N.Sankaranarayanan v. S.Murugan

IN THE HIGH COURT OF JUDICATURE AT MADRAS

ORDER RESERVED ON: 09.10.2017 ORDER PRONOUNCED ON: 24.10.2017

CORAM:

THE HONOURABLE MR.JUSTICE R.SUBRAMANIAN Application No.6343 of 2013 in CS No.980 of 2007 and Application Nos.5660 of 2015 in CS No.937 of 2007 Appl. No.6343 of 2013 The Hon'ble Mr. Justice K.P.Sivasubramaniam (Retd.) Receiver of M/s.Aruna Theatres & Enterprises Pvt Ltd., 3, Pillar Road, Ashok Nagar, Chennai 83.

... Applicant Vs

1. M/s. Aruna Theatres & Enterprises Pvt Ltd., Rep by its Directors, 1.Mr.K.Murugan and 2. Mr.K.Muthukrishnan having its Reg. Office at No.9 Davidson Street, Chennai 600 001 and having its Corporate Office at No.3, Pillar road, Ashok Nagar, Chennai - 600 083.

2. M/s. Karur Vysya Bank Ltd Rep by its Deputy Manager, Mr.J.Hariharan, Divisional Office, K.V.B. Towers, 568, Anna Salai, Teynampet, Chennai 600 018.

3. Mr.S.Paramasivampillai

4. M/s. Ashoka Associates, Partnership Firm, Rep by its Partner, Mr.V.Muniratham, office at No.9 Davidson Street, Chennai 600 001.

5. M/s. Lavanya and Company, Proprietorship firm, Rep by Ms. Lavanya Narayanan, No.245/6, R.K.Mutt Road, Mylapore, Chennai 600 004.

6. M/s.Pyramid Saimira Theatre Ltd., Rep. By its Director, No.672, 2nd Floor, Temple Towers, Anna Salai, Nandanam, Chennai 600 035.

7. M/s.Annai Mookambikai Flour Mills Pvt. Ltd., No.9 Davidson street, Chennai.

Rep. By its Director, Mr.S.Muthuvel ... Respondents

8. Mr.M.Kalyanasundaram ... proposed party Appl. No.5660/2015 N.Sankaranarayanan ... Applicant Vs

1. S.Murugan

2. Karur Vysya Bank Ltd Rep by its Deputy Manager, Mr.J.Hariharan, Divisional Office, K.V.B. Towers, 568, Anna Salai, Teynampet, Chennai 600 092.

3. Paramasivam Pillai

4. M/s. Ashoka Associates, Partnership Firm, Rep by its Partner, Mr.V.Muniratham, office at No.9 Davidson Street, Chennai 600 001.

5. M/s.Pyramid Saimira Theatre Ltd., No.672, 2nd Floor, Temple Towers, Anna Salai, Nandanam, Chennai 600 035.

6. M/s. Lavanya and Company, A Proprietorship firm, Rep by Mr. N.Narayanan, No.245/6, R.K.Mutt Road, Mylapore, Chennai 600 004

7. The Hon'ble Receiver, Mr.Justice K.Swamidurai M/s.Aruna Theatres & Enterprises Pvt Ltd., No.6, Davidson Street, Chennai 600 001.

8. M/s. Aruna Theatres & Enterprises Pvt Ltd., Rep by its Board of Directors, Having its regd office at No.3, Pillar road, Ashok Nagar, Chennai - 600 083. 9 M/s.Annai Mookambikai Flour Mills Pvt. Ltd., No.9 Davidson street T.Nagar, Chennai-600 017 10 K.Muthusamy 11 Mrs.N.Arunachalathammal 12 Mr.K.Shanmugasundaram 13 S.Ulagammal 14 M.Sharmila 15 K.Muthu kalyanasundaram Minor N/F S.Ulagammal 16 S.Vallinayagam 17 M.Indira Muthvel 18 S.Anandha Saraswathi 19 M.Bagavathi 20 P.Krishnamoorthy 21 B.Muthulakshmi 22 M.Sundari 23 R.Vallidevi 24 K.Muthulakshmi 25 S.Indira 26 V.Bhuvaneswari 27 K.Muthuselvakumar 28 S.Ramalingam

29 S.Sankaran 30 S.Narayanan 31 S.Paramasivan 32 S.Selvaraj 33 N.Gomathinayagam 34 P.Muthurajeshwari 35 G.Vasugi 36 R.Lakshmi 37 K.Murugan 38 K.Muthukrishnan ..Respondents Prayer in Appl. No.6343 of 2013: Application is filed under Order XIV Rule VIII of O.S.Rules read with Section 151 of the Code of Civil Procedure, praying to direct the said respondent Mr.M.Kalyanasundaram to vacate and hand over possession of Udhayam Kalyanamandapam, Chennai 600 083, forthwith or to continue on such terms.

Prayer in Appl. No.5660 of 2015: Application is filed under Order XIV Rule VIII of O.S.Rules read with Section 151 of the Code of Civil Procedure, praying to direct the Receiver appointed by this Court in management and administration of the 7th Respondent / Defendant Company to terminate the lease of the said property viz. Udayam Kalyana Mandapam earlier let out to Mr.M.Kalyanasundarm on 28.06.2002 for a period of 10 years and re-let the property to the applicant fixing the monthly rent at Rs.3,00,000/- as it will be in the interest of the company.

Appl. No.6343 of 2013 For Applicant : Mr.S.Kasikumar For Respondents: Mr.A.V.Radhakrishnan for D 1 M/s..N.V.S. Associates for Ds 2 & 3 Mr.R.Sagadevan for D4 Ms.G.Pavithra for D5 Mr.K.S.Natarajan for D6 Mr.D.Janarthanan for D7 Appl. No.5660 of 2015 For Applicant : Mr.R.Rajesh For Respondents Mr.Mr.A.V.Radhakrishnan for D 1 M/s..N.V.S. Associates for Ds 2 & 3 Mr.R.Sagadevan for D4 Ms.G.Pavithra for D5 Mr.K.S.Natarajan for D6 Mr.D.Janarthanan for D7 Mr.S.Thiruvenkadam for D8 Mr.V.Ramakrishnan for D9 Mr.A.K.Raghavelu for D10 Mr.K.S.Viswanathan for D 37 & 38 C O M M O N O R D E R These proceedings arise out of Memos filed by the Receiver appointed by this Court - viz., Hon'ble Mr. Justice K.Swamidurai (Retd.)

2. The original suit, namely CS No.937 of 2007 relates to the proceedings initiated by the 1st defendant therein, namely Karur Vysya Bank Ltd, under the SARFAESI Act, seeking

to recover the debts due by the 8th defendant in the said suit, namely Annai Mookambikai Flour Mills Pvt Ltd., as against the properties of the 7th defendant in the said suit, namely M/s. Aruna Theatre & Enterprisers Pvt Ltd. Pending the said suit, a Receiver was appointed by this Court to manage the affairs of the 7th defendant, namely M/s. Aruna Theatre & Enterprisers Pvt Ltd. It appears from the records that the dues of the Bank have now been settled by the 7th defendant by borrowing funds from the 4th and 5th defendant in the suit, namely M/s.Pyramid Saimira Theatre Ltd.,and M/s. Lavanya and Co. It is also admitted by the parties that there was a proposal to sell the Cinema Theatre Complex belonging to the 7th defendant in the suit and pay the creditors. However, the sale did not fructify. Though a company by name M/s.

Vision X Global Media Entertainment Ltd., came forward to purchase the theatre complex and also paid a sum of Rs.9,50,10,000/- as earnest money for bidding at the auction in which it became the successful bidder, it could not pay the balance amount as per its bid. There were certain proceedings regarding repayment of the earnest money paid by the said bidder and Hon'ble First Bench of this Court by an order made in OSA Nos.41 and 42 of 2016, dated 23.03.2016 had in fact directed repayment of the Earnest Money sans interest.

order dated 23.03.2016 is the subject matter of an appeal before the Hon'ble Supreme Court in SLP No.13335 of 2017.

3. Be that as it may, we are now concerned with the repayment of the loan that was advanced by M/s.Lavanya and Co., namely the 4th defendant in the suit. The borrowing of a sum of Rs.12,60,00,000/- from M/s.Lavanya and Co., is not in dispute. And as per the directions of this Court dated 19.08.2009, the Receiver, who was in-charge of the affairs of the 8th defendant had paid a sum of Rs.1,01,00,000/- towards principal, the said sum was paid on 25.08.2009. It is also seen from the report filed by the Receiver on 02.02.2012, that by an order dated 30.09.2009 made in OSA Nos.44 to 47, 101 to 110 and 188 of 2008, the Receiver was directed to pay a sum of Rs.25,00,000/- per month to the creditor till further orders are made and the said payment shall commence from 01.10.2009.

4. It appears that there were some defaults in payment of a sum of Rs.25,00,000/- per month as per the directions of the Division Bench. It is also not in dispute that M/s. Lavanya & Co., namely the 4th defendant in the suit would be entitled to 14% simple interest on the amount advanced by it. It is also not in dispute that the first two payments made to M/s. Lavanya & Co., of a sum of Rs.1,89,00,000/- on

25.06.2009 and a sum of Rs.1,01,00,000/- on 26.08.2009 were adjusted towards the principal and the principal that was due as on 25.08.2009 was Rs.9,70,00,000/-. By that time the first payment was made on 25.06.2009, there was an accrued interest outstanding of Rs.3,02,05,479/-, despite the same, the second payment of Rs.1,01,00,000/- was also adjusted towards the principal leaving a balance of Rs.9,70,00,000/- towards principal and Rs.3,26,29,167/- towards interest. Thereafter whenever amounts were paid by the Receiver those amounts were adjusted towards interest and the principal depending upon the liability for payment of interest that was subsisting as on the date of payment. Since there were disputes raised by the creditor, namely M/s.Lavanya & Co., and the debtor, namely the 8th defendant in the suit, M/s.

Aruna Theatre & Enterprisers Pvt Ltd., regarding the amount payable to the creditor, the Receiver had filed a Memo on 14.03.2015, seeking determination of the amounts due from the Theatre to M/s. Lavanya & Co. While passing orders in OSA Nos.41 and 42 of 2016, on 23.03.

"On the issue as to the quantification of the amount due to the 6th respondent-creditor, namely M/s. Lavanya and Co., the parties have agreed that it will be determined by the Receiver as per the earlier order of the Division Benches of this

Court and accordingly released to the sixth respondent-creditor."

5. Pursuant to the above said direction it is seen that the Receiver had been writing to M/s.Lavanya and Co., and its counsel requiring them to be present before him for quantifying the amount payable to the Receiver. It is also seen that the creditor, namely M/s.Lavanya and Co., had sent evasive replies seeking time. At one point of time the creditor M/s. Lavanya & Co., had stated that the Receiver would proceed to determine the amount, on the basis of the affidavit, filed by the creditor in OSA No.42 of 2016. It is seen from the Memo of the Receiver dated 12.04.2016, wherein he has stated that the creditor, namely M/s.Lavanya and Co., is not co-operating with him to arrive at the quantum of the amount payable to them. In the mean time the debtor, namely M/s. Aruna Theatre & Enterprisers Pvt Ltd., has also been writing letters through their counsel seeking co-operation in the matter of determination of the amounts payable to M/s.Lavanya and Co.

6. The dispute essentially revolves around the adjustment of the amounts paid either towards interest or towards principal. The debtor namely M/s. Aruna Theatre & Enterprisers Pvt Ltd., has been maintaining that the amounts

paid by the Receiver should have been adjusted towards principal first and then towards interest, whereas the creditor, namely M/s.Lavanya and Co., has been insisting on the adjustment of the amounts towards interest first, then towards principal. It is also made clear by the creditor, namely M/s.Lavanya and Co., that the first two payments of Rs.1,89,00,000/- made on 25.06.2009 and Rs.1,01,00,000/- made on 26.08.2009, were adjusted towards principal and not towards interest. The Receiver has filed a Memo on 12.06.2017, wherein he had set out that the rival claims of the parties, wherein the debtor Company contended that a sum of Rs.18,29,00,000/- has been paid to M/s.Lavanya and Co., and therefore, there is only a balance of Rs.1,48,811/- due and payable. However, the Receiver has stated that the creditor, namely M/s. Lavanya and Co., has been persistant in their demand for payment of Rs.25,00,000/- every month without coming forward to quantify the amount due to them. An additional Memo was also filed by the Receiver on 22.06.2017.

7. In reply to the said memos, M/s. Lavanya and Co., represented by its Proprietrix had filed the affidavit before this Court on 30.06.2017. In the said affidavit the creditor has extracted the earlier orders of the Division Benches of this Court made in these proceedings. By an order dated

31.10.2008, the Division Bench has fixed the interest payable on the loan advanced by M/s.Lavanya and Co., at 14% per annum (simple interest). By an order dated 25.06.2009 a Division Bench of this Court had recorded the undertaking by the Senior Counsel for M/s.Aruna Theatre & Enterprisers Pvt Ltd., that necessary arrangements were being made for sale of the theatre complex and the amount due to M/s. Lavanya and Co., would be repaid to them within 45 days. Since there was no progress and the undertaking was not complied with, the Division Bench by an order dated 30.09.2009, directed the debtor, namely M/s.Aruna Theatre & Enterprisers Pvt Ltd., to pay Rs.25,00,000/- per month to M/s. Lavanya and Co., with effect from 01.10.2009. It is also pointed out that the said sum of Rs.25,00,000/- was not paid regularly and it was reduced to Rs.20,00,000/- and then it was further reduced to Rs.15,00,000/- and then to Rs.10,00,000/- per month.

8. From the above facts, it is clear that the difference between the claim made by the creditor, namely M/s. Lavanya and Co., and the debtor, namely M/s.Aruna Theatre & Enterprisers Pvt Ltd., is because of the dispute in adjusting the monies paid by the debtor towards the interest first and then towards the principal as adopted by the creditor. The parties rely upon the orders passed by the Division Bench of this Court dated 14.07.2009 in OSA

Nos.44 to 47, 101 to 110 and 188 of 2008. The Division Bench has in the said order stated as follows: "Necessary steps shall be taken by the company and the Receiver to pay a sum of Rs.1.89 Crore (Rupees One Crore and Eighty Nine Lakhs only) to defendant No.5, namely M/s. Lavanya & Co., as part payment of the amount repayable to such defendants. Such amounts shall be adjusted towards the principal amount repayable to defendant No.5 as has been submitted at the bar."

On 19.09.2009, the Division Bench has passed further order, which reads as follows:

"When the matters are taken up by this Court, it was represented that pursuant to the earlier order dated 14.07.2009 Rs.1.89 Crores was paid to M/s. Lavanya & Co., and a copy of the letter was filed to the effect that Rs.1.01 Crores towards principal is actually ready and is payable by the company to M/s.Lavanya & Co., through the Receiver and they seek permission to pay the same. Permission is granted accordingly."

9. These orders passed by the Division Bench of this Court are relied upon by debtor to claim that all payments

made by the debtor, namely M/s.Aruna Theatre & Enterprisers Pvt Ltd., shall be adjusted first towards the principal and later towards the interest. The creditor, namely M/s. Lavanya and Co., would however, contend that it is only with reference to the payments of Rs.1,89,00,000/- and Rs.1,01,00,000/- made on 25.06.2009 and 26.08.2009, the stipulation made by the Bench that it should be adjusted towards the principal first could be applied and not to the subsequent payments which were made in installments by the Receiver. When these matters were listed before Hon'ble Mr.Justice C.V.Karthikeyan, the learned Judge passed the following order dated 22.09.2017.

"As directed, two Statement of Accounts have been produced for consideration. One Statement of Account has been forwarded by Aruna Theatres & Enterprisers (P) Ltd., represented by learned Counsel Mr.C.Umashankar and another by M/s. Lavany & Co., represented by learned senior counsel Mr.Ar.L.Sundaresan for Mr.R.Sagadevan, learned Counsel.

2. In both the Statements, the earlier substantial payments of Rs.1,89,00,000/- on 09.10.2007 and Rs.1,01,00,000/- on 26.06.2009 have been adjusted towards the outstanding principal.

3. The subsequent monthly payments have been adjusted towards the outstanding principal and accrued interest.

4.

In the Statement produced by Mr.C.Umashankar, learned counsel, the total outstanding is given as Rs.6,50,74,539/-.

5.

In the Statement produced by Mr.Ar.L.Sundaresan, learned Senior Counsel, the total outstanding is given as Rs.6,54,89,778/-.

6. In both the statements, interest has been worked out @ 14% per annum.

7. A sum of Rs.2,00,00,000/- is produced by Mr.C.Umashankar, by way of Cheque bearing No.207543 drawn on Indian Bank, Ashok Nagar Branch in the name of M/s. Lavanya & Company. This cheque is handed over to Mr.R.Sagadevan, learned counsel on record for M/s. Lavanya & Co. Call the matter again on 04.10.2017 to report realization of the cheque on presentation for payment.

8. It is stated that the above amount can be adjusted to the total outstanding of Rs.6,54,86,778/- as per the statement produced on behalf of M/s.Lavanya & Co., and it is further represented that the balance of Rs.4,54,86,778/- shall be paid on or before 23.10.2017.

9. An objection had been raised by Mr.K.S.Viswanathan, learned counsel appearing for the shareholders. However, it is to be pointed out that payments are being made only as per earlier directions of this court commencing from 2007.

10. Call again on 04.10.2017."

10. However, Mr.K.S.Viswanathan, learned counsel appearing for the defendants 37 and 38 in the suit would contend that the Receiver had in fact taken a stand that the amount payable to M/s.Lavanya and Co., is only of Rs.1,48,811/- and therefore, the claim that the amount payable to M/s.Lavanya and Co., is somewhere in the region of Rs.6,00,00,000/- shall not be accepted by this Court. It is also the contention of the learned counsel that since the order in OSA Nos.41 and 42 of 2016, dated 23.03.2016, passed by this Court had been stayed by the Hon'ble Supreme Court in SLP No.13335 of 2016, no payment can be made to the creditor, namely M/s.Lavanya and Co. The learned counsel however, would make it clear that he is not against the payment being made to the creditor, but he would express his reservations on the manner in which the amount is sought to be paid.

11. Insofar as the claim of the defendants 37 and 38 is that the order of the Division bench dated 23.03.2016, have been stayed by the Supreme Court in SLP No.13335 of 2016, I am unable to countenance the said submission of the learned counsel for the following reasons.

1. OSA Nos. 41 and 42 of 2016 arose out of the proceedings for repayment of the earnest money paid by intending purchaser and the same had

nothing to do with the payment of the debt due to M/s.Lavanya and Co.

2. The directions issued by the Division Benches earlier on 14.07.2009 and 19.09.2009, have not been stayed by the Hon'ble Supreme Court.

Of course, there is a prohibition against the debtor Company, namely M/s.Aruna Theatre & Enterprisers Pvt Ltd., from borrowing monies for repayment of M/s.Lavanya and Co. Mr.Umashankar, learned counsel appearing for the debtor company would make it clear that they are not borrowing any money for repayment of the loan.

12. The second contention of Mr.K.S.Viswanathan, learned counsel is the manner in which the monies are sought to be paid to M/s, Lavanya and Co. He would contend that the Receiver had filed a Memo stating that the amount due to M/s. Lavanya and Co., is Rs.1,48,811/-. Therefore, the Receiver cannot now pay a sum of Rs.6,54,00,000/- or thereabouts in discharge of the said debt. I am afraid of the said submission of Mr.K.S.Viswanathan is because of misreading of the report of the Receiver. The Hon'ble Receiver has only said that when the Company takes a plea that what is payable is only Rs.1,48,811/-, M//s. Lavanya

and Co., is insisting on payment of Rs.25,00,000/- per month as per the directions of the Division Bench. The Receiver has nowhere stated that the amount payable to M/s.Lavanya and Co., has been arrived or determined at Rs.1,48,811/-, In his report dated 12.06.2017, he has only pointed out the various correspondence and reiterated the claims of the debtor company as well as the creditor, namely M/s.Lavanya and Co. As already pointed out by me, the difference in the amount arises because of the application of the amounts paid by the debtor Company to M/s.Lavanya and Co. It is very clear from the earlier orders of the Division Benches dated 14.07.2009 and 30.09.2009 that it is only a sum of Rs.1,89,00,000/- and a sum of Rs.1,01,00,000/- paid on 25.06.2009 and 26.08.

2009 are to be adjusted towards the principal and thereafter, the Hon'ble Receiver was directed to pay Rs.25,00,000/- per month to M/s.Lavanya and Co. There is no direction by the Division Bench to adjust the amounts due towards the principal or interest. Wherever debt is repaid in installments it is normal practice for the creditor to adjust the amounts paid first towards interest and then the amount, if any, remaining will be adjusted towards the principal payable.

13. A five Judge Bench of the Hon'ble Supreme Court in Gurpreet Singh v. Union of India, reported in 2006 (8) SCC

457, has made it clear that the rule of appropriation, "namely the act of setting up apart or assigning a thing of substance to a particular use or person to the exclusion of others" should be applied in repayment of debts due and insofar as such appropriation is concerned any amount paid should be first adjusted towards the interest and the balance if any should be adjusted towards the principal. Therefore, when the decree or order of the Court is silent regarding the adjustment, the rule of appropriation as held by the Hon'ble Supreme Court in Gurpreet Singh's case, will have to be applied. If that be so, the contention of the learned counsel Mr.K.S.Viswanathan, that the amount due to the creditor, namely M/s. Lavanya and Co., is only to the tune of Rs.

1,48,811/- cannot be accepted because admittedly, the said amount is arrived at by adopting a wrong principal of appropriation. As per the direction issued by Hon'ble Mr.Justice C.V.Karthikeyan, in the earlier order extracted above, both the parties have filed their respective calculations. The Hon'ble Receiver has also filed a report, after referring the matter to the Chartered Accountant, namely M/s.R.Krishnaswami & Co. As per the report of the Chartered Accountant, the balance payable to M/s.Lavanya and Co., according to their accounts has been validated at Rs.6,53,62,585/-, There is a difference of Rs.

between the amount arrived at by M/s. Lavanya and Co., and the amount validated by the Chartered Accountant. Insofar as the statement of account submitted by the debtor company, namely M/s.Aruna Theatre & Enterprisers Pvt Ltd., the amount arrived by the Chartered Accountant is Rs.6,50,64,681/-, whereas the amount arrived at by the Company is Rs.6,50,74,539/- and there is a difference of Rs.9,858/- between the two calculations. From the statement of accounts filed by both the debtor company, namely M/s.Aruna Theatre & Enterprisers Pvt Ltd., as well as the creditor namely Lavanya and Co., it could be seen that the difference of about Rs.3,00,000/- and odd arises because of the calculation of the number of days while levying interest. M/s.Aruna Theatre & Enterprisers Pvt Ltd.

, had taken the date of issue of the cheque as date of payment, while the creditor, namely M/s.Lavanya and Co., has taken the date of realization of the cheque as the date of payment. I am of the considered opinion that the method adopted by the creditor, namely M/s. Lavanya & Co., ie., taking the date of realization, is just and proper. Therefore the amount due and payable to M/s. Lavanya and Co., is determined at Rs.6,53,62,585/-. On 22.09.2017, the Hon'ble Receiver had issued a cheque for Rs.2,00,00,000/- and the same should be given credit to. Even in the order dated 22.09.

been stated that the balance amount of Rs.4,54,86,778/- is to be paid on or before 23.10.2017. A further sum of Rs.1,50,00,000/- was paid on 04.10.2017 by the Receiver. Therefore, out of the sum of Rs.6,53,62,585/- determined by me, a sum of Rs.3,50,00,000/- has been paid till date leaving a balance of Rs.3,03,62,585/- .

14. In fine, the amount payable to M/s.Lavanya and Co., is determined at Rs.6,53,62,585 and after deducting the payments made on 22.09.2017 and on 04.10.2017, there is a balance of Rs.3,03,62,585/- to be paid in full quit. Therefore, the Receiver is permitted to pay the balance amount as stated above to M/s. Lavanya and Co. However, there will be no order as to costs in the circumstances of the case.

sd/.R.S.M.J 24.10.2017 //Certified to be a true copy// Dated this the day of 2017 R.s/29.11.217 COURT OFFICER From 25.09.2008 the Registry is issuing certified copies of the Order/Judgment Decree in this format.