Sicom Limited vs Co-Nick Alloys (India) Limited ...
2005 Latest Caselaw 489 Bom

JUDGMENT

S.U. Kamdar, J.

1. The present petition is filed under section 31(1)(aa) of the State Financial Corporation Act against the respondent Nos. 2 and 3 as the guarantors.

2. Some of the material facts can be briefly enumerated as under :-

3. The petitioner is the financial corporation incorporated by the Government of Maharashtra with an object to provide inter alia assistance to industries in the State of Maharashtra. The petitioner is a deemed state financial corporation under the provisions of section 46 of the State Financial Corporation Act, 1951. The respondent No. 1 approached the petitioner for sanction of a term loan of Rs. 320 lacs and accordingly by a letter dated 10.2.90 the said loan was sanctioned by the petitioner in favour of the respondent No. 1 herein. The said loan was availed and in consideration thereof the assets of respondent No. 1 company including plant and machinery and building were mortgaged under a deed of mortgage dated 13.8.1998.

4. In consideration of the said amount lent and advanced to the respondent No. 1 company by the petitioner, the respondent Nos. 2 and 3 executed the deed of guarantee dated 14.8.1998 for guaranteeing the repayment of the said loan amount in an event there is a failure on the part of the respondent No. 1 to repay the same. The said deed of guarantee is unconditional and without any demur. Relying upon the aforesaid representation of the respondent Nos. 2 and 3, the petitioner disbursed the said sum of Rs. 320 lacs to the respondent No. 1 in various instalments from time to time. However, the respondent No. 1 committed defaults in repayment of instalments of principal amount and interest to the petitioner herein and committed breach of the terms and conditions of the sanction of the loan on which the said amount was disbursed. Ultimately, on 22.6.1999 the petitioner issued a recall notice and also threatened to take over possession of the assets of the respondent No. 1 company which are mortgaged by the respondent No. 1 in favour of the petitioner herein. By that time the outstanding amount was Rs. 3,74,53,186/-. Inspite of the said written notice, the respondent No. 1 did not make payment of the dues which are admittedly due and payable by the respondent company to the petitioner herein. Ultimately on 22.9.1999 the petitioner took over possession of the mortgaged assets of the respondent No. 1 company in exercise of powers conferred under section 29 of the State Financial Corporation Act. On 9.7.2001 the petitioner also invoked the personal guarantee of the respondent Nos. 2 and 3 and called upon them to pay the amount then outstanding of Rs. 6,20,44,689/- being the principle along with interest upto 31.7.2001 failing which it was threatened that the proceedings under Section 31(1)(aa) of the State Financial Corporation Act will be invoked. Inspite of the said invocation of the Bank Guarantee the respondent Nos. 2 and 3 did not make payment and accordingly the present petition is filed under section 31(1)(aa) for recovery of the said dues from the respondent Nos. 2 and 3.

5. The respondent company has filed an affidavit in reply to the present petition and has raised the following contentions. . Firstly it has been contended that this Court has no jurisdiction to entertain the present petition under section 31(1)(aa) of the State Financial Corporation Act. . Secondly it is contended that the present petition is not maintainable because of the delay in invoking the bank guarantee. It has been contended that the possession is taken under section 29 of the State Financial Corporation Act on 2.7.1999. However, the bank guarantee is invoked only on 9.7.2001 and, therefore, this Court has no jurisdiction to entertain the present petition. . Thirdly, it has been contended that this Court is not an appropriate forum. It has been contended that the State Bank of India being one of the lender has already initiated a proceeding in the Debt Recovery tribunal and the tribunal has already permitted sale of some of the assets of the company and in view thereof SICOM should also raise its claim before the Debt Recovery Tribunal and cannot file the present proceedings under section 31(1)(aa) of the State Financial Corporation Act.

6. On merits also certain contentions are raised which are briefly enumerated as under :-

(i) The petitioner is not entitled to the interest amount in respect of the said loan once the possession is taken by the petitioner of the assets on 2.7.1999 because on possession being taken the petitioner becomes the owner and thus the claim amount must stand duly fulfilled and paid over and, therefore thereafter interest cannot be levied by the petitioner in respect of the said loan amount lent and advanced.

(ii) It has been further contended that the petitioner is entitled to credit of the value of the assets of the company as per the valuation report prepared by the petitioner themselves since petitioner has become deemed owner under section 32(6) of the State Financial Corporation Act and thus cannot claim any further amount in respect of the same.

7. The learned counsel for the respondent has contended that in the light of the aforesaid contentions raised by him in the present petition, the present petition is liable to be dismissed and no relief can be granted to the petitioner against the guarantors respondent No. 2 and 3 in pursuance of deed of guarantee. Firstly it is significant to note that the execution of the guarantee is not denied by respondent Nos. 2 and 3 nor the liability of repayment under the guarantee is disputed by the respondent Nos. 2 and 3. The only issue in so far as quantum of claim is concerned is restricted to the claim of interest and not to the principal amount. It is also an admitted position that the respondent No. 1 company being the principal debtor has not been able to discharge its liability under the said term loan agreement. In light of the aforesaid admitted position now I am required to consider the legal objections which are raised by respondent Nos. 2 and 3 resisting the said claim.

8. Now turning to the issue of jurisdiction, the learned counsel for the petitioner has contended that under the provisions of section 31(1) of the State Financial Corporation Act it is prescribed that the District Judge within the limits of whose jurisdiction the industrial concern carries on whole or substantial part of its business is only the Court which would have jurisdiction to entertain the present petition. It has been contended that in the present case the industrial concern do not carry on any business whatsoever in the local limits of jurisdiction of this Court and, therefore, this Court has no jurisdiction. It has been further contended that the word "industrial concern" as appearing under section 31(1) must be read in consonance with the definition section 2(1) of the Act. The said section defines the "industrial concern" to mean any concern engaged or to be engaged in the activities which are specified under the said section 2(c) of the said Act. It has been therefore contended that where the actual activities of the industrial concern such as manufacturing and/or mining or hotel industry or any of the items which are specified under section 2(c) is carried that is the only place in whose local limit the courts which are situated shall have jurisdiction to entertain and try the present petition. It has been contended that the manufacturing activities of the respondent company was carried on at Plot No. A-216, MIDC, Murbad Industrial Area, District Thane and thus it is the Civil Judge Sr. Division, Thane shall have the territorial jurisdiction to decide the present petition and not this Court under section 31(1) of the said Act.

9. It is now well settled that the point of jurisdiction of the court has to be considered on the basis of the pleadings made in the petition. Paragraph 12 of the petition is a jurisdiction clause. The said paragraph 12 reads as under :-

"12. The Respondents carry on business, have the principal place of their business and / or reside at Mumbai; the Deed of Guarantee provide that for enforcing the same, the Courts at Mumbai shall alone have exclusive jurisdiction; the loan was paid to the Respondent No. 1 at Mumbai; the repayment is to be made at Mumbai; the Respondent No. 1 has its Registered Office at Worli, Mumbai and carries on / carried on at the material time substantial part of its business such as administrative work and corporate functions from its Office at Mumbai; the Hon'ble Court has, therefore, jurisdiction to entertain, try and dispose off this Petition under sections 31 and 32 of the SFC's Act." It is the case of the petitioner that the business of the industrial concern is carried on within the local limits of jurisdiction of this Court and it has been contended that the office of the company is situated at 412, Shah & Nahar Bldg., Dr. E. Moses Road, Worli, Mumbai 400 018 which is within the jurisdiction of this Court and, therefore, this Court shall have jurisdiction to entertain and try the present petition.

10. On the other hand, the learned counsel for the respondent company has contended that at the aforesaid address the company was having its registered office. It has been contended that the company has ceased to have its registered office at the aforesaid address with effect from 1.8.1998 and the registered office of the company was shifted to Plot No. A-216, MIDC, Murbad Industrial Area, District Thane. It has also been contended that the address namely, D-13, Everest Chambers, 156, Tardeo Road, Mumbai - 400 014 which was communicated by the respondent to the petitioner by their letter dated 2.6.1999 was only for correspondence purpose and there is no registered office of the company situated at the aforesaid address. It has thus been contended that the aforesaid address at D-13, Everest Chambers, 156, Tardeo Road, Mumbai 400 034 has to be ignored for the purpose of determination of jurisdiction of this Court and it cannot be said that the present petition can be filed within the local limits of jurisdiction of this Court. Thus, the jurisdictional issue raised had two aspects of the matter. Firstly, on the ground that the word 'industrial concern' as defined in section 31(1) must be read in light of section 2(c) and thus only where actual activities of manufacture is carried on of the industrial concern that is the only area which should be taken into consideration for the jurisdiction purpose. Secondly, that even if it is treated that the industrial concern's business is carried on where the office of the company is situated, still this Court will have no jurisdiction because the registered office of the company has been shifted to the factory address and the mere correspondence address given in Bombay cannot mean to have jurisdiction to entertain and try the present petition. In support thereof, the respondents 2 and 3 have produced an extract in the form of form No. 18 filed with the Registrar of Companies indicating notice of change of registered address of the company and pointed out that the registered address of the company has been shifted from Bombay to the said factory address in Murbad, District Thane from 1.8.1998.

11. On the other hand, the learned counsel for the petitioner has contended that this Court has jurisdiction to entertain and try the present petition. It has been contended that under section 31(1) the Court which shall have jurisdiction where the business of the industrial concern is carried on. While construing the word "business of the industrial concern" it has been contended that the words 'carries on business' under section 31(1) is that of a wider import and the same can not be restricted by giving narrow interpretation of the word industrial concern as defined under section 2(c) of the Act. The word 'carries on business' includes the place where the company has its office and it is not necessary that only the place where actual manufacturing activities are carried is the only place where it carries on business.

12. In my opinion, the definition of the word 'industrial concern' carries on business includes within its scope both the place where such concern carries on its manufacturing activities and where the office of such an industrial concern is situated. It would also mean the place where the business of the industrial concern is carried on. It is not possible to accept the contention of the learned counsel for the respondent Nos. 2 and 3 that the word 'industrial concern' as defined means the concern which carries on certain type of activities. It is only where its jobs or activities are carried on that such place will alone have jurisdiction. It is well settled that the business of the industrial concern can be carried on at many places including the place where the manufacturing activities is undertaken or whether the place where the office of the company is situated. In my opinion, thus, the provision of section 31(1) must be so read that where any industrial concern carries on its business either by carrying on manufacturing activities or where their office is situate. Now, turning to the fact that the registered office of the company is shifted from Bombay to Thane I am of the opinion that such contention cannot be accepted for more than one reason. Firstly, it is an admitted position that there is business address given by the company themselves at Mumbai. The factory has already been taken over by the petitioner. Thus, the business of the company cannot be carried on from the factory nor the registered office of the company can be located in the factory premises which has already been taken over by the petitioner herein. Advisedly, therefore, the respondent No. 1 changed the address of the company to another address at Bombay and the respondents themselves have given the said address by their letter dated 2.6.1999 namely, D-13, Everest Chambers, 156, Tardeo Road, Mumbai 400 034. Thus, ultimately the aforesaid address is the address at which the company's industrial concern is carrying on its business and therefore this Court has jurisdiction to entertain and try the present petition. The argument advanced by the learned counsel for the petitioner has also lot of substance in as much as this is the address which is in fact is the office address of the company printed on their letter head. By relying upon section 146 of the Companies Act, it has been contended that the company has to mention on the letter head address of the registered office of the company. It has been contended that the letter heads which are issued by the company only mention this as an address and not any other registered office address of the company. Thus, it should be treated that the company is carrying on its business at the registered office at the address submitted by them and, therefore, this Court has jurisdiction to entertain the present petition. On a true and correct interpretation of Section 31(1) of the said Act it is clear that where the industrial concern carries on business that Court will have jurisdiction. I am also not inclined to accept the contention for additional reason because clause 18 of the guarantee specifically provides that Bombay Court alone shall have exclusive jurisdiction as against the guarantors to prosecute the said claim. The said agreement is admittedly signed by the parties. The guarantors who are respondent Nos. 2 and 3 also resides in Bombay and, therefore, also I do not find any reason to hold that this Court has no jurisdiction to entertain and try the present petition. I, therefore, hold that the industrial concern if carries on business within the jurisdiction of this Court then this Court shall have jurisdiction to entertain the present petition under section 31(1) of the State Financial Corporation Act, 1951.

13. The learned counsel for the petitioner on the other hand has contended that the word 'carried on business' has been well defined and the meaning thereof has been well settled. He has relied upon two judgments being the judgment of the Division Bench of the Allahabad High Court in the case of Firm Kripa Ram Sita Ram v. Firm Mangal Sen Bishan Mal, reported in 1922 Allahabad 367 and has contended that the word carried on business is the each and every place where the business of the company is carried on. He has relied upon the judgment of the Single Judge of the Delhi High Court in the case of Bakhtawar Singh Balkrishan, New Delhi v. Union of India and Anr., where once again the Court has considered the words carried on business and has held that the expression "business" has the conotaton of permanence and it can be every place where the business of the company is being carried on. I am in agreement with the view expressed by the aforesaid two judgments on words 'carried on business' must be treated widely enough so as to include every place of business where the business of the company is carried on which in the present case include Bombay at the aforesaid address.

14. This leads me to the second contention of the learned counsel for the respondent Nos. 2 and 3. In support of the said contention of maintainability the learned counsel has relied upon the judgment of the Allahabad High Court in the case of Govind Prasad and Anr. v. U.P. Financial Corporation, Kanpur and Ors., reported in 1990 ALL. L.J. 580 particularly paragraphs 3 and 4 thereof which read as under :-

"3. The learned counsel is clearly right. We think that the Corporation could not legally and, at any rate ought not in all fairness to proceed against the petitioners while keeping the property mortgaged with them under its control. The Corporation having decided to proceed against the borrowers and having taken possession of their assets, could not turn around and proceed against the petitioners without attempting to sell the assets seized from the borrowers. It should not be forgotten that the Corporation is an instrumentality of the State. It must, therefore, at all times act reasonably and fairly. There is nothing to indicate that value of the property seized by the Corporation is less than the amount remaining due from the borrowers. The impugned action against the petitioners is hence plainly unjust and unfair.

"4. The upshot of the foregoing discussion is that so long as the property in possession of the Corporation is not sold or released by the Corporation, it would be unfair and unjust for the Financial Corporation to proceed against the petitioner. The Corporation may, l therefore, either sell the properties and recover the balance from the petitioners or it may release the property and proceed against the petitioners." It has been contended by relying upon the aforesaid judgment that so long as the property of the respondent No. 1 company is in possession of the petitioner and not sold or released it is unfair and unjust to allow the action against the guarantors for recovery of the said amount. It is therefore contended that the petition filed by the petitioner without sale of the properties of the respondent No. 1 company is not maintainable and thus should be dismissed. I am not inclined to accept the contention of the learned counsel for the petitioner. The judgment of the Apex Court in the case of Andhra Pradesh State Financial Corporation v. GAR Re-Rolling Mills and Anr., makes it clear that the action under sections 29, 31 are without prejudice to one another and the Corporation is entitled to initiate action in respect of both the sections. In view of the judgment of the Apex Court which has not been considered by the Allahabad High Court, the view taken by the Division Bench of the Allahabad High Court in the case of Govind Prasad and Anr. v. U.P. Financial Corporation, Kanpur and Ors. (supra) with great respect is incorrect and cannot be accepted. In any event, it runs counter to the judgment of the Apex Court in the aforesaid case. In view of the aforesaid position of law, I am not inclined to accept the contention of the learned counsel for respondents. It is also well settled that the liability of the principal debtor and guarantors is joint and several. Thus it is open to the creditor to even sue the guarantor without sueing the principal debtor altogether. In view of the aforesaid principal in law the contentions raised by the company cannot be accepted.

15. This leads me to the third contention advanced by the respondent Nos. 2 and 3. It has been contended that the State Bank has India has already initiated the proceedings in the Debt Recovery Tribunal and the DRT has passed various orders including the direction to sell the properties and, therefore, the DRT alone should be an appropriate forum and not this Court. The said submission of the learned counsel for the respondent Nos. 2 and 3 is required to be stated to be rejected. Firstly, because the provisions of Section 34(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 in terms provides that the provisions of the DRT Act is in addition to the provisions of the State Financial Corporations Act and not in derogation thereof, therefore, the contention raised by the learned counsel for the respondent Nos. 2 and 3 that the appropriate forum is the Debt Recovery tribunal merely because the State Bank of India has filed the proceedings in exercise of their right under the said Act, therefore cannot be accepted and thus I reject the same. Apart therefrom I do not see any such principle in law that because one of the creditor has filed a claim in one particular court and/or forum all creditors must file the proceedings in the same court and/or Forum. In view thereof I reject the said contention of the respondent company.

16. Now turning to the merits of the case, the contention of the learned counsel for the respondent Nos. 2 and 3 that the said properties vests in the petitioner since September 1999 and the same are still not disposed of and, therefore, the petitioner is not entitled to claim interest because once the power is exercised under section 29 of the Act, the petitioners becomes the owners of the said property and thus they cannot claim interest in respect of the liability which stood extinguished and/or adjusted by virtue of transfer of the said assets in the petitioner. This contention is based on the judgment of the Division Bench of Himachal Pradesh High Court in the case of H.P. Financial Corporation v. Tek Chand and Ors., reported in 2002 (1) ISJ (Banking) 493. Particularly, the learned counsel has relied upon paragraph 27 on page 502 and paragraph 43 on page 507. I am not inclined to accept the aforesaid contention of the learned counsel for the respondent Nos. 2 and 3. The judgment of the Himachal Pradesh contains a proposition of law which is in fact contrary to the various judgments of the Apex Court. The provisions of section 29 does not wipe out the loan liability of either the respondent Nos. 2 or 3 as guarantors under their respective guarantees. In any event unless the assets are sold by the financial institution and money appropriated or recoveries are made by allowing the assets to be run by the other parties it can not be said that the liability either of the principal debtor and/or guarantor is wiped out. The financial institutions do not become owner by exercising power under section 29 but it exercises only a power to recover their dues either by transfer, sale and/or handing over management and thus seek recovery from such concern which has become defunct or inoperative. The transfer of properties and/or assets from one person to another can only be done in the manner and method recognised by law. I am not inclined to accept the contention that either by virtue of deemed ownership or by virtue of taking over possession the company or the guarantor do not have to make any payment. I am also not inclined to accept the contention of the respondent corporation that the petitioner should be made liable to pay damages because of the non-disposal of the property for long period of time i.e. in the present case from 1999 to 2001. In support of the aforesaid, reliance is placed on the judgment of the Division Bench of the Punjab and Haryana High Court in the case of Yamuna Enterprises, Yamunanagar v. Haryana Financial Corporation, Chandigarh and Ors. . I am of the opinion that under section 31(1)(aa) of the State Financial Corporation Act this proceedings which are akin to the execution or post suit proceedings it cannot be accepted that the Court has jurisdiction to determine the damages for non-disposal of the assets of the respondent No. 1 company and determine arbitrarily and without any evidence determine the so called claim for damages without the same being proved in a method known to law. I am, therefore, unable to accept the contention of the learned counsel for respondent Nos. 2 and 3 and I reject the same accordingly.

17. In the aforesaid circumstances, I allow the present petition and direct that the respondent Nos. 2 and 3 shall make payment to the petitioner of a sum of Rs. 6,74,43,823/- with further interest at the rate of 12% per annum till payment and/or realisation. However, there shall be no order as to costs.

18. The learned counsel for the respndent Nos. 2 and 3 seeks stay of the order for a period of four weeks. Stay granted for four weeks.