1. The appellant has filed this appeal against the order dated April 12, 2004, passed by the Tribunal below dismissing the application made by him purporting to be under Order 1, Rule 10 of the CPC read with Section 22(1)(e) of the RDDBFI Act, 1993, for impleadment of M/s.
Satnam group as a defendant in O.A. No. 236 of 2001 in question. None has appeared for the respondents in the appeal.
A few facts necessary for the decision of the appeal are recorded. The O.A. in question has been filed by respondent No. 1 herein (IDBI) against M/s. Sterling Flatware Ltd., defendant No. 1/respondent No. 2 herein (principal borrower), Mr. P.K. Gupta, defendant No. 2/appellant herein (guarantor), IFCI Ltd., defendant No. 3/respondent No. 3 and ICICI Ltd., defendant No. 4/respondent No. 4 for the recovery of Rs. 11 crores and odd. The appellant herein/defendant No. 2 was the guarantor for the repayment of loan. Defendant No. 1/respondent No. 2 created first charge by way of joint mortgage in favour of the applicant/first respondent and defendants Nos. 3 and 4/respondents Nos. 3 and 4 respectively on its immovable properties. Since financial discipline was not maintained, the O.A. came to be filed by the IDBI/respondent No. 1 herein. The appellant/defendant No. 2 entered appearance before the Tribunal below and also filed his written statement, contending that with effect from October 29, 1996, the management, shareholdings, assets and liabilities of defendant No. 1-M/s. Sterling Flatwares Ltd., had been transferred to Satnam group of companies promoted by Mr.
Gurnam Arora. According to him, from the date of transfer of management, the appellant/defendant No. 2 had relinquished his shareholding in favour of Satnam group of companies and ceased to have any association with M/s. Sterling Flatwares Ltd. 2. He made an application to implead M/s. Satnam group of companies through Mr. Gurnam Arora which was opposed by the IDBI (applicant in O.A.). A written reply was also filed. The application did not find favour with the Tribunal below. Aggrieved, the appellant/defendant No.2 (guarantor) has filed this appeal.
I have heard learned Counsel for the appellant. He has argued that the.
share capital of the original borrower M/s. Sterling Flatwares Ltd., having been transferred to the Satnam group of companies managed and controlled by Mr. Gurnam Arora, the said company through him was a necessary party and should have been impleaded for proper and effective decision of the O.A. He has tried to support his argument by the decision of the hon'ble Supreme Court in the case of Savitri Devi v.District Judge Gorakhpur 3. On consideration of the matter, I am firmly of the view that even though none has appeared from the side of the respondents in the appeal, the appeal is devoid of substance and is bound to be dismissed.
I wish to make a little discussion spelling out reasons for this view of mine. It is to be pointed out that the original borrower M/s.
Sterling Flatwares Ltd., is a limited company incorporated under the Companies Act, 1956. It is a legal entity. The appellant/defendant No.2 is the main architect as being the original promoter of the said company as well as the guarantor for the repayment of the loan in question. His contention is that he cannot be liable for any alleged dues of M/s. Sterling Flatwares Ltd., as the said company transferred its shareholding to the Satnam group of companies on October 29,1996.
According to him, he stood discharged of the liabilities of defendant No. 1.
The contention of the appellant/defendant No. 2 is wholly untenable and unsustainable at law, he being the guarantor. As a guarantor, his liability is to be governed by Chapter VIII of the Indian Contract Act, 1872. It is further to be pointed out that the liability of the surety is co-extensive with that of the principal debtor as per Section 128 of the Indian Contract Act, unless it is provided otherwise by a contract.
So far as the mortgage is concerned, the liability of the mortgagor is regulated as per provisions contained in the Transfer of Property Act, 1882. The loan having been advanced to a company incorporated under the Companies Act, it is of no consequence that shareholding allegedly came to be transferred to someone else. There is not the slightest doubt that defendant No. 2 who is the original promoter of M/s. Sterling Flatwares Ltd. (principal borrower) and who is also a guarantor, has, by making an application for the impleadment of Satnam group of companies as a party, tried to complicate beyond recognition the subject-matter awaiting adjudication in the O.A. He is fumbling for an escape route. He hit upon this novel idea with a purpose to gain mileage at a subsequent convenient stage by embarking on some enigma of technical shade to dilute the central issue of his liability, laughing way back home.
4. I have no hesitation in saying that his making the application for impleadment of Satnam group of companies is a gross misuse of judicial process to complicate the issue and delay its adjudication. Any private arrangement with third party, as alleged by him but admittedly without the knowledge and consent of the lender (applicant in O.A.) cannot be enforced. No document could be produced by him to prove the relevance or necessity of joining the said third party in the O.A. As pointed out earlier, financial assistance was granted by the applicant in O.A. to M/s. Sterling Flatwares Ltd., due repayment of which was duly guaranteed by the appellant/defendant No. 2, Mr. P.K. Gupta in his personal capacity. The lender rightly impleaded the principal borrower and the guarantor (appellant/defendant No. 2) in the O.A. Indeed, the applicant IDBI had no privity with the said Satnam group of companies.
5. Further, the appellant/defendant No. 2 himself was relying on an alleged agreement with the third party Satnam group (page No. 77 of the paper book) dated October 29, 1996, condition No. 11 of which says that : "The agreement is conditional upon approval from the financial institutions, viz., IFCI, IDBI and PICUP". The application in O.A-IDBI never approved of any such alleged agreement. As pointed out earlier M/s. Sterling Flatwares Ltd. (main borrower) being a corporate person, relief could be claimed and the O.A. could be filed against such corporate body. M/s. Sterling Flatwares Ltd., was rightly sued along with the guarantor (appellant/defendant No. 2). The alleged agreement dated October 29, 1996, between M/s. Sterling Flatwares Ltd., and Satnam group of companies has no legal sanctity. Any change in the control and management of M/s. Sterling Flatwares Ltd., without the consent of the lender-IDBI has no meaning at all so far as the repayment of loan is concerned and the guarantor cannot claim to be absolved on the alleged premise of transfer of control and management, share capital, etc., of M/s. Sterling Flatwares Ltd., to Satnam group of companies. He continues to be liable to pay the dues on the basis of the personal guarantee furnished by him in the eventuality of the applicant succeeding in the O.A. The appellant/defendant No. 2 has unnecessarily tried to induct the third party to confuse the issue and prolong the litigation. Far from being bona fide, the impleadment application was obviously made by the appellant/defendant No. 2 to get away from his liability by creating non-existing technicalities.
6. I have also considered the ruling relied upon by learned Counsel for the appellant. It was held in the said case that Order 1, Rule 10 of the CPC enables the court to add any person as party at any stage of the proceedings, if that person's presence before the court is necessary in order to enable the court to effectively and completely adjudicate upon and settle all the questions involved in the suit.
Avoidance of a multiplicity of proceedings is also one of the objects of the said provision in the Code. There can be no quarrel with this proposition but the point of the matter is that having regard to the facts and circumstances of the present case, the third party Satnam group of companies cannot at all be deemed to be a necessary party in the O.A. in question where the loan was advanced to a company (legal person) incorporated under the Companies Act and the guarantor for the repayment of the loan was the appellant/defendant No. 2.
7. In view of above discussion, I find no merit in this appeal and dismiss it.
The matter shall be listed on the Board of the Tribunal below on November 15, 2007, so that it could be verified by the Presiding Officer concerned as to what further orders are to be passed in the O.A. He shall expeditiously proceed further according to law.
Copy of this order be supplied to the parties and another copy sent to the Tribunal below.