Dev Spinners Ltd. And Ors. vs Corporation Bank And Ors.

J.M. Malik, J

This order shall decide the question of admission and dispose of the waiver application moved by the appellant. The learned Trial Court vide its order dated 25.3.2011 issued a recovery certificate in the sum of Rs. 4,47,58,964.14 along with pendente lite and future interest @ 12% p.a. simple from the date of filing of the O.A. on 19.3.2002 till its realisation in favour of Corporation Bank and against defendant Nos. 1 to 3 namely M/s. Dev Spinners Ltd., Mr. Sunil Kansil and Mr. Rajesh K. Kansil. The appellants have also filed counter-claim which was partly allowed by the learned DRT. The Bank was directed to adjust Rs. 69,49,618/- towards the outstanding of the defendant Nos. 1 to 3. I have heard the Counsel for the parties. Learned Counsel for the appellants vehemently argued that Section 21 has no application in this particular case. It was argued that appellants had filed a counter-claim claiming a sum of Rs. 7,45,79,605/-. However, the counter-claim was partly allowed. The learned Counsel for the appellants argued that the appellants have got a very strong case and ultimately they are likely to win. He explained that since the appellants have claimed set-off, therefore, Section 21 does not apply to the present case.

On the other hand, Counsel for the respondent Bank argued that the appellants have got no right to claim counter-claim in the abovesaid proceedings. It was explained that the O.A. was filed in the Court on 19.3.2002. The appellants submitted the written statement before the learned Trial Court on 3.2.2004. The fire in the company of the appellants broke out on 9.9.2008. It was argued that a new cause of action had arisen in favour of the appellants and as such the counter-claim could not lie. He argued that this contention raised by the appellants was not considered by the learned Trial Court. In support of his case, Counsel for the respondent Bank has cited two authorities. The first authority is Mahendra Kumar and Another v. State of Madhya Pradesh and Ors., : (1987) 3 SCC 265 wherein it was held:

The next point that remains to be considered is whether Rule 6A(1) of Order 8 of the Code of Civil Procedure bars the filing of a counter-claim after the filing of a written statement. This point need not detain us long, for Rule 6A(1) does not, on the face of it, bar the filing of a counter-claim by the defendant after he had filed the written statement. What is laid down under Rule 6A(1) is that a counter-claim can be filed, provided the cause of action had accrued to the defendant before the defendant had delivered his defence or before the time limited for delivering his defence has expired, whether such counterclaim is in the nature of a claim for damages or not. The High Court, in our opinion, has misread and misunderstood the provision of Rule 6A(1) in holding that as the appellants had filed the counter-claim after the filing, of the written statement, the counter-claim was not maintainable. The finding of the High Court does not get any support from Rule 6A(1) of the Code of Civil Procedure. As the cause of action for the counter-claim had arisen before the filing of the written statement, the counter-claim was, therefore, quite maintainable. Under Article 113 of the Limitation Act, 1963, the period of limitation of three years from the date the right to sue accrues, has been provided for any suit for which no period of limitation is provided elsewhere in the Schedule. It is not disputed that a counterclaim, which is treated as a suit under Section 3(2)(b) of the Limitation Act has been filed by the appellants within three years from the date of accrual to them of the fight to sue. The learned District Judge and the High Court were wrong in dismissing the counter-claim.

(Emphasis supplied)

The learned Counsel for the respondent Bank has also cited two other authorities which are Mangulu Parai v. Prafulla Kumar Singh and Others, : AIR 1989 Ori 50 and Prem Narayan v. Ram Vilash, AIR 1992 M.P. 29.

During the rebuttal arguments, learned Counsel for the appellants vehemently argued that the counter-claim was maintainable in view of the authorities United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd. & Ors., I : (2001) BC 1 (SC)=VI (2000) SLT 651=IV (2000) CLT 55 (SC)-JT 2000 (10) SC 125, wherein it was held:

In our view, the Company's suit 272/85 insofar as claims a relief for specific performance, perpetual and mandatory injunctions, it is in substance in the nature of a counter-claim under Sub-clauses (8) to (10) of Section 19 and are in the nature of a counter-claim. The plea for deduction of damages is in the nature of a set-off falling within Sections 19(6) and 19(7). Both are equated to cross-suits. If a set-off or a counter claim is to be equated to a cross suit under Section 19, a fortiori there can be no difficulty in treating the cross-suit as one by way of set-off and counter-claim, and as proceedings which ought to be dealt with simultaneously with the main suit by the Bank. In fact, the Bank has not objected to such a course. Indeed, Section 19(11) says that if any particular counter-claim raised in the suit 272/85 cannot be decided by the Tribunal while deciding the Bank's suit, the defendant may apply to the Tribunal for exclusion of such a counter-claim. But such a question does not arise in this case. In our view, in the context, the word 'counterclaim' in Section 19(8) to (11) which is equated to a cross-suit, includes a claim even if it is made in an independent suit filed earlier. An agreement not to charge interest, the specific performance of which is claimed is nothing but a plea that the Bank could not charge interest. A permanent injunction directing the Bank not to charge interest because of an alleged agreement in that behalf is likewise a plea that no interest is chargeable. So far as the plea for further financial assistance is concerned, it is also, broadly, in the nature of a 'counter-claim'. All these fall under Section 19(8) to (10). Again, the plea for deducting 'damages' though raised in the suit is indeed broadly a plea of "set off falling under Sub-clause (6) and (7) of Section 19.

Both the suits, the one by the Bank against the respondent (suit 410/85) and the other by the debtor against the Bank (suit 272/85) which raises claims or pleas in the nature of set-off or counter-claim are interconnected. The respondent's suit falls under Sub-clauses (6), (7) and (8) to (11) of Section 19, as stated above. Our decision in regard to the real nature of suit 272/85 has become necessary in the context of a plea by the debtor-company that the company's suit 272/85 is liable to be retained in the civil Court and on account of the plea that the connected suit by the Bank 410/85 is also to be retained. Such a plea, as shown above, cannot be accepted. Thus, both the suits are suits falling within the Act.

He also cited another authority State Bank of India v. Ranjan Chemicals Ltd. & Another, VII (2006) SLT 583=IV (2006) CLT 189 (SC)=: (2007) 1 SCC 97, wherein it was held:

Even otherwise, after the amendment of Order 8 Rule 6A of the Code of Civil Procedure by Act 104 of 1976, for maintaining a counter-claim, the cross-action need not even arise out of the same cause of action or be intrinsically connected with the cause of action sued upon. Any right or claim in respect of a cause of action accruing to the defendant against the plaintiff can be made the subject matter of a counter-claim. Section 19(8) of the Act is also on the same lines. Therefore, there can be no objection to treating a claim in favour of the Company arising out of the Loan transaction and/or rehabilitation package as a counter-claim in the application filed by the Bank before the Debts Recovery Tribunal.

The second submission made by the Counsel for the appellants was that it was duty of the respondent Bank to arrange for the insurance policy. The fire broke out and the appellants could not get the insurance claim. The auditor report has also been filed on the record which goes to reveal that the appellants suffered losses. The appellants have also placed on record the income-tax return filed by Smt. Janki Devi, Mr. Sunil Kumar Kansil and Mr. Rajesh K. Kansil which go to reveal that they were having total gross income from Rs. 2-3 lacs. It was also pointed out that the Bank was keeping the premises of the factory insured from 17.5.2002 to 17.5.2007. They did not get the insurance renewed and as such fire broke out in the factory premises on 9.9.2008 for which the appellants had to suffer a lot. After 19.3.2007, the respondent unilaterally stopped renewing the insurance after doing the needful for a period of five years. The appellants have also produced on the record evidence that there were stocks which were kept at the premises in dispute. Counsel for the appellants has also invited my attention towards the surveyor's report which shows that the stocks were available at the spot.

On the other hand, Counsel for the respondent Bank vehemently argued that it was the duty of the appellants to insure the goods as is apparent from the various agreements. The attention of the Court was invited towards hypothecation of goods to secured payment cash credit. Its para No. 10 is reproduced as follows:

The borrowers shall themselves insure and are hereby bound to keep insured from time-to-time at their expense, the hypothecated goods described in Schedule A below and stored I the godowns or premises described in Schedule B below with any insurance company as agreed to by the Bank to Rs.....(Rupees full value of stock) for one year from this date or from such other date, not later than one month in their names jointly with the name of the Bank in such other names as agreed to by the Bank and shall deliver such policy of policies to the Bank, if the borrowers fail to so insure the goods and to keep them insured from time-to-time as required of them by the Bank, it shall be open to the Bank and the Bank is hereby at liberty to offer such insurance in joint names as aforesaid or in its own name in a company of its choice at the expense of the borrowers and charge such expenses and the premia on such policy or policies to such account or accounts of the borrowers from time-to-time standing in the Books of the Bank at any of its branches. The borrowers shall be bound to assign the benefits of the insurance policies standing in their names, in favour of the Bank and the Bank is hereby entitled to the benefits of all such policies.

Same is the position in respect of documents titled as "own stated deed of hypothecation of movables". Its para No. 8 is relevant. Lastly there is another document titled as "hypothecation of goods to secure the payment cash credit". Its para 10 is the same which is quoted above.

The case of the Bank is that the Bank had paid the premium of the insurance policy for a period of five years. The appellants did not bother to pay the said amount despite the request made to them to reimburse the Bank in respect of that amount. Some letters were also written to the appellants in this context. The goods were not insured abruptly but after asking the appellants to deposit the premium which had already been paid by the Bank.

Prima facie it is clear that it was the duty cast upon the appellants to arrange for the insurance policy. Even if it is assumed that Bank had done the needful for a period of five years, it was still the duty of the appellants to find out whether the goods were insured or not. The appellants cannot wriggle out of their duty on extraneous pleas. There is no evidence that the premium of the insurance company was paid to the Bank. The appellants wanted to have the benefit of both the worlds. Firstly, they were not paying the money advanced in their favour and secondly they were also withholding the premium of the insurance policy. In its appeal, the respondent Bank has made the following averments:

(d) The respondent No: 1 company however, did not pay the premium and did not renew the insurance in the subsequent years in spite of its clear obligation to do so. The Bank renewed the policy every time making a claim against defendant No. 1 for the premium and interest up to 2007, so much so that an amount of Rs. 13,41,830/- by way of insurance premium was paid by the Bank on behalf of defendant No. 1 When defendant No. 1 failed to pay this amount to the Bank, and also did not furnish to the Bank the mandatory stock statement and other financial papers, the Bank had no option but to stop renewing the insurance thereafter.

The last submission made by the Counsel for the appellants was that in the agreements it was not agreed that the appellants would pay the compound interest. He has invited my attention towards one or two documents. It must be borne in mind that the Bank has also filed an appeal against the appellants. I have perused the documents filed by the Bank in its appeal. A perusal of all these documents clearly reveals that though one or two documents do not mention about the payment of interest with compounding effect, yet, other documents which are there clearly, specifically and unequivocally mention that the appellants were to pay the compound interest. The case is to be viewed holistically.

Keeping in view all these circumstances, I hereby direct the appellants to deposit 50% of the total principal amount in the sum of Rs. 4,47,58,964.14 minus a sum of Rs. 69,49,618/- within four weeks from today with the Bank without prejudice failing which the Court will be constrained to dismiss the appeal for noncompliance of its order. The respondent is further directed to file counter affidavit within four weeks. In case the amount is not deposited within four weeks, the respondent Bank will be at liberty to proceed against the appellant under the SRFAESI Act as per law. The case to come up for further proceedings on 19.8.2011.