Bombay High Court
Sicom Limited vs Official Liquidator In Liqn. Set ... on 16 November, 2017
Bench: R.M. Savant
app(l)-331-17(18)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO. 331 OF 2017
IN
COMPANY APPLICATION (L) NO.95 OF 2017
WITH
OFFICIAL LIQUIDATOR'S REPORT NO.18 OF 2017
IN
COMPANY PETITION NO.270 OF 2001
SICOM Limited, a Company registered )
under Companies Act, 1956 having )
Registered Office at Solitaire Corporate )
Part, Building No.4, Guru Hargovindji )
Road, Andheri (East) Mumbai 40093 ) ..Appellant
Versus
1 Official Liquidator, High Court )
Bombay as Liquidator of Set )
Telecommunications Limited (In- )
liquidation) having office at 5th floor )
Bank of India Building, M. G. Road, )
Fort, Mumbai 400 023 )
2 Maharashtra State Financial )
Corporation formed and )
established under the State )
Financial Corporation Act, 1951 )
and having its Head Office at New )
Excelsior Building, 5th, 7th, 8th and )
9th floor, Amrit Keshav Nayak )
Marg, Fort, Mumbai 400001 and its )
Regional Office at Office Complex )
Building 6th floor, MIDC, Wagale )
Estate, Thane 400 604 through its )
authorized person )
3 Asset Reconstruction Company )
(India) Limited, a Company )
incorporated under the )
Companies Act, 1956, having )
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app(l)-331-17(18)
office at The Ruby, 10th floor, 29 )
Senapati Bapat Marg, Dadar )
(West) Mumbai 400 028 ) ..Respondents
Mr. Rohan Cama a/w Mr. T. N. Tripathi a/w Ms Sapana Rachure i/b T. N.
Tripathi & Co. for the Appellant
Mr. Prathamesh Kamat for the Official Liquidator
CORAM :R. M. SAVANT, &
SARANG V KOTWAL, JJ
DATE : 16th NOVEMBER, 2017
ORAL JUDGMENT (PER R. M. SAVANT J.)
1 Admit. Considering the issue involved heard forthwith.
2 The above Appeal arises out of the order dated 23-6-2017 passed
by a Learned Single Judge of this Court A. S. Gadkari J., by which order the
Official Liquidator's report No.18 of 2017 was came to be allowed in terms of
prayer clauses (a), (b) and (d) of the said report.
3 Shorn of unnecessary details a few facts can be stated thus:
The company in liquidation is the Respondent No.3 who was
extended financial facilities by the SICOM i.e. the Appellant herein. On the
said company being ordered to be wound up and the Official Liquidator being
appointed as a provisional liquidator, the Official Liquidator was directed to
reassess the claims of the secured creditors and the workers as per the order
dated 12-8-2016. The Official Liquidator accordingly reassessed the claims of
the secured creditors amongst who was the Appellant-SICOM. The Official
Liquidator accordingly submitted his report and sought condonation of delay
of 39 days in reassessment of the claims.
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4 The Appellant-SICOM filed the instant application being Company
Application (L) No.95 of 2017 for setting aside the reassessment made by the
Official Liquidator and for adjudication of its entire claim as per its affidavit of
debt dated 8-9-2016 and for adjudication of its claim to the extent f
Rs.5,73,35,714/- as secured creditors. In the context of the application and
the reliefs sought by the Appellant vide the said Company Application, the
clause providing for payment of interest in the Mortgage Deed dated 4-9-1987
and the Mortgage Deed dated 5-12-1990 assumed importance. The Learned
Single Judge considered the said application and as indicated above has
allowed the Official Liquidator's report in terms prayer clauses (a), (b) and (d)
and resultantly has rejected the application filed by the Appellant - SICOM.
The gist of the reasoning of the Learned Single Judge as can be seen from the
impugned order is that since by the subsequent Mortgage Deed dated 5-12-
1990 revised terms and conditions were introduced the contention of the
Appellant-SICOM that it is entitled to compound interest as the same is
implied in the contract could not be accepted. The Learned Single Judge has
adverted to the fact that in executing the subsequent Mortgage Deed there was
a novation of the terms contained in the earlier Mortgage Deed of 1987. The
Learned Single Judge adverted to the Judgment of Karnataka High Court in
the case of Jaykumar Shah Vs. Syndicate Bank held that the same would have
no application as the said judgment was rendered in the facts of the case as
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prevailing before the Karnataka High Court. The Learned Single Judge
observed that he did not find any reason to interfere with reassessment carried
out by the Official Liquidator as the same was done with the assistance of a
Chartered Accountant. As indicated above, it is the said order dated 23-6-
2017 which is taken exception to by way of the above Appeal.
5 Heard the Learned Counsel for the parties.
6 The principal contention of the Learned Counsel for the Appellant
Mr. Cama is that though a subsequent Mortgage Deed was executed on 5-12-
1990, there is virtually no change in the terms as regards payment of interest.
The Learned Counsel by referring to the first part of the clause as appearing in
the 1987 Mortgage Deed and the 1990 Mortgage Deed would submit that the
said clause is identical in both the Deeds and therefore the interest calculated
would have to be on the basis of the compound interest. The Learned Counsel
sought to draw our attention to the document which is at page 102 i.e.
document titled as "Basis of Reassessment", wherein a table is appearing below
paragraph (7) of the said document in which table in the second column the
interest payable is mentioned as 15.5% compoundable interest which is
referable to the clause as appearing in the 1987 Mortgage Deed. It was
therefore the submission of Mr. Cama that since the clause in the two Deeds is
identical the SICOM is entitled for reassessment on the basis that in terms of
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the clause as appearing in the 1990 Mortgage Deed, compound interest is
payable. The Learned Counsel would contend that though the word "quarterly
rests" is not appearing in the clause of the 1990 Mortgage Deed, the word
"quarterly" is appearing, the said word therefore can be said to imply the
payment of compounded interest. The Learned Counsel would contend that
the said word "quarterly rests" had come up for interpretation before the Apex
Court in the matter of Central Bank Of India Vs. Ravindra & Ors. 1. The
Learned Counsel would also contend that the banking practice is of payment
of compound interest for which he placed reliance on the judgment of the
Division Benches of this Court in M/s Good Luck Talkies & Ors. Vs. The Bank
of Maharashtra2 and State Bank of India Vs. Smt. Neela Ashok Naik &
Anr.3 It was therefore the submission of Mr. Cama that the Learned Single
Judge has erred in accepting the reassessment carried out by the Official
Liquidator on the basis that the Appellant-SICOM is entitled to only simple
interest.
7 Per contra, the Learned Counsel appearing for the Official
Liquidator Mr. Kamat would support the impugned order. It was the
submission of the Learned Counsel that there has been a novation of the
contract by the execution of the subsequent Mortgage Deed dated 5-12-1990.
The Learned Counsel would contend that the clause appearing in the 1987
1 (2002)1 Supreme Court Cases 367
2 1982(1) Bom.C.R. 268
3 AIR 2000 Bombay 151
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Mortgage Deed and the clause appearing in the 1990 Mortgage Deed are
different and distinct. The Learned Counsel would contend that in so far as
the 1987 Mortgage Deed is concerned, the clause contemplates the payment of
15.5% by half yearly rests on 31st March and 30th September every year and in
default the said clause provided additional interest / compound interest @
2.5% p.a. over and above SICOM lending rate. The Learned Counsel would
contend that in so far as the clause in the 1990 Mortgage Deed is concerned,
the interest rate has been hiked to 16.5% and the sum is payable quarterly on
31st January, 30th April, 31st July and 31st October every year. The said clause
also provides for the eventuality of default and contemplates the payment of
additional interest @ 2.5% p.a. on the total amount in default. Hence it was
the submission of the Learned Counsel that where compound interest was
contemplated, it was specifically provided for in the clause as in the 1987
Mortgage Deed and when it was not so in contemplation the words "rests" and
"compound" are conspicuously absent, that is in the 1990 Mortgage Deed.
The Learned Counsel would contend that the Official Liquidator having regard
to the terms of the contract has carried out the reassessment as the original
clause as well as the amended clause as is appearing in form Nos.8 and 13
with the Registrar of Companies.
8 Having heard the Learned Counsel for the parties, we have
considered the rival contentions. The issue that arises is whether the
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Appellant is entitled to interest which is compounded under of the clause as in
the 1990 Mortgage Deed. To answer the said issue it would be apposite to
refer to the clause as appearing in the 1987 Mortgage Deed and the clause as
appearing in the 1990 Mortgage Deed which clauses for the sake of ready
reference are reproduced hereinunder:
Clause appearing in the 1987 Mortgage Deed
"The Company agreed to pay interest at the rate
of 15.5% payable by half yearly rest on 31 st
March and 30th September every year with
proviso to pay additional interest / compound
interest at the rate of 2.5% p.a. over and above
SICOM's lending rate as applicable prior to IDBI
refinance on the total amount in default during
the period of such default."
Clause appearing in the 1990 Mortgage Deed
"The company agreed to pay interest on the said
loan of Rs.65,00,000/- at the rate of 16.5% per
annum with effect from 1st April 1990 payable
quarterly on 31st January, 30th April, 31st July and
31st October every year and agreed to pay
additional interest at the rate of 2.5% per annum
on the total amount in default during the period
of such default."
9 A reading of the aforesaid clauses therefore discloses that in so far
as the clause in the 1989 Mortgage Deed is concerned, the interest was
payable @ 15.5% by half "yearly rests" on the date specified in the said clause
and the proviso was made to pay additional / compound interest @ 2.5% p.a.
over and above the SICOM lending rate.
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In so far as the clause in the 1990 Mortgage Deed is concerned, it
is not necessary to go into the background as to why the said Mortgage Deed
was executed but probably it seems there were negotiations between the
parties and thereafter the loan advanced to the company in liquidation, seems
to be restructured leading to the novation of the contract. A reading of the
said clause therefore discloses that the words yearly "rests" and "compound"
are conspicuously absent in the clause. As indicated above the interest has
been hiked to 16.5% payable quarterly and the word "rests" has not been
suffixed to the word "quarterly" as is usually done in lending contracts.
9 Apart from the aforesaid, it is also required to the noted that in so
far as the payment of additional interest on account of default is concerned, it
is stipulated that the parties agreed to payment of additional interest @ 2.5%
p.a. on the total amount in default during the period of such default. Hence
there is no mention of any interest which is compounded, to be paid on the
defaulted amount. We therefore find merit in the submission of Mr. Kamat
that when the parties had agreed to the payment of compound interest, it was
specifically provided for, as in the 1987 Mortgage Deed and when they did not
do so, it was conspicuously absent as in the 1990 Mortgage Deed. Hence the
parties by contract having not provided for payment of compound interest the
claim of the Appellant for computation of the amount on the basis of the usual
banking practice of capitalisation of interest cannot be entertained.
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10 Now coming to the judgment cited on behalf of the Appellant i.e.
in Central Bank of India (supra), the Apex Court in the said case was
concerned with the interpretation of the term "principal sum adjudged" and
"such principal sum" as appearing in Section 34 of the CPC and it is in the
context of the said issue that the Apex Court referred to the usual banking
practice of capitalisation of unpaid interest. The Apex Court concluded that
the "principal sum adjudged" may include the amount of interest charged on
periodical rests and capitalised with the principal sum actually advanced so as
become a part of the principal. Paragraph 44 of the said judgment is material
and is reproduced hereinunder:
44. We are of the opinion that the
meaning assigned to the expression "the principal
sum adjudged" should continue to be assigned to
"principal sum" at such other placed in Section
34(1) where the expression has been used
qualified by the adjective "such" that is to stay, as
"such principal sum". Recognition of the method
of capitalisation of interest so as to make it a part
of the principal consistently with the contract
between the parties or established banking
practice does not offend the sense of reason,
justice and equity. As we have noticed, such a
system has a long established practice and a
series of judicial precedents upholding the same.
Secondly, the underlying principle as noticed in
several decided cases is that when interest is
debited to the account of the borrower on
periodical rests, it is debited because of it having
fallen due on that day. Nothing prevents the
borrower from paying the amount of interest on
the date it falls due. If the amount of interest is
paid there will be no occasion for capitalising the
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amount of interest and converting it into
principal. If the interest is not paid on the date
due, from that date the creditor is deprived of
such use of the money which it would have made
if the debtor had paid the amount of interest on
the date due. The creditor needs to be
compensated for deprivation. As held in
Pazhaniappa Mudaliar Vs. Narayana Ayyar the
fact situation is analogous to one as if the creditor
has advanced money to the borrower equivalent
to the amount of interest debited. We are,
therefore, of the opinion that the expression "the
principal sum adjudged" may include the amount
of interest, charged on periodical rests, and
capitalised with the principal sum actually
advanced, so as to become an amalgam of
principal in such cases, where it is permissible or
obligatory for the court to hold so. Where the
principal sum (on the date of suit) has been so
adjudged, the same shall be treated as "principal
sum" for the purpose of "such principal sum" ---
the expression employed later in Section 34 CPC.
The expression "principal sum" cannot be given
different meanings at different placed in the
language of same section i.e. section 34 CPC.
In so far as the judgments (supra) of the Division Benches are
concerned, they also deal with the issue of the "Principal Amount Due". It has
been held in State Bank of India's case that principal sum adjudged can
include in it interest as well depending upon the contract between the parties.
In the said case there was a contract for payment of interest with quarterly
rests.
In M/s. Good Luck Talkies & Ors (supra) the Division Bench held
that the unpaid interest merges in the principal which under the contract is to
be treated as principal. The said judgments are predating the judgment of the
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Constitution Bench in Central Bank of India's case (Supra). The Constitution
Bench Judgment of the Apex Court has settled the law in so far as the
"Principal Sum Adjudged" is concerned. The Apex Court as well as the
Division Benches hence concerned with the issue as to on which amount the
interest under Section 34 was payable. It is in the said context that the
components of the "principal sum adjudged" as appearing in Section 34 of the
CPC were set out by the Apex Court.
11 In our view the aforesaid judgments would not aid the Appellant
to contend that the Appellant is entitled to compound interest in terms of the
clause as appearing in the 1990 Mortgage Deed, when the parties by contract
have not provided for the same. We therefore do not find any fault with the
order passed by the Learned Single Judge allowing the Official Liquidator's
report in terms of prayer clauses (a), (b) and (d), resultantly rejecting the
Company Application filed by the Appellant. There is therefore no merit in the
above Appeal which is accordingly dismissed. However, time to deposit the
amount as directed by the Learned Single Judge is extended by a period of 4
weeks from date.
12 In view of the dismissal of the above Appeal the Notice of Motion
(L) No.1699 of 2017 does not survive and to accordingly stand disposed of as
such.
[SARANG V KOTWAL, J] [R.M.SAVANT, J]
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