FEDERAL BANK LTD Vs. WESTERN PAQUES INDIA LTD
LAWS(DR)-2004-1-14
DEBTS RECOVERY APPELLATE TRIBUNAL
Decided on January 30,2004

Appellant
VERSUS
Respondents

JUDGEMENT

Pratibha Upasani, - (1.) THIS Misc. Appeal is filed by the appellants/original applicants The Federal Bank Ltd., being aggrieved by the order dated 5.9.2002 passed by the learned Presiding Officer of Debts Recovery Tribunal-1, Mumbai on Exhibit No. 14 in Original Application No. 1415/2000. By the impugned order, the learned Presiding Officer allowed the application Exhibit No. 14 moved by the defendant Ho. 4/respondent No, 4 herein Sangamner Bhag Sahakari Sakhar Karkhana (for the sake of brevity hereinafter to be referred to as "Karkhana") for modification/varying order dated 4.5.1998 passed by the High Court in Notice of Motion No. 958/98 in Suit No. 961/98 directing defendant No, 4/Karkhana to pay Rs. 4 lacs per month to the applicants for a period of 25 months, effective from 1.8.2002.
(2.) Background of the case and facts giving rise to the application Exhibit No. 14 made by the defendant No. 4/respondent No. 4 herein are as follows : The applicant Bank namely The Federal Bank Ltd. had filed Suit No. 961/1998 in the High Court of Judicature at Bombay against the defendants Nos. 1 to 3/respondents Nos. 1 to 3 herein for recovery of Rs. 44,21,58,314/-. The defendant No. 1 Company namely Western Paques (India) Ltd. (for the sake of brevity hereinafter to be referred to as "Company"), carrying on business of treating effluents and other solid waste, went into liquidation. The distillery unit of defendant No. 4/Karkhana discharged effluents known as Spent Wash, which was required to be processed systematically and scientifically before discharging, as per norms fixed under the Water (Prevention and Control of Pollution) Act, 1974. For this purpose, the defendant No. 4 entered into an agreement with the defendant No. 1 Company whereunder the defendant No. 1 Company took upon themselves the obligation of effluent treatment in respect of Spent Wash generated by the defendant No. 4/Karkhana. As per the said agreement, the defendant No. 1 was to provide, instal, commission and operate a primary treatment facility to treat the distillery Spent Wash, For this purpose, the defendant No. 1 Company installed in the premises of the defendant No. 4/Karkhana an effluent treatment plant as also a bio-gas plant, which would generate electricity from bio-gas that would be generated during the process of effluent treatment. The electricity so generated was utilized by the defendant No. 4/Karkhana as per the terms and conditions that were agreed upon between the defendant No. 4/Karkharia and defendant No. 1 company. Immediately after filing of the suit for recovery of aforesaid sum in the High Court, applicant Bank also took out a Notice of Motion No. 958/1998 contending inter alia that the bio-gas generation plant which was installed by the defendant No. 1 company in the premises of the defendant No. 4/Karkhana was purchased by the applicant Bank and was leased out to the defendant No. 1 company. In short, it was a sale and lease back agreement. The applicant Bank had prayed for appointment of a Court Receiver, as the defendant No. 1 company committed breach in payment of lease rentals. On 16.3.1998, the High Court granted injunction in favour of the applicant Bank and in continuation of that order, on 4.5.1998 further order by consent came to be passed which was to remain operative till further orders. By this order, the defendant No. 4/Karkhana was directed to pay sum of Rs. 4 lacs to the applicant Bank towards rental payable to the applicant Bank. It was also directed that in case the Karkhana committed any two defaults in the payment of the aforesaid amount, the Court Receiver, should stand appointed in respect of lease equipments. In the said application Exhibit No. 14, the defendant No. 4/Karkhana made submission that they were to pay a sum of Rs. 4 lacs for the reason that it would be consuming electricity, which would be produced out of the bio-gas plant. It was further averred that the bio-gas plant needed overhauling periodically and such periods were recommended by M/s. Wartsila Sacm Diesel Operation Maintenance Manual supplied by the manufacturer of the plant. The Karkhana had started operating the bio-gas plant pursuant to the orders passed by the High Court. Subsequently the said M/s. Wartsila, from time-to-time had informed the defendant No. 4/Karkhana the necessity of overhauling the plant and the defendant No. 4/ Karkhana had carried out major maintenance and overhauling of the plant. For this purpose, the Karkhana had to spend amount of Rs. 47,03,439.80 and this fact was intimated to the Official Liquidator who was appointed to represent defendant No. 1 company. It was further contended by the Karkhana in their application at Exhibit No. 14 that the said major overhauling was never the responsibility of the Karkhana under the terms and conditions of the agreement entered into between the defendant No. 4/Karkhana and the defendant No. 1 company. According to them, even while passing an order of fixing amount of Rs. 4 lacs per month, High Court had not considered or taken into account such major repairs of overhauling. But the Karkhana had to incur such expenses, as those were necessary to continue the operation of the plant. The Karkhana therefore, contended that it was entitled to an adjustment of a sum of Rs. 47,03,439.80. It was further contended by the Karkhana that on 24.2.2000 there was an accidental breakdown in the plaint, as a result of which operation of the bio-gas plant had totally stopped, The accident was reported to the Official Liquidator as well as to the applicant Bank on the same day. Since, it was not possible to run the plant, the defendant No. 4/ Karkhana got the same repaired and for this purpose, it was required to spend an amount of Rs. 53,86,948.51. It was further alleged by the Karkhana that the applicant Bank had undertaken to insure the said plant. After the said accident and breakdown, the Assistant Manager of the applicants had visited the plant on 25.4.2000 and pursuant to his request, the defendant No. 4/Karkhana had furnished all the details and documents to the applicant Bank which were required for claiming; the amount spent by the Karkhana from the insurance company. However, under a letter dated 1.3.2001, the applicant Bank informed the Karkhana that the claim submitted by the applicant was disallowed by the insurance company. Thereafter, when the applicant Bank produced insurance policy, it was shown to Karkhana and they were surprised to note that instead of taking out a comprehensive policy, the applicant had insured the plant only against fire accident. It was contended by the Karkhana that it was obligatory on the part of the applicants to have insured the bio-gas plant comprehensively. However, with a view to save the premium amount, the applicant Bank had insured the plant only against the risk of fire and this was in clear breach of terms/ obligations by the applicant Bank. According to Karkhana, the non-insurance of the plant in a proper and comprehensive manner was a clear act of negligence on the part of applicant Bank. According to Karkhana, the amount of Rs. 53,86,984.51 spent by the defendants for rectification of the break-down was not an obligation of the defendant No. 4/Karkhana, either under the agreement with the defendant No. 1 company or otherwise. Since the defendant No. 4/Karkhana was deprived of the reimbursement of the accidental breakdown due to breach and neglect on the part of the applicant Bank, the defendant No. 4/Karkhana prayed that they be allowed to adjust the said amount of Rs. 53,86,984.51 towards the monthly amount of Rs. 4 lacs in addition to the amount of Rs. 47,03,439.80, which it had spent towards overhauling of the plant. It was further stated by the Karkhana that in addition to these amounts, Karkhana had also spent a sum of Rs. 21,00,969/- towards a contract for general maintenance of the plant, but no claim was made in respect of the same because those expenses were related to day-to-day maintenance of the plant. Apart from these maintenance charges, defendant No. 4/Karkhana also incurred expenses aggregating to Rs. 13,98,900/- per month for operating the plant. As per contention of the Karkhana at the time of fixing Rs. 4 lacs per month these expenses were also not taken into consideration. It was specifically stated by Karkhana that they were restricting their adjustment only for Rs. 47,03,439.80 towards overhauling and Rs. 53,83,984.51 towards breakdown rectification from the amount of Rs. 4 lacs per month. It was prayed by Karkhana that on this background, they be exempted from paying the amount of Rs. 4 lacs per month for the period of 25 months effective from 1.8.2002, so as to enable them to adjust an aggregate amount of Rs. 1,00,90,424.31. It was stated by them that if the said relief was not granted, it would cause serious harm, loss and prejudice to the Karkhana. 4. The applicant Bank opposed the said application by filing say at Exhibit No. 16. It was stated by the applicant Bank that the Karkhana was not entitled for the relief as prayed in view of the fact that Karkhana had expressly undertaken to maintain the plant. It was stated by the Bank that as per the lease agreement dated 29.9.1995, the responsibility of the insurance, maintenance, repairs etc., was that of defendant No. 1 company i.e. M/s. Western Paques (India) Limited. There was no privity of contract between me applicants and defendant No. 4 Karkhana. According to their contention, since Karkhana desired to operate the plant even after the appointment of provisional official liquidator of the defendant No. 1 company, they were directed to make payment of sum of Rs. 4 lacs towards lease rentals, which was payable by the defendant No. 1 i.e. company. It was further contended by the Bank that the defendant No. 4/Karkhana had passed a resolution dated 8.2.1999, under which they had undertaken operation and maintenance of the said bio-gas plant and machinery and that maintenance inter alia included repairs, overhauling and all other things that were necessary to keep the plant in running condition. According to Bank, in any event, it was an obligation of the defendant No. 4/Karkhana to maintain and keep the said plant in good repairs and to incur all necessary expenses for that purpose, if they desired to operate the plant. According to the Bank, it was not bound to reimburse the Karkhana nor the Karkhana was entitled to get reimbursement of the amount of Rs. 47,03,439.80 for overhauling and Rs. 53,86,984.5) towards repairs on account of breakdown. The Bank's grievance was that it was getting meagre amount of Rs. 4 lacs per month as lease rent as against quarterly lease rent of Rs. 1,56,49,560/- payable by the defendant No. 1 company to the Bank. It was stated by the Bank that under these circumstances, it would be wholly inequitable to foist upon the applicant Bank to add burden and allow Karkhana to operate the plant without payment of even lease rent as fixed by the High Court. It was further contended by the Bank that it was not under any obligation to incur any expenses in order to get the plant running for the benefit of the defendant No. 4/Karkhana and that Bank could not in law or in equity be asked to bear burden of running plant for the benefit of the Karkhana. As far as question of insurance policy was concerned, it was stated by the Bank that it had taken insurance policy because the defendant No. 1 company had gone in liquidation. The applicant Bank had not undertaken the responsibility to insure bio-gas plant and as such, there was no breach of terms/obligations on the part of the Bank. It was further stated by the Bank that merely as a gesture of goodwill, the applicant Bank had informed the defendant No. 4 Karkhana that it would reimburse the amount spent by the defendant No. 4/Karkhana towards repairs, if the insurance claim was received from the insurance company. It was further stated that in view of the huge loss already suffered by the applicant Bank under its agreement with the company, it was not possible for them to incur further expenses towards insurance premium to protect the interest of the defendant No. 4 Karkhana. According to the Bank, the Karkhana was enjoying benefits of continuing to operate the said plant and hence it was bound to make payment of monthly lease rent of Rs. 4 lacs without any adjustment towards the expenses allegedly incurred by them towards maintenance and overhauling of the said plant. It was contended by the Bank that question of major repairs and breakdown of the plant should not be confused with the liability of the defendant No. 4/Karkhana to make payments of lease rentals because in any event, the entire liability for operation, maintenance, insurance, repairs, and for any loss and damage was solely that of the defendant No. 1 company and if the defendant No. 4 Karkhana desired to continue to run the plant the aforesaid liability was entirely of their own and this liability was expressly undertaken by the defendant No. 4/Karkhana, which was evident from their resolution dated 28.2.1999. It was contended that the applicant Bank was not in any way liable to reimburse the defendant No. 4/Karkhana with any amount as claimed by them. It was, therefore, prayed that the said application Exhibit No. 14 be dismissed. 5. The learned Presiding Officer after hearing both the sides and after going through the material placed before him, came to the conclusion that the order passed by the High Court directing defendant No. 4 Karkhana was an interim order which could be varied or suitably modified by the DRT, if need arose. The learned Presiding Officer came to the conclusion that admittedly there was no lis pending between the applicant Bank and the Karkhana and merely by running the bio-gas plant, the Karkhana could not be said to have stepped in the shoes of the defendant No. 1 and it could not be said that the terms which were biding on the defendant No. 1 company, would be binding on defendant No. 4 Karkhana. He also further concluded that even the High Court order nowhere mentioned that the terms and conditions agreed by and between the applicant Bank and the defendant No. 1 company would be binding on defendant No. 4 Karkhana during the period they would run the said plant and that, all that the Karkhana was required to do was to pay sum of Rs. 4 lacs to the applicant Bank every month to run the plant and in case any default was committed in payment of the said amount, receiver would be appointed in respect of lease equipments. The learned Presiding Officer also concluded that resolution dated 28.2.1999 passed by the Board of Directors of Karkhana, referred to only day-to-day expenses to be incurred for the maintenance and running of the plant and no other expenses included major overhauling were contemplated either by the Board of Directors while passing the said resolution or by the High Court while fixing the amount of Rs. 4 lacs per month payable by the Karkhana to the applicant Bank vide its order dated 4.5.1998. 6. Having heard Mr. Anil Menon, the learned Advocate appearing for the applicant Bank and Mr. Birendra Saraf, the learned advocate appearing for the respondent No. 4/ Karkhana extensively and having gone through the entire proceedings, in my view, there is no infirmity whatsoever in the impugned order and I find myself fully in agreement with the findings given by the learned Presiding Officer. 7. It is indeed true that it will be too much to say that by simply running the plant, the defendant No. 4/Karkhana has stepped in the shoes of the defendant No. 1 company and that all the obligations of the defendant No. 1 company are now to be fulfilled by the Karkhana. The lease agreement between Bank and the defendant No. 1 company incorporates various terms and conditions. Certain responsibilities are entrusted with the lessee i.e. company, but it will be too much to say after going through these terms and conditions, High Court order dated 4.5.1998, and resolution dated 28.2.1999 passed by the Board of Directors of the Karkhana that by simply running the plant which belonged to the applicant Bank, the Karkhana had taken upon itself all the obligations of the defendant No. 1 company. All these terms and conditions incorporated in the lease agreement between the applicant Bank and the defendant No. 1 company would never be automatically binding upon the Karkhana by virtue of simply running the plant. In the order of the High Court dated 4.5.1998, there is no whisper about it. It only says that the defendant No. 4 would pay a sum of Rs. 4 lacs to the applicant Bank and in case of default, the Court Receiver shall stand appointed with respect to lease equipments. That's all. Nothing more, nothing less. The Karkhana had undertaken only to pay day-to-day maintenance and operation charges of the plant and, therefore, when it came to expenses of total breakdown of the plant and major overhauling, it should not have been expected by the Bank that the Karkhana would bear even those expenses. The Karkhana had spent money on the plant belonging to the applicant Bank so that the plant would not stop running. Therefore, the claim of the Karkhana to get reimbursement of that money from the applicant Bank was certainly justified. The Karkhana had reported about the accident to the official liquidator as well as to the applicant Bank on the very same day. The officer of the Bank visited the premises after the accident and all the relevant information was furnished to him. As per the terms and conditions of the agreement between the applicant Bank and the defendant No. 1 company, the lessee company was to insure the plant but if it failed to do so, then the Bank was supposed to get the insurance job done. It was the case of the Bank that defendant No. 1 company had not insured the plant. However, the Bank also did not bother to get comprehensive insurance of the plant but went only for fire insurance policy. It is pertinent to note that it is not the applicant Bank's care that the defendant No. 4 Karkhana was liable to insure the said plant. In fact the applicant Bank was to get reimbursement of the expenses on account of breakdown from the Bank, but the moment the Bank's claim was disallowed by the insurance company, the Bank changed its stand and refused reimbursement to the Karkhana. I, therefore, upheld the finding given by the learned Presiding Officer on this point. 8. Contention of Mr. Menon, the learned Advocate appearing for the Bank is that by praying for suspension of the order of the High Court dated 4.5.1998 for period of 25 months, the Karkhana is virtually asking for a decree to be passed in their favour, does not find reasonable to me. What the Karkhana was praying by their application Exhibit No. 14 was that the order dated 4.5.1998 be modified/varied and the DRT has jurisdiction/authority to do so. In fact an attempt was made by the Bank in the DRT to put-forth this very submission, submitting that the DRT had no authority/jurisdiction to decide such an application for the reason that by filing the said application, the Karkhana was virtually seeking a decree of Rs. 1 crore against the applicant Bank. It was contended that lot of questions were involved in the matter and only a competent Civil Court can decide, whether the Karkhana was entitled to such a relief or not. This contention was rightly rejected by the learned Presiding Officer, observing that as a successor of the High Court, the DRT was competent to modify the order suitably passed by the High Court if it was found to be necessary and there was no reason as to why the Tribunal should refuse to look into the matter and make Karkhana run from pillar to post to seek relief. Thus, this objection of the applicant Bank questioning the authority of the Tribunal to decide the said application was rightly rejected by the learned Presiding Officer. Interim orders can always be varied, modified or cancelled as per need of the hour and the DRT, as a successor of the High Court, in this type of proceedings, under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, can certainly entertain and decide such an application. By making this application, the Karkhana was seeking only for modification of the order earlier passed by the High Court and certainly does not amount to asking for a decree as contended by the applicant Bank. This contention, therefore, has to be rejected. Another contention raised by Mr. Menon was that the Karkhana did not mention anything about expenses incurred by them in their written statement and that the claim for reimbursement of breakdown expenses was filed subsequent to the filing of the written statement. It was also contended that the Karkhana should have filed a counter claim in this respect. I, however, do not find any substance in this contention also. It is pertinent to note that there is admittedly no lis between the applicant Bank and the Karkhana. The applicant Bank's claim is against the defendants Nos. 1 to 3 and the original application is filed by the Bank for recovery of amount claimed against these three defendants. The Karkhana is a formal party against whom, admittedly no relief is claimed by the Bank. Thus, when no claim is made by the Bank against Karkhana, there is no question of filing counter claim by the Karkhana. Another contention of Mr. Menon is that by branding the applicant Bank as "negligent" tortuous liability was sought to be fixed upon the Bank, for which action only under Torts could be filed. This also is a merit-less contention. It is contended by the Karkhana that the applicant Bank was negligent is not insuring the plant properly and comprehensively which resulted into refusal of their claim by the insurance company. It is evident that the word 'negligent' used by the Karkhana in respect of the Bank, is used purely as synonym to "careless" and that adjective 'negligent' is to be understood as a word which is used in day-to-day parlance. The applicant Bank is unnecessarily using phrases like tortuous liability, etc. all this has got no substance and, therefore, has to be rejected. It appears that during the course of argument, the Advocate appearing for the Karkhana, made reference to Sections 69 and 70 of the Indian Contract Act. It appears that it was contended by the learned Advocate before the DRT that the Karkhana did not spend the amount gratuitously and did not incur the expenses gratuitously which they have incurred at the time of break down of the plant and also at the lime of overhauling of the plant. Therefore, when such acts were not done gratuitously, then as per the principles laid down in Sections 69 and 70 of the Indian Contract Act, the applicant Bank was bound to reimburse those expenses to the Karkhana. Mr. Menon submitted that if the action is based on the claim as per Sections 69 and 70 of the Indian Contract Act, a regular suit has to be filed. He further argued that these are cases where obviously there is no contract between the parties because Sections 69 and 70 are included in Chapter V, caption of which is "OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT." Mr. Menon submitted that for referring to "the officious bystander" doctrine, expounded by Lord Justice Mackinnon in Shirlaw v. Southern Foundaries, (1939) 2 KB 206, there has to be contract between the parties and here the learned Presiding Officer has gone completely wrong that in one breath he accepts submission of the Advocate of Karkhana that claim of the Karkhana is based on Sections 69 and 70 of the Indian Contract Act, in a situation where there is no contract, while in another breath he is taking about doctrine of "the officious by-stander", which can be taken recourse to when there exists a contract between the parties. Here again I must observe that argument of Advocate appearing for the Karkhana was not based solely, and exclusively on the doctrine enunciated by Sections 69 and 70 of Indian Contract Act. It was only a supportive argument. However, the Advocate for the applicant Bank has unnecessarily put the same on a higher pedestal. This was absolutely unwarranted. Even on the touch-stone of first principles such an argument can be appreciated. It is perfectly justifiable to ask for reimbursement, when a person has not spent certain amount gratuitously. He in this situation certainly has got right to ask for reimbursement from a person for whose benefit, he has incurred those expenses. This is on the first principle basis and there is no need to take recourse to the principles of quasi-contract or Sections 69 and 70 of the Indian Contract Act. In the present case at hand, the plant is belonging to the applicant Bank. It was, therefore, their primary duty to incur expenses for overhauling, accidental break down etc. Responsibility of the Karkhana was only with respect to the day-to-day expenses. The Karkhana, however, spent money on overhauling because they had to run the plant and keep the plant in a running condition. Money was spent by the Karkhana on that count. It was, therefore, not necessary for the Karkhana to expect that this amount should be reimbursed try the owners of the plant to them. In fact, all the spare parts which were replaced at the time of overhauling, will be ultimately belonging to the Bank, who are owners of the plant because the spare parts, which are purchased by way of replacement would become the property of the applicant Bank once the plant is handed over to the owners i.e. the Bank. Lastly even the balance of convenience is in favour of the Karkhana. It cannot be lost sight of, that whatever amount Karkhana has been paying to the applicant Bank towards user of the bio-gas plant in question is towards the liability of the defendant No. 1 and defendant No. 1 would get credit of these amounts and their liability will be reduced to that extent. If the Karkhana is allowed to adjust the amount of Rs. 1 crore as prayed by them, liability of the company would not be reduced and the defendant No. 1 in any case would be liable to make good deficit caused by non-payment of Rs. 4 lacs per month by the defendant No. 4/ Karkhana. Thus, the applicant Bank would not be put to irreparable loss if the Karkhana is allowed to adjust the amount as prayed. As against this, if the defendant No. 4/Karkhana is not allowed to adjust the amount, it would be put to irreparable loss as it would not be in a position to recover the amount spent for keeping the property of the applicant Bank in order and the applicant Bank would reap the benefits of the same in the long run. The Karkhana cannot recover this amount from the defendant No. 1 company. Thus, the balance of convenience is clearly in favour of the defendant No. 4 Karkhana. Under these circumstances, the impugned order passed by the learned Presiding Officer allowing the application at Exhibit 14 of the Karkhana and suspending the order passed by the High Court on 4.5.1998 was a correct order. No interference is, therefore, warranted. Hence, following order is passed. ORDER Misc. Appeal No. 410/2002 is dismissed.;


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