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TMI Blog2019 (8) TMI 1866X X X X Extracts X X X X X X X X Extracts X X X X ..... y and Bankruptcy Code, 2016 has commenced, insofar as the Defendant No.1 is concerned, the suit will remain stayed. However, insofar as Defendant No. 2 is concerned, the suit shall proceed. Upon the end of the moratorium period, liberty is given to the Plaintiff to revive the suit qua Defendant No.1, depending upon the outcome of the proceedings in the NCLT. 3. I.A. is disposed of." 2. Defendant No.2 had filed I.A. No.13840/2018 seeking leave to defend. The same was filed with condonation of delay in re-filing being I.A. No.13841/2018. Delay in re-filing of the said application is condoned. I.A. is disposed of. 3. Submissions were heard on the application for leave to defend. 4. The case of the Plaintiff is that the Plaintiff is a Non-banking Finance Company (hereinafter "NBFC"). Defendant No.1 is, inter alia, engaged in the business of manufacturing of wires, TMT bars and steel. It had made supplies to various clients, who were the approved debtors. Defendant No.1 approached the Plaintiff for grant of domestic factoring facility (hereinafter "facility"). Defendant No.2 is a director of Defendant No.1. The facility was sanctioned by the Plaintiff on 30th December, 2009. An a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Defendant No.2 also executed undertakings on behalf of Defendant No.1 whereby cheques for a sum of Rs.10 crores were also issued and an undertaking was given to deposit all receivables in an Escrow account with HDFC Bank. 9. Defendant No.1 defaulted in its obligations and, accordingly, Plaintiff invoked the guarantee against Defendant No.2 vide notice dated 25th May, 2016. Along with the said notice, a complete statement of accounts was also annexed. 10. Defendant No.2 filed his leave to defend raising various pleas, which are as under: 1) That the suit is barred by limitation. 2) That the suit under Order XXXVII CPC not being for a liquidated sum is not maintainable. 3) Defendant No.2 has no liability to pay and is entitled to unconditional leave to defend. 4) The main borrower i.e. Defendant No.1 is facing insolvency proceedings under the IBC and there is a moratorium operating. 5) That a complaint under Section 138 of the Negotiable Instruments Act, 1888 has also been filed. 11. The submission of Mr. Tandon, ld. counsel for Defendant No.2 is that the two earlier judgments of this Court in IFCI Factors Ltd. v. Maven Industries Ltd. & Anr., 2015 (255) DLT 32 and IF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in IFCI Factors Ltd. v. Vasudev Rao & Anr. (Supra) on the facts. Factoring services - Concept 13. In the 1980s, internationally, it was noticed, that small and medium scale businesses which used to supply goods and services to bigger enterprises were facing several difficulties due to belated recovery or nonrecovery of dues from their customers. This used to result in clogging up their capital and left lesser money in circulation for them. In order to better the liquidity of such businesses the concept of `Factoring' was formalised in the UNIDROIT Convention on International Factoring, adopted on 28th May 1988. This Convention defined a `factoring contract' as under: "Article 1 ... 2. For the purposes of this Convention, "factoring contract" means a contract concluded between one party (the supplier) and another party (the factor) pursuant to which: (a) the supplier may or will assign to the factor receivables arising from contracts of sale of goods made between the supplier and its customers (debtors) other than those for the sale of goods bought primarily for their personal, family or household use; (b) the factor is to perform at least two of the following fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s" and "commission agent" shall have the meanings assigned to them respectively under clause (d) and Explanation (ii) of clause (i) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952);" 17. In every factoring transaction, there are at least three parties and sometimes four if there is a surety or a guarantor. They are - * the assignor i.e., the principal borrower, * the assignee i.e., the factor, * the approved debtor i.e., the purchaser of the goods or services; and * optionally, a surety or a guarantor. A factoring agreement is slightly different from a bill discounting facility in the sense that in the case of bill discounting the principal borrower has the responsibility of collecting the bills and remitting the proceeds to the financing agency whereas in a factoring arrangement the responsibility of collecting the bills and remitting after deducting the charges and commission are that of the financing agency. Further the financing agency, in a bill discounting facility, does not offer any other additional services such as management of the account, maintenance of ledgers etc. 18. In the present case, there were three contractual relationships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receivables. The amendment in the CPC is not qualified in any manner as to against whom such a suit can be filed. Clearly, there is nothing in the wording of the amendment to raise any ambiguity that a suit is not maintainable against the assignor or guarantor and is only maintainable against the debtor. Section 16 of the FRA, 2011 provides broader rights to the assignee to sue the debtor. However, that does not mean that the suit cannot be filed against the assignor or guarantor. Since there is no privity of contract between the assignee and the debtor, the statute specifically confers a right to sue the debtor. Availability of the said remedy does not in any manner foreclose the remedy against the assignor and the guarantor. Recently in IFCI Factors Ltd. v. Gangotri Iron and Steel Co. Ltd., [C.S. (COMM) 1579/2016, Decided on January 17, 2018], a ld. Single Judge of this Court has, expressed some reservations as to against whom such a suit would be maintainable. However, on a perusal of the statement of objects and reasons, the notes on clauses and the amendment to the CPC, as also the purpose behind the modification, it is clear that the suit is maintainable by the assignee of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly an ascertainable and not an unascertainable sum. The facts of IFCI Factors Ltd. v. Maven Industries Ltd. & Anr. (Supra) and IFCI Factors Ltd. v. Vasudev Rao & Anr. (Supra) are clearly distinguishable. IFCI Factors Ltd. v. Maven Industries Ltd. & Anr. (Supra), was based on a statement of account, which was required to be proved in order for the amount due to be arrived at. This is clear from a reading of paragraph 9 of the judgment wherein various sums were disbursed. The Defendants had made several payments and thereafter the suit was filed for a sum of Rs.10.45 crores. In the said judgment, the specific amendment, which was brought about in the CPC by FRA, 2011 is not brought to the notice of the Court. 24. Insofar as the ld. Division Bench judgment in IFCI Factors Ltd. v. Vasudev Rao & Anr. (Supra) is concerned, in the said case, the Court came to the conclusion that the Plaintiff had failed to plead that the suit was for a liquidated demand and even the statement of account was not acknowledged by the Defendants. 25. A reading of FRA, 2011 and the provisions therein clearly shows that the Legislature was conscious of the fact that the factor would be entitled to vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated rights relating thereto in trust for the Factor. (2) Upon any receivable vesting in the Factor under sub-clause (1) there shall also automatically vest in the Factor all the associated rights in relation to such receivable. (3) The Client shall at the request of the Factor and at the Client's expense execute a formal written assignment to the Factor of the receivables and associated rights referred to in sub-clause (1) and (2) and deliver to the Factor any instrument or security included therein with any necessary endorsement or other signature. (4) The Client hereby irrevocably and unconditionally agrees that in the event of termination of this Agreement, if the Factor is yet to recover any dues from the Debtor/Client, the Client shall continue to assign to the Factor all future Debts and Receivables that may arise till such time as the Factor recovers his entire dues." 29. The purchase price of each of the existing receivables and future receivables was payable by Defendant No. 1 to the Plaintiff. Defendant No.1's Debt Purchase Account was also to be maintained by the Plaintiff. Upon receipt of the receivables, the pre-payment was to be made by the Plaintiff. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. (2) Where the management of the sick industrial company is taken over or changed in pursuance of any scheme sanctioned under section 18, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law- (a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; (b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board. (3) Where an inquiry under section 16 is pending or any scheme refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded." 33. The Plaintiff was therefore entitled to exclude the period between 7th November, 2012 till 15th December, 2016, in calculating the limitation period for institution of the present suit. As the suit was instituted on 9th March, 2018, the Plaintiff is well within the three years' limitation period prescribed. 34. Further, it is well settled that filing of a complaint under S.138 of the Negotiable Instruments Act, 1888 does not bar the filing of a civil suit for recovery in respect of amounts due and payable. This is settled in D. Purushotama Reddy & Anr. v. K. Sateesh, (2008) SCC 8 505, the relevant paragraph of which is extracted below: "9. A suit for recovery of money due from a borrower indisputably is maintainable at the instance of the creditor. It is furthermore beyond any doubt or dispute that for the same cause of action a complaint petition under terms of Section 138 of the Act would also be maintainable." 35. In the case of IDBI Trusteeship Services Ltd. v. Hubtown Ltd., (2017) 1 SCC 568, the Supreme Court has held as under: "17. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt." 36. The entire purpose of FRA, 2011 and the amendment to the CPC would be defeated, if lenders like the Plaintiff are not given the benefit of summary procedure. The suit under Order XXXVII CPC is within limitation and is maintainable as it is for an ascertainable and a liquidated sum. The amount for which recovery is sought is Rs. 32,02,90,309.32 along with pendente lite and future interest at 13% p.a. The liability of Defendant No.2, under the Guarantee is a sum of Rs. 10 crores along with interest and other charges. The terms of the Guarantee are clear that the liability is independent of the Principal borrower. None of the defences or grounds raised are either tenable, nor is evidence required to be recorded. The Factoring agreement is admitted, the execution of guarantee is admitted and the money disbursed by the Plaintiff is also admitted. The issuance of cheques for a sum of Rs.10 crores by Defendant No. 1 is also admitted. In the facts and circumstances of the present case, Defendant No.2 would not be entitled to any leave to defend insofar as the sum of Rs. 10 crores, which is a liquidated sum as per the guarantee, is concerned. Insofar as any other charges or expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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