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National Textile Corporation Vs. Syndicate Bank - Court Judgment

LegalCrystal Citation
CourtDRAT Madras
Decided On
Judge
Reported inI(2006)BC54
AppellantNational Textile Corporation
RespondentSyndicate Bank
Excerpt:
.....company was taken over by the central government in 1972 and later it was nationalised under the sick textile undertakings (nationalisation) act, 1974, it preferred the claim before the commissioner of payments appointed under the act, claiming a sum of rs. 49,49,310.75p. made up of the amounts stated above with interest upto 30.4.1977. the commissioner of payments by order dated 14.8.1978, allowed the claim in respect of payments made between 31.10.1972 and 31.3.1974 to the tune of rs. 2,40,829.40p. but rejected the rest of the claim including a sum of rs. 2,87,785/-, which was paid after 1.4.1974, that date being the appointed date under the sick. textile undertakings (nationalisation) act, 1974. as against the said order, the respondent bank preferred an appeal to the district.....
Judgment:
The 12th defendant in TA No. 1437/2002 before the DRT, Coimbatore, is the appellant.

1. Syndicate Bank, the respondent in this appeal filed OS No. 1022/1988 on the file of Subordinate Judge, Coimbatore, against the defendants 1 to 12 for recovery of a sum of Rs. 36,50,917.66p. Its case was that the defendant No. 1 was limited company in which defendant No. 2 was a Director along with one R.R. Ramasamy since deceased, defendant Nos. 3 to 11 were the legal representatives of the said R.R. Ramasamy, that the defendant No. 1 approached the respondent Bank to provide credit facilities for importing machinery from M/s. Itoh and Company Limited, Osaka, Japan, and at the request of the 1st defendant company, the respondent Bank gave guarantee on 26.5.1965 to the said company for Yens 6,27,56,316/- equivalent to Indian money of Rs. 8.33 lakh and the amount was increased to Rs. 13.21 lakh. That in consideration of the Bank guaranteeing the payment of the amount to M/s. Itoh & Company Ltd., defendant No. 1 executed a counter indemnity guarantee in favour of the respondent Bank against all losses obtained by the Bank and the respondent Bank also granted a demand loan of Rs. 2.50 lakh to the 1st defendant on 13.12.1965, for which a promissory note was executed jointly by 2nd defendant and late R.R. Ramasamy being the Directors of the defendant No. 1 company. That in consideration of the respondent Bank giving deferred payment guarantee in favour of the Japanese Company, coupled with demand loan of Rs. 2.50 lakh to the 1st defendant company, the defendant No. 2 and the late R.R. Ramasamy had executed necessary documents for the due repayment of the amount. All these transactions took place at Coimbatore, where the administrative office of the 1st defendant was situated. As the 1st defendant failed to pay the amount to the Japanese firm, the respondent Bank was compelled to make payments to the Japanese company i.e. a sum of Rs. 8,39,228.72p.

between 1966 and 31.10.1972, and another sum of Rs. 2,40,82.40p.

between 1.11.1972 and 11.4.1974, thus totalling Rs. 10,80,058.13p. The above said payments were made by the respondent Bank on the basis of the guarantee executed by it and hence defendants 1 to 11 were liable to reimburse the respondent Bank the said amounts with interest thereon as agreed. As the 1st defendant company was declared as a sick industrial company, the management of the 1st defendant company was taken over by the Central Government on 31.10.1972. Thereafter, i.e.

from 1.11.1972 to 1.4.1974, the respondent Bank paid to the Japanese company a sum of Rs. 2,40,829.40p. That after 1.4.1974 upto 16.12.1975, they have paid a sum of Rs. 2,87,784.93p. (rounded off to Rs. 2,87,785/-). Since the management of the 1st defendant company was taken over by the Central Government in 1972 and later it was nationalised under the Sick Textile Undertakings (Nationalisation) Act, 1974, it preferred the claim before the Commissioner of Payments appointed under the Act, claiming a sum of Rs. 49,49,310.75p. made up of the amounts stated above with interest upto 30.4.1977. The Commissioner of Payments by order dated 14.8.1978, allowed the claim in respect of payments made between 31.10.1972 and 31.3.1974 to the tune of Rs. 2,40,829.40p. but rejected the rest of the claim including a sum of Rs. 2,87,785/-, which was paid after 1.4.1974, that date being the appointed date under the Sick. Textile Undertakings (Nationalisation) Act, 1974. As against the said order, the respondent Bank preferred an appeal to the District Judge, Ananthapur in CMA No. 7/ 1980. The learned District Judge allowed the claim of Rs. 2,40,829.40p. with interest and the claim of the Bank for Rs. 2,87,785/- was rejected on the ground that the amount was paid after Nationalisation of the 1st defendant Mill. The said order was challenged by the Government of India in Writ Petition WP No. 1960/1982 before the Andhra Pradesh High Court and the High Court by its order dated 23.1.1984 remanded the matter to the District Judge, Anarithapur, with a direction to dispose of the appeal, after impleading the Union of India and National Textile Corporation, the appellant herein. On remand, the learned District Judge, Ananthapur, passed an award on 31.3.1985 allowing interest @ 18.5% p.a. on the amount of Rs. 2,40,829.40p. but rejected the claim of the Bank for Rs. 2,87,785/- on the ground that it was a post-nationalisation liability.

2. The respondent Bank filed a suit in OS- 1022/1988. Sub-Court, Coimbatore, claiming that the contract given to the Japanese company was binding upon the appellant herein viz., National Textile Corporation (12th defendant) and the said sum of Rs. 2,87,785/- together with interest should be paid by the appellant to the respondent Bank. It is the case of the respondent Bank that the appellant, who was bound to pay under the terms of purchase of the machinery and with whom the undertaking came to be vested under the Act, that it would be deemed to have ratified the contract but has not chosen to ratify the same in time, the appellant was liable to reimburse the respondent Bank. The appellant, who was the 12th defendant in the said suit, contested the suit before the Sub-Court, Coimbatore, on the question of territorial jurisdiction among other grounds. The suit in OS- 1022/1988 was transferred to DRT at Chennai and numbered as TA-14/ 1998, and then it was re-numbered as TA-487/2001 at DRT-II, Chennai Consequently, upon the creation of the DRT at Coimbatore, the OA was transferred to DRT, Coimbatore, and was re-numbered as TA-1437/2002. DRT, Coimbatore, by its order dated 3.12.2003, allowed the claim of the respondent Bank holding that the defendants are liable to pay to the respondent Bank a sum of Rs. 36,50,917.66p. with interest @ 18.5% p.a. from the date of suit till the date of realisation etc. The said order is under challenge in this appeal.

3. The point for consideration is whether the order passed by the DRT, Coimbatore, is liable to be set aside.

4. The fact that M/s. Ananthapur Cotton Mills the 1st respondent in TA No. 1437/ 2002 is a Sick Textile Undertaking, the management of which was taken over by the Central Government under the Sick Textile Undertakings (Taking over the Management) Act, 1972 on 31.10.1972, and the said Sick Textile Undertaking (Ananthapur Cotton Mills) was nationalised under the Sick Textile Undertaking (Nationalisation) Act, 1974, and the National Textile Corporation (NTC) became the owner on and from 1.4.1974, are not in dispute. The fact that the respondent Bank paid a sum of Rs. 2,40,829.40p. to the Japanese company as it stood guarantee for the Ananthapur Cotton Mills, to which the said company had executed counter indemnity in favour of the respondent Bank, are also not in dispute. It is a fact that the respondent Bank made four payments after 1.4.1974 i.e. Rs.75,212.66p. on 3.5.1974, Rs.70,739.88p. on 1.11.1974, Rs. 69,312.42p. on 2.5.1975 and Rs. 72,319.97p. on 16.12.1975, totalling Rs. 2,87,784.93p. rounded off to Rs. 2,87,785/-. As the Ananthapur Cotton Mills was declared as a sick textile mill, an Assistant Commissioner was appointed to settle the claims of third parties for the amounts payable by the said mill and the claim of the 1st respondent Bank was received as Claim Application No. 2/77 and the respondent Bank preferred a claim for a total sum of Rs. 49,49,310.75p. The Assistant Commissioner accepted the claims of the respondent Bank for the sums paid between 31.10.1972 to 31.3.1974 i.e. after the management having been taken over by the Central Government upto the nationalisation of the mill on 1.4.1974. The amounts paid by the respondent Bank on or after 1.4.1974 i.e. four instalments amounting to Rs. 2,87,785/- was disallowed.

5. It is the contention of the learned Advocate for the appellant that the Commissioner appointed under the Sick Textile Undertakings (Nationalisation) Act, 1974, is a competent person to decide about the claims and to make the payments and when once the Commissioner disallowed the payments made by the respondent Bank, post-period of the appointed day i.e. 1.4.1974, the claim of the respondent Bank is not sustainable and the order passed by the learned District Judge, Ananthapur, in CMA No. 7/1980 is a considered order and the same cannot be assailed. The learned Presiding Officer of DRT, Coimbatore, did not consider the said fact and passed order, which is not sustainable.

6. On the contrary, the learned Advocate for the respondent Bank would contend that the contract made by the 1st defendant company with the Japanese firm is binding on the 12th defendant viz., the appellant, and the said sum of Rs. 2,87,785/- with interest thereon should have been paid by the appellant as it became the owner under the Sick Textile Undertakings (Nationalisation) Act, 1974. The respondent was made to pay the said amount to the Japanese company for the purchase of machinery and, therefore, the appellant is bound to pay under the terms of counter guarantee. The appellant should have also ratified the contract and it shall not make any alteration or modification except after giving to the parties to the contract a reasonable opportunity of being heard and except after recording in writing its reasons for refusal to ratify the contract or for making any alteration or modification therein, as provided in Sub-Clause (2) of proviso to Section 30 of the Sick Textile Undertakings (Nationalisation) Act, 1974 (hereinafter called the 'Act'). Admittedly, the appellant had not chosen to refuse or ratify the contract entered into by the respondent with the 1st defendant mill and, therefore the appellant is liable to reimburse the respondent Bank in respect of the said amount.

7. Section 5(1) of the Act was relied upon by the appellant, which states, "Every liability, other than the liability specified in Sub-section (2) of the owner of a sick textile undertaking, in respect of any period prior to the appointed day, shall be the liability of such owner and shall be enforceable against him and not against the Central Government or the National Textile Corporation." Further contention of the learned Advocate for the appellant is that it is liable only in respect of liability incurred prior to the appointed day i.e. 1.4.1974, as provided under Section 5(2) of the Act, which states, "Any liability arising in respect of- (a) loans advanced by the Central Government, or a State Government, or both to a sick textile undertaking (together with interest due thereon) after the management of such undertaking had been taken over by the Central Government; (b) amounts advanced to a sick textile undertaking (after the management of such undertaking had been taken over the Central Government, by the National Textile Corporation or by a State Textile Corporation, or by both, together with interest due thereon; (c) wages, salaries and other duties of employees of the sick textile undertaking, in respect of any period after the management of such undertaking had been taken over by the Central Government; shall, on and from the appointed day, be the liability of the Central Government and shall be discharged, for and on behalf of that Government, by the National Textile Corporation as and when repayment of such loans or amounts becomes due or as and when such wages, salaries or other due become due and payable." As the claim of the respondent Bank is after the appointed day, the appellant is not liable.

8. Reverting back to the submission made by the learned Advocate for the respondent, he would rely upon the proviso to Section 30 of the Act which states, "Provided that the National Textile Corporation shall not omit to ratify a contract, and shall not make any alteration or modification in a contract, unless it is satisfied that such contract is unduly onerous or has been entered into in bad faith or is detrimental to the interests of the sick textile undertaking. The National Textile Corporation shall not omit to ratify a contract, and, shall not make any alteration or modification therein...". This provision is so clear that the appellant is not entitled to omit to ratify the contract which had been entered into by the 1st respondent with the sick industry and, therefore, the claim of the respondent Bank cannot be defeated. It is also not the case of the appellant that the contract between the respondent and the sick industry was unduly onerous nor it is the case of the appellant that it had refused to ratify the contract as provided under Section 30 of the Act. As such, the argument advanced on behalf of the appellant cannot at all be countenanced and the appellant should have taken all care to ratify the contract of the respondent with the sick industry and for its failure or omission, the respondent Bank cannot be made as a scape goat.

Therefore, I am of the clear view that the respondent Bank is entitled to recover the amount as claimed in OS No. 1022/1988, Sub-Court, Coimbatore, and as decreed in TA- I437/2002, DRT, Coimbatore.


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