TMI Blog2019 (8) TMI 1866X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 expenses are concerned, the Plaintiff is free to file its claims before the NCLT against Defendant no.1, the principal borrower. Application disposed off. - CS (COMM) 752/2018 - - - Dated:- 1-8-2019 - Justice Prathiba M. Singh For the Plaintiff: Mr. Anupam Srivastava and Mr. Dhairya Gupta, Advocates with Mr. Lalit Narayan Joshi, AR of Plaintiff. For the Defendants : Mr. Dileep Tandon and Ms. Neha T. Phookan, Advs. for D-2. JUDGMENT PRATHIBA M. SINGH, J. I.A. No. 13840/2018 (seeking leave to defend) I.A. No.13841/2018 (for delay) 1. Plaintiff IFCI Factors Limited has filed the present suit under Order XXXVII CPC against the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges and other expenses. Sometime in 2011, further approved debtors were added. The Plaintiff had disbursed 80% of the invoice value of the various approved debtors. A total sum of Rs.10,00,07,323/- was disbursed by the Plaintiff, to the Defendant No.1. Under the agreement, apart from the amounts disbursed, the charges payable were as under: 6. Discount Charges (Clause 7) 13.00% p.a. 7. Handling charges (Clause 7) 0.15 % of the total amount of invoices factored on approved Debtors, payable monthly (with a minimum of Rs. 250.00 per invoice). + Service Tax as applicable. 8. Limit Set Up Charges (Clause 7) (Non- Refundable) 0.750 % of the prepayment limit + Service Tax as applicable. 9. Other Charges (Clause 7) (a) As applicable, from time to time. (b) Penal Charges @ 4 % over the discount charge, referred to in Clause No. 6 above, will be levied in case the account is irregular or payments are not made when demanded. 6. Notices of assignment of debts were als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assignors. Various provisions of the Factoring Regulation Act, 2011 ( hereinafter FRA, 2011 ) are referred to, to submit that the suit raises various triable issues as a recovery suit under Order XXXVII, Rule 1 (2)(b)(iv) CPC is only maintainable against the Debtor. It is submitted that as per the judgment of the Supreme Court in GE Capital Services India v. Mayflower Healthcare Pvt. Ltd., [CS(OS)2859/2011, Decided on 31 st August, 2012] , entries would have to be proved under Section 34 of the Evidence Act, 1872 for the balance at the foot of the account to be arrived at and hence a suit, such as the present suit, claiming an amount which is only the balance due at the foot of the account is not maintainable under Order XXXVII CPC. 12. On the other hand, ld. counsel for the Plaintiff, Mr. Srivastava, has submitted that the agreement and the guarantee are admitted by the Defendants, including Defendant No.2. He relies upon two judgments, namely M/s Housing Development Finance Corporation Ltd. v. Vikas Garg, [CS (OS) 217/2011, Decided on May 20, 2014] and Bijender Chauhan v. M/s Financial Eyes (India) Ltd., ILR (2013) IV DELHI 3234 to argue that a suit bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic transactions. 15. In India, the Factoring Regulation Act, 2011 (hereinafter, F RA, 2011 ) is a legislation, which has been introduced to regulate a factoring facility availed of by a small scale or an ancillary industrial undertaking. The legislation was enacted in the background of various reports, which recommended the development of factoring services for small scale industries in order to effectively trace the problem of liquidity for micro or small industries. It was in this background that the central government introduced a bill titled The Regulati on of Factor (Assignment of Receivables) Bill, 2011 . The said bill was thereafter enacted as the FRA, 2011. 16. A factoring agreement is an agreement under which the receivables are assigned and the collection of amounts is contracted out, thereby reducing the cost, inconvenience and manpower employed in recovering dues, maintenance of accounts related to the same, management of the risks associated with the debts etc., The FRA 2011 defines a factoring business as under: (j) factoring business means the business of acquisition of receivables of assignor by accepting assignment of such receivables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Plaintiff to disburse up to 80% of Defendant No. 1 s invoice value raised on the approved debtors, in exchange for Defendant No. 1 s receivables, interest and other charges in terms of the schedule to the agreement. 3. Contract between Plaintiff and Defendant No. 2: Contract of personal guarantee by Defendant No. 2 to the Plaintiff for pre-payments made to Defendant No. 1. A diagrammatic representation of the factoring arrangement is set out below: 19. One of the objects of the said Act was to introduce an amendment in the CPC to make available the benefit of summary procedure for recovery of debts. Accordingly, CPC came to be amended and sub-section (iv) was inserted in Order XXXVII, Rule 1 (2) (b) by the FRA, 2011. Section 35 of the FRA, 2011 reads as under: 35. The enactments specified in the Schedule shall be amended in the manner specified therein. The amendment introduced in the CPC, reads as under: In Order XXXVII, in rule 1, in sub rule (2), in clause (b), after sub clause (iii), the following sub-clause shall be inserted, namely : (iv) suit for recovery of receivables instituted by any assignee of a receivable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14 (1) does not apply to a surety or guarantor. The said section has been amended in 2011 with retrospective effect from 6th June, 2018, which reads as under: 14. (3) The provisions of sub-section (1) shall not apply to (b) a surety in a contract of guarantee to a corporate debtor. 22. Thus, the moratorium against Defendant No.1 does not extend the benefit of the moratorium to Defendant No.2. It is also a well settled position in law that the guarantee is an independent contract from the main factoring agreement. The guarantee provided in the present case clearly states that the guarantee is distinct from the main factoring agreement. The said clauses read as under: 2. That this guarantee shall be independent of the said Agreement and I/we shall be independently liable to you under this guarantee, notwithstanding any of the provisions of the said Agreement or any other contract or arrangement between you and the Obligant or any other person or persons. 7. That my/our liability under this guarantee shall not be affected by any infirmity or irregularity on the part of the Obligant to enter into the said Agreement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or part of or undivided interest in any right of any person under a contract including an international contract where either the assignor or the debtor or the assignee is situated or established in a State outside India; to payment of a monetary sum whether such right is existing, future, accruing, conditional or contingent arising from and includes, any arrangement requiring payment of toll or any other sum, by whatever name called, for the use of any infrastructure facility or services ; 26. In fact, the statement of objects and reasons also specifically mentions that one of the objects of this legislation is to provide for the process of assessment of receivables. The CPC having been specifically amended to enable summary procedures for recovery of `receivables , the argument that the suit is not maintainable as it is not an ascertained sum or a liquidated sum, would not be tenable. If such an argument is accepted, it would run contrary to the intent and purpose of the amendment itself. 27. The amount, thus, payable by the Defendants is clearly an ascertainable sum. From the said amount, any amount that has been paid would have to be given credit to. 28. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idation, the prepayment obligation remained suspended and at that stage, the Plaintiff could terminate the agreement. 30. Defendant No.1 had filed a reference before the Board of Industrial and Financial Reconstruction (hereinafter, BIF ‟) on 7th November, 2012. The BIFR dissolved with effect from 15th December, 2016 and the enquiry/reference against Defendant No. 1 abated. Thereafter a moratorium was declared by the NCLT on 8th January, 2018. While the BIFR proceedings were pending, the guarantee of Defendant No. 2 was invoked by the Plaintiff on 25th May, 2016 and thereafter the present suit was filed on 9th March, 2018. 31. Under Clause 4(1) of the factoring agreement, the receivables could either be existing receivables on the date of agreement, i.e., on 31st December, 2009, or future receivables. The various invoices which have been confirmed by the approved debtors are of August, 2011. The transactions continued till November, 2011. The reference was filed on 7th November, 2012 before the BIFR, which was abated only on 15th December, 2016. When insolvency proceedings were pending, all pre-payment stopped. 32. Under the extant Sick Industrial Companies (Speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board: Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate. (4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law, the memorandum and articles of association of the company or any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rers v. Basic Equipment Corpn., (1976) 4 SCC 687] will now stand superseded, given the amendment of Order 37 Rule 3 and the binding decision of four Judges in Milkhiram case [Milkhiram (India) (P) Ltd. v. Chamanlal Bros., AIR 1965 SC 1698: (1966) 68 Bom LR 36], as follows: 17.1. If the defendant satisfies the court that he has a substantial defence, that is, a defence that is likely to succeed, the plaintiff is not entitled to leave to sign judgment, and the defendant is entitled to unconditional leave to defend the suit. 17.2. If the defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend. 17.3. Even if the defendant raises triable issues, if a doubt is left with the trial Judge about the defendant's good faith, or the genuineness of the triable issues, the trial Judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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