2016 Supreme(SC) 892

SUPREME COURT OF INDIA
Kurian Joseph, R.F. Nariman, JJ.
IDBI TRUSTEESHIP SERVICES LTD. – APPELLANT
VERSUS
HUBTOWN LTD. – RESPONDENT
CIVIL APPEAL NO. 10860 of 2016 (ARISING OUT OF SLP (CIVIL) NO.31439 OF 2015)
Decided On : 15-11-2016

IMPORTANT POINT
Principles for grant/refusal of grant of leave to defence stated.

Headnote:(a) Code of Civil Procedure, 1908 – Order XXXVII, Rule 3 r/w section 115 – Grant or refusal of leave to defend – Discretion of the trial Judge – Guiding principles thereof – In case defendant has a defence which is likely to succeed and raises triable issues, plaintiff is not entitled to leave to sign judgment, and defendant is entitled to unconditional leave to defend the suit – In case of doubt as to defendant's good faith, or genuineness of the triable issues or defence being plausible but improbable, trial judge may impose conditions both as to time or mode of trial as well as payment into court or furnishing security – In absence of substantial defence and/or genuine triable issues, or the defence being frivolous or vexatious, leave to defend shall be refused, and the plaintiff would be entitled to judgment forthwith – If the defendant due amount, leave to defend the suit shall not be granted unless the amount so admitted to be due is deposited by the defendant in court. (Para 18)

       AIR 1965 SC 1698; (2015) 10 SCC 521; (2006) 8 SCC 25; (2008) 14 SCC 457 – Relied upon

       (1962) 3 SCR 739; AIR 1949 Cal 479; (1976) 4 SCC 719; (1998) 5 SCC 354; (2007) 4 SCC 133; (2008) 4 SCC 246; (2009) 2 SCC 432; (2013) 14 SCC 606; (2015) 10 SCC 521 – Referred

       (1976) 4 SCC 687 – Distinguished

       (b) Code of Civil Procedure, 1908 – Order XXXVII, Rule 3 r/w section 115 – Grant or refusal of leave to defend – Instantly, sum of Rs. 418 crores paid by FMO by itself is not violative of FEMA regulations – Suit filed only on invocation of the unconditional Corporate Guarantee – Held, defendant has not raised a substantial defence – Further, Defendant's good faith and genuineness of such a triable issue doubtful – Defence falling in the realm of being `plausible but improbable' – Leave to defend may be granted conditionally – Leave to defend granted on the condition of it depositing the principal sum of Rs. 418 crores invested by FMO, or giving security for the said amount of Rs. 418 crores in the Bombay High Court, to the satisfaction of the Prothonotary and Senior Master, Bombay High Court within a period of three months. (Para 19, 20)

       

       Facts of the case:

       The present appeal arises out of a Summons for Judgment No. 39 of 2013 in a Summary Suit filed on the original side of the Bombay High Court, by the Petitioner, a debenture trustee, to enforce rights that arise out of a Corporate Guarantee executed by the Respondent-defendant.

       In 2009 and 2010, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. invested in certain equity shares and compulsorily convertible debentures of Vinca Developer Private Limited. As a result of the said investment, FMO currently holds (i) 10% of the equity of Vinca through Class A shares and is entitled to 10% of the voting rights and economic interest in Vinca by virtue thereof; and (ii) 3 CCDs in Vinca. Further, as on date, the Defendant owns 49% of the equity of Vinca through Class A shares and is entitled to 49% of the voting rights and economic interest in Vinca by virtue thereof. The remaining 41% Class A equity shares in Vinca are owned by the individual promoters of the Defendant, being Hemant Shah and Vyomesh Shah, which entitles them to 41% of the voting rights and economic interest in Vinca. Hemant Shah and Vyomesh Shah together also own 100% of Class B equity shares of Vinca, which carry with them collective voting rights and dividend entitlement not exceeding 0.01%. Upon conversion, the 3 CCDs in Vinca will entitle FMO to 99% of the equity of Vinca (by allotment of additional Class A shares), thereby entitling it to 99% of the voting and economic rights of Vinca. The said monies invested by FMO into Vinca were then used by Vinca to subscribe to certain optionally partially convertible debentures

       The OPCDs carry a variable running coupon and a back ended coupon to ensure an internal rate of return of 14.75% per annum.

       The proceeds obtained by Amazia and Rubix from the issue of the OPCD's to Vinca were to be applied towards projects which are compliant with Indian foreign direct investment law as applicable to townships, housing, built-up infrastructure and construction development projects, as provided more particularly under clause I, Part C, Schedule 7 of the Debenture Trust Deeds.

       In order to secure the said OPCDs, and to ensure the due and punctual payment by Amazia and Rubix of all dues to Vinca under the Debenture Guarantee Deeds, the Defendant has, inter alia vide the Corporate Guarantee Deed, dated 9th December, 2009, issued an unconditional, absolute and irrevocable corporate guarantee in favour of the Plaintiff for the benefit of Vinca.

       Defaults were committed by Amazia and Rubix under the said Debenture Trust Deeds.

       Plaintiff issued notices dated 2nd May, 2012 to Amazia and Rubix respectively, under Clause 33.1 of the Debenture Trust Deeds, for subsisting payment of interest on OPCDs as contemplated under Condition 7 of Schedule 3 of the Debenture Trust Deeds, setting out inter alia (i) the payment defaults subsisting as on the said date; (ii) the default by Amazia and Rubix in crediting the designated account with lease rental proceeds; and (iii) the failure to provide information, and breach of certain identified covenants. However, no response was forthcoming from Amazia and/or Rubix.

       The Plaintiff issued redemption notices to both Amazia and Rubix on 27th June, 2012.

       The Plaintiff issued a Demand Certificate for the enforcement of the Guarantee.

       The single Judge held that the Defendant has raised triable issues which require adjudication on further evidence at the time of final disposal of the suit.

       Finding of the Court:

       Defendant’s defence is `plausible but improbable'.

       Result: Appeal allowed.