Judgment:
Dr. D.Y. Chandrachud, J.
1. The Plaintiff sanctioned and advanced to a Company known as Nesari Dairy Products Ltd. a Short Term Bridge Loan of Rs. 22,50,000/- on the terms and conditions contained in a loan agreement dated 24th April, 1995. In these proceedings the Defendants have been sued upon a Deed of Guarantee executed by the Defendants on 26th April, 1995 by which the Defendants guaranteed the payment of the dues of the Plaintiff. The loan agreement between the Plaintiff and the principal borrower, inter alia, provided that a joint and several Demand Promissory Note be executed by the borrower and the Guarantors in favour of the Plaintiff in respect of the principal sum of Rs. 22.50 lakhs and interest thereon at the rate of 22.5% per annum. The loan agreement also stipulated that a guarantee shall be executed by the Defendants herein. The loan was to carry interest at the rate of 20% per annum or at such lending rate as may be prevalent at the time of the execution of the agreement. There was a default clause under which in the event of the principal borrower failing to pay any instalment of interest on the loan on the respective due dates, additional interest was liable to be charged at the rate of 2.5% per annum over and above the Plaintiffs lending rate as applicable on the total amount in default during the period of such default.
2. The Defendants were asked to execute a guarantee dated 26th April, 1995 in favour of the Plaintiff. The execution of the guarantee is not disputed except insofar as Defendant Nos. 6 and 7 are concerned and whose case is consequently considered separately in this order. Clause (1) of the guarantee provided that if any default is made by the borrower in the payment of Rs. 22.50 lakhs, the guarantors shall without demur jointly and severally pay to the Plaintiff on demand, the loan together with interest thereon and all other moneys which shall be due to the Plaintiff. Under clause (2) the Plaintiff was given the liberty without affecting the guarantee or discharging the guarantor to postpone the exercise of the power conferred upon it by the loan agreement to revise the rate of interest, to agree to a revision of the schedule of repayment and to forebear to enforce a covenant of the loan or interest or any other terms and conditions. Under clause (4), the guarantee was irrevocable and enforceable under the guarantor, notwithstanding that the securities or any of them specified under the loan agreement were outstanding or unrealised. Under clause (5) of the guarantee, any amount appearing due from the Company in the books of account of the Plaintiff maintained and kept in the ordinary course of business shall be conclusive evidence against the guarantors of the amount due on the said account and shall not be questioned by the guarantors. Under clause (8) of the guarantee, the Plaintiff was entitled to act as if the guarantors were the principal debtors to the Plaintiff. The guarantee was to be a continuing guarantee under clause (10). By clause (16) of the guarantee, it is once again stipulated that the guarantors shall as between them and the Plaintiff be regarded as principal debtors and shall not be entitled to any of the rights conferred under Sections 133, 134, 135, 139 and 141 of the Indian Contract Act, 1872.
3. The Plaintiff has stated that it disbursed an amount of Rs. 19 lakhs to the principal borrower. Interest was payable quarterly on 31st January,30th April, 31st July and 31st October each year. The borrower has failed to pay the interest dues of the Plaintiff every quarter. In the circumstances, by a demand notice dated 29th January, 1996, the Plaintiff called upon the principal borrower to repay the dues and outstandings of the Plaintiff under three facilities which were granted to the principal borrower including those in respect of the short term bridge loan to which the present suit relates. This was followed by recall notice dated 7th March, 1996. Under the said notice, the amount due and outstanding in respect of the short term bridge loan inclusive of interest is Rs. 21,02,060/-.
4. The claim in the present suit is in the amount of Rs. 31,44,484/-inclusive of the principal amount of loan of Rs. 19 lakhs together with interest thereon. Insofar as Interest is concerned, simple interest on Rs. 19 lakhs has been charged at the rate of 20% per annum from 1st May, 1995 to 31st January, 1997. Besides compound interest at 22.5% per annum has been charged from 1st August, 1995 until the end of February, 1998 and the learned Counsel appearing on behalf of the Plaintiff stated that the compound interest has been charged only on the amount of interest which was outstanding in terms of the relevant clause in the loan agreement.
5. In sofar as the Defendants are concerned, an ex parte decree has already been passed as against Defendant Nos. 5 and 13. All the Defendants have been served. An affidavit in reply has been filed in these proceedings to the Summons for Judgment on behalf of Defendant Nos. 1 to 4. 9, 10 and 14. In sofar as Defendant Nos. 6 and 7 are concerned, they have denied having executed the guarantee and detailed affidavit in reply has been filed on their behalf in these proceedings. No affidavit in reply has been filed by Defendant Nos. 8, 11 and 12.
6. In sofar as the case of the Defendant Nos. 1 to 4, 9, 10 and 14 is concerned, it was sought to be urged on their behalf by the learned counsel that (i) the Plaintiff has sufficient security to protect its dues against the principal borrower since pursuant to a notice which was issued in a related matter, the Unit has been taken over by the Plaintiff; (ii) no details have been furnished in the Plaint as regards when the loan was disbursed to the principal borrower; and (iii) the claim for interest is not within the frame of a Summary Suit.
7. Having considered these defences, I am of the view that there is no substance in the defences. The liability of the guarantor Is, under Section 128 of the Indian Contract Act, 1872, co-extensive with the liability of the principal borrower. The material terms of the Guarantee have already been adverted to in the earlier part of this order. The Summary Suit which has been instituted on the basis of the guarantee is clearly maintainable and the guarantors have bound themselves to meet the amounts in default on account of the loan which has been advanced by the Plaintiff to the principal borrower. The Plaintiff has instituted the present suit solely and exclusively on the basis of the guarantee executed by the guarantors who are the Defendants to these proceedings. The Plaintiff was also the secured creditor of the principal borrower in respect of certain other loans which were advanced to the borrower but, which do not form the subject matter of these proceedings. In the present suit, the Plaintiff is in the position of the unsecured creditor by whom a loan was advanced against a DemandPromissory Note and a guarantee executed by the Defendants. This was a short term bridge loan in the amount of Rs. 19 lakhs which was advanced to the principal borrower. In the circumstances, there is no substance in the defence that the Plaintiff is in the possession of adequate security to secure its dues. In any event, the guarantors cannot be heard to say that a creditor in the position of the Plaintiff must first await the realisation of the securities furnished by the principal borrower before steps can be taken against the guarantors.
8. In sofar as the second defence relating to the details of the disbursement is concerned, the Plaintiff has stated that the loan in the amount of Rs. 19 lakhs was disbursed and that no interest has been paid to the plaintiff. The payment of interest on the loan has been in default. The Plaintiff has not been paid either the principal amount of loan or the interest due. In sofar as the claim for interest is concerned, the plaintiff is entitled besides interest at the rate of 20% per annum, to additional interest at the additional rate of 2.5% per annum on the amount of interest in default. That has been duly claimed in the particulars of claim.
9. In my view, there is absolutely no merit in the defence which is illusory and sham. However, with a view to grant to the Defendants an opportunity to defend the suit, I am of the view that conditional leave should be granted. Accordingly, Defendant Nos. 1 to 4, 9, 10 and 14 are granted conditional leave to defend the suit, subject to their depositing an amount of Rs. 19 lakhs in this Court within a period of 16 weeks from today.
10. On such deposit, the suit against them be transferred to the list of Commercial Causes. Defendant Nos. 1 to 4, 9, 10 and 14 shall file their Written Statement within 8 weeks thereafter. Inspection and discovery will be completed within 8 weeks thereafter.
11. In the event the amounts are deposited as aforesaid, the Prothonotary & Senior Master to initially deposit the said amount in a Nationalized Bank, for a period of one year and thereafter, for equal successive periods, till the disposal of the suit.
12. On failure to deposit the aforesaid amount, liberty to the Plaintiffs to apply for further orders.
13. In sofar as Defendant Nos. 8, 11 and 12 are concerned, it is common ground between the learned Counsel that no affidavit in reply has been filed on their behalf. The learned Counsel appearing on behalf of the Plaintiff undertakes to file an affidavit of service in sofar as Defendant Nos. 8, 11 and 12 are concerned within one week. In the circumstances, there being no defence to the suit, the suit is decreed as against Defendant Nos. 8,11 and 12 in terms of prayer clauses (a) and (b). The Plaintiff will be entitled to interest at the rate of 20% per annum from the institution of the suit until payment of realisation and to the costs of the suit.
14. In sofar as Defendant Nos. 6 and 7 are concerned, the learned Counsel appearing on behalf of the Plaintiff fairly states that their defence stands on a different footing since they have denied the execution of the guarantee and have filed a detailed affidavit setting out the reasons for the submission. In these circumstances, it will be in the interests of justice to grant unconditional leave to Defendant Nos. 6 and 7 to defend the suit. The learned Counsel appearing on behalf of the Plaintiff states that no detailed reasons need be recorded by the Court for granting unconditional leave toDefendant Nos. 6 and 7. Suit against Defendant Nos. 6 and 7 be transferred to the list of Commercial Causes. Defendant Nos. 6 and 7 shall file the Written Statement within 8 weeks. Inspection and discovery will be completed within 8 weeks thereafter.
15. Summons for Judgment is disposed of in the aforesaid terms. No costs.