T.A. No. 136 of 1998. Case: Bank of Madura Ltd. Vs State of Tamil Nadu and Ors.. Chennai Debt Recovery Tribunals

Case NumberT.A. No. 136 of 1998
CounselFor Appellant: Ar.L. Sundaresan and D.P. Ravindran, Advs. and For Respondents: Subalakshmi, Adv,
JudgesHarihar P. Chaturvedi, J. (Presiding Officer)
IssueBanking Regulation Act, 1949 - Sections 21(2) and 35A; Companies Act - Section 394(1); Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Section 22
CitationI (2004) BC 69
Judgement DateJuly 31, 2002
CourtChennai Debt Recovery Tribunals


P. Chaturvedi, Presiding Officer (Judge)

  1. The applicant Bank, 'Bank of Madura Limited' is a Banking Company incorporated under the Indian Companies Act, having its Registered Office at Madurai and one of its branches amongst other places at 758, Anna Salai, Chennai 600 002, represented by its General Manager. The applicant Bank filed a suit in C.S. No. 1783/1993 on the file of High Court, Chennai. Since the claim exceeds Rs. 10,00,000/-, the above suit was transferred to this Tribunal and renumbered as TA No. 136/ 1998. In this TA, the applicant Bank claims for a recovery of Rs. 1,58,92,305.15 p. against D1 to D3 jointly and severally together with subsequent interest at the contractual rate of 11% per annum with quarterly rests, on the said sum together with interest tax @ 3% from the date of presentation of the plaint till the date of realisation. The applicant Bank also prays for any other relief(s) which are necessary for rendering justice.

  2. The brief facts raising to this T.A. are that in the year 1967, Sri Saradha Mills Ltd., Pothanur, Coimbatore District requested the applicant Bank to advance to a loan of Rs. 15.00 lakhs stating that the Government of Tamil Nadu had offered to guarantee repayment of the loan to the applicant Bank. The Government of Tamil Nadu initially offered to guarantee the loan to the extent of Rs. 4,80,000/- and subsequently issued a Government Order in G.O.Ms. 741 (Industries) Ex. A2) dated 24.2.68 guaranteeing the loan to the tune of Rs. 15.00 lakhs, for which the Government executed a guarantee deed (Ex. A1). Pursuant to the same, Sri Saradha Mills Limited availed the loan to the tune of Rs. 15.00 lakhs and executed Promissory Note, Hypothecation Agreement in respect of movables (Ex. A3) and also deposited Title Deeds (Ex. A4) belonging to the Mills by way of equitable mortgage. As a Principal Borrower, Sri Saradha Mills Limited was not in a position to repay the loan instalments as agreed, hence the applicant Bank demanded payment from the Government in terms of the deed of guarantee. In the meantime, the principal borrower, Sri Saradha Mills Limited declared as sick and initially taken over by the Tamil Nadu Textile Corporation and subsequently by National Textile Corporation as per Acquisition Act. As the Banks claim related to pre-take over liability, the Commissioner of Payments could not make any payment on account of paucity of funds. The Chairman of the applicant Bank sent a Registered Letter (Ex. A5) and also issued a Lawyer's Notice (Ex. A6) demanding payment to the Government. As no payment was made, the Bank filed a suit in OS No. 255.76 in the Sub-Court, Coimbatore against the respondents for recovery of the amounts due. The same was withdrawn later on due to the Government assurance to repay the amount due under the guarantee together with 50% of suit cost. Since the Government did not pay the amount, the applicant Bank filed a writ petition W.P. No. 716/81 in the High Court of Madras (Ex. A7) and the same was allowed. Against this, the respondents preferred an appeal in W.A. No. 2228/87 before the Division Bench of the High Court and the same was dismissed by the Division Bench on 3.8.89 (Ex. A8). Thereafter, the D2 wrote a letter (Ex. A10) to the applicant Bank to furnish the details of the loan availed, repayment made, etc. by Sri Saradha Mills Limited. The same was furnished by the applicant Bank (Ex. A11) on 7.10.89 to the D2. The D2 disputed the calculation of interest at compounded rate and paid only a sum of Rs. 46,56,874/- under receipt dated 2.1.89 (Ex. A12). Though the applicant Bank received the amount with protest, the same was communicated on 7.11.89 (Ex. A13) to the D2. Even according to the calculation made by the Government, a sum of Rs. 1.22 lakhs was omitted and the same was acknowledged by the defendant under G.O.Ms. No. 122 Handlooms, Handicrafts and Textiles Department dated 30.3.90 (Ex. A14). The said sum of Rs. 1.22 lakhs was paid by the defendants under receipt dated 16.10.90 (Ex. A17). The correspondence between the applicant Bank and the Government (Ex. A16) and to the D2 are also placed (Ex. A16). After receipt of the Rs. 1.22 lakhs, the applicant Bank wrote another letter dated 21.11.90 to the defendants to pay the balance amount. As there was no response, the applicant Bank issued a notice to the defendants (Ex. A19) on 18.8.93. On receipt of the said notice, the Under Secretary to the Government of Tamil Nadu vide letter dated 24.8.93 (received by the plaintiff Advocate) stated that the notice was circulated to D3 for being dealt with. As the D3 failed to comply the same, hence this suit was filed. The main defence of the defendants is that the liability of the State Government under the guarantee would arise only after exhausting the other remedies by the Bank and when these become futile. The said contention has been negatived by the Hon'ble High Court of Madras in W.P. No. 761/1981, W.A. No. 228 of 1987. The further contention of the applicant Bank is that the total claim of Rs. 1,58,92,305.15 p. is still due after giving due deductions to the payment of Rs. 46,56,874/- and Rs. 1.22 lakhs received from the State Government (defendant), hence the applicant Bank is entitled to charge interest as per agreement. The applicant Bank further states that the defendant as guarantor, are liable to pay the suit amount as their liability is co-extensive. The suit was filed on 10.11.93 within 3 years from the date of last payment i. e. 16.11.90 made by the defendant, the State Government of Tamil Nadu, hence they prayed for issue of recovery certificate and any such orders for rendering justice.

  3. The State Government of Tamil Nadu through the D2, in this matter has filed a written statement in High Court of Madras and alleged that the suit as framed is not maintainable in law. The D2 further alleged that M/s. Saradha Mills Ltd., Coimbatore was originally started in 1934 by Sencottach Brother and by M/s. Gocul Das and G. Venkataswamy in 1955 and by M/s. Thiagaraja Chetty and Sons in 1960 and then by M/s. Saradha Mills with carry forward loss and liability. Under the new management, it earned a net profit during 1960-64. Subsequently, due to various reasons, the company lost the ground gained and applied for financial assistance. With a view to assist the sick unit, the Government of Tamil Nadu by its order dated 3.8.67 offered to guarantee to the Commercial Bank, which came forward to advance loans to this sick unit. The applicant Bank came forward to sanction a loan of Rs. 15.00 lakhs under the guarantee of State Government and conditions set forth that the applicant Bank would invoke the Government guarantee as a last resort after exhausting all means available to them. Further, the equitable mortgage of the assets of the mills be enforced before seeking to invoke the guarantee given by the Government. They further stated that the agreement between the Bank and the mill including the terms of mortgage should be only with the prior approval of the Government. Further, it is stated that the personal security of Shri Karumuthu Thiagarajan Chettiar with regard to repayment of the instalment and working of the mill also be obtained for the proposed loan. The Government had offered its guarantee only on the above said conditions. M/s. Saradha Mills gave an undertaking on 27.2.68 to abide by the terms and conditions contained in Government order. Further, they alleged by mentioning one of such conditions that in the event of the death of the person, who had given his personal guarantee, the death would not operate as a revocation of the guarantee as regards future disbursement relating to the loan guarantee until the heirs of the deceased give notices of revocation. Further, as per R.C. No. 17593/77 B3 dated 14.7.77 of the applicant Bank to the Government, the Government guarantee was of a residuary one and as such the Bank has to exhaust all the sources to recover the dues from the Mill before invoking the guarantee given by them. Further, the Bank was informed not to file any suit against the Government. The D2 further disputed over the amount due and also the rate of interest charged by the applicant Bank. Further the Government and the Bank filed a joint memo as settled out of Court and the Government agreed to bear 50% of the Court-fee and the same was disbursed on 30.3.79. As the Bank could not get any amount from the Commissioner of Payment under Category IV because the balance money available with Commissioner of Payment was not adequate to satisfy fully and under the Clause XIII of the guarantee, the guarantee shall be invoked only as a last resort. The D2 further alleged that the Bank had obtained a mortgage of the properties, machineries and the land of mills for the amount advanced but the Bank did not take any steps as per the deed of guarantee. Apart from this, Thiru Karumuthu Thiagaraja Chettiar also stood as guarantor, but his assets were not taken over by the Bank when he was alive. As it is further submitted that the various clauses in the guarantee deed become unenforceable, therefore, the defendants prayed for dismissal of the present suit. They further alleged that as the suit is filed beyond 3 years of the date of guarantee, therefore, it is time barred and not maintainable in this Court, therefore, they prayed for dismissal of the suit with cost.

  4. In counter, the applicant Bank further contended that State Government's this stand that the liability of the Government under the guarantee would arise only after exhausting all the remedies against the Principal Debtor is not tenable in the eye of law as it has already been negatived by the High Court of Madras in W.P. 716/81 and W.A. 2228/87. The applicant Bank further alleged that a sum of Rs. 1,58,92,305.15 p. is still due even after giving credit to the sum of Rs. 46,57,874/- and Rs. 1.22 lakhs paid by the State Government on 2.11.89 and 16.11.90...

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