NATIONAL HORTICULTURE BOARD Vs. FLORA CONTINENTAL LIMITED

JUDGEMENT

(1.) IA Nos.10893/01 and 3019/02 The defendants no.1 to 5 are seeking leave to defend the civil suit filed by the plaintiff for recovery of Rs.1,37,48,509 under Order 37 CPC.

(2.) The plaintiff is a society registered under the Societies Act formed by the Government of India, Ministry of Agriculture, inter alia, for the purpose of promoting, developing and supporting horticulture activities by rendering financial assistance to various institutions engaged in horticulture activities including processing of fruits and vegetables and floriculture. The defendant no.1 is a company incorporated under the Companies Act. On 1.3.1995 it had applied to the plaintiff for financial assistance by way of soft loan to finance setting up its 100% export oriented project on floriculture, fruits and vegetables. The plaintiff conveyed its acceptance to the request by letter dated 30.11.1995 and agreed to advance a term loan of Rs.1 crore to finance the defendant's no.1 project. The terms and conditions of the loan were contained in sanction letter dated 30.11.1995 and the loan agreement dated 7.12.1995. These were duly accepted by the defendant no.1. Defendants no.2 to 5 executed personal guarantee to the due payment of the amount of loan recoverable from the defendant no.1. The plaintiff accordingly disbursed a sum of Rs.90 lakhs out of the sanctioned loan of Rs.1 crore between 28.12.1995 and 2.2.1996. As per loan agreement dated 7.12.1995 the loan was repayable in five equal yearly installments of Rs.20 lakhs each commencing from 30.11.1998. The defendant also agreed to pay service charges on the principal amount of the outstanding loan at the rate of 4% per annum. The defendant no.1 also created by the loan agreement first charge by way of hypothecation in favour of the plaintiff on all their movable properties and further mortgaged its fixed assets and movable assets in favour of the plaintiff and the defendant no.6 (Haryana State Industrial Development Corporation). The defendants had executed promissory note dated 7.12.1995 in the sum of Rs.1 crore and defendants no.2 to 5 had executed an undertaking dated 7.12.1995 undertaking not to sell, transfer, dispose of their present and future holding in the defendant company. The defendants failed to complete the project and also failed to repay the loan installment. It became liable to pay the principal sum as well as the service charges which had not been paid despite notice dated 16.10.2001. The defendant no.1 also acknowledged its liability towards the amount due under the promissory note dated 7.12.1995 and further acknowledged its liability vide revival letter dated 9.11.1998 and 23.6.2001 which amounted to an admission of the liability towards the plaintiff. Defendants no.2 to 5 also acknowledged and confirmed their liability to make the payment of the outstanding loan against the defendant no.1 under the loan agreement and the personal guarantees vide revival letter dated 9.11.1998 and 23.6.2001. The notice was served on the defendants no.1 to 5 for paying a sum of Rs.1,37,48,509 but in vain. These defendants have become liable to pay interest at the rate of 18% per annum on the aforesaid amount pendentilite and future. The defendant no.1 was having its registered office at 28, Pushpanjali, Delhi and also carried on part of its business in Delhi so this court has territorial jurisdiction to try the suit. Moreover part of the cause of action had accrued in Delhi. The plaintiff prayed for a decree for recovery of Rs.1,37,48,509 against the defendants no.1 to 5 jointly and severally; pendentilite and future interest on the afore mentioned sum at the rate of 18% per annum till the date of realisation; service charges at the rate of 4% per annum pendentilite and future interest till the date of realisation; a decree for sale of mortgaged/hypothecated properties of the defendant no.1 company; a decree of sale hypothecated plant, machineries and stocks of the defendant no.1 company.

(3.) The summons for appearance were served and the defendants entered appearance. Thereafter, summons for judgment were served on the defendants which led to the filing of the present application for leave to defend the suit. In the application the defendants first narrated as to how the project for setting up a 100% export oriented floriculture unit was conceived which had tremendous potential and prospect of huge profits. It was alleged that the estimated cost of the project was Rs.987 crores out of which Rs.247 lakhs was to be provided by the promoters as their contribution, a sum of Rs.200 lakhs were to be advanced by Haryana State Industrial Development Corporation (defendant no.6) as a term loan, Rs.1 crore was to be provided by the plaintiff as a soft loan and the balance of Rs.440 crores was to be raised by public issue. The plaintiff and the defendant no.6 sanctioned the loan of Rs.1 crore and 2 crores in December, 1995 and in May, 1995 respectively. The defendants imported green houses and other machineries but the defendant no.6 disbursed only Rs.1 crore while the plaintiff disbursed only Rs.90 lakhs out of the sanctioned loan. They refused to disburse the balance till the public issue was made. Securities Exchange Board of India however by letter dated 6.6.1996 opined that floriculture was not a manufacturing activity as it would not make public issue. The defendants approached the defendant no.6 and the plaintiff for release of the balance amount of loan. Both the plaintiff and the defendant no.6 reappraised the project and found it viable. The defendant no.6 declined to release the undisbursed loan of Rs.1 crore but expressed willingness to release its charge over Kishora Kundli Land measuring 10 acres to enable defendants applicants no.1 to 5 to sell it and raise money for the project but the charge was not released and two years were wasted in pursuading them to do so. In the meantime expensive material, equipment and machinery and also green houses which were imported remained idle and unused. The defendants applicants had also invested a sum of Rs. 530 lakhs in the project. The defendants applicants then approached Government agencies to intervene. Agriculture and Processed Food Products Export Development Authority by letter dated 8.9.1997 requested Haryana State Industrial Development Corporation to release the balance amount of loan. Its Chairman again by letter dated 6.10.1997 pleaded both defendant no.6 and the plaintiff for releasing the balance amount of loan. The said authority again by letter dated 29.8.1997 made similar request or to release the charge over the land in Village Kishora but to no effect. Even the meetings convened at the behest of Government agencies failed to bear fruits and neither the balance amount of loan was disbursed by the plaintiff and the defendant no.6 nor was the charge over Kishora land was released. Ultimately the plaintiff and the defendant no.6 released their charge over the said land in February, 1998 but the defendants applicants could not sell the land as in the meantime the real estate prices depreciated. These defendants again approached the defendant no.6 for releasing the balance Rs.1 crore. Instead defendant no.6 invoked Section 29 of the State Financial Corporation Act and sealed the project and took over its possession. It also called for payment of the amount due. The defendants deposited the sum of Rs.7 lakhs and thereafter the defendant no.6 agreed to restore the possession of the project but in the meantime substantial portion of the project site had been encroached upon by trespassers and a number of expensive material and equipment was either missing or stolen for which defendant no.6 was responsible. Ultimately the possession of the project site was restored to the defendant applicants on 14.7.2000 and the defendants by letter dated 27.7.2000 informed the defendant no.6 about the material and equipment which had been stolen or pilfered from the project site. Again from newspaper Dainik Bhaskar dated 14.8.2001 it was learnt that a notice was issued by the defendant no.6 for sale of the collateral property at village Ranwar, District Karnal, Haryana. The defendants applicants filed a civil writ petition CWP No.12467/01 before the Punjab and Haryana High Court on 20.8.2001 which stayed the sale. The defendants applicants had also filed a civil suit for mandatory injunction and for restoration of their properties at the project site and in the alternative compensation in terms of the losses suffered in the Court of Civil Judge, Senior Division, Chandigarh which is still pending. The amount of Rs.90 lakhs received from the plaintiff was to be utilised for opening a letter of comfort with the Bank of Baroda for Rs.140 lakhs by which Rs.30 lakhs was deposited by the defendants applicants and Rs.1 crore was to be deposited by the plaintiff since the plaintiff failed to disburse Rs.10 lakhs the bank filed an application before the Debt Recovery Tribunal for recovery of Rs.17 lakhs against the defendants applicants saddling them with an unwarranted and unrequired liability of additional Rs.7 lakhs. 95% of the work on the project had been completed but it is the acts and omission of the plaintiff and the defendant no.6 that it could not be fully completed and supported. The defendants applicants have stated that the following triable issues have arisen in this case which are as under:-