IL & FS Financial Services Limited vs Serveall Constructions Private Ltd & Ors.

This summary suit has been filed to recover a sum of Rs.203,66,31,506/- arising out of and in respect of the term loan facilities availed by defendant no. 1 and guaranteed by defendant nos. 2 to 4. By judgment and order dated 6^th April 2026, the suit is directed to remain stayed against defendant nos. 2 to 4 until the respective moratorium orders passed by the National Company Law Tribunal (“NCLT”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”) are operative. The suit is directed to proceed against defendant no. 1; hence, summons for judgment is taken up for hearing only against defendant no. 1.

The plaintiff is a non-banking financial company engaged in financial and advisory services. Defendant no.1 is a company incorporated and registered under the provisions of the Companies Act, 1956. Defendant no.1 has been arrayed in the present summary suit in its capacity as the borrower pursuant to the facilities availed by it from the plaintiff. Defendant no.2 is the Corporate Guarantor. Defendant nos. 3 and 4 are the personal guarantors. Defendant nos. 2 to 4 have been arrayed in the summary suit in their capacity as guarantors to the facilities availed by defendant no.1 from the plaintiff.

I have heard the learned counsel for the plaintiff. Although an affidavit-in-reply is filed seeking unconditional leave to defend, none appeared for defendant no. 1.

The term loan facility was advanced sometime in 2015 by executing loan agreements with defendant no. 1. Defendant no. 2 executed a Corporate Guarantee, and defendant nos. 3 and 4 executed a Personal Guarantee. The principal terms and conditions were recorded in the sanction letter dated 22^nd June 2015 for the loan amount of Rs.155 crores, agreed to be repaid by defendant no. 1 in six-monthly instalments. The instalments were to commence from the end of the 31^st month to the end of the 36^th month from the date of first disbursement. According to the plaintiff, the sanction letter records the first disbursement as dated 21^st August 2015.

The loan agreement dated 30^th June 2015 was executed and the sanction letter formed part of the loan agreement. On the same date, Defendant no. 2 executed a Corporate Guarantee in favour of the Plaintiff, and defendant nos. 3 and 4 executed respective Personal Guarantees. By the personal guarantees, defendant nos. 3 and 4 agreed to pay, on the plaintiff's first demand, the principal amount of Rs. 155 crores along with payable interest. Defendant no. 1 executed a Demand Promissory Note and Deed of Undertaking dated 30^th June 2015. Defendant nos. 1 to 4 executed a separate deed of undertaking dated 13^th August 2015, and defendant nos. 1 and 2 executed a Deed of Indenture of Mortgage along with the Corporate Guarantee in favour of the plaintiff.

Defendant No. 1 requested disbursement of Rs.150 crores by letter dated 21^st August 2015, pursuant to which the plaintiff disbursed Rs.150 crores. By letter dated 5^th August 2016, Defendant No. 1 requested disbursement of Rs.2.65 crores. The request for disbursement of the remaining amount of Rs.2.35 crores was made on 28^th October 2016. Accordingly, the amounts were disbursed under the loan agreement dated 30^th June 2015.

The second term loan facility was sanctioned on 20^th September 2017 for Rs. 30 crores. As per the terms and conditions, Defendant No. 1 agreed to repay the amount at the end of 24 months from the date of first disbursement, i.e., by 29^th September 2017. The parties executed the loan agreement on 27^th September 2017. On the same date, the Corporate Guarantee was executed by defendant no. 2 and the Personal Guarantee was executed by defendant nos. 3 and 4. Deed of Undertaking and Demand Promissory Note were executed by defendant no. 1 on 27^th September 2017 and 29^th September 2017, respectively. As per the request letters issued by the plaintiff, the amounts were disbursed as follows :

Defendant no. 1 failed to make payments as per the schedule for repayment agreed under the loan agreements. The plaintiff therefore issued separate default notices dated 6^th September 2018 to the defendants, calling upon them to make payment of interest and other charges to the tune of Rs.13,98,18,285/- under the first loan agreement and Rs.66,88,686/- under the second loan agreement. The defendants failed to make payment as per the default notice; hence, a final recall notice dated 23^rd October 2018 was issued to the defendants, calling upon them to pay the entire outstanding amount of Rs.188,32,15,037/- under the first loan agreement and Rs.30,23,55,781/- under the second loan agreement.

By reply dated 23^rd November 2018, defendant nos. 1 and 2 disputed the recall notice and disputed the levy of penal interest, delayed payment interest and additional interest. The plaintiff accordingly issued a letter dated 12^th December 2018 clarifying the levy of the interest amount and the total outstanding claim as per the final demand notice dated 23^rd October 2018. Since the defendants did not comply, the plaintiff filed the present summary suit claiming the total outstanding amount under both agreements.

The defendants appeared in the suit. The summons for judgment was served upon the defendants. The defendants filed their separate reply seeking unconditional leave to defend.

Defendant no. 1 contended in the reply that the loan agreements are executed on stamp paper of Rs.150/- and thus are insufficiently stamped. Defendant no. 1 therefore objected to enforcement of the loan agreement on the ground that an unstamped document would not be enforceable. Defendant no. 1 contends that the loan agreements are liable to stamp duty under the Maharashtra Stamp Act, 1958 (“The Stamp Act”), and since they are insufficiently stamped, the documents cannot be admitted in evidence. According to defendant no. 1, the declaration of defendant no. 1’s account as a non-performing asset (“NPA”) is illegal, as the instalments under the loan agreements were regularly serviced and there was no irregularity as alleged by the plaintiff.

Defendant no. 1 thus contended that the plaint suffers from suppression of facts regarding the agreements executed between the plaintiff and defendants for sale of 98 flats for total consideration of Rs.33 crores. Defendant no. 1 thus contended that the adjustment towards the consideration amount of 98 flats is not accounted for by the plaintiff while calculating the outstanding amount. Hence, triable issues arise in the suit. Defendant no. 1 disputed receipt of the first default notice and therefore also disputed the total outstanding amount shown in the final recall notice. Defendant no. 1 dealt with the allegations in the plaint by filing a para-wise response and submitted that the total outstanding amount claimed by the plaintiff is not due and payable and the suit is not maintainable under Order XXXVII of the Code of Civil Procedure, 1908 (“the CPC”).

Defendant no. 2 filed a separate reply and raised similar grounds regarding admissibility of the documents on the ground of insufficient stamp. Apart from the dispute raised on the merits of the suit claim, defendant no. 2 pleaded regarding the proceedings initiated under the IBC against defendant no. 2. Defendant nos. 3 and 4 also raised similar objections.

Learned counsel for the plaintiff submits that the balance sheet of defendant no. 1 for the year ending 31^st March 2017 reflected the balance outstanding towards the loan disbursed by the plaintiff. Defendant no. 1 thus admitted the total outstanding as reflected in the balance sheet dated 31^st March 2017. In its email dated 26^th May 2018, Defendant no. 1 confirmed the outstanding balance as on 31^st March 2018. Learned counsel for the plaintiff relied upon the copy of the balance sheet and the email annexed to the plaint. According to learned counsel for the plaintiff, the defendants never responded to the first recall notice. Hence, the amount claimed in the first recall notice stands admitted. Defendant no. 1 filed the response only after the final recall notice was issued on 23^rd October 2018.

Learned counsel for the plaintiff relied on the email dated 26^th May 2018, along with the balance confirmation annexed as Exhibit-AA to the plaint. He submits that on 22^nd March 2018, the plaintiff called upon defendant no. 1 for audit confirmation, and the attached return slip was annexed to the letter dated 22^nd March 2018 calling upon defendant no. 1 to confirm the outstanding dues. Accordingly, defendant no. 1 confirmed the balance due amount to the plaintiff as on 28^th February 2018. As per the said audit confirmation issued on behalf of defendant no. 1, the total principal amount outstanding as on 28^th February 2018 is Rs. 1,62,30,60,130/-.

Learned counsel for the plaintiff referred to the outstanding amount explained in the first recall notice and the final recall notice. The reply dated 23^rd November 2018 issued by defendant no. 1 referred to the loan taken by the sister concern of defendant no. 1, i.e. Guruashish Constructions Private Limited. Defendant no. 1 contends that the total outstanding amount was paid and that the plaintiff did not consider the amounts repaid by Guruashish Constructions Private Limited. Learned counsel for the plaintiff submits that defendant no. 1 has not disputed the total outstanding as claimed in the recall notice towards the two loan agreements which are the subject matter of the suit. He submits that the amounts paid towards the account of Guruashish Constructions Private Limited cannot be adjusted towards the total outstanding under the two loan agreements in favour of defendant no. 1.

The learned counsel for the plaintiff therefore submits that defendant no. 1 has admitted the total outstanding amount by not disputing the recall notice issued by the plaintiff. He submits that the audit confirmation letter issued on behalf of defendant no.1 unequivocally confirms the total outstanding amount as reflected in the audit confirmation as on that date. Learned counsel for the plaintiff therefore submits that in view of the admitted amounts, defendant no. 1 is not entitled to any leave to defend. According to the learned counsel for the plaintiff, in any event, as per the audit confirmation letter dated 22^nd March 2018, there is an unequivocal admission of the total outstanding amount of Rs.162,30,60,130/- as on 28^th February 2018. Hence, at least for the said amount, no defence is contemplated on the part of defendant no. 1. Hence, the plaintiff is entitled to a decree forthwith for the said admitted amount. He submits that if this Court is inclined to grant any leave to defend, it should be only for the balance amount, on the condition of depositing the same in this Court.

To support his submissions, learned counsel for the plaintiff relied upon the decisions in (i) IL & FS Financial Services vs. SKIL Infrastructure Ltd. and Others^{11.Summons for Judgment No. 30 of 2019 in Commercial Summary Suit No.} (“SKIL Infrastructure”), (ii) SICOM Ltd. Vs. Prashant S. Tanna and

779 of 2019 Others^{22.2004 92) CTC 641}, (“SICOM”) (iii) IL & FS Financial Services Ltd. Vs. ARM Telecom Services Ltd. And Others^{33.Summons for Judgment No. 24 of2019 in Commercial Summary Suit No.}, (“ARM Telecom Services ”) (iv) Dinaz Adi Bharucha vs. Rajendra P. Ashar and Others^{44.1999 (2) Mh.L.J. 405}, (“Dinaz Bharucha”) (v) B. I. Kashyap and Sons Ltd. Vs. JMS Steels and Power Corporation and Another^{55.(2022) 3 SCC 294} (“B. I. Kashyap”) and (vi) IDBI Trusteeship Services Ltd. Vs. Hubtown Ltd.^{66.(2017) 1 SCC 568} (“IDBI”).

Learned counsel for the plaintiff submits that insufficient stamp duty cannot be a ground to grant unconditional leave. If the documents are found to be insufficiently stamped, the Court may pass a conditional decree subject to impounding the documents. Learned counsel for the plaintiff relied upon the decision of the full bench of this court in SICOM to support his submissions that, at the time of hearing the summons for judgment, a decree can be passed for the admitted part of the claim and conditional leave can be granted for the remaining amount. He submits that in the present case, since the amount is admitted in the audit confirmation letter, the plaintiff is

559 of 2019 entitled to a decree in the sum of the admitted amount and, so far as the balance outstanding is concerned, a conditional leave be granted by directing defendant no. 1 to deposit the amount in this court.

By relying upon the Apex Court’s decision in B. I. Kashyap, learned counsel for the plaintiff submitted that even in the case where triable issues are raised indicating a fair and reasonable defence, the defendant would be entitled to an unconditional leave to defend unless a strong reason is shown to deny the grant of leave. He submits that, where doubts about the defendant’s grounds are raised as triable issues, leave must be granted on the condition that the claim amount is secured by directing defendant no. 1 to deposit the amount in court. He relied upon the decision of the Apex Court in IDBI to support his submissions that, in the absence of any triable issues raised and where the court finds the defence frivolous or vexatious, leave to defend can be refused, and the plaintiff would be entitled to judgment forthwith.

Learned counsel for the plaintiff therefore submits that the summons for judgment be made absolute to the extent of the admitted amount of Rs.162,30,60,130/- as per the audit confirmation letter dated 25^th May 2018 and conditional leave to defend be granted for the balance suit claim.

In Dinaz Bharucha, this Court held that leave to defend can be refused for a part of the claim and the plaintiff, in such circumstances, can be granted relief to that extent and he cannot be asked to wait till the whole suit is decided when he is justly entitled to a decree for at least the part of the claim. It is held that Order XXXVII is a self-contained code in itself, providing a summary procedure, which is purposely provided to give expeditious relief to a plaintiff whose claim is genuine and bona fide and is reasonably ascertained or is so ascertainable.

In SICOM, the Full Bench of this Court held that so long as the suit is maintainable as a summary suit, it would be open to grant conditional leave or pass a decree in respect of a part of the claim which is properly quantified, and unconditional leave in respect of that part of the claim which is excessive.

In SKIL Infrastructure, this Court held that in a summary suit, while deciding a summons for judgment, if the court grants unconditional leave to defend or if the court grants conditional leave to defend or in a case where the court comes to the conclusion that the defendant is not entitled to leave to defend the suit and the plaintiff is entitled to a judgment, the court in all the contingencies would be within its right in impounding the instrument and directing the adjudication and payment of the requisite stamp duty with penalty. It is further held that compliance can be ensured by directing that the decree shall not be drawn and executed until the deficit stamp duty is paid after adjudication. This Court further held that if, in considering the summons for judgment and the question of grant of leave to defend, a summary suit is deferred till the question of stamp duty is finally adjudicated by the appropriate authority, the object with which the summary procedure is envisaged may not be advanced. Hence, in the said case, this Court, while granting conditional leave to defend, impounded the documents and directed that they be forwarded to the Collector of Stamps for adjudication.

In ARM Telecom Services, this Court accepted the defendant's objection that the stamp on the loan agreement and letters of guarantee was insufficient. It is held that under Article 5(h)(a)(iv) of the Stamp Act, the loan agreement and the letters of guarantee are amenable to the stamp duty on the amount covered by the agreement. Hence, under Sections 33 and 34 of the Stamp Act, the said documents could not be acted upon and were required to be impounded under Section 37 of the Stamp Act. Accordingly, this court followed the view taken in SKIL Infrastructure, and, while granting conditional leave to defend, directed the plaintiff to tender the original documents and impounded them by issuing directions to forward the documents to the collector of stamps for adjudication.

In IDBI, the Apex Court considered the larger question of whether the judgment in Mechelec Engineers & Manufacturers v. Basic Equipment Corpn.^{77.(1976) 4 SCC 687} (“Mechelec Engineers”) continues to be the law after the amendment of Order XXXVII in 1976. After discussing the various decisions on the point, the Apex Court held as under:

emphasis applied by me

In B.L. Kashyap, the Apex Court discussed the well-established legal principles on grant of leave to defend. The Apex Court referred to the decision in IDBI and held that, though in the said decision it is observed that the principles stated in Mechelec Engineers shall stand superseded in the wake of amendment of Rule 3 of Order XXXVII, but, on the core theme, the principles remain the same that grant of leave to defend with or without conditions is the ordinary rule and denial of leave to defend is an exception. It is thus held that the prayer for leave to defend should be denied in cases where the defendant has practically no defence and cannot raise even a semblance of a triable issue before the court.

Thus, the Apex Court in B.L. Kashyap laid down the principles to be followed while dealing with an application seeking leave to defend. It is held that, where there are doubts about the defendant's intent or the genuineness of the triable issues, as well as the probability of defence, leave may still be granted, but with conditions. It is held that where the defendant is found to have no substantial defence and/or raises no genuine triable issues, and the court views the defence as frivolous or vexatious, leave to defend is to be refused, and the plaintiff is entitled to judgment forthwith. It is further held that where any part of the amount claimed by the plaintiff is admitted by the defendant, leave to defend is not to be granted unless the amount so admitted is deposited by the defendant in court. It is held that even where triable issues are raised, and the defendant indicates a fair or reasonable defence, he is ordinarily entitled to unconditional leave to defend unless there is a strong reason to deny it. It is further held that if there remains a reasonable doubt about the probability of defence, sterner or higher conditions could be imposed while granting leave but, denying the leave would be ordinarily countenanced only in such cases where the defendant fails to show any genuine triable issue and the court finds the defence to be frivolous or vexatious.

I have perused the pleadings and the documents on record. The plaintiff’s claim is based on the loan agreements, sanction letters, personal guarantees, demand promissory notes, deed of undertaking and indenture of mortgage executed by defendant nos. 1 and 2. However, the indenture of mortgage is not produced on record. Defendant no. 2 has executed corporate guarantees, and defendant nos. 3 and have executed personal guarantees. The plaintiff has produced bank statements to support the dates and particulars of disbursement in favour of defendant no. 1. According to the plaintiff, because the defendants failed to adhere to the interest payment schedule, the plaintiff issued a demand notice calling upon the defendants to pay the interest and other charges. However, the defendants did not respond. Hence, the final recall notice dated 23^rd October 2018 was issued for the payment of the entire outstanding amount. Thereafter, defendant no. 1 responded.

A perusal of the reply to the recall notice shows that defendant no. 1 has claimed that they have been servicing the loan regularly and it is not NPA. Defendant no. 1 therefore requested yearly statements for verification and reconciliation. Defendant no. 1 disputed the levy of penal interest, delayed interest, penal interest and other charges. Defendant no. 1 raised a contention regarding payment made by Guruashish Constructions Private Limited. As pleaded in the plaint, Guruashish Constructions Private Limited is a Corporate Guarantor; however, it has not been made a party, as it is admitted in Corporate Insolvency Resolution Process proceedings under the Insolvency and Bankruptcy Code 2016. However, the plaintiff has not clarified how the payments made by the said company would not relate to the demand for repayment of the loan amount disbursed to defendant no. 1.

In the affidavit-in-reply of defendant no. 1 seeking leave to defend, the contentions in the aforesaid reply are reiterated and receipt of the first recall notice demanding interest is denied. A further contention raised on behalf of defendant no. 1 pertains to the 98 sale agreements executed between the parties. Defendant no.1 raised a defence in the affidavit-in-reply that the consideration amount of Rupees Thirty Crores towards 98 flats is required to be adjusted towards the total outstanding amount. However, no particulars are pleaded regarding the dates of execution and registration of sale transactions. Except for filing an affidavit-in-reply, defendant no. 1 has not remained present to support the contentions raised in the affidavit-in-reply seeking grant of unconditional leave.

The execution of the agreements, the promissory notes, and the undertakings separately executed by defendant no. 1 is undisputed. The dispute towards the total outstanding amount is raised on the ground that the loan was regularly serviced and adjustment is claimed under the sale agreements. In the reply to the final recall notice defendant no. 1 had called upon the plaintiff to supply yearly statements; however, the plaintiff has not pleaded any response in the plaint. The yearly statements are not annexed to the plaint to show how the demanded amount is due and payable. In response to the reply issued by defendant no. 1, the plaintiff had issued a letter dated 17^th December 2018. In the said letter, the plaintiff has raised a dispute on the lapses in perfection of security and failure on the part of defendant no. 1 to meet the conditions, regarding receipt of NOC from MHADA and amendment of the layout plan, reflecting the FSI of 24,400 square meters on the four plots indicated in the facility agreement. The plaintiff has pleaded about execution of mortgage document; however, neither the document is produced, nor further particulars are pleaded in reference to the calculations of the total outstanding amount due and payable.

Regarding the admission on the part of defendant no. 1 on the total outstanding amount, the dispute has been raised by defendant no. 1 in response to the final recall notice. The audit confirmation letter issued on behalf of defendant no. 1, annexed at Exhibit-AA to the plaint, cannot be considered as an admission of the suit claim. By letter dated 22^nd March 2018, the plaintiff called upon defendant no. 1 to return the attached audit confirmation slip indicating the total outstanding amount. Prima facie, it appears that, in response, defendant no. 1 issued an audit confirmation letter confirming the balance due by defendant no. 1 as on 28^th February 2018, with details of the difference attached to the letter. However, the said attachment is not annexed to the plaint. Even defendant no. 1 has not produced the attachment. No explanation is provided regarding the details of the difference attached to the said letter. Thus, Exhibit AA relied upon by the plaintiff as an admission by defendant no. 1 that an amount of Rs. 162,30,60,130/- is due and payable as on 28^th February 2018 cannot be accepted as an admission as contemplated under the second proviso to sub-rule (5) of Rule 3 of Order XXXVII of the CPC.

As per the particulars of claim, the principal outstanding amount under the two loan agreements is pleaded. The plaintiff has further claimed interest @ 19.25% per annum under the first loan agreement and 14% per annum under the second loan agreement. The plaintiff also claims additional interest @ 2% and penal interest @ 2% per annum on the total outstanding amount, as per the contract. Defendant no. 1 has raised a dispute on the particulars of claim on the same ground that there were adjustments and the loan was regularly serviced and sale agreements of 98 flats were registered. Hence, according to defendant no. 1, the amount of interest and other charges is not payable. The reply filed on behalf of defendant no. 1 regarding execution of the 98 sale agreements cannot be ignored. The plaintiff has not pleaded the particulars of the calculations of the amount due and payable and has not supported the claim with evidence for the amount stated in the particulars of claim. Hence, defendant no. 1 has raised a plausible defence and would be entitled to lead evidence to prove its probability.

This Court, in ARM Telecom Services, held that the loan agreements and letters of guarantee are amenable to payment of stamp duty under Article 5(h)(A)(iv) of Schedule-I of the Stamp Act. It further held that under Sections 33 and 34 of the Stamp Act, the said documents could not be acted upon and had to be impounded under Section 37 of the Stamp Act, and, while granting conditional leave to defend, directed the plaintiff to tender the original documents and impounded them by issuing directions to forward the documents to the collector of stamps for adjudication. In the present case, prima facie, the loan agreements relied upon by the plaintiff are not sufficiently stamped as required under the said Article 5(h)(A)(iv). Hence, in view of the facts of the present case, the legal principles laid down by this Court as discussed above would squarely apply. The plaintiff has not produced the alleged promissory notes and undertaking executed by defendant no. 1. Hence, so far as defendant no. 1’s obligation is concerned, the plaintiff relies upon the loan agreements. Therefore, while deciding the grant of leave to defend to defendant no. 1, similar directions must be issued to impound the loan agreements relied upon by the plaintiff.

None appeared on behalf of defendant no. 1; however, by filing an affidavit-in-reply, an unconditional leave to defend is prayed. As per sub-rule (5) of Rule 3 of Order XXXVII of the CPC, a defendant, by an affidavit or otherwise, disclosing such facts as may be deemed sufficient to entitle him to defend, may apply for leave to defend the suit and leave to defend can be granted to him unconditionally or upon such terms found fit and just by the court. I have therefore considered the contentions raised in the affidavit as discussed in the above paragraphs.

For the reasons recorded above, there is no ground to refuse leave to defend to defendant no. 1. I am satisfied that the facts disclosed by defendant no. 1 indicate a plausible defence and that triable issues are involved in the suit. In view of the legal principles settled by the Apex Court, as discussed in the aforesaid paragraphs, if a defendant raises a defence that is plausible but improbable, the Court may impose conditions for furnishing security or depositing the amount, or both, for grant of leave to defend. It is undisputed that the loan amounts were disbursed and utilised by defendant no. 1; hence, the plaintiff’s interest also needs protection. Defendant no. 1 is therefore entitled to leave to defend on condition that it deposits the principal amount due and payable as per the particulars of claim and furnishes security for the amount of interest claimed in the particulars of claim.

Hence, the summons for judgment is disposed of only qua defendant no. 1 by passing the following order:

The suit be listed for further directions on 5^th January 2027.