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High Court Of Delhi
STATE BANK OF INDIA - Appellant
Versus
AVON AUTOMOTIVE COMPONENTS PRIVATE LIMITED - Respondent
Suit 97 of 1992
Decided On : 08/30/1999
BANKING - RECOVERY OF DEBT - CASH CREDIT FACILITY - GUARANTEE - LIABILITY OF GUARANTORS - INTERPRETATION OF DOCUMENTS - COMPANIES ACT, 1956 - SECTION 446 - TRANSFER OF SUIT FROM COMPANY COURT TO HIGH COURT - EX PARTE DECREE - EVIDENCE ACT, 1872 - SECTION 65B - AFFIDAVITS OF BANK OFFICERS - SUFFICIENCY OF EVIDENCE.
Fact of the Case:
State Bank of India filed a suit against Avon Automotive Components Pvt. Ltd. and its directors for recovery of dues under cash credit facilities granted to the company. The company and its directors had executed various documents, including demand promissory notes, agreements of cash credit, and agreements of guarantee. The company defaulted on its payments, and the bank filed a suit for recovery of the outstanding amount.
Finding of the Court:
The court found that the defendants had executed the necessary documents and availed of the credit facilities. The court also found that the defendants had acknowledged their liability on various occasions through balance confirmations and balance sheets. The court held that the plaintiff bank was entitled to a decree for recovery of the outstanding amount, along with interest.
Issues: 1. Whether the defendants were liable to repay the outstanding amount under the cash credit facilities? 2. Whether the plaintiff bank was entitled to a decree for recovery of the outstanding amount, along with interest?
Ratio Decidendi: The court held that the defendants were liable to repay the outstanding amount under the cash credit facilities based on the following legal principles: 1. Interpretation of Documents: The court interpreted the various documents executed by the defendants, including demand promissory notes, agreements of cash credit, and agreements of guarantee, to determine the terms and conditions of the credit facilities and the liability of the defendants. 2. Companies Act, 1956 - Section 446: The court relied on Section 446 of the Companies Act, 1956, which provides for the transfer of suits from a company court to a high court in certain circumstances. In this case, the suit was transferred from the Company Court to the High Court due to the appointment of an Official Liquidator for the defendant company. 3. Ex Parte Decree: The court granted an ex parte decree against the defendants as they failed to appear before the court despite being served with notice of the suit. 4. Evidence Act, 1872 - Section 65B: The court relied on Section 65B of the Evidence Act, 1872, which allows for the admission of affidavits as evidence in certain circumstances. In this case, the plaintiff bank filed affidavits of its officers to prove the execution of documents, availing of credit facilities, and acknowledgement of liability by the defendants.
Final Decision: The court decreed the suit in favor of the plaintiff bank and ordered the defendants to pay the outstanding amount, along with interest. The court also directed the sale of the hypothecated machinery and other properties of the defendants to satisfy the decree.
( 1 ) THE plaintiff State Bank of India filed the above suit for recovery of Rs. 2,17,037. 48 in the Court of the Senior Sub-Judge, Faridabad. The defendant No. 1, Avon Automotive Components Pvt. Ltd. and Ors. is a Company incorporated under the Companies Act, 1956. The defendant No. 2 Shri S. K. Budhiraja is its Managing Director. In October, 1974 the defendant No. 1 as borrower through the defendant No. 2 and the other Director Sh. Pritpal Singh Arora (Sh. P. P. Arora) approached the plaintiff for taking credit facilities. The plaintiff granted them Cash Credit (Bills) facility to the extent of Rs. 50,000. 00 for which the defendants 1,2 and Sh. P. P. Arora executed various documents viz. Demand Promissory Note, Take Delivery Letter, Agreement of Cash Credit, Agreement of Guarantee etc. On the strength of the necessary documents, the defendant No. 1 availed the said credit facility. The defendant No. 7, Raunaq Singh had stood surety from the repayment of the due amount of the term loan for defendant No. 1 and had executed an Agreement of Guarantee dated 14. 11. 1973. Accordingly his liability to pay the due amount of the term loan is joint as well as several alongwith defendant No. 1.
( 2 ) IN September, 1975, the defendants 1 and 2 again requested the plaintiff to grant them another credit facility of Rs. 65,000. 00 against hypothecation of their stocks, raw material, finished goods etc. The plaintiff accepted the request and granted to the defendant No. I another Cash Credit Facility (Hypothecation) of Rs. 65,000. 00. For this facility also, on 4. 9. 1975, the defendant Nos. 1,2 and Sh. P. P. Arora executed the necessary documents viz. Demand Promissory Note, Delivery Letter, Agreement of Hypothecation, Agreement of Guarantees etc. For both the facilities, the defendant No. 2 and Sh. P. P. Arora stood guarantee for the repayment of all outstanding of defendant No. 1 and rendered themselves personally liable in case of default by defendant No. 1. Their guarantee is a continuing guarantee and their liability is co-extensive with that of defendant No. 1.
( 3 ) THAT defendant No. 1 availed of both credit facilities as per true copy of statement of account duly certified under Bankers Books Evidence Act, which have been filed.
( 4 ) THE defendants executed Balance confirmation letters and Revival letters on various dates i. e. 8. 10. 1977, 15. 6. 1978,9. 3. 1979,31. 12. 1979, 15. 2. 1980, 1. 10. 1980, 8. 6. 1981, 10. 9. 1983, and 31. 12. 1983. The suit was filed on 10. 4. 1986 and is within time.
( 5 ) SH. P. P. Arora who was the Director of defendant No. 1 died on 25. 12. 1982 leaving behind the defendant Nos. 3 and 4 as his heirs and legal representatives. They have inherited the estate of Sh. P. P. Arora and his shares of the defendant No. 1 were also transferred in their names. The defendant Nos. 5 and 6 are also additional Directors of defendant No. 1 and are liable to pay their dues to the plaintiff.
( 6 ) DEFENDANT No. 1 in its Balance Sheet as of 30. 9. 1982 (Ex. P. 38) and 30. 9. 1983 (Ex. P. 39) has admitted its liability towards the plaintiff bank. These documents alongwith other suit documents have been filed in this Hon ble Court.
( 7 ) DURING the pendency of suit at Faridabad, the learned Company Judge of this Court appointed Official Liquidator of defendant No. I Company. Hence under Section 446 of Companies Act, the learned Company Court vide order dated September 9, 1988 directed that the prevent suit alongwith another one pending against the Company and its Directors be transferred to this Court and tried. The suit has accordingly come to trial to this Court.
( 8 ) NOTICE of the suit was issued by this Court and was served upon the defendants and no one appeared on their behalf. Vide order dated 24. 11. 1995 this Court proceeded ex parte against the defendants 1 to 6. Of and on the respondent No. 7 has been represented by Counsel. However, none appeared for respondent No. 7 when this case was calle
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