IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) MONDAY, THE TWENTY FIFTH DAY OF JANUARY TWO THOUSAND AND TEN PRESENT HON’BLE SRI JUSTICE A.GOPAL REDDY AND HON’BLE SRI JUSTICE NOUSHAD ALI WRIT PETITION No.28430 of 2008 Between: Murali D.Kanuri … Petitioner And 1. Debts Recovery Appellate Tribunal, Chennai. 2. Andhra Bank, represented by its Manager. 3. Canara Bank, represented by its Sr. Manager. 4. M/s.Lakshmi Porcelains Limited, represented by the Official Liquidator. 5. Industrial Development Bank of India. 6. Industrial Finance Corporation of India. 7. ICICI, Hyderabad. … Respondents This Court made the following: HON’BLE SRI JUSTICE A.GOPAL REDDY AND HON’BLE SRI JUSTICE NOUSHAD ALI WRIT PETITION No.28430 of 2008 ORDER: - (Per Hon’ble Sri Justice A.GOPAL REDDY) By filing this writ petition under Article 226 of the Constitution of India, petitioner seeks to set aside the judgment of the Debt Recovery Appellate Tribunal, Chennai in R.A.No.15 of 2006, dated 22.09.2008 by issuing a writ of Mandamus (wrongly prays for Mandamus instead of Certiorari) as it is arbitrary, contrary to law, illegal and non est in the eye of law and opposed to the relevant provisions of the Indian Stamp Act, Companies Act, Contract Act, Negotiable Instruments Act, Bankers Book of evidence Act etc. Facts in nutshell, which give raise to filing of this writ petition, are as under: 1. M/s.Lakshmi Porcelains Limited-R4 herein (for short, “LPL/R4”) was jointly promoted by the Andhra Pradesh Industrial Development Corporation (for short, “APIDC”) as promoters and major share holders, and by the writ petitioner as a technocrat co-promoter as a joint sector venture. In all LPL had ten directors, of whom three were nominated by the APIDC and IDBI, two by ICICI and three directors were independents from public and as approved by the IDBI. LPL availed the Open Cash Credit, Term Loan – I (Funded Interest Term Loan), Term Loan – II (Funded Interest Term Loan) and Term Loan – III (Working Capital Term Loan) facilities under letter of credit for its business at Hyderabad, after executing necessary documents in favour of Andhra Bank and Canara Bank i.e., respondent Nos.2 and 3 respectively (for short, “R2 and R3). LPL created mortgage of their immovable property in favour of R2 and R3 as well as IDBI, IFCI and ICICI. The loan limits were subsequently enhanced, for which the writ petitioner agreed to guarantee the due repayment of all the amounts due under the said accounts of the LPL and executed deeds of guarantee in favour of R2 and R3, apart from acknowledging the liabilities by the LPL and the writ petitioner. Since the LPL and the writ petitioner, who is the Managing Director of LPL, committed default in repayment of the loan amounts availed, the banks filed O.A.No.698 of 1998 before the Debts Recovery Tribunal, Bangalore and on transferring the same to the Debts Recovery Tribunal, Hyderabad, it was numbered as O.A.No.1652 of 1999, for recovery of a total sum of Rs.9,62,73,895.18 ps. (out of which Rs.4,80,16,244.57 ps. in favour of Andhra Bank – R2 and Rs.4,82,57,650.61 ps. In favour of Canara Bank – R3). It was pleaded by R2 and R3 that at the request of LPL, they sanctioned/renewed/enhanced the OCC limit of Rs.60.00 lakhs each, Bills limits of Rs.45.00 lakhs each, Letter of Credit limit of Rs.7.5 lakhs each and the Bank Guarantee limit of Rs.33.50 lakhs each. Both the banks agreed to reduce the rate of interest of the OCC account and Bills Discount account to 15% funding of interest on OCC Account from July, 1985 to 30.09.1987 amounting to Rs.13.20 lakhs due to each bank and the same was accordingly termed as Funded Interest Term Loan – I. The interest on Cash Credit from 01.10.1987 to 30.06.1988 amounting to Rs.7.30 lakhs due to each bank was funded and termed as Funded Interest Term Loan II. The irregularity in Cash Credit as on 30.06.1987 amounting to Rs.15.50 lakhs due to each bank was converted as Term Loan-III (Working Capital Term Loan). The OCC Limits of Rs.60.00 lakhs were enhanced to Rs.75.00 lakhs by Andhra Bank, for which LPL also availed ad hoc OCC Limit of Rs.25.00 lakhs and ad hoc Bills limit of Rs.25.00 lakhs from R2. R2 enhanced the Bills facility from Rs.45.00 lakhs to Rs.90.00 lakhs and the L.C. limit was enhanced to Rs.30.00 lakhs. Both the banks at the request of LPL, also issued various bank guarantees in favour of third parties. All the amounts were secured by way of hypothecation of movables and joint equitable mortgage of immovable properties in favour of R2 and R3-banks and R5 to R7/3rd to 5th defendants, besides the personal guarantee of the writ petitioner. As the LPL and the writ petitioner failed to liquidate the loan outstanding, the banks filed the above O.A. for recovery of a sum of Rs.9,62,73,395.18 ps. 2. The Official Liquidator, representing the LPL, filed a report and was called absent and R5 to R7 are set ex parte, before the Tribunal. The writ petitioner, who filed the written statement, disputed the claim of the banks contending that he is not liable in his personal capacity as a guarantor for the loans availed by LPL. It is stated that LPL was jointly promoted by him and his associates along with the promoter APIDC in the joint sector. After a series of unforeseen problems like, a portion of roof collapse; bulging of Tunnel Kiln due to substandard quality refractory bricks supplied by the Government of India company, namely M/s.Burn Standard Company Limited, and the illegal strike by workmen, LPL was able to start Tunnel Kiln operations only in September, 1989. LPL also filed a civil suit in O.S.No.1863 of 1989 in the Court of IV Additional Judge, City Civil Court, Hyderabad against M/s. Burn Standard Company for an amount of Rs.1,45,77,743/- by paying a court fee of Rs.1,48,296/-. LPL in all had ten directors, eight of whom were either nominated by the APIDC/IDBI or approved by IDBI. Thus the writ petitioner, who is the Managing Director of LPL was in a hopeless minority on the board. The Board constituted a core committee called Business/ Management Committee consisting of three directors of which the writ petitioner was one and the other two being the nominees of APIDC and IDBI. The said committee was incharge of day to day supervision and operation of LPL. Even in the said committee, the writ petitioner was in a minority. R2 has not furnished the statement of accounts for the period May 1984 to 31.12.1990, during which period the LPL functioned. Thus, the statement of accounts furnished by R2 is not in accordance with Rule 9 of Debts Recovery Tribunal (procedure) Rules, 1993 for the reason that it’s statement of accounts does not show the details of debt due from LPL and the circumstances under which such a debt has become due and for the said glaring omission, the statement of accounts furnished by R2 is hit by Section 139 of the Indian Contract Act, 1872 (for short, “I.C. Act”). The incomplete and faulty statement furnished and R2’s omission in not furnishing an accurate statement of accounts will handicap writ petitioner to contest the claim of banks. The personal guarantees produced by R2 and the amounts mentioned in them are not reflected in the statement of accounts furnished by R2. The statement of accounts furnished by R2 and R3 are not in accordance with law, as laid down by the Hon’ble Supreme Court i n Central Bank of India v. Ravindra {(2002) I SCC 367}. Both the banks failed to provide adequate working capital to LPL, which they had promised and were duty bound to do and the same is in violation of the mandate contained in Section 139 of the I.C. Act. Many consortium meetings of R2 and R3 were held on 01.08.1989, 15.08.1989, 08.09.1989, 19.01.1990, 12.02.1990, 12.03.1990 and 06.08.1990. Apart from this, a consortium meeting of Financial Institutions i.e., IDBI, IFCI, ICICI, R2, R3 and RBI was held on 05.10.1990. A joint meeting consisting of BIFR nominee, the Financial Institutions, R2 and R3 were held on 16.11.1992 in IDBI Office, Bombay. The reports of the IDBI clearly reveal that the IDBI had clearly expressed to both the banks for providing need-based working capital urgently to LPL, which increases its working capital limit. This Court ordered for winding up of LPL in R.C.C.No.6 of 1993 by appointing Official Liquidator, and the writ petitioner was not a party neither before the BIFR nor AAIFR and that the Official Liquidator appointed by this Court sold the LPL unit for a meager sum of Rs.1.75 crores, though the valuers appointed by the Official Liquidator valued the assets of LPL at Rs.9.239 cores. Both the banks and the financial institutions, which were parties to the said proceedings, have never informed the writ petitioner about the said sale and, therefore, he stands discharged of his personal guarantees as per the provisions of Section 139 of the I.C. Act. In Para 17 of his reply, a list of documents, deeds and instruments filed by the banks are claimed to be hit by provisions of Section 292(1) (c) and Regulation 84 of Table A of Schedule-I of the Companies Act, 1956. The personal guarantees produced by R2 and executed after the Board resolution dated 20.12.1988, are in no way connected nor can be correlated to the various fund and non-fund amounts mentioned in the said resolution and, therefore, no liability can be fastened on the writ petitioner. The four personal guarantees relied upon by R3 are invalid for the reason that they do not reflect consideration amount or the amount in the statement of accounts and that they are also hit by the provisions of Section 139 of the I.C. Act. The note in the covering letter of all the guarantees i.e., ‘This is an addition to the guarantee already executed by me/us and held by you’ have not been struck of, which means that there is another guarantee given by the writ petitioner to R3, prior to the date of the said guarantee. Since R3 failed to produce the said guarantee, the said guarantee is a brought one by itself because in the words, in addition to the guarantee already executed by the writ petitioner/in his behalf and held by you, there is a variance between the four personal guarantees and the statements of accounts furnished by R3, due to which the provisions of Sections 133 and 139 of the I.C. Act are attracted, and hence the personal liability of the writ petitioner is discharged. It is further contended that there is no inter se agreement between R2 and R3-banks and they have failed to file any document in support of the same. Therefore, for the said reason alone the application is not maintainable and the writ petitioner is not personally liable for the claim made by both the banks in the said O.A. 3. In order to prove the claim, two witnesses were examined on behalf of respondent-banks as AW1 and AW2 and marked Exs.A1 to A105 on their behalf. The writ petitioner has filed his evidence in the form of affidavit and the documents were marked as Exs.D1 to D74 and he was cross-examined by the respondent-banks and marked Exs.A106 to A108. 4. The Tribunal by the impugned order dated 13.12.2005 decreed the O.A. against LPL and dismissed the claim against the writ petitioner, granting liberty to both the banks to enforce their claim against LPL through due process of law, subject to all the rights of the IDBI, IFCI, and ICICI-R5 to R7/Defendant Nos.3 to 5 and ordered to issue Recovery Certificate accordingly. 5. Aggrieved by the dismissal of the claim against the writ petitioner, R2 and R3 carried the mater in appeal before the Debt Recovery Appellate Tribunal, Chennai-R1 herein in R.A.No.15 of 2006. The Appellate Tribunal by the impugned order dated 22.09.2008 allowed the R.A. and modified the order passed by the Tribunal in O.A.No.1652 of 1999 dated 13.12.2005 holding that both the LPL and the writ petitioner, who are defendants 1 and 2 in the O.A., are jointly and severally liable to pay the amounts claimed by R2 and R3 – applicants in O.A. 6. Questioning the correctness of the same, the present writ petition has been filed contending that as R2 and R3 claimed that they have allegedly given a fund and non-fund based amount of Rs.292 lakhs (R2-Rs.146 lakhs and R3-Rs.146 lakhs) to LPL and as the alleged amount is very huge, it is beyond the personal capacity of the petitioner as an individual to pay the huge amount, if the default is committed by LPL. Knowing fully well, R2 and R3 banks have insisted for a personal guarantee to be executed by the writ petitioner and when he questioned about the purpose for which the said personal guarantee is to be executed, the banks openly and explicitly said that these personal guarantees from the petitioner were required for the sole purpose of securing petitioner’s commitment to the project and not for any other purpose; and that it was their practice to take guarantee to ensure commitment of technocrat entrepreneurs like the writ petitioner to the project. Right from the beginning both the banks fully knew that it would be impossible for the writ petitioner, in his individual capacity, to pay the alleged huge amount of Rs.292 lakhs, in case LPL fails to do so, which also explains why at one point R3 waived requirement of his personal guarantee vide letter dated 09.08.1984-Ex.D63 and at a later date sought his personal guarantee for the specific purpose of securing his commitment. Under those circumstances, the signatures were taken on blank papers at the instance of the banks, which is also evident form Exs.A9 and A10 produced by the banks before the Tribunal, which are at variance with one another. Petitioner never benefited from the loans taken by the LPL. Petitioner vide his letter dated 22.10.1998-Ex.D64 handed over to the Official Liquidator among other things, the term deposits to a tune of Rs.2,01,337/- lying in the name of LPL with UCO Bank. Further, the IDBI-the Operating Agency appointed by the BIFR, in a statement made before BIFR, as recorded in its proceedings dated 22.11.1991- Ex.D56, stated that the sickness of the company is not as a result of managerial deficiencies but has been caused by extraneous reasons beyond the control of the promoters. Under Ex.D40, a note prepared by IDBI, it is clearly stated that the company has an active and a broad based Board and there are no reports of any mismanagement. Petitioner also further explained to prove that the banks have obtained his signatures on blank papers to suite their convenience, which is evident from the various exhibits marked before the Tribunal. The very fact that the bank approached the BIFR for extension of period of limitation and filing of acknowledgment of debts for the same periods, clearly disclose that the banks pressed into service the blank documents on which the signatures of the petitioner were obtained to acknowledge the debt by the LPL as well as the writ petitioner. Clause 4 in regard to agreement in favour of R2 in Ex.A23, A24, A25, A34, A39 and A44 and the para similar Clause 11 in regard to agreement in favour of R3 in Exs.A26 to A29 cannot be enforced against the petitioner and they are unconstitutional and hit by Section 23 of the I.C. Act. The petitioner cannot waive the statutory right and the protection granted to him under the provisions of Sections 134, 135, 139 and 145 of the I.C. Act in spite of agreeing for the said clause under the above general form of guarantees. The statements of accounts filed by R2 bank Ex.A91 to A97 and by R3 bank Ex.A100 to A105, are inadmissible in evidence as they are not in accordance with the relevant provisions of Banker’s Books Evidence Act, 1991 (for short, “the Act”). All the loan transactions are inadmissible in evidence as the conditions laid down under Section 292(1)(c) Regulation of 84 of Table A of Schedule I of Companies Act have not been met with and have not been followed. Since R3-bank tampered the statement of accounts particularly Ex.A101 and A102, the reverse entries will not match the figures and, therefore, they are inadmissible in evidence. The respondents-banks are guilty for not releasing the otherwise sanctioned working capital in time, which has been accepted by the Tribunal in rejecting the claim against the writ petitioner, but was not adverted to by the Appellate Tribunal in reversing the said finding. 7. In the grounds of the writ petition, it was urged that the Appellate Tribunal has set aside the order of the Tribunal without stating how the findings arrived by the Tribunal in O.A. are not valid and proper. Hence, the impugned order is liable to be set aside as the Appellate Tribunal proceeded on the assumption that the petitioner’s case was only that of signing in blanks forms, while the argument of the petitioner is that the revival letters and the amount mentioned therein were made in such a manner to correlate with the Statement of Accounts. The Appellate Tribunal failed to note that the amounts mentioned in the revival letters were somehow made to appear in the statement of accounts by creating bogus credits. The Appellate Tribunal failed to note that R2 and R3 approached the BIFR, seeking suspension of the relevant provisions of the Limitation Act, stating that the loan documents and securities were valid only up to 17.05.1992 for the purpose of limitation, whereas the documents filed and relied upon by them before the Tribunal were dated 22.02.1990, in which event the documents will get time barred only on 21.02.1993 and that the dates have been manipulated by the respondent banks in Exs.A61, A62, A69 and A70 before filing the O.A. before the Tribunal. The finding recorded by the Appellate Tribunal that once the revival letters acknowledging the liability are filed, it is not necessary to file the statement of accounts and in spite of filing the application by the petitioner for production of statement of accounts before the Appellate Tribunal, the same was not produced by R2 and R3. The finding recorded by the Appellate Tribunal, that the petitioner cannot be discharged as surety in terms of Section 139 of I.C. Act is not correct and contrary to evidence on record. Hence, the order passed by the Appellate Tribunal is liable to be set aside. 8. R2 and R3 filed separate counters. R2 in its counter stated that the sanction of credit facilities to R4 company, for which the petitioner was the Managing Director through out the material point of time; availment of these facilities from R2 and R3; the stipulation of the banks that the petitioner shall give personal guarantee for credit limits and the amounts due and payable in the loan accounts of R4; are within the knowledge of the petitioner and are not disputed by him. Further, the petitioner admitted the guarantee agreements relied on by the banks, bears his signatures and pleaded that he signed on these documents, when they were blank and later on the documents were filled, and consequently they are not enforceable. When admittedly the credit limits to R4 were sanctioned by the banks inter alia stipulated that the writ petitioner who is the Managing Director of the R4 shall stand as a guarantor in his personal capacity for the said amounts and the bank made claim against him only for those amounts, the writ petitioner, who signed on behalf of LPL, cannot escape from the liability as guarantor as the contents in those documents are in consonance with the terms and conditions agreed between the parties. At no point of time, till the written statement was filed in the O.A., the petitioner raised any grievance in regard to the personal guarantee given by him for the loan accounts of R4. The guarantee documents manifestly evident that it is a continuing guarantee and as such the period of limitation to initiate legal proceedings for recovery of the amount under the guarantees does not start from the date of document, but it commences only from the date on which the demand was made on the guarantor and when he fails to honor the guarantee. The demand notice was served on the petitioner on 11.11.1997 (Ex.A87) and the O.A. was filed on 29.07.1998. Therefore, the claim against the petitioner as a guarantor was within the period of limitation. The petitioner having full knowledge about the credit limits sanctioned by R2 and R3 and availed by R4 and that the petitioner being the Managing Director of R4 company and also having executed the documents in relation thereto, cannot plead ignorance nor can dishonour his liability. Petitioner if had any grievance about the extent of liability in the loan account of R4, though the respondent company was ordered to be wound up and the Official Liquidator represented the company in O.A. proceedings, he could have questioned the extent of liability of borrower in those proceedings, but never made any attempt in that direction. The present plea taken by the writ petitioner is only to avoid his liability to R2 and R3 banks as a guarantor by raising false and untenable allegations. It is denied that he signed the papers at the instance of bankers in order to secure immediate and early release of credit facilities for production and operation of R4 company. Even if it is assumed for the sake of argument that the documents which were signed by the writ petitioner in the capacity as a guarantor were not duly filled at the time of his signature, unless he pleads and proves that as per the terms of the contract, i.e., the terms and conditions on which the credit facilities were extended to R4 are not the same, there is no need for the bank to prove and establish these documents. Once the signature on those documents are admitted, the burden lies on the petitioner to prove and establish that those documents were not duly filled and further, the material contents in the documents were not reflecting the terms and conditions agreed between them. In the O.A., the claim has been proved and the Tribunal passed an order for the amount against R4 company who was the borrower and the claim against the petitioner as a guarantor was rejected for impertinent reasons and contrary to the evidence available on record. The Appellate Tribunal categorically held that the documents were duly executed in respect of his liability as a guarantor and the claim against him was within the period of limitation and rejected all the contentions. Petitioner having waived the rights available to the guarantor under Sections 133, 134, 138, 139 and 141 of the I.C. Act, as the terms and conditions of the guarantee are binding on him, he estopped from contending that the clauses of guarantee are contrary to the above provisions. The Official Liquidator sold the assets of R4 company after obtaining permission from the Company Court and after the sale was confirmed by the Company Court only, he handed over the assets. The bankers have no duty to inform the petitioner, as he was a guarantor. If really those assets could have fetched more price than the amount realized on sale of the property, petitioner could have raised an objection before the Company Court and could have approached the intending purchasers for higher price at the time of auction. He being the Managing Director cannot plead that he has no knowledge about the sale of company’s assets for a lesser price. The liability of R4 company was not in dispute, as these liabilities are shown before the BIFR proceedings as the reference was registered under the Sick Industries (Companies) Act, 1986 to which it was a party being a secured creditor and the writ petitioner only represented