Citation Codes

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Case Number

I.A NO. 4610/1996 & 2216/1997 IN SUIT NO. 1207/1996.

Attorney(S)

Mr. Harish Malhotra with Mr. Rajinder Aggarwal & Mr. Ashwani Kumar Sood, Advocates for Petitioner.
Mr. C.L Narasimham with Mr. B.M Rao, Advocate for Respondents.

Judges

Dr. M.K Sharma, J.

Acts

provisions of Section 41(b) of the Specific Relief Act.
section 41(b) of the Specific Relief Act.10.
Financial Institutions Act, 1993.
provision i.e Section 41(b)
Order Order 39 Rules 1
Order 39 Rule 4 CPC

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Smart Summary

Judgment Summary — Dr. M.K. Sharma, J.

Factual and Procedural Background

The plaintiff instituted the present suit seeking (a) a declaration that the plaintiff had paid the entire dues of the defendant under a one‑time settlement dated 31.3.1995 and (b) a permanent injunction restraining the defendants, their agents, employees and officers from revoking the one‑time settlement embodied in defendant No.1's letter dated 31.3.1995.

Background facts as set out in the opinion: pursuant to a loan request the defendants approved loans by a letter dated 1.1.1987 and the plaintiff availed a Rupee Term Loan and a Foreign Currency Loan. Charges on assets were created in favour of the lenders. The plaintiff became irregular in repayments and proposed a one‑time settlement (OTS). The defendants accepted the OTS in principle by letter dated 31.3.1995 setting out terms (including payment in four equal quarterly instalments commencing 30.6.1995, an interim payment of Rs.100 lakhs, interest provisions, and a clause permitting revocation of the arrangement on default).

The plaintiff says it has paid amounts due under the OTS (though some instalments were delayed); the defendants contend the plaintiff failed to adhere to the schedule and that substantial liabilities remain under the OTS and the foreign currency loan.

Procedurally, summons and notices were issued. On 1.10.1996 an interim order was made restraining the defendants from revoking the OTS until the next date. The defendants filed an application under Order 39 Rule 4 CPC seeking vacation of that interim order. The court dealt with the plaintiff's interim application (I.A. No. 4610/1996) and the defendants' application (I.A. No. 2216/1997).

Legal Issues Presented

Whether a court can grant an injunction restraining the defendants from revoking the one‑time settlement and thereby preventing them from instituting or prosecuting proceedings to determine and recover the alleged dues.
Whether the interim injunction granted on 1.10.1996 should be vacated in view of the defendants' contention that the plaintiff did not fully perform the OTS and that statutory or other bars operate against such relief.

Arguments of the Parties

Plaintiff's Arguments

The one‑time settlement dated 31.3.1995 has been satisfied; the plaintiffs have adhered to the payment schedule and have completed the payments due under that settlement, although some instalments were paid late.
By implication, the plaintiff relied on the interim injunction earlier granted to protect its asserted completed performance under the OTS.

Defendants' Arguments

The suit is not maintainable because of the bar contained in Section 18 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (as contended by the defendants in the opinion).
The plaintiff has not repaid the loan in full; liabilities remain under the OTS and the foreign currency loan; the defendants have the right under the OTS to revoke the arrangement on default and to proceed legally to recover dues.
The interim injunction prevents the defendants from instituting recovery proceedings and therefore ought to be vacated; the defendants seek vacation under Order 39 Rule 4 CPC.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Cotton Corporation of India Ltd. v. United Industrial Bank and others, AIR 1983 SC 1272	Held that ordinarily a prohibitory injunction cannot be granted to restrain a person from instituting or prosecuting any proceeding; a court is precluded by Section 41(b) of the Specific Relief Act from granting an injunction restraining institution/prosecution of proceedings except in limited circumstances.	The court relied on this authority to conclude that granting an injunction preventing the defendants from invoking the OTS revocation clause or instituting recovery proceedings would be prohibited by Section 41(b) of the Specific Relief Act, and hence the interim injunction could not stand.
Cofex Exports Ltd. v. Canara Bank, 1997 (2) Delhi Lawyer 559 (Division Bench)	Stated that taking of accounts and determining what is due and payable is an exercise that may be performed by the Tribunal (or appropriate forum) to satisfy natural justice before issuing a certificate under section 19(7) of the Act.	The court cited this decision to note that issues as to what is due can and should be determined by the appropriate forum if proceedings are instituted, and that the plaintiff would have the opportunity to raise its defence and contentions there.

Court's Reasoning and Analysis

The court framed the pivotal question as whether an injunction could be granted to prevent the defendants from exercising the revocation clause in the OTS and from taking steps to recover what they alleged to be outstanding dues.

The court noted the factual dispute: it was admitted that some instalments under the OTS were not paid within the stipulated time (though some were paid later), and the defendants asserted that substantial liabilities still remained, including in relation to the crystallized portion of the foreign currency loan.

The one‑time settlement expressly empowered the institutions to revoke the arrangement in case of failure to amortise dues in accordance with the arrangement within the envisaged period. The court held that to grant an injunction restraining the defendants from invoking that clause would be to prevent them from determining the actual dues payable and from instituting appropriate recovery proceedings.

The court relied on the statutory bar created by Section 41(b) of the Specific Relief Act as explained in Cotton Corporation of India Ltd. v. United Industrial Bank to conclude that a court is precluded from granting an injunction restraining a person from instituting or prosecuting proceedings in a court of co‑ordinate or superior jurisdiction. The court therefore treated the interim injunction as preventing the defendants from exercising their contractual and legal rights to determine and recover dues.

The court also referred to the Cofex Exports decision to observe that determination of dues (including taking of accounts) is an exercise for the appropriate forum; even if the plaintiff's assertion that nothing is due were accepted, the plaintiff could raise that defence in the appropriate forum if the defendants instituted proceedings.

Applying these principles to the present facts, the court concluded that it could not properly grant or continue a prohibitory injunction that would bar the defendants from instituting recovery proceedings or from determining dues under the OTS clause permitting revocation on default.

Holding and Implications

Core Ruling: The interim injunction dated 1.10.1996 is vacated; the plaintiff's application under Order 39 Rules 1 & 2 (I.A. No. 4610/1996) is dismissed; the defendants' application under Order 39 Rule 4 CPC (I.A. No. 2216/1997) is allowed.

Consequences and immediate implications:

The defendants are no longer restrained by the interim order from revoking the one‑time settlement in accordance with its terms or from instituting appropriate proceedings to determine and recover alleged dues.
The plaintiff remains free to raise its pleaded defenses (including that it has paid the dues under the OTS) in any appropriate forum if and when the defendants initiate proceedings; the court explicitly observed that the plaintiff would not be prevented from taking such a plea in that forum.
The judgment applied existing statutory and precedential constraints (Section 41(b) of the Specific Relief Act as interpreted in the cited authorities) and did not purport to create or announce a new legal principle beyond those authorities.

This summary is prepared strictly from the contents of the provided opinion and does not add information beyond what is stated therein.

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Anant Raj Industries Limited v. The Industrial Finance Corpn. Of India Ltd. & Others.

Dr. M.K Sharma, J.— The present suit was instituted by the plaintiff against the defendants seeking for a decree for declaration in favour of the plaintiff and against the defendants declaring that the plaintiffs have paid the entire dues of the defendant in terms of one time settlement dated 31.3.1995 and also for a permanent injunction restraining the defendants, their agents, employees, officers from in any manner revoking the one time settlement made between the parties vide defendant No. 1's letter dated 31.3.1995

2. Pursuant to a request for loan made by the plaintiff the defendants approved the grant of the aforesaid loan by a letter dated 1.1.1987 Pursuant thereto the plaintiff company was granted a Rupee Term Loan and Foreign currency loan. The plaintiff duly availed of the said loan disbursed by the defendants No. 1, 2 & 3 and various charges on the assets of the defendant company were given in favour of the defendants No. 1, 2 & 3. The plaintiff became irregular in repayment of the said loan and gave a proposal for one time settlement to defendants 1, 2 & 3. Pursuant thereto a one time settlement was agreed to between the plaintiff and the defendants under letter dated 31.3.1995 According to the plaintiff the plaintiff has been making entire payment in terms of the one time settlement and in fact completed the entire payment which was to be made by the plaintiff company. According to the defendant however, the plaintiff could not adhere to the payment schedule, as mentioned in the one time settlement letter and became irregular in repayment of the amount even in terms of the one time settlement. Accordingly, the plaintiff filed the present suit in this court for the aforesaid relief.

3. Summons and notices were issued to the defendant and on 1.10.1996 an interim order was passed that till the next date the defendants would not revoke the one time settlement dated 31.3.1995 As against the aforesaid interim order passed by this court an application has been filed by the defendants under Order 39 Rule 4 CPC seeking for vacation of the aforesaid order. Accordingly, by this order I propose to dispose of the interim application filed by the plaintiff (registered as I.A.No 4610/1996) as also the application filed by the defendants under Order 39 Rule 4 CPC (registered as I.A 2216/1997).

4. It is stated on behalf of the defendant that the present suit filed by the plaintiff is not maintainable in law in view of the bar contained in Section 18 of ‘The Recovery of Debts due to Banks and Financial Institutions Act, 1993. It is further stated that the plaintiff has not repaid the loan in full and as such there exist liabilities which are yet to be discharged by the plaintiff under the one time settlement as well as under the Foreign currency loan and therefore, the interim injunction granted by this court is required to be vacated.

5. According to the plaintiff the terms and conditions of the one time settlement stand satisfied since the plaintiffs have been adhering to the payment schedule as mentioned therein although in payment of one or the other instalment there was some delay. The aforesaid statement of the plaintiff is refuted by the defendants contending inter alia that the plaintiff has failed to discharge its liability even under the One Time Settlement as. well as the debt relating to foreign currency loan. In this connection reference may be made to the various communications issued by the parties and relied upon at the time of arguments by the counsel for the parties. Letter dated 30.4.1994 is a proposal from the plaintiff seeking for one time settlement by making payment of principal and over-dues of interest. On 31.3.1995 IFCI wrote a letter to the plaintiff intimating the decision of IFCI agreeing in principal to accept the proposal for payment of the entire principal in respect of Rupee Term Loan, Re-tied loan of ICICI, Crystallized portion of Foreign Currency Loan and simple inter-est as on 31.3.1995 It is stated that the acceptance of the aforesaid proposal as full and final settlement of the dues of IFCI except the un-crystalized portion of FCL would be payable as and when due. In paragraph 3 it is stated that the settlement of dues would be subject to the following terms and conditions:—

(a) The total settled amount as per the said proposal shall be payable by you in 4 equal quarterly instalments commencing from the 30th June, 1995 with an interim payment of Rs. 100 lakhs (Rupees one hundred lakhs) immediately on acceptance of this letter which would be adjusted towards payment of first instalment falling due on the 30th June, 1995.

(b) The institutions would charge interest @ 15% p.a (in case of default @ 18.5% p.a) on instalments payable under OTS after six months i.e from 01/10/1995.

(c) In the event of the company/promoters failing to amortise the dues in full in accordance with the proposed arrangement within the envisaged period, the institutions shall have the absolute right to revoke the arrangement.

6. According to the defendants the plaintiff failed to clear the dues in full in accordance with the proposed arrangement within the stipulated period and therefore, the defendants proposed to proceed against the plaintiff in accordance with law and institute judicial proceedings against the plaintiff for recovery of the amount due. It is stated that in view of the aforesaid interim injunction passed by this court the defendants have been unable to resort to the legal proceedings as sought to be done.

7. I have heard the learned counsel appearing for the plaintiff as also for the defendants. The question that arises for my consideration is whether such an injunction could be granted in favour of the plaintiff. There is a dispute between the parties as regards the dues and also relating to faithful compliance of the one time settlement between the parties. Under the said settlement the defendants have been empowered to revoke the arrangement once according to them the borrower has failed to liquidate the dues in full in accordance with the proposed arrangement. According to the terms and conditions of the arrangement the amounts by way of instalments were required to be paid within stipulated period of time. It is an admitted position that some of the instalments were not paid within the stipulated period of time although subsequently the same came to be paid. Even in respect of the same, according to the defendants, that as on date their exist substantial liabilities yet to be discharged by the plaintiff even under the One Time Settlement and in respect of the other Crystallized portion of the Foreign Currency Loan. The issue is whether an injunction could be granted in favour of the plaintiff and against the defendant preventing an action which is sought to be taken by the defendants for alleged breach of the contract.

8. The defendants have been given a power under the aforesaid settlement to revoke the agreement once it is found that there is a breach in payment of the stipulated instalment within the stipulated period fixed under it. In my considered opinion no injunction could be granted in favour of the plaintiff and against the defendants preventing the defendants from taking resort to aforesaid clause of the agreement when the defendants are of the opinion that there is such a breach. Grant of such an injunction would amount to restraining the defendants from determining the actual dues payable by the plaintiff to the defendants and also from prosecuting any proceeding in an appropriate court for realisation of the dues after its determination which is prohibited under the provisions of Section 41(b) of the Specific Relief Act. In this connection reference may be made to the decision of the Supreme Court in Cotton Corporation of India Limited v. United Industrial Bank and others; reported in AIR 1983 SC 1272, wherein it was held by the Supreme Court that ordinarily a preventive relief by way of prohibitory injunction cannot be granted by a court with a view to restraining any person from instituting or prosecuting any proceeding and this is subject to one exception enacted in larger public interest. It was further held that the court is precluded by a statutory provision i.e Section 41(b) from granting an injunction restraining a person from instituting or prosecuting a proceeding in a court of co-ordinate jurisdiction or superior jurisdiction.

9. In view of grant of the aforesaid ad interim injunction in favour of the plaintiff the defendant has been prevented by a prohibitory injunction even from determining the actual dues payable by the plaintiff and realisation of the said dues in the appropriate forum accordance with law. The case of the plaintiff is that nothing is due and payable by the plaintiff to the defendant under the one time settlement. Even assuming the aforesaid stand to be correct, in my considered opinion the plaintiff shall not be prevented from taking up such a plea before the appropriate forum if and when such a proceeding is instituted by the defendants against the plaintiff. In Cofex Exports Ltd. v. Canara Bank.; reported in 1997 (2) Delhi Lawyer page 559 the Division Bench of this Court has held that taking of accounts and finding out what is due and payable by the defendants to the plaintiff bank would be an exercise necessarily to be performed even by the Tribunal to satisfy the demand of the prin- ciples of natural justice before finding out the amount of debt for which the Tribunal may issue a certificate under section 19(7) of the Act.

In case the aforesaid order of injunction granted in favour of the plaintiff and against the defendant is made absolute the same would prevent the defendants from instituting any suit claiming the dues, which according to the defendants are due and payable to the defendants. That would thus prevent the defendants from instituting a legal proceeding against the plaintiff which could not be done, there being a specific bar for issuing such an injunction under section 41(b) of the Specific Relief Act.

10. In that view of the matter the order of injunction issued on 1.10.1996 stands vacated. The application filed by the plaintiff under Order Order 39 Rules 1 & 2 (registered as I.A.4610/1996) stands dismissed and the application filed by the defendants under Order 39 Rule 4 CPC (registered as 1.A.2216/1997) stands allowed.

Anant Raj Industries Limited v. The Industrial Finance Corpn. Of India Ltd. & Others.

Judgment Summary — Dr. M.K. Sharma, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Plaintiff's Arguments

Defendants' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Anant Raj Industries Limited v. The Industrial Finance Corpn. Of India Ltd. & Others.

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