1 sj-296-09-ss-1144-09 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION jmi SUMMONS FOR JUDGMENT NO. 296 OF 2009 IN SUMMARY SUIT NO. 1144 OF 2009. M/s. Elegant Capitals Private Limited. ..Plaintiff. vs. In Cablenet (Andhra) Limited. ..Defendant. .... Mr. Gaurav Joshi, i/b. Anil T. Agarwal, for Plaintiff. Mr. Niranjan Pandit, a/w. Mr. Murlidharan, i/b. Joy Legal Consultants, for Defendant. .... CORAM : S.J. KATHAWALLA, J. RESERVED ON : 4TH AUGUST 2011. PRONOUNCED ON : 9TH NOVEMBER, 2011. JUDGMENT : By the above Summons for Judgment, the Plaintiff has prayed that the Judgment be entered in favour of the Plaintiff in the Suit against the Defendant for the sum of Rs. 15,37,70,000/- as more particularly set out in the particulars of claim being Exhibit – I to the Plaint, along with further interest at the rate of 13% per annum on Rs. 11,10,00,000/- from 24th March 2009 till payment and/or realization thereof and costs. 2. The Plaintiff is a Company registered under the 2 sj-296-09-ss-1144-09 Companies Act, 1956. The Defendant is also a Company registered and incorporated under the Companies Act, 1956. The Defendant is engaged in the business of providing cable television network to the subscribers in the State of Andhra Pradesh. 3. According to the Plaintiff, in or about March 2006, Mr. R.V.R. Chowdary (Managing Director of the Defendant) requested the Plaintiff for financial assistance by way of Inter Corporate Deposit (ICD). On 25th March 2006, an Inter Corporate Deposit Agreement was entered into between the parties whereunder the Plaintiff agreed to make ICDs to the tune of Rs. 33 crores in installments. It was agreed that each disbursemet of ICD would be designated as a separate inter corporate deposit and the same would be repayable after one year for which the Defendant would execute a Demand Promissory Note in respect of that particular ICD. Under the terms and conditions of the Agreement, interest at the rate of 13% per annum was payable to the Plaintiff by the Defendant every quarter. The entire ICD was to be secured by collateral security i.e. deposit of shares along with duly executed transfer deeds as detailed in Annexures I and II of the said Agreement. Annexure I sets out the details of the shares of the Promoters of the Defendant. Annexure II sets out the shares of one M/s. AP- AKsh Broadband Limited which were to be pledged. 3 sj-296-09-ss-1144-09 4. Thereafter, the Defendant requested the Plaintiff to release an amount of Rs. 10 crores by way of an ICD. The Defendant by its letter dated 25th March 2006 forwarded the ICD Agreement, Board Resolution, certain Share Certificates, Transfer Forms, etc. to the Plaintiff. According to the Defendant the share certificates and transfer deeds of the shares of M/s. AP-AKsh Broadband Limited listed in Annexure II of the Plaint were not forwarded to the Plaintiff as the share certificates for the same were not issued to them. On the same day i.e. 25th March 2006 , a demand promissory note of Rs. 10 crores and an ICD receipt of Rs. 10 crores were executed by the Defendant in favour of the Plaintiff. 5. The Defendant by its letter dated 31st March 2006 forwarded five cheques dated 31st March, 2006, 30th June 2006, 30th September 2006, 31st December 2006 and 31st March 2007, for Rs. 1,10,497/-, Rs.25,13,794, Rs. 25,41,418/-, Rs. 25,41,418/- and Rs. 24,86,170/- respectively, towards the payment of quarterly interest at the rate of 13% per annum on the ICD of Rs. 10 crores. 6. According to the Plaintiff, on 23rd May, 2006 a further sum of Rs. 1.10 crores was released to the Defendant as ICD. The Defendant executed a demand promissory note for a sum of Rs. 1.10 crores and also executed an ICD receipt acknowledging receipt of Rs. 1.10 crores from the Plaintiff. 4 sj-296-09-ss-1144-09 7. According to the Plaintiff, out of the 5 post dated cheques, received from the Defendant towards interest on the ICD of Rs. 10 crores, only cheque bearing No. 528910 dated 31st March 2006 for a sum of Rs. 1,10, 496/- was honoured. Initially, at the request of the Defendant, the remaining cheques were not deposited on their due dates. Subsequently, when the same were deposited, they were dishonoured by the bank on the ground - ‘payment stopped by the Drawer’ and the cheques were returned to the Plaintiff on 27th December 2006 and 3rd January 2007. 8. The Plaintiff by its letter dated 24th August 2006 addressed to the Managing Director of the Defendant, inter alia recorded that the Plaintiff had not yet received the collateral security described in Annexure II of the Agreement. The Plaintiff also recorded that they would not be in a position to provide any more ICD funding as the collateral security had not been furnished. The Defendant by its letter dated 27th August 2006 inter alia contended that the Plaintiff’s inability to fulfill its obligation had put the Defendant in great financial difficulty. The Defendant claimed that it had provided all the shares listed out in Annexure I. As pointed out by the Plaintiff, significantly there was no mention of the shares of Annexure II in the said letter. 5 sj-296-09-ss-1144-09 9. The Plaintiff by their letter dated 29th August 2006 requested the Defendant to complete the D-MAT formalities so that the shares of Annexure I pledged with the claimant (Plaintiff herein) could be converted into D-MAT form. The Plaintiff once again recorded that it had not received the shares listed in Annexure II. The Defendant by their Advocate’s letter dated 31st March 2006 inter alia claimed that the entire shares held by the Defendant in M/s. AP-AKsh Broadband Limited were deposited with the Plaintiff. 10. The Defendant by its letter dated 15th December 2006 requested the Plaintiff to release the balance loan amount of Rs. 21.90 crores. The Plaintiff by its reply dated 30th December 2006 recorded that the Defendant No.1 had not deposited any part of the securities mentioned in Annexure II of the Agreement. The Plaintiff therefore called upon the Defendant to pay the principal amount of Rs. 11.10 crores with interest accrued thereon till 30th December 2006, amounting to Rs. 1,10,13,431/- together with further interest at the rate of 13% per annum, from 31st December 2006 till payment and or realisation. 11. On 24th March 2009 the Plaintiff filed the present Summary Suit for recovery of an amount of Rs. 15,37,70,000/-. In Paragraph 16 of the Plaint, the Plaintiffs have averred that the cause of action for filing the Suit first arose in December 6 sj-296-09-ss-1144-09 2006 when two cheques for interest were dishonoured and action arose in March 2007/May 2007 when the Defendant failed and neglected to repay the amount of Inter Corporate Deposits, and the amounts due under the demand promissory notes. Thereafter, the Plaintiff has taken out the above Summons for Judgment in the above Summary Suit, and has prayed for relief as set out in Paragraph 1 hereinabove. 12. The learned Advocate appearing for the Plaintiff has therefore submitted that the Defendant has no defense whatsoever to the above Suit and therefore, the Plaintiff is entitled to a Judgment, as prayed for in the Summons for Judgment. 13. The Defendant has submitted that the Plaintiff has suppressed important facts which are relevant to the matter, and in particular the fact that the Plaintiff has shares of the Defendant whose value is more than Rs. 90 crores and which are more than sufficient to cover the claim of the Plaintiff. It is submitted that since the Plaintiff are already holding security the value of which is more than 90 crores and since the Plaintiff have not given up the said security, a Summary Suit under Order XXXVII of the Civil Procedure Code is not maintainable. It is submitted that the Plaintiff were to provide Inter Corporate Deposits to the Defendant in the sum of Rs. 33 Crores before the end of April 2006, so as to enable the Defendant to make an 7 sj-296-09-ss-1144-09 investment in M/s. AP-AKsh Broadband Limited, in order that the Defendant could earn returns/profits in time, so as to able to refund the amount with interest to the Plaintiff within one year. It is submitted that in view of the Plaintiff having committed default in providing the ICDs to the tune of Rs. 33 crores on time to the Defendant the investment in M/s. AP-AKsh Broadband Limited came to be forfeited for non-payment of call money. It is therefore submitted that the Defendant has suffered severe financial losses. The Defendant has submitted that where a contract contemplates reciprocal promises and in view thereof the Defendant has raised an issue of maintainability of the Summary Suit, the Defendant is entitled to grant of unconditional leave to defend the Suit. In support of this submission the Respondent has relied on a decision of this court in Ravi Prakash Vs. Bank of India (2007 (3) Mh.L.J.8.). The Defendant has submitted that there are several irregularities committed by M/s. AP-AKsh Broadband Limited in the matter of the alleged forfeiture of shares of the Defendant and the Defendant is in the process of challenging the said forfeiture in an appropriate proceeding. It is submitted that in the event that the Company M/s. AP-AKsh Broadband Limited should eventually succeed in forfeiting the shares, then the Defendant would have a valid and legal claim against the Plaintiff for damages on account of breach committed by the Plaintiff in not honouring the terms of the Inter Corporate Deposit Agreement, although the Defendant had fulfilled all 8 sj-296-09-ss-1144-09 the terms and conditions of the Inter Corporate Deposit Agreement dated 25th March 2006. It is submitted that therefore the Defendant has a legitimate counter claim for the losses to be quantified eventually in a Suit to be filed by the Defendant against the Plaintiff and others. 14. It is pointed out on behalf of the Defendant that on 9th January 2007, the Defendant filed a Suit being No. 86 of 2007 before the Fourth Senior Civil Judge, City Civil Court, Hyderabad seeking a permanent injunction against the Plaintiff from transferring the shares pledged under the ICD Agreement to itself or any third party. The Defendant has failed to get any interim relief in the Suit, but the hearing of the Suit has been expedited. 15. It is further pointed out by the Defendant that, the Defendant also filed a criminal complaint being Complaint No. 277 of 2007 before the Third Additional Chief Metropolitan Magistrate, Hyderabad alleging that the Plaintiff and others had conspired to dishonestly cheat the Defendant by not honouring the terms of the ICD Agreement. The said complaint was quashed by the High Court of Andhra Pradesh under section 482 of the Criminal Procedure Code by an Order dated 8th December 2009. 16. The Defendant has also pointed out that they had filed a 9 sj-296-09-ss-1144-09 Petition No. 69/2006 under section 397 and 398 of the Companies Act, 1956, before the Company Law Board, Chennai, against M/s. AP-AKsh Broadband Limited and its Promoters being Respondent Nos. 1 to 5 therein. The Plaintiff was joined as Respondent No. 6. The Company Law Board by its Order dated 17th December 2007 dismissed the Company Petition No. 69 of 2006. The Appeal to the High Court of Andhra Pradesh under section 10F of the Companies Act, 1956 was also dismissed. An S.L.P. was filed therefrom by the Defendant, being S.L.P. No. 9110 of 2006, which was also dismissed by an Order dated 7th May 2010. 17. In is therefore submitted on behalf of the Defendant that, the Defendant be granted unconditional leave to defend the suit. 18. In rejoinder, the learned Advocate appearing for the Plaintiff has submitted that the valuation report relied upon by the Defendant to the effect that the shares pledged with the Plaintiff are worth Rs. 90 crores is incorrect. The said shares are worthless. The valuation report is not only undated but it does not contain any working or details or calculations, nor does it set out the date of valuation. The shares are of an unlisted company which have no re-sale value in the secondary stock market. Therefore, the claim that the security provided by the Defendant is and was always sufficient is incorrect. In 10 sj-296-09-ss-1144-09 response to the defense advanced on behalf of the Defendant that the Suit filed is not maintainable as a Summary Suit as the Plaintiff had security by way of pledged shares, the learned Advocate appearing for the Plaintiff has relied on the decision of this Court in Suraj Sanghi Finance Limited vs. Credential Finance Limited and Others, reported in 2002 (Supp.2) Bom. C.R. 316, wherein it is held that under section 176 of the Indian Contract Act, 1872, the Plaintiff has the right to retain the pledged goods until such time the Defendant makes payment and only then does the Plaintiff have to return the pledged goods. In the said decision, it is clearly held that the Plaintiff has a right to file a suit for recovery of the amount without proceeding against the pledged goods or other collateral securities. This right conferred on the Plaintiff under section 176 Indian Contract Act, does not whittle down the right to maintain the Suit as a Summary Suit as long as the Plaintiff satisfies the Court that the Suit is based on a written agreement, an acknowledgment of the debt or based on a negotiable instrument. Security can be a ground for consideration when leave to defend is to be considered, but not for canvassing the argument that a Summary Suit cannot be filed. This Court has in the said decision also held that merely because a counter- claim had been filed, it would not detract or result in the Suit which is filed as Summary Suit being treated as a regular Suit. It is further held that the counter claim was for damages, and not an ascertained amount or debt. 11 sj-296-09-ss-1144-09 19. The learned Advocate appearing for the Plaintiff has also relied on the decision of the Hon’ble Apex Court in the case of Union of India vs. Raman Foundry, reported in 4 AIR 1974 SC 1265, where the Hon’ble Apex Court has laid down that damages are not debt. 20. The learned Counsel appearing for the Plaintiff has further relied on the decision of the Hon’ble Supreme Court in the case of Indian Bank vs. ABS Marine Products (P) Limited, reported in 2006 (5) SCC 72, wherein the Hon’ble Supreme Court inter alia held that while the claim of the bank was for an ascertained sum due from the borrower, the claim of the borrower was for damages, which required firstly determination by the Court as to whether the bank was liable to pay damages and thereafter assessment of the quantum of such damages. Thus, there is absolutely no connection between the subject matter of the two Suits and they are in no way connected. The decision in one does not depend on the other. 21. I have considered the submissions advanced on behalf of the Plaintiff and the Defendant. Admittedly, the parties have entered into an Inter Corporate Deposit Agreement dated 25th March, 2006. Each disbursement of ICD was agreed to be designated as a separate Inter Corporate Deposit and was repayable after one year unless extended by mutual agreement, 12 sj-296-09-ss-1144-09 for another term.. It was agreed that the deposits would bear interest at the rate of 13% per annum payable by the Company every quarter. The Defendant was to execute demand promissory note and an ICD receipt in respect of each ICD, in favour of the Plaintiff. The entire inter corporate deposit was to be secured by collateral security by way of deposit of shares along with duly executed Transfer Deeds in favour of the Plaintiff, as more particularly set out in the said Agreement. 22. Admittedly, on 25th March 2006, the Plaintiff released an amount of Rs. 10 crores in favour of the Defendant by way of ICD pursuant to which the Defendant by its letter dated 25th March 2006 forwarded the ICD Agreement, Board Resolution certain share certificates, Transfer Forms, etc. to the Plaintiff. The Transfer Deeds of shares of M/s. AP-AKsh Broadband Limited were not forwarded as the share certificates were not issued. The Defendant also executed an ICD receipt and a Demand Promissory Note of Rs. 10 crores in favour of the Plaintiff. Admittedly, though the Defendant forwarded five cheques dated 31st March 2006, 30th June 2006, 30th September 2006, 31st December 2006 and 31st March 2007, for Rs. 1,10,496/-, Rs.25,13,794, Rs. 25,41,418/-, Rs. 25,41,418/- and Rs. 24,86,170/- respectively to the Plaintiff, towards the payment of quarterly interest at the rate of 13% per annum on the ICD of Rs. 10 crores, except for cheque bearing No. 528910 dated 31st March 2006 for a sum of Rs. 13 sj-296-09-ss-1144-09 1,10, 496/- all the other cheques were dishonoured by the bank on the ground of ‘payment stopped by the drawer’. Though the Defendant has contended that the Plaintiff was required to give ICDs in the agreed sum of Rs. 33 crores to the Defendant by the end of April 2006 and the Plaintiff failed to do so, thereby committing breach of the Agreement, the Defendant has waived the said breach, if any, by unconditionally accepting an ICD of Rs. 1.10 crores from the Plaintiff on 23rd May 2006, for which the Defendant has issued an ICD receipt as well as the Demand Promissory Note as set out hereinabove. 23. The Plaintiff by letter dated 24th August 2006 addressed to the Defendant inter alia recorded that they have not received collateral security described in Annexure II of the Agreement, and that they would not be in a position to provide any more ICD funding. The Defendant by their response letter dated 27th August 2006, claimed that it had provided all the shares listed in Annexure I, but avoided making any mention pertaining to the shares set out in Annexure II in the said letter. The Plaintiff once again by its letter dated 29th August 2006 addressed to the Defendant, recorded that the Defendant has not provided the shares listed in Annexure II. Almost three and a half months thereafter the Defendant by its Advocate’s letter dated 13th December 2006 recorded that it had deposited with the Plaintiff the shares listed in Annexure II also, without 14 sj-296-09-ss-1144-09 mentioning as to when the same were so deposited. Thereafter, the Defendant by its letter dated 17th December 2006 requested the Plaintiff to release the balance loan amount of Rs. 21.90 crores. The Plaintiff by its letter dated 30th December 2006 once again recorded that the Defendant had not deposited any part of the securities mentioned in the Annexure II of the ICD Agreement. 24. The Defendant, as set out hereinabove, filed a Suit against the Plaintiff before the City Civil Court at Hyderabad seeking Orders against the Plaintiff restraining it from transferring/selling the shares pledged by the Defendant with the Plaintiff. In the list of documents filed therein the letter dated 27th March 2007 is mentioned. In the description column it is mentioned “Letter from 1st Plaintiff (Defendant herein) expressing readiness to provide collateral securities with share certificate numbers along with blank share transfer deeds”. Interestingly the said list of documents makes no mention of the letter dated 31st March 2006 now relied upon by the Defendant. Copies of the said two letters dated 27th March, 2006 and 31st March, 2006, are now for the first time brought on record by annexing the same to the Affidavit in Reply of the Defendant dated 5th January 2011. The contents of the said letters makes interesting reading. In the letter dated 27th March 2006 the Defendant has admittedly expressed its “readiness to provide collateral securities with share certificate numbers along with 15 sj-296-09-ss-1144-09 blank transfer deeds”. In the purported letter dated 31st March 2006 (relied upon and produced for the first time in January 2011) it is alleged that the Defendant had inter alia dispatched the Transfer Deed Forms and Share Certificates for shares held in Ap-Aaksh Broadband Ltd. on 25th March, 2006 which was delivered to the Plaintiff on 27th March 2006. Exhibit B-1 to the Plaint is a letter dated 25th March 2006 addressed to the Petitioner wherein the Defendant had categorically stated that “TD forms and share certificates for shares held in APAKSH BROAD BAND LTD could not be made out as the share certificates are being issued. These will also be sent in a couple of days.” The question therefore of the Defendant despatching the Transfer Deed Forms and Share Certificates held in Ap-Aaksh Broadband Ltd. on 25th March 2006 does not arise. The Plaintiff has denied receipt of the Transfer Deeds or the share certificates pertaining to the shares of AP-AKsh Broadband Ltd. They have also denied having received letters dated 27-3-2006 and 31-3-2006. The Defendant has failed to produce any evidence to show that the purported letters were forwarded and/or received by the Plaintiff. The above facts establishes beyond doubt that atleast the letter dated 31-03-2006 is fabricated. Therefore the allegation of the Defendant that though the Defendant had forwarded all the shares to the Plaintiff as agreed, the Plaintiff failed to provide ICD’s of Rs.33 crores is false and incorrect to the knowledge of the Defendant. 16 sj-296-09-ss-1144-09 25. To support the contention of the Defendant that the Plaintiff is in possession of shares of the Defendant, the value of which is more than Rs. 90 crores and therefore more than sufficient to cover the said claim of the Plaintiff, the Defendant has relied upon the Certificate / Valuation Report running into three lines. The said Report does not contain any working , details or calculations and nor does it set out the date of the said valuation. In this regard an advantageous reference may be made to the Judgement of this Court in the case of Suraj Sanghi Finance Limited vs. Credential Finance Limited and Others (supra) wherein the learned Single Judge held that under section 176 of the Indian Contract Act, 1872, the Plaintiff has the right to retain the pledged goods, until such time the Defendant makes payment, and then only need return the pledged goods. The learned Single Judge has clearly held in the said Judgment that the Plaintiff has a right to file a Suit for recovery of money without proceeding against the pledged goods or other collateral securities. Though Security can be a ground for consideration when leave to defend is to be considered, the right conferred on the Plaintiff under section 176 Indian Contract Act, does not whittle down the right to maintain a Suit as a Summary Suit as long as the Plaintiff satisfies the Court that the Suit is based on a written Agreement, acknowledgment of a debt or on a negotiable instrument. As set out in Paragraph 13 of the Plaint – “the present suit is filed to recover a liquidated sum of money with 17 sj-296-09-ss-1144-09 interest due under negotiable instruments being the said Demand Promissory notes and cheques for the amount of interest as well as a written agreement contained in the said agreement dated 25th March, 2006 read with the said ICD receipts.” In any event, the learned Advocate for the Plaintiff has upon instructions informed the Court that the Plaintiff is giving up the said collateral security i.e. the shares deposited with the Plaintiff. 26. The Defendant has stated in its Affidavit in Reply that it has suffered loss since the Plaintiff has failed and neglected to provide the entire loan amount to it, leading to the forfeiture of shares of the Defendant by M/s. AP-AKsh Broadband Ltd. The Defendant has further stated that there are several irregularities which were committed by AP-AKsh Broadband Ltd. The Defendant is therefore in the process of challenging the forfeiture of the shares by M/s. AP-AKsh Broadband Limited and if the said