Final Order 1

Order Details: Notice of Motion
Pdf Text: 1
IN THE COURT OF BOMBAY CITY CIVIL COURT, GR. BOMBAY
NOTICE OF MOTION NO. 1220 OF 2020
IN
COMMERCIAL SUIT NO. 450 OF 2020
(CNR NO.MHCC010033742020)
Mr.Kunal Jiwarajka & Ors. ) ...Plaintiffs.
V/s.
Yes Bank Limited ) ...Defendant.
CORAM: HIS HONOUR JUDGE SHRI R.V.KOKARE
DATE : 29/09/2020 (C.R.No.31)
Appearance:
Adv Nimay Dave a/w. Adv Ms. Megha Gupta for plaintiffs.
Adv. Ms.Anamika i/b. Induslaw for defendant.
ORDER
This is a notice of motion taken out by the plaintiffs for
temporarily restraining to the defendant from taking action on Show
Cause Notice dated 12/12/2019 and 30/01/2020, issued by the
defendant to the plaintiffs as to why the plaintiffs should not be
declared as “ Willful Defaulters”.
Brief facts of notice of motion of the plaintiffs are as under.
2 The plaintiff no.1 is the Director (Suspended Board in view of
admission of Section 7 application under provisions of Insolvency and
Bankruptcy Code, 2016 by the Hon'ble NCLT Mumbai) of M/s JSK
Marketing Limited. The plaintiff Nos. 2 and 3 are the former exdirector
and have resigned from their Director's post on 31/03/2019 before the
company was admitted under Section 7 of IBC. The defendant is a Bank
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and one of the lender of the “JSKML” and is constituted under the
provisions of the Banking Regulation Act, 1949. The subject matter of
the present suit is a Show Cause Notice dated 12/12/2019 and
30/01/2020 issued by the defendant/bank to the plaintiffs calling
upon the plaintiffs to show cause as to why the plaintiffs should not be
declared as “ Willful Defaulters ”. The aforesaid notice for the sake of
brevity and conciseness is hereinafter referred to and stated as “ Show
Cause Notice ” or “ Impugned Notice ”.
3. The plaintiffs state that the JSK Marketing Limited Company has
been incorporated on 11/09/1985 and registered at Registrar of
Companies, Mumbai under the provisions of the Companies Act 1956.
The JSKML Company was involved mainly into the business of trading
of consumer electronics, FMCG products, cameras, batteries, etc. and
was in the said business since the past more than 34 years. The JSKML
was a marketing and distribution organization serving as a link between
the manufacturer and the consumer. The JSKML Company had
branches in all major States in the country and at one point of time
covered around 1,50,000 retail outlets all over the country.
4. The plaintiffs state that the JSKML Company had undertaken
Credit Facility in the nature of Cash Credit and Working Capital
Demand Loan from the Defendant Bank for meeting its business
requirements. The defendant had sanctioned and provided the banking
facilities to the company after detailed due diligence at their end of the
promoter and the Company and only after satisfaction had sanctioned
the credit facilities.
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5. The plaintiffs are being the Directors of the company have
furnished guarantee in favour of the defendant bank for the loan
obtained by the Company from the Bank. Apart from the guarantee, the
plaintiffs also provided and furnished collateral securities and
guarantees to the defendant bank against the credit facilities as granted
by the defendant bank to the JSKML Company.
6. The plaintiffs state that vide a letter dated 28th December 2018
issued on behalf of the JSKML company, a request was made for
replacement of one of the existing collateral security being flat no.
1001, 1101, Palazo Landmark, Santacruz(West), Mumbai with one of
the other property situated at Flat No. C/162, 16th floor, Grand Paradi
CHSL, August Kranti Marg, Kemps Corner, Mumbai 400036.
7. The plaintiffs further state that defendant bank vide its letter
dated 8th January, 2019 had confirmed that the request dated 28th
December 2018 made by the JSKML company for replacement of
existing collateral security is under process and the same will be done
subject to clear title search report and internal approvals of the bank.
The defendant bank vide another letter dated 23rd January, 2019,
confirmed and agreed to replace the earlier collateral security as
requested by the JSKML and further has agreed to release the earlier
collateral property and further confirmed and informed that the
handover of the original documents will be done within 7 days from the
completion of mortgage formalities on the new security as per mutually
agreed terms. The defendant bank issued a letter dated 14th February,
2019 revoking its aforesaid principle approval for release of the
mortgage over the mortgaged property for the reason that the
borrower/mortgagor has not created and effected mortgage over the
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alternative immovable properties to the satisfaction of the bank and
further placed on record that the mortgage created over the mortgaged
property in favour of the bank would continue to secure the facilities
unless released by the bank in writing.
8. The plaintiffs state that the JSKML Company started facing
financial problems. The plaintiffs state that as the realization from
debtors has been sluggish resulting in tightness in liquidity and led to a
major impact on the bottomline as well as cash flows. The company
could not recover dues from its customers facing restrictions in their
cash flows. The company's operations had been under strain and the
liquidity suffered on account of various external reasons beyond control
of the management and accordingly, the Company committed defaults
in repayment of the loan granted by the financial creditors to the
Company. One of the financial creditor of the JSKML company by the
name ' Bombay sales agency', approached the National Company Law
Tribunal, Mumbai on 16th April 2019 and filed a petition under the
provisions of Section 7 of the Insolvency and Bankruptcy Code, 2016,
read with Rule 4 of the Insolvency and Bankruptcy Application to
Adjudicating Authority Rules, 2016 for initiating Corporate Insolvency
Resolution Process (CIRP) against the JSKML company. The plaintiffs
further states that the National Company Law Tribunal, Mumbai vide an
Order dated 23/09/2019 was pleased to admit the aforesaid
Application thereby admitting the JSKML under the CIRP and
appointing the IRP.
9. The plaintiffs state that as the realization from debtors has been
sluggish regulating in tightness in liquidity and further the high rates of
interest and Bank charges have led to a major impact on the bottomline
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as well as cash flows. The company could not recover dues from its
customers facing restrictions in their cash flows. The company had
started pursuing for recovery of claims of over Rs.1,50,56,20,040/
( Rupees One Hundred and Fifty Crores Fifty Six Lakhs, Twenty
Thousand and Forty Rupees only) with various clients which is
outstanding and recoverable.
10. The plaintiffs state that the defendant Bank issued a letter/Notice
dated 18th June 2019 addressed to the JSKML thereby recalling the
credit facilities as sanctioned by the defendant bank and demanded
outstanding amount to the JSKML within 7 days from the receipt of said
letter/notice. The defendant Bank issued the first impugned Show
Cause Notice dated 12/12/2019 for the alleged classification of the
company and the plaintiffs as ‘willful defaulters’ and sought explanation
from the plaintiffs as to why they may be declared as willful defaulters.
The defendant that in continuance with the Show Cause Notice dated
12th December 2019, issued another notice dated 30th January 2020
thereby calling upon the plaintiffs to remain present before the
committee for classification of wilful defaulters.
11. The plaintiffs further state that calling upon the plaintiffs to
appear before the Wilful Default Committee without even providing the
relevant documents/evidences by the defendant Bank, inter alia, shows
their predetermined mindset of the defendant bank against the
plaintiffs in declaring the plaintiffs as wilful defaulters without
following the due process of law. The actions of the defendant bank was
in grave violation of the principles of natural justice vis àvis not
permitting the plaintiffs to submit their representation to show cause as
to why they be not declared as wilful defaulters as in the absence of the
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documents, the plaintiffs will not be able to submit their detailed
response to the defendant bank as to why they be not declared as wilful
defaulters for the alleged defaults committed by the company in
repayment of credit facilities granted by the defendant bank to the
company. The plaintiffs made out prima facie case, balance of
convenience and the plaintiffs will be suffered irreparable loss, if the
notice of motion is not granted in favour of the plaintiffs. Hence, this
notice of motion.
12. The defendant resisted this notice of motion taken out by the
plaintiffs for filing written statement cum reply.
Brief facts of the reply of the defendant bank are as under
13. The defendant bank denies all and every singular allegations,
averment and contention raised against the defendant bank. The suit
and notice of motion taken out by the plaintiffs is not only misconceived
and baseless but has been filed by the plaintiffs with an attempt to
wriggle out from the consequences of their own failure to discharge
their obligations under the loan/security documents. It is submitted that
the plaintiffs are the Promoters, Directors and Guarantors for the loan
granted to JSK Marketing limited. Upon failure by the Borrower and the
plaintiffs and the plaintiffs to meet their obligations under the
loan/security documents, the defendant is entitled to take effective
measures provided in law and the present suit is nothing but a counter
blast for such effective steps initiated by the defendant bank. The
present suit has been filed in complete contravention of the applicable
principles of law and more particularly Master Circular RBI/2015
16/100 DBR No.CID.BC 22/20.16003/201516, dated 1 st July
2015( hereinafter referred to as the “ said circular”).
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14. The defendant bank further submitted that the Borrower is a
company registered and incorporated within the provisions of the
Companies Act 1956. The Borrower is engaged in the business of
distribution of Nippo batteries, E commerce sales with Amazon and
trading of electronic items. Currently, the Borrower is undergoing the
corporate Insolvency Resolution process (“CIRP”) under the provisions
of Insolvency and Bankruptcy Code, 2016 pursuant to order dated 23rd
September 2019 passed by the National Company Law Tribunal,
Mumbai.
15. The defendant further submitted that in 2017, the Borrower,
represented through the plaintiffs, approached the defendant to grant
credit facilities which was acceded to by the defendant. Pursuant
thereto, the defendant issued a Facility Letter dated 23rd May 2017 in
favour of the Borrower. The defendant vide the said Facility Letter
granted credit facilities aggregating to a sum of Rs. 25,00,00,000/
against the securities. One of the securities was exclusive charge by
mortgage of Flat No. 701 and 801, Palazzo Landmark, Santacruz West,
Mumbai which was created by Associated Electrical Agencies. The
defendant bank also issued an Addendum Facility Letter dated 27th
June 2017. In furtherance of the grant of the said credit facilities by the
defendant bank in favour of the Borrower, the documents of Master
Facility Agreement dated 02 June 2017, Deed of Guarantee dated 02
June 2017, Memorandum of Entry and Declaration, both dated 29th
June 2017, Deed of Hypothecation dated 27th June 2017, and etc were
executed. Thereafter, the monies under the said credit facilities were
disbursed by the defendant in favour of the Borrower in accordance
with the terms of the said Facility Letter read with the Master Facility
Agreement.
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16. The defendant bank further submitted that the Borrower has also
availed several credit facilities from a consortium of banks wherein the
lead bank is Union Bank of India. Saraswat Bank is one of the banks in
the said consortium. The defendant bank became aware that the
Mortgagor, through plaintiff No.1 has executed an Indenture of
Mortgage dated 26th December 2018 in favour of the said consortium to
secure the credit facilities granted by the said consortium to the
Borrower. The Mortgagor, through plaintiff No.1 has thereby,
fraudulently created security in respect of the Santacurz property,
despite the same having been exclusively charged in favour of the
defendant bank.
17. Thereafter, the Borrower started running into losses in the
business and failed to meet its repayment obligations under the said
Master Facility Agreement and the account of the Borrower became
overdue in February 2019. The defendant recalled the said credit
facilities vide Loan Recall Notice dated 18th June, 2019 and called upon
the Borrower to make payment of an amount of Rs. 24,76,35,089,55/.
The defendant vide another Notice invoked the personal Guarantees ,
executed by the plaintiffs. Since, neither the borrower nor the personal,
guarantors discharged their respective liabilities under the loan/security
document and no payments whatsoever were made, the account of the
Borrower was classified as NonPerforming Asset on 30 th June, 2019 in
accordance with the RBI Guidelines.
18. The defendant bank took symolic possessions of all the
mortgaged properties on 13th September 2019 and issued possession
Notice under the provisions of the SARFAESI ACT. The defendant bank
also filed original Application No.(L) 1036 of 2019 before the Hon'ble
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Debt Recovery Tribunal, Mumbai on 21st August 2019.
19. The defendant further submitted that the plaintiffs have state that
the defendant ought to have provided the material particulars of the
document as well as the documents themselves along with the said
Show Cause Notice as the plaintiffs do not have documents mentioned
therein. It is submitted that the documents referred to in the said Show
Cause Notice pertain to the transaction between the Borrower/
plaintiffs/mortgagor and the defendant and the transactions between
Borrower and the said consortium. The plaintiffs, being Directors and
Promoters of the Borrowers have access to all these documents. The
plaintiffs, hanging by a thread, are merely attempting to delay the
implications and consequences of their actions by making false
statements and creating false and frivolous grounds. The defendant
submits that there is no requirement to provide the documents along
with the Show Cause Notice, especially in the circumstances where the
documents pertain to transactions of the Borrower which are already
available with the plaintiffs. On the contrary, the plaintiffs themselves
failed to furnish certain relevant documents which called upon by the
defendant during the personal hearing. On these grounds, the
defendant bank requested that the present notice of motion may kindly
be rejected.
20. The learned counsel for the defendant filed written notes of
arguments and also orally argued that the suit of the plaintiff is not
maintainable under Sections 34 and 37 of the Specific Relief Act 1963.
In the present suit, the plaintiffs have been challenged Show Cause
Notice dated 12th December 2019 and Notice dated 30th January 2020,
which were issued by the defendant bank to the plaintiffs. These notices
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were issued as per the Master Circular RBI/201516/100 DBR No.
CID.B.C.22/20.16.003/2015.16 dated 1st July 2015 under clause
2.1.3(d) read with Clause 3 of the said Circular. The said notices have
been issued under the clauses of the said circular owing to the
commission of certain acts as laid down in the said circular, the
consequence of which is classification of such persons as willful
defaulters.
21. A bare perusal of the relief sought for shows that the plaintiffs are
seeking for a relief for setting aside and for declaring of the said notices
as illegal, null and void. The plaintiffs are therefore seeking a
declaration the said notices as illegal, null and void. The plaintiffs are
therefore seeking a declaration which in effect would negate the effect
of the said Show Cause Notice and frustrate the process of the
classification of willful defaulter. The plaintiffs have based their relief
on the allegation that the said Show Causes Notices have been issued in
violations of the said Circular. The declaration of the said notices as null
and void would mean that the plaintiffs cannot be classified or declared
as willful defaulters.
22. The learned counsel for the defendant further argued that no
personal entitlement to any legal character has been violated in the
present case which warrants declaration of the said notices as null and
void. The legal character as contemplated in Section 34 of the Specific
Relief Act 1963, must be attributable to the plaintiffs by law. Neither
any right to property nor any entitlement to legal character has been
violated by the issuance of the said Show Cause Notice under the said
Circular.
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23. The learned counsel for the defendant in support of the above
contentions relied on the judgement in the case of A.C.Muthiah V/s.
Board of Control for Cricket in India (2011) 6 SCC 617. The
Hon'ble Supreme Court has observed in para nos. 35 and 36.
“35. Further, the appellant has sought declaratory decrees in both
the suits, However, the declarations sought can be granted only in terms
of Section 34 of the Specific Relief Act, 1963. A bare reading of Section
34 of the Specific Relief Act would indicate that the plaintiff in order to
be entitled to a legal character or to any right will have to seek
declaratory relief. The averments made in the plaints of the two suits do
not indicate that the appellant is claiming that he is entitled to
declaration relating to a legal charter or he is claiming any legal
character.
36.... However, on going through the averments made in the
plaints, this Court finds that no right is claimed under Section 34 of the
Specific Relief Act. The record does not indicate that any personal right
of the appellant is infringed. Prima facie the appellant, who is claiming
declaratory decrees against the respondents, would not be entitled to
the same because no personal right of the appellant is infringed. The
averments made in the two plaints would show that the appellant is not
claiming any legal character in BCCI nor is he claiming any right to any
of the properties of BCCI. Therefore, it is clear that the appellant has
not instituted the two suits under Section 34 of the Specific Relief Act. ”
24. In Salil Kumar Mukherjee and Ors. V/s. Hindusthan Steel Ltd.
and Ors. MANU/WB/0681/1978, The Hon'ble Calcutta High Court
has observed that “ Before a plaintiff is entitled to get a declaratory
decree he must be personally entitled to a legal character or to any right
to any property. In the present case, no declaratory decree has been
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prayed for in respect of any property. The declaration sought for is that
the seniority of the plaintiffs should be counted from a particular date.
Such a declaration cannot be said to be a declaration as to a legal
character of the plaintiffs. The right claimed here flows from contract
and not from any legal character of the plaintiffs. If the right originates
in or flows from a contract such cannot form the subject matter of a
declaration under section 34 of the Specific Relief Act. The legal
character contemplated under section 34 must be attributed to the
plaintiffs by law as distinguished from a contract.”
25. The learned counsel for the plaintiffs has argued that it would be
totally wrong to consider or appreciate the defendant submission that
the suit is not maintainable and is liable to be dismissed as the same is
filed under Sections 34 and 37 of the Specific Relief Act, 1963. It is
submitted that from the plain reading of the provisions of Sections 34
and 37 of the Specific Relief Act, 1963 and the relief prayed in the
present suit with respect to the declaration of the impugned Show
Cause Notice and consequential interim relief thereto make it very clear
that the present suit is maintainable in its present form.
26. The Ld. Counsel for the defendant submitted that the plaintiffs
have not discloses cause of action for filing the present suit and the
present suit is prematured and the relevant documents are in
possession of the plaintiffs. Therefore, the present suit and notice of
motion are not maintainable. The Ld. Counsel for the defendant has
submitted that a bare perusal of the plaint shows that there is no cause
of action for the plaintiffs to file the present suit and the notice of
motion for interim reliefs. The present suit is prematured and has been
filed at a stage where only the said show cause notice and the said
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notice were issued. The plaintiffs have not yet been declared as the
willful defaulter and the present suit has been filed on the presumption
that the plaintiffs would be declared as willful defaulter by the
defendant. Therefore, in effect what the plaintiffs are seeking from this
Hon'ble Court is to pass an order that the plaintiffs cannot be declared
willful defaulter and thereby taking away the right given to the
defendant under the said Circular of following a process, analyzing the
facts and then passing an order declaring or not declaring the plaintiffs
as a willful defaulter. The plaintiffs are thus praying that this Hon'ble
Court, in order to give the plaintiffs, the reliefs, take away the legal and
statutory right of the defendant. The remedy, if any, available to the
plaintiffs, would arise once the defendant declares the plaintiffs as
willful defaulter.
27. The Ld. Counsel for the defendant has further argued that the
rational behind the said circular was to caution the banks, financial
institutions and public at large about the willful default so that they are
cautioned before disbursing any further loans to such persons.
Therefore, the defendant cannot be deprived of any such right of
assessing whether persons can be declared a willful defaulter or not as
it will cause grave prejudice to the public at large. It is submitted that
the mere issuance of the said Show Cause Notice does not give rise to
any cause of action for the plaintiffs to bring out any action against the
defendant.
28. In the present set of facts the stage of proceedings initiated are
still at the stage contemplated in clause (b) of the said Circular, where
the defendant has provided an opportunity to the plaintiffs for a
personal hearing, upon which the declaration of the plaintiffs as willful
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defaulters is yet to be done. Even after such declaration, the order of
the Identification Committee is subject to review by the Review
Committee under the provisions of the Circulars. The plaintiffs have
filed the present suit merely on the presumption that they might have
to face consequences provided under the said Circular in the event they
are declared as willful defaulter under the said Circular. By doing so, it
is the attempt of the plaintiffs to surpass and circumvent the procedure
provided in the said Circular and to take away the legal and statutory
right of the defendant. The judgment in the case of Union of India &
Anr. V/s. Kunisetty Satyanaryanan [(2006) 12 SCC 28], is relevant
on this point. The relevant paragraph from the said judgment has been
reproduced herein below.
“14. The reason why ordinarily a writ petition should not be
entertained against a mere show cause notice or charge sheet is that at
that stage the writ petition may be held to be premature. A mere charge
sheet or show cause notice does not give rise to any cause of action,
because it does not amount to an adverse order which affects the rights
of any party unless the same has been issued by a person having no
jurisdiction to do so. It is quite possible that after considering the reply
to the show cause notice or after holding an enquiry the authority
concerned may drop the proceedings and/or hold that the charges are
not established. It is well settled that a writ petition lies when some
right of any party is infringed. A mere show cause notice or charge
sheet does not infringe of anyone. ….....”
29. A bare perusal of the paragraph cited from the judgment passed
by the Hon'ble Supreme Court clearly demonstrates that the mere
issuance of Show Cause Notice does not give rise to any cause of action,
without a declaration or order in pursuance of Show Cause Notice and
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therefore, the present suit is premature.
30. The learned counsel for the defendant has further argued that
the plaintiffs have alleged that the Show Cause Notice has been issued
by the defendant in an arbitrary, illegally with malafide intention and
without following due procedure of law. In support of the above bald
statement and allegations made by the plaintiffs, the plaintiffs have
miserably failed to satisfy any contravention or breach or any process
which has not been followed by the defendant in issuing the said Show
Cause Notice. The plaintiffs have also alleged that the said Show Cause
Notice has been issued without providing the documents/evidence. The
defendant submitted that no such requirements is contemplated in the
clauses of the said Circular. Further, the plaintiffs have not produced a
single document on record which shows that such documents were
sought for by the plaintiffs prior to the personal hearing. In fact, even
in the representation made by the plaintiffs vide Letter dtd. 7th January,
2020 ( Exh.L to the plaint at page 105), neither any request was made
for documents nor any such contention was raised. The allegations
sought to be raised by the plaintiffs are an afterthought in an attempt to
wriggle out from the consequences of their own failure to discharge
their obligations under the loan/security documents. Thus, the plaintiffs
have failed to prove prima facie case, balance of convenience and
irreparable loss. On these grounds, the Ld. Counsel for the defendant
has requested that the present notice of motion taken out by the
plaintiffs may kindly be dismissed with costs.
31. In response to the objection raised by the Ld. Counsel for the
defendant in his arguments, the Ld. Counsel for the plaintiffs has
submitted that the present suit filed challenging the legality and
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issuance of the Show Cause Notice. Since the declaration is sought with
respect to the Show Cause Notice and the said notice has been already
issued there is no question of suit being premature as alleged. It is
further submitted that passing of orders under the RBI Master Circular
and issuance of the Show Cause Notice are two different aspect under
the Circular and the present suit has been filed limited to the issuance
of the Show Cause Notice which has been issued without following the
due procedure of law and without following the RBI Master Circular as
willful defaulter in its true sense and correct split and further without
following the principles of natural justice. Thus, the present suit is not
premature as alleged by the defendant.
32. The learned counsel for the plaintiffs further submitted that it
would be totally wrong to appreciate the defendant submission that the
suit and the notice of motion is not maintainable alleging that the
plaintiffs are in possession of the documents which form the basis of the
said Show Cause Notice. It is submitted that time and again the
plaintiffs have asked from the defendant bank the documents/evidence
on the basis of which the impugned Show Cause Notice had been
issued. However, admittedly, the defendants bank has failed and
neglected to provide the said documents. In fact, even in its affidavit in
reply, the defendant bank mentions only about one single document i.e.
an Indenture of Deed and claimed that the said deed is in possession of
the plaintiffs. However, the Show Cause Notice refers to several other
documents and the defendant bank has neither provided the said
documents to the plaintiffs nor had stated or mentioned anything about
the other documents in its affidavit in reply. Therefore, the present
notice of motion is maintainable under the facts and circumstances of
the present case.
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33. The Ld. Counsel for the plaintiffs has further submitted that the
present suit has been filed challenging the legality and issuance of the
Show Cause Notice and since Show Cause Notice had been issued
without following the guideline of the RBI as provided in its Master
Circular as willful defaulter and issued against the principles of natural
justice, the same had given cause of action to the plaintiffs to file the
present suit.
34. The learned counsel on behalf of the plaintiffs has relied on the
judgement in the case of Punjab National Bank and Ors. Vs.
Kingfisher Airlines Limited and Ors. reported in
MANU/DE/4118/2015, the Hon'ble Delhi High Court has observed
that, “ It is trite law that material that is relied upon by any authority in
arriving at a decision must be made available to the affected party.
This is an integral part of the principles of natural justice that are
enshrined in Article 14 of the Constitution of India. There is no
justifiable reason why the same should be departed from the present
case.”
The learned counsel on behalf of the plaintiffs has also relied on
judgement in the case of Oswal Apparels Private Limited and Ors. Vs.
State Bank of India, Ludhiana and Ors. reported in Civil Writ
Petition No. 3307 of 2016 , the Hon'ble High Court has held that “ It is
also settled principle of law that the documents that are relied upon by
any authority in arriving at a conclusion must be made available to the
affected party to conform to the principle of natural justice. That apart,
the petitioners ought to have been afforded adequate opportunity to
present their case in its correct perspective.”
The learned counsel on behalf of the plaintiffs has also relied on
judgement in the case of Moserbaer India Ltd. Vs. State Bank of
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Bikaner & Jaipur & Anr. in S.B.Civil Writ Petition No. 7488/2016,
the Hon'ble High Court of Rajasthan has observed with respect to the
documents and evidence to be shown to the Borrower before issuance
the show cause notice and it has been been held as follows:
“An opportunity of hearing ought to be effective hearing. Fair
play demand that the documents/evidence on which Identification
Committee relied before issuing a show cause notice, must be shared or
shown to the petitioner/borrower company so that they can put forward
their defence and explain purport of the documents.”
35. Upon hearing oral arguments as well as on perusal of notes of
arguments of the learned counsels for both the sides and on scrutiny of
the pleadings, it appears to me that the learned counsel for the
defendant has raised objection that the present suit and notice of
motion are not maintainable u/ss. 34 and 37 of the Specific Relief Act
1963. For convenience, I have reproduced the sections.
Section 34 Discretion of court as to declaration of status or right Any
person entitled to any legal character, or to any right as to any property,
may institute a suit against any person denying or interested to deny,
his title to such character or right and the court may in its discretion
make therein a declaration that he is so entitled and the plaintiffs need
not in such suit ask for any further relief:
Provided that no court shall make any such declaration where
the plaintiffs being able to seek further relief than a mere declaration of
title, omits to do so.
Section 37 Temporary and perpetual injunctions:
1) Temporary injunctions are such as are to continue until a specified
time or until the further order of the court and they may be granted at
any stage of a suit and are regulated by the Code of Civil Procedure,
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1908.
2) A perpetual injunction can only be granted by the decree made at the
hearing and upon the merits of the suit; the defendant is thereby
perpetually enjoyed from the assertion of a right, or from the
commission of an act, which would be contrary to the rights of the
plaintiff.
36. In the present suit, the plaintiffs have been challenged Show
Cause Notice dated 12th December 2019 and Notice dated 30th January
2020, which were issued by the defendant bank to the JSK marketing
limited i.e. The borrower and the plaintiffs i.e. the Directors and
Guarantors. On perusal of the show cause notice dated 12th December
2019 ( Exh.'K' at page nos. 102 to 104 of the plaint), the said notice is
for declaration of JSK Marketing Limited and the plaintiffs as ''willful
defaulters'' in accordance with Reserve Bank of India(“RBI”) Master
Circular as wilful defaulters. Reasons shown in the notice that “ The
unit has defaulted in meetings its payment/repayment obligations to
the lender and also disposed off or removal the movable fixed assets or
immovable property given for the purpose of securing a term loan
without the knowledge of the bank/lender.
37. Lastly, in point No.13 of the said notice it is mentioned that the
bank proposes to classify, to JSK marketing ( the Borrower) and the
plaintiffs ( the Guarantors) as “ wilful defaulters”
38. On perusal (Exh.L) at page No. 105 to 106 of the plaint, Letter
dated 07/01/2020, written by the plaintiffs in reply to Show Cause
Notice dated 12/12/2019, it appears to me that the plaintiffs have
denied all the allegations which are mentioned by the defendant bank
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in the notice dated 12/12/2019 and stated that the company and the
plaintiffs have not committed any breach or undertaking provided to
the defendant's bank in relation to the facilities provided by the bank
and also called to the bank to withdraw all the facts in the said notice.
39. It is the submission of the learned counsel for the plaintiffs that
the defendant bank issued Show Cause Notice dated 12/12/2019,
without following procedure of Master Circular. The defendant bank
has not provided the documents/evidence on the basis of which the
Show Cause Notice had been issued. Admittedly, the defendant bank
has failed and neglected to provide said documents. Infect, in affidavit
in reply, the defendant bank mentioned only one single document i.e.
an Indenture of deed and claimed that said deed is in possession of the
plaintiffs. However, the show cause notice refers several other
documents. It is pertinent to note that the defendant bank could
provided the entire documents on which basis the defendant bank
issued notice dated 12/12/2020, Admitted the defendants bank has not
provided the entire documents to the plaintiffs, therefore, the defendant
bank has not followed the principles of natural justice. The defendant
bank has not produced any documentary evidence as to show that the
JSK Marketing Limited and the plaintiffs committed breach on
undertaking given by them to the bank in relations to the facilities
provided by the bank. It is pertinent to note that the defendant bank has
sanctioned facilities to the JSK limited and the plaintiffs against
securities.
40. In the present suit, the plaintiffs have been challenged Notice
dated 12/12/2019 issued by the defendant bank to the JSK Marketing
Limited and the plaintiffs. The plaintiffs have objected that the said
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notice issued without furnished any documents or evidence on which
the defendant bank formed the said notice. Therefore, I am of the
opinion that the plaintiffs have right to challenge the said notice dated
12/12/2019 without waiting declaring to them by the defendant bank
as wilful defaulter. Hence, the present suit and notice of motion are
maintainable u/ss. 34 and 37 of the Specific Relief Act.
41. On going through citations supra relied on behalf of the plaintiffs
are perfectly applicable to case in my hand on the points of natural
justice and maintainability of the suit in the Civil Court. On perusal of
the citations referred on behalf of the defendant are with due repect not
applicable in the present case in my hand due to differ of facts and
circumstances. In the present case in my hand, the plaintiffs have been
challenged Notice issued by the defendant bank to the JSK Marketing
Limited and to the plaintiffs without furnishing any documents or
evidence on which the defendant bank formed the Notice under
challenge dated 12/12/2019. It means the defendant bank violated
principles of natural justice.
42. It appears from the contention of the plaintiffs that the JSKML
Company started facing financial problems. The realization from
debtors of the company has been sluggish resulting in tightness in
liquidity and led to a major impact on the bottomline as well cash
flows. The company could not recover dues from its customers facing
restrictions in their cash flows. The plaintiffs have filed various suit for
recovery of amount against companies debtors.
43. It is contended by the learned counsel for the defendant that
plaintiffs may repay the loan, thereafter no action will be initiated
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against the plaintiffs. It appears that the defendant bank has initiated
the action for recovery of the loan under the grab of Master Circular.
44. Considering wide scope of Master Circular, the balance of
convenience lies in favour of plaintiffs. Obviously, irreparable loss will
be cause to the plaintiffs, if the court refuse to grant injunction as
prayed. Hence, the order.
ORDER
1. The Notice of Motion No. 1220/2020 is allowed.
2. The defendant personally or through its agents, servants or
representatives, officers and/or any person or authorities claiming
through them are hereby temporarily restrained from taking any
coercive action upon notice dated 12/12/2019 issued by the defendant
bank and from branding the plaintiffs as willful defaulters and taking
any coercive action including publication of names of plaintiffs as
willful defaulter till final disposal of the suit.
3. It is needless to say that defendant is at liberty to proceed against the
plaintiffs regarding recovery proceedings, attachment, sale of
attachment property to recover the defaulted loan.
4. Cost in cause.
5. Notice of Motion No. 1220/20 is disposed off accordingly.
Dtd: 29/09/2020. Judge
City Civil & Sessions Court,
Gr.Mumbai.
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CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL
SIGNED JUDGEMENT/ORDER”
UPLOAD DATE TIME NAME OF STENOGRAPHER
03/10/2020 2.00p.m. Mrs. V.V.Malgaonkar
Name of the Judge H.H.J.Shri R.V.KOKARE (C.R.31)
Date of Pronouncement of
Judgement/Order
29/09/2020
Judgement/order signed by P.O on 03/10/2020
Judgement/order uploaded on 03/10/2020
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