Delhi High Court

Jagson Airlines Ltd. vs Premium Int. Finance Ltd. on 25 April, 2011

Author: J.R. Midha

58
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                   +     CS (OS) No.1468/1997

%                                  Date of decision: 25th April, 2011

      JAGSON AIRLINES LTD.          ..... Plaintiff
                    Through : Mr. Jayant Nath, Sr. Adv. with
                              Mr. Amish Tandon and
                              Mr. Udit Gupta, Advs.

                   versus

      PREMIUM INT. FINANCE LTD.        ..... Defendant
                     Through : Mr. Rajender Dhawan,
                               Mr. Rajesh Arora and
                               Mr. Tauseef Akhtar, Advs.

CORAM :-
THE HON'BLE MR. JUSTICE J.R. MIDHA

1.     Whether Reporters of Local papers may                         YES
       be allowed to see the Judgment?

2.     To be referred to the Reporter or not?                        YES

3.     Whether the judgment should be                                YES
       reported in the Digest?

                         JUDGMENT (ORAL)

I.A.No.6295/2009

1. The plaintiff has filed this suit for recovery of

Rs.43,92,018/- along with interest thereon against the

defendants under Order XXXVII of the Code of Civil

Procedure.

2. The plaintiff advanced a loan of Rs.50,00,000/- to

defendant No.1. Defendant No.1 executed an agreement and

promissory note dated 7th January, 1995 agreeing to repay the

loan within 120 days along with interest thereon @ 20% per

annum and defendant No.2 executed a personal guarantee to

repay the loan amount along with interest thereon to the

plaintiff.

3. On 24th January, 1995, the plaintiff advanced an

additional loan of Rs.16,00,000/- whereupon defendant no.1

who executed an agreement and demand promissory note in

favour of the plaintiff and defendant No.2 executed a personal

guarantee in favour of the plaintiff.

4. On 9th June, 1995, defendant No.1 paid a sum of

Rs.10,00,000/- to the plaintiff vide cheque No.080238 and

requested the plaintiff to roll over the balance loan amount of

Rs.56,00,000/- whereupon an addendum dated 24th July, 1995

was executed by defendant No.1 in favour of the plaintiff for

rolling over the principal loan amount of Rs.56,00,000/- along

with interest thereon @20% per annum and defendant No.2

executed a fresh personal guarantee for Rs.56,00,000/- in

favour of the plaintiff.

5. After the expiry of the stipulated period mentioned in the

aforesaid addendum, defendant No.1 requested the plaintiff to

roll over the principal loan of Rs.56,00,000/- for further period

in pursuance to which the principal loan amount of

Rs.56,00,000/- was rolled over four times and at the time of

each roll over, addendums were executed by defendant No.1

and personal guarantees were executed by defendant No.2 in

favour of the plaintiff.

6. Defendant No.1 issued three cheques bearing No.610635

dated 26th October, 1996 for Rs.1,64,278/-, No.610636 dated

31st October, 1996 for Rs.1,61,628/- and No.600395 dated 31st

October, 1996 for Rs.56,00,000/- in favour of the plaintiff which

were all dishonoured on presentation. Whereas the first

cheque was dishonoured due to insufficient funds, the

remaining two cheques were dishonoured because payment

was stopped by defendant No.1.

7. The plaintiff issued two legal notices dated 9th November,

1996 and 15th November, 1996 to the defendants demanding

the outstanding payment to which the defendants sent a reply

dated 19th December, 1996 posted on 13th January, 1997.

8. The defendants had given 5,795 shares of Jai Prakash

Industries, 7,000 shares of Gujarat Ambuja Cement and 1,800

shares of Wart Sila Diesels to the plaintiff as security which

were disposed of by the plaintiff on 31st January, 1997, 8th

February, 1997 and 10th February, 1997 for Rs.22,39,078/-

which was adjusted by the plaintiff against the outstanding

dues. The plaintiff has filed the suit for recovery of the balance

outstanding amount after adjusting of the aforesaid amount.

9. Defendant No.1 company has been wound up during the

pendency of this suit in 1998 and vide order dated 6th

November, 2006, defendant No.1 was deleted from the array

of the parties and the plaintiff was permitted to proceed

against defendant No.2 only.

10. Defendant No.2 is seeking leave to defend the suit on the

following grounds:-

(i) Defendant No.1 company has been wound up under the

orders of this Court.

(ii) The personal guarantees executed by defendant No.2 in

favour of the plaintiff were without any consideration and,

therefore, unenforceable.

(iii) It was not a condition of the agreement dated 7th January,

1995 and the other agreements executed subsequently

between the plaintiff and defendant No.1 that defendant No.2

would be required to guarantee the repayment of loan and the

plaintiff had not advanced the loan on the basis of the said

guarantees.

(iv) The liability of defendant No.2 would arise only in case of

inability of defendant No.1 to repay the loan.

(v) The defendants had transferred four lakh shares of

Premium International Finance Ltd. in favour of the plaintiff

with the understanding that the same would be returned back

to the defendants but the plaintiff have failed to return back

the same to the defendants.

(vi) The defendants have already paid more than the amount

due as claimed in the plaint.

11. During the course of the arguments, learned counsel for

defendant No.2 does not dispute the repayment of

Rs.10,00,000/- only to the plaintiff on 9th June, 1995. As such,

the liability of defendant No.1 to repay the balance principal

amount of Rs.56,00,000/- and the interest thereon to the

plaintiff is not disputed. Learned counsel for defendant No.2

also does not dispute the execution of the loan agreements

and addendums by defendant No.1 and personal guarantees

by defendant No.2. Learned counsel for defendant No.2

submits that the personal guarantees have been executed by

defendant No.2 without any consideration and are, therefore,

not enforceable. It is further submitted that there was no term

in the agreements and the addendums that the loan had been

advanced by the plaintiff to defendant No.1 on the condition

that defendant No.2 would guarantee the same.

12. Learned Senior Counsel for the plaintiff submits that

defendant No.2 was the Managing Director of defendant No.1

at the time of execution of the agreements and the

addendums in question. It is further submitted that all the

agreements and the addendums have been executed by

defendant No.2 as the Managing Director of defendant No.1

and the loan amount was also taken by defendant No.2 on

behalf of defendant No.1. The copies of the Board Resolutions

of defendant No.1 authorizing defendant No.2 to take the loan

from the plaintiff have been placed on record. Learned Senior

Counsel for the plaintiff further points out that the personal

guarantees have been executed simultaneously along with the

agreements and the loan had been advanced after the

execution of the agreements and the personal guarantees.

With respect to four lakh shares of Premium International

Finance Ltd., it is submitted that the same were agreed to be

returned back after clearing all outstanding dues.

12. Learned counsel for defendant No.2 referred to the

following judgments in support of his submissions:-

(i) Subhankhan vs. Lalkhan, AIR 1948 Nagpur 123

This case relates to a contingent guarantee which was

sought to be enforced before the happening of the

contingency. The Nagpur High Court held the invocation

of the guarantee to be premature. There is no such

contingency in the present case.

(ii) Janki Nath vs. Dhokar Mall, AIR 1935 Patna 376

The Patna High Court observed that the contract of

guarantee to discharge the liability of a third person in

the case of default should be strictly proved.

13. Learned Senior Counsel for the plaintiff has referred to

and relied upon the following judgments:-

(i) Bank of Bihar Ltd. vs. Dr. Damodar Prasad, AIR 1969 SC 297

The Hon'ble Supreme Court observed that under Section

128 of the Indian Contract Act, the liability of the surety is

co-extensive with that of the principal debtor. The surety

is liable to pay the entire amount immediately upon

demand being made to the principal debtor and it was

not deferred until the creditor exhausted all his remedies

against the principal debtor.

(ii) M.S.E.B., Bombay vs. Official Liquidator, H.C.

Ernakulam, AIR 1982 SC 1497

The Hon'ble Supreme Court observed that the liability of

the guarantor was absolute and unconditional and the

fact that the principal debtor company had gone into

liquidation, would not absolve the liability of the

guarantor.

(iii) M. Ghulam Husain vs. M. Faiyaz Ali, AIR 1940 Oudh

In this case, it was urged that the surety bond was

without consideration and cannot, therefore, be enforced

which was rejected by the Court holding that in view of

Section 127 of the Contract Act, the surety bond cannot

be held to be without consideration. It was held that

anything done or any promise made for the benefit of the

principal debtor would be a sufficient consideration to the

surety for giving the guarantee.

(iv) Poysha Oxygen vs. Ashwini Suri, 2009 (112) DRJ

This Court held the past consideration to be a sufficient

consideration for a contract of guarantee under Section

127 of the Contract Act.

(v) Uma Shankar Kamal Narain vs. M.D. Overseas Ltd., (2007) 4 SCC 133

The Hon'ble Supreme Court reiterated the principles for

grant of leave to defend as under:-

"8. The position in law has been explained by this Court in Milkhiram (India) (P) Ltd. v. Chamanlal Bros., AIR 1965 SC 1698 and Mechelec Engineers & Manufacturers v. Basic Equipment Corpn., (1996) 4 SCC 687 In Sunil Enterprises v. SBI Commercial & International Bank Ltd. (1998) 5 SCC 354 the position was again highlighted and with reference to the aforesaid decisions it was noted as follows (SCC pages 356 to 357, para 4):-

"(a) If the defendant satisfies the court that he has a good defence to the claim on merits, 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 possibly good defence, 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, if the affidavit discloses that at the trial he may be able to establish a defence to the plaintiff's claim, the court may impose conditions at the time of granting leave to defend-the conditions being as to time of trial or mode of trial but not as to payment into court or furnishing security.

(d) If the defendant has no defence, or if the defence is sham or illusory or practically moonshine, 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, the court may show mercy to the defendant by enabling him to try to prove a defence but at the same time protect the plaintiff imposing the condition that the amount claimed should be paid into court or otherwise secured."

14. In the facts and circumstances of this case and

considering that defendant No.2 does not dispute the

outstanding principal loan amount of Rs.56,00,000/- and

interest thereon and execution of the personal guarantees by

defendant No.2, this Court is of the view that the defence of

defendant No.2 is illusory, sham and practically moonshine.

However, this Court is inclined to grant conditional leave to

defend to defendant No.2 subject to deposit of entire suit

amount by defendant No.1 with the Registrar General of this

Court within a period of four weeks in terms of the principles

laid down by the Hon'ble Supreme Court in the case of

Mechelec Engineers and Manufacturers vs. Basic