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Judgment
Ashok Menon, Chairperson
Raigarh Jute & Textile Mills Ltd., a company having its Registered Office at 36, Chowringhee Road, Kolkata-700071, is the Appellant. It is aggrieved by the impugned judgment dated 22.07.2005 in Original Application (O.A.) No. 1462 of 2000 on the file of D.R.T.-I, Mumbai.
The aforesaid O.A. was received on transfer by D.R.T.-I from the Hon’ble High Court of Judicature at Bombay (High Court Suit No. 1594 of 1998) for recovery of Rs.35,44,03.080/- filed by three financial institutions viz. Industrial Development Bank of India, Industrial Finance Corporation of India Ltd., and Kotak Mahindra Bank Ltd. for realizing their proportionate shares of the loans advanced. The original Defendant No.1 is a company named M. P. Carbide & Chemicals Ltd. which had borrowed twice from the aforesaid Banks. The first loan was for Rs.600 Lakhs intended for setting up a Plant for manufacturing Calcium Carbide at Purena Village, District Panna of Madhya Pradesh. The aforesaid three financial institutions had between them contributed to advance the loan. IDBI advanced Rs.300 Lakhs while the other two institutions lend Rs.150 Lakhs each. As the principal debtor, the first Defendant company executed an Agreement of Loan and Deed of Hypothecation. The immovable properties belonging to the said Company situated in the aforesaid Village of Purena were mortgaged.
Thereafter the borrower company approached the aforesaid financial institutions for a Second Rupee Term Loan of Rs.94 Lakhs and that too was advanced by IDBI by lending Rs.42 Lakhs, while the rest of the two financial institutions advanced Rs.23 Lakhs each. The first Defendant created further security in favour of these Banks and hypothecated movables and also executed an Agreement of Loan. The Appellant, the second Defendant, stood as Guarantor for the aforesaid Second Term Loan of Rs.94 Lakhs and also executed Deed of Guarantee.
The borrower company filed a reference before the Board for Industrial & Financial Reconstruction (BIFR) which recommended the winding up of the Company. The Appeal filed by the borrower against the said order was dismissed. The financial institutions issued a notice demanding repayment of the amounts due to them. It was responded and hence steps to recover the amount were initiated. That is how the O.A. No. 1462/2000 was filed.
The first Defendant, the principal debtor, did not have context. The Appellant, the second Defendant, filed a Written Statement raising a variety of contentions, and the jurisdiction of the Tribunal to entertain the O.A. was challenged. The plea of limitation was also raised, and the guarantee claimed by the Applicants in the O.A. was also denied. It was also contended that the amount of Rs.94 Lakhs mentioned in the purported Dee of Guarantee was not disbursed to the principal debtor and hence the Deed of Guarantee is not supported by consideration. The Appellant also contended that the secured assets belonging to the borrower would be more than sufficient to discharge the entire debt due to the financial institutions and, therefore, there is no need to invoke the guarantee against the Appellant. The Plant, Machinery, and Movables belonging to the borrower company were stolen or lost on account of the negligence of the creditors. It is further contended that the Appellant has contractual obligations to pay any amount to the financial institutions IDBI since the Guarantee Agreement is executed between the Appellant and IDBI and that there is privity of contract with the other two financial institutions. The Appellant had subsequently discharged the entire amount together with interest due to IDBI and, therefore, there is no existing liability to pay the amount allegedly due to the other two financial institutions. Lastly, the Appellant also raised a contention that the Deed of Guarantee was only an interim arrangement pending the creation of financial security by the borrower and since such security was created by the borrower on 09/10.09.1986, the guarantee provided by the Appellant stood revoked or terminated and/or canceled and extinguished. The Appellant, therefore, contended that O.A. has to be dismissed.
After hearing both sides and on perusal of the records produced, the Ld. P.O. of the D.R.T. in the impugned judgment found all the contentions raised by the Appellant, the second Defendant untenable, unsustainable, and unacceptable. The Original Application was, therefore, allowed to direct payment from both the Defendants in accordance with their liability, and Recovery Certificate was issued.
The Appellant is aggrieved and hence this Appeal. The first Respondent, IDBI, was subsequently substituted by the Assets Reconstruction Co. (India) Ltd. (ARCIL). IFCI is the second Respondent while Kotak Mahindra Bank Ltd. is the third Respondent herein. The principal debtor is also impleaded as the fourth Respondent while two other Banks viz. Allahabad Bank and United Bank of India which were Defendant Nos.3 and 4, respectively, in the O.A. are Respondent Nos.4 and 5 herein.
ARCIL, the first Respondent, admits having received their dues. The Appellant has reiterated all its contentions raised in the Written Statement in this Memorandum of Appeal as well.
Heard Mr. Gaurav Mehta along with Ms. U. Shah, i/b M/s. Bachubhai Munim & Co., Advocate for Appellant and Mr. Rohit R. Gupta along with Mr. D. U. Chaurasiya, i/b M/s. M. K. Ambalal & Co., Advocate for Respondent No.3 who are the main contesting Respondents. The borrower again did not appear and had nothing to submit.
The first Respondent has filed an Affidavit in Reply to the Memo of Appeal contending that the borrower company had requested the Defendants for financing the cost over-run and the first Respondent sanctioned a loan of Rs.94 Lakhs in the consortium of other two financers under the Project Finance Participation Scheme (PFPS) and the said transaction is referred to as the Second Rupee Term Loan. It is submitted that the Appellant company had executed the Deed of Guarantee on 05.03.1986 guaranteeing the repayment of the aforesaid Second Rupee term Loan notwithstanding any securities comprised in any instruments executed by the principal debtor and the Agreement was intended to give effect to realize from the Appellant company the entire sum of Rs.94 Lakhs as if they were the principal debtor. The contention that the debt was never disbursed is denied, and the plea of limitation is also denied. It is stated that the guarantee is collateral, security taken by the first Respondent for and on behalf of all the three Respondents who had contributed to the payment of Rs.94 Lakhs. It is also contended that the creditors are under no obligation to exhaust their principal debtor prior to proceeding against the guarantor.
The third Respondent, Kotak Mahindra Bank Ltd., also filed a reply stating that they are the Assignee of the debt from ICICI Bank Ltd. on 29.09.2004 and that this Appeal is nothing but an abuse of process of law filed with the sole intention of protracting the payment. All the contentions are frivolous. The loan was advanced to the fourth Respondent borrower under the PFPS scheme as stated earlier and the extent of participation has been defined in the agreement. Demand Notice was issued to the Borrower as well as to the Guarantor. D.R.T. has rightly decreed the claim and the appeal has no merits and is required to be dismissed.
Learned counsel, Mr. Gaurav Mehta, appearing for Appellant has limited his arguments to just two points and has not pressed with the other contentions. The first contention raised by the learned counsel for Appellant is that the Guarantee Deed was only between the Appellant and the first Respondent, IDBI, and hence the entire amount due to IDBI as admitted by their Assignee, ARCIL, is paid and nothing more remains to be paid. The next contention urged by the learned counsel is that guarantee is only by way of interim arrangement and was intended to remain in force only till such security as required was not credited by the borrower. Since the borrower created the security as is admitted, the guarantee provided by the Appellant stood extinguished.
The contention of the Appellant is that the Guarantee executed by him was only an interim arrangement and intended to last till financial security was credited and since the security was created on 10.091986 interim arrangement pertaining to the guarantee executed by the Appellant came to an end. Ld. Counsel for Appellant points out to the loan agreement at Exh. 28 and 31 in which under the title “Guarantee” is mentioned “not applicable”. It is urged on behalf of the Appellant by the learned counsel that the Guarantee was not intended when original disbursement was made and that agreement was also not executed by the Guarantor Appellant. In answer to this, learned counsel appearing for the third Respondent bank submits that the Appellant cannot pretend to be ignorant about the first loan and as he has the signatory in that agreement as well, though not in his capacity with connection with Raigarh Jute & Textile Mills Ltd., for the company which is M. P. Carbide & Chemicals Ltd., the learned counsel admitted that being two different companies they are two different entities, but nevertheless, the signatory who is Director named M. P. Jalan has signed that earlier agreement as well.
It would be worthwhile to read two paragraphs i.e. 12.2 and
12.3 of the second agreement at Exh. 31 which read thus:-
“12.2 In the event of the Lenders or any one of them agreeing to disburse any amount of the Loan pending creation of the security in terms of Article III thereof, the same may be granted on such interim securities as may be decided by the Lenders.”
“12.3 Disbursements deemed to have been made under Section 12.1 and interim disbursements made under Section 12.2 hereof shall after the expiry of 365 days from the date of first interim disbursement, carry additional interest at the rate of one percent per annum over and above the rate of interest specified in Section 2.2, thereof until the creation of final security as mentioned in Article III. Further, guarantees, if any, furnished by the Borrower to the Lenders or the any of them for securing a bridge loan(s) shall remain in full force and effect until the creation of final security in terms of Article III. Unless otherwise provided in the respective Deed of Guarantee, such guarantee shall be deemed to have secured the disbursements made in terms of Section 12.2 thereof.”
The recital in Clause 12.3 to the effect that the Appellant further guarantees, if any, furnished by the borrower to the lender or any of them for securing the bridge loans(s) shall remain in force and effect until the creation of final security in terms of Article III. Unless otherwise provided in the respective Deed of Guarantee, such guarantee shall be deemed to have secured the disbursements made in terms of Section 12.2 thereof.
Clause 12.2 also refers to the lenders, in the plural and not lender and it is specifically stated that the securities in terms of Article III, the same may be granted on interim securities as may be decided by the lenders. The document of guarantee has to be read as a whole. Clause III of the Guarantee Agreement indicates that IDBI was acting on behalf of all the lenders and not on behalf of itself alone and it is also made clear that the Guarantee shall be valid and operative until repayment in full of all the monies due under the agreement is paid. The total amount mentioned in the guarantee pertains to Rs.94 Lakhs and not to the portion advanced by IDBI alone. Even ARCIL which had given a letter to the Appellant and the borrower indicates that it is only accepting a part settlement of dues and does not admit that the entire debt as per the Guarantee Agreement has been settled. The Guarantor has further agreed in clause 9 that the borrower will be free to avail of further loans or other facilities from the IDBI or any other financial institutions or banks in addition to the loan or to secure the same through subsistence of the guarantee and in that event the guarantee herein contained will not be affected or vitiated in any way whatsoever, but remain in full force and in effect and binding guarantee. Clause 20 is also worthwhile to be extracted which reads thus:
“20. When a part or portion of the said loan is sold to the participants as provided in the said Agreement and on intimation thereof given to the Guarantor the Guarantee shall be deemed to have been given by the Guarantor to the participants as well to the extent of their respective participation in the said loan and this guarantee shall accordingly ensure for their benefit.”
It also refers to the respective participation and in Clause 18 it is specifically mentioned that the guarantee shall continue and shall remain in full force and in effect till such time the Borrower repays in full the said loan together with interest, commitment charges, liquidated damages, costs, charges and all other amounts of money that may from time to time become due and payable and remain unpaid. The fact that the IDBI was a lead bank in the consortium that advanced loan will not be detrimental to the other lenders who have not specifically joined the Deed of Agreement. In case the Appellant’s Guarantee was valid only with regard to the amount advanced by IDBI, there was no need to mention the entire amount of Rs.94 Lakhs or reference the participation of the other banks in lending the money. How the amount of Rs.94 Lakhs was lent by the Bank was also categorically mentioned. Ld. P.O. of D.R.T. has discussed all these grounds raised by Appellant in great detail and I do not find any reason to hold those points unreasonable or unsustainable. The Appellant is, therefore, entitled to get a reversal of the impugned judgment. The appeal is, therefore, only to be dismissed.
In a result, the Appeal is dismissed with costs.