants to prove that the plaintiff, in spite of having invoked the pledge and being entitled to sell the pledged shares to satisfy the debt owed by the defendants, having not done so, is not entitled to recover the debt or the entire debt. The same constitutes a substantial defence, which if proved is likely to succeed and the defendants are thus entitled to unconditional leave to defend.”

11. However, the Supreme Court in its order dated 16.04.2019 set aside the aforesaid order as noted above, and clearly stated that in the event defendants default in the payment of the instalments or any part thereof necessary consequences under the law shall enure and the plaintiff is entitled to move the High Court for passing of a decree in terms of Order 37 CPC. The defendant cannot be allowed to urge the same contention all over again.

12. Where a conditional leave to defend was granted to a defendants and the defendant fails to abide by the conditions prescribed, the consequences are clearly stated by CPC in Sub-rule (6) of Rule 3 of Order 37 CPC, which reads as follows: “(6) At the hearing of such summons for judgment,— (a) if the defendant has not applied for leave to defend, or if such application has been made and is refused, the plaintiff shall be entitled to judgment forthwith; or (b) if the defendant is permitted to defend as to the whole or any part of the claim, the Court or Judge may direct him to give such security and within such time as may be fixed by the Court or Judge and that, on failure to give such security within the time specified by the Court or Judge or to carry out such other directions as may have been given by the Court or Judge, the plaintiff shall be entitled to judgment forthwith.”

13. This court in Zahir Abbas Ansari v. Sushila Jain, RFA 717/2018, decided on 28.08.2018 held as under: “2. As per order XXXVII Rule 3 Sub- Rule 6(b) CPC in case of non-compliance by a defendant of the order granting conditional leave to defend, a plaintiff is entitled to a judgment forthwith. Admittedly, the order granting conditional leave to defend dated 12.10.2017 has become final and was not challenged by the appellant/defendant. Even in this appeal, the challenge is only to the order dated 18.01.2018 decreeing the suit as per the provision of Order XXXVII Rule 3 Sub-Rule 6(b) CPC.

3. Learned counsel for the appellant/defendant does not dispute that appellant/defendant has not complied with the order dated 12.10.2017 granting conditional leave to defend by depositing a sum of Rs.20 lacs in the trial court in the form of an FDR. The suit was a suit for recovery of money on account of goods supplied being threads and which supply was secured by cheques which were dishonoured and resultantly Order XXXVII CPC suit.”

14. As the defendants have failed to give necessary security within the time as fixed by the court, on the failure to do so, the plaintiff is entitled to judgment forthwith.