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CASE NO.: Appeal (civil)  5005 of 2006

PETITIONER: Kores (India) Ltd.

RESPONDENT: Bank of Maharashtra & Ors.

DATE OF JUDGMENT: 16/11/2006

BENCH: H.K. SEMA & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  (Arising out of SLP(C) No.18610 of 2004)

P.K. BALASUBRAMANYAN, J.

               Leave granted.                 Heard both sides.  

1.              On 9.1.1990, M/s Jyoti Chemicals leased out its  industrial undertaking situate in the State of Andhra  Pradesh to the appellant for a term of 11 years on an  annual rent of Rs. 20 lakhs.   A sum of Rs. 11 lakhs was  paid by the appellant as security and every year a sum of  Rs. 1 lakh therefrom was to be adjusted towards the Rs.  20 lakhs payable for that year. It appears that M/s Jyoti  Chemicals had borrowed amounts from the Bank of  Maharashtra on the security of the properties and had  agreed to formally mortgage the properties.  On  14.12.1993, the Bank of Maharashtra filed Suit No. 307 of  1994 on the Original Side of the High Court of Bombay for  recovery of the amount due to it on the basis of the loan  transaction and for specific performance of the alleged  agreement to mortgage the properties included in  Schedule ’B’ to that plaint.  It was pleaded that a  hypothecation had been created in respect of the  machineries in favour of that Bank as far back as on  25.11.1982.  In that suit, the appellant was not originally  made a party.  But the Bank moved an application for  appointment of a receiver for the properties of M/s Jyoti  Chemicals  situate in Thane as well as the industrial  undertaking situate in the State of Andhra Pradesh.  The  application under Order XL Rule 1 of the Code of Civil  Procedure in regard to the industrial undertaking of which  the appellant was the lessee, was rejected by the learned  single judge of that court.  The learned judge noticed that  the loan was advanced by the Bank in the year 1982; that  the Bank had consented to the appellant being put in  possession as a lessee subject to the appellant paying to  the Bank a sum of Rs. 20 lakhs as rent.  The court further  noticed that the amount had not been paid by the  appellant into the Bank from the year 1982 and the suit  was filed by the Bank only in the year 1993.  Also, in the  mean time, M/s Jyoti Chemicals had entered into an  arrangement with Citi Bank for the liquidation of its loan  by directing the appellant to pay the amount of Rs. 20  lakhs to that Bank.  It was also stated that the Bank of  Maharashtra had been negligent in not having taken  prompt steps for recovery of the amounts and under the  circumstances it was not just and convenient to appoint a

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receiver.  

2.              The Bank of Maharashtra filed an appeal before  the Division Bench.   By an interim order dated 4.4.1996,  the Division Bench appointed a receiver, the Court  Receiver, High Court of Bombay, for the industrial  undertaking.  The court also directed the receiver to  appoint the appellant as his agent in respect of the  property on usual terms and conditions without security.   The undertaking including the machinery which was  already in possession of the appellant as a lessee, was  permitted to be continued in the possession of the  appellant.  Subsequently, the Division Bench confirmed  the order appointing the receiver.  It noticed the  contention of the appellant that the court receiver was not  entitled to claim from the appellant anything more than  what the appellant was liable to pay to M/s Jyoti  Chemicals.  The Division Bench did not answer that  contention but directed the appellant to make that  submission before the receiver and observed that the  receiver was bound to take all relevant materials into  consideration.  The order also directed that the appellant  should continue to pay a sum of Rs. 20 lakhs per year to  the receiver who in turn would pay over the said amount  to Citi Bank.  The order also directed that the receiver  should separately fix and collect royalty in respect of the  plant and machinery located in the State of Andhra  Pradesh.  By a subsequent order, the order was modified  by substituting the figure of Rs. 19 lakhs per year as  against Rs. 20 lakhs per year as payable by the appellant  since Rs. 1 lakh out of Rs. 20 lakhs was to be adjusted out  of the sum of Rs. 11 lakhs paid as security.   

3.              The receiver purported to get a valuation of the  plant and machinery.  The valuer suggested a valuation of  Rs. 1,15,16,000/- and reported that the written down  value on depreciation would be Rs. 74,44,600/-.  It was  also suggested by the valuer that 15% of the written down  value would be the quantum of royalty that ought to be  collected.   

4.              In view of the liberty given to the appellant by  the Division Bench to raise its contentions regarding the  liability to pay royalty and its quantum before the receiver,  the appellant raised the contention that the valuer had  grossly over-valued the plant and machinery  and has not  properly calculated the written down value of the 20 years  old machinery and it was not correct to have taken 15% of  the written down value as the royalty payable by the  appellant.  It was also contended that the obligation of the  lessee to M/s Jyoti Chemicals could not be enlarged  merely because a creditor had sued M/s Jyoti Chemicals  and had got a receiver appointed for the properties of M/s  Jyoti Chemicals.  The receiver accepted the written down  value suggested by the valuer but reduced the royalty to  about 10% of the written down value and fixed it at  Rs.8,46,000/- and directed that a sum of Rs. 70,000/- per  month had to be paid by the appellant towards royalty for  the plant and machinery in addition to the sum of Rs. 20  lakhs payable for the immovable property.  When the  fixation of royalty thus, was challenged by the appellant  before the Division Bench, the Division Bench directed  that the appellant could question the amount of royalty  fixed by the court receiver before the single judge and gave  liberty to the single judge to pass an appropriate order.  

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The appellant thereupon moved the learned single judge  and questioned the direction to pay royalty at all and  further questioned the quantum.  Meanwhile, on the  constitution of the Debts Recovery Tribunal, the suit filed  by the Bank of Maharashtra was transferred to the Debts  Recovery Tribunal.  The Debts Recovery Tribunal dealt  with the application of the appellant challenging the  liability imposed on it for paying royalty at Rs. 70,000/-  per month.  The Debts Recovery Tribunal rejected the  challenge.  On the aspect of liability, the Tribunal thought  that the appellant having acquiesced in the order of the  Division Bench regarding liability, the same could not be  questioned and the challenge had to be limited to the  quantum and having considered the approach made by  the receiver it held that there was no reason to interfere  with the quantum of royalty fixed as payable.  The  appellant challenged that order before the Debts Recovery  Appellate Tribunal.  The Appellate Tribunal dismissed the  appeal.  The appellant thereupon approached the High  Court with a Writ Petition.  The High Court took the view  that the order dated 17.12.1998 precluded the appellant  from challenging the liability itself and on the materials  available, there was no reason to interfere with the fixation  of royalty at Rs. 70,000/- per month.  Thus, the Writ  Petition was dismissed by the Division Bench.  It is this  order that is challenged before us by the appellant.

5.              Before considering the contentions raised by  learned counsel for the appellant we have to notice that  Citi Bank to whom the sum of Rs. 19 lakhs was payable  by the appellant described as rent of the immovable  property by the order of the High Court, has not been  impleaded in this appeal.  It is therefore not possible to  pass any order in this appeal that may prejudice Citi Bank  or that may interfere with the working of the order passed  by the High Court in favour of Citi Bank.  This aspect may  have relevance when we consider some of the contentions  raised on behalf of the appellant by their Senior Counsel.

6.              It is contended by the learned Senior Counsel  that the appellant was a lessee long prior to the filing of  the suit by the Bank of Maharashtra, a creditor, against  M/s Jyoti Chemicals and the lease itself was granted to  the appellant by M/s Jyoti Chemicals with the consent of  the Bank.  Learned counsel submitted that merely  because a creditor had filed a suit against M/s Jyoti  Chemicals and got a receiver appointed, the liability and  obligation of the lessee could not be enhanced and the  obligation of the lessee would remain the same as the one  contained in the indenture of lease.  Learned counsel  sought support from the decision of this Court in  Anthony C. Leo Vs. Nandlal Bal Krishnan & Ors. [(1996)  Supp. 7 S.C.R. 669] for this position.  This contention is  sought to be met on behalf of the Bank mainly on the  basis that the appellant had acquiesced in the earlier  order of the Division Bench of the High Court directing  that Rs. 20 lakhs, the agreed lease amount, is to be paid  towards the rent of the immovable property and that the  appellant would be liable to pay royalty for the plant and  machinery  in addition to that amount.  We are not  impressed with the argument.  A litigant is not bound to  appeal against every interlocutory order passed against  him; he can wait until the final order is passed and in  appeal against that final order challenge all orders leading  to the final order and affecting that decision.  Stated the

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Privy Council in Moheshur Singh Vs. The Bengal  Government [(1859) 7 Moo Ind. App. 283] :- "We are not aware of any law or Regulation  prevailing in India which renders it  imperative upon the suitor to appeal from  every interlocutory order by which he may  conceive himself aggrieved, under the  penalty, if he does not do so, of forfeiting  forever the benefit of the consideration of  the Appellate Court.  No authority or  precedent has been cited in support of such  a proposition, and we cannot conceive that  anything would be more detrimental to the  expeditious administration of justice than  the establishment of a rule which would  impose upon the suitor the necessity of so  appealing, whereby on the one hand he  might be harassed with endless expense  and delay, and on the other inflict upon his  opponent similar calamities."

The two exceptions to the rule are Section 105(2) of the  Code of Civil Procedure which precludes an order of  remand being challenged at a subsequent stage, while  challenging the decree passed pursuant to the order of  remand and Section 97 of the Code where while filing an  appeal from the final decree, a litigant is not entitled to  question the preliminary decree on which it is based and  which had earlier become final.  Since the Code of Civil  Procedure is not applicable in terms to the Supreme  Court, it was held by this Court in Satyadhayan Ghosal &  Ors. Vs. Sm. Deorajin Debi & Anr. [(1960) 3 S.C.R. 590]  and in Lonankutty Vs. Thomman & Anr. [(1976) Supp.  S.C.R. 74 at page 81] that even Section 105 (2) of the  Code, did not preclude this Court from examining the  correctness of the earlier order of remand passed by the  High Court in an appeal arising from the decree passed  subsequent to the remand.  But as regards the High  Court, the order of remand would be final.  (see the  decisions in Nainsingh Vs. Koonwarjee & Ors. [(1971) 1  S.C.R. 207] and Sita Ram Goel Vs. Sukhnandi Dayal &  Anr. [(1972) 1 S.C.R. 836]. Therefore, on principle, the  argument that the appellant cannot challenge in this  appeal the order holding that he should pay royalty for the  plant and machinery in addition to the rent on the ground  that as far as the High Court is concerned it had become  final, cannot be accepted.  

7.              But, here we find some difficulty in accepting  this contention of the appellant in the absence of Citi  Bank from the array of parties.  Any finding on liability  different from the one rendered by the High Court by us  and another arrangement regarding payment, may have  an impact on the order of the High Court directing that  Rs. 19 lakhs payable by the appellant (after adjusting Rs.  1 lakh from the security) be paid to Citi Bank on the basis  that separate royalty is payable for the plant and  machinery and that is liable to be paid to the Bank of  Maharashtra.  To counter this position, learned Senior  Counsel submitted that the appellant had surrendered the  undertaking on 30.9.2000 on the expiry of the term of the  lease and the Bank of Maharashtra has subsequently sold  the undertaking and had recovered substantial amounts  towards the liability of M/s Jyoti Chemicals and under  those circumstances this Court could pass an order

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holding that no royalty was payable by the appellant to  the Bank of Maharashtra.  We also find from the  particulars furnished by the appellant itself that the  appellant was permitted to continue as agent of the  receiver on usual terms and conditions without security  and royalty for the plant and machinery was fixed  pursuant thereto.  We may also notice that a specific  ground challenging the order holding that royalty was  payable is also not set out in the grounds of appeal so as  to put the respondent Bank on notice of such a contention  though of course reference is made to the decision in  Anthony C. Leo (supra) and the obligations of the  appellant as a lessee being confined to the rent payable.   The appellant has also acquiesced in this part of the order  since the appellant could have, according to us, validly  contended that there was no reason to dispossess it  during the subsistence of the lease and it would have been  for the court to direct that the sum of Rs. 19 lakhs  payable by the appellant should be paid to the receiver  and not to M/s Jyoti Chemicals.  We have already  indicated that the order we may pass may have an impact  on the right of Citi Bank in collecting the sum of Rs. 19  lakhs per year during the subsistence of the lease, since,  we may have to find on the terms of the lease deed  executed by the appellant that the rent for the immovable  property was fixed only at Rs.60,000/- per year and the  rest of the rent was royalty for the plant and machinery  which was also specified as immovable property therein  and that would raise questions as to whether the plant  and machinery  having been hypothecated to the Bank of  Maharashtra, it did not have a priority to claim that  amount as against Citi Bank.  In this situation, we are  satisfied that though legally the appellant could have  challenged its obligation to pay anything more than the  amount agreed upon under the indenture of lease, on the  facts and in the circumstances of the case, the appellant  has precluded itself from raising that challenge before us  by not impleading a necessary party who might be affected  by our decision and by acquiescing in that decision.  We,  therefore, overrule that contention of learned Senior  Counsel for the appellant.

8.              Then comes the question as to whether there is  any justification in interfering with the quantum of royalty  fixed by the receiver and approved by the Debts Recovery  Tribunal and the High Court.  Learned counsel for the  appellant points out that even at the time of entering into  the lease transaction, the parties had valued the plant and  machinery at Rs. 11,01,912.44 and that valuation was as  on 30.6.1985 and if at all, there was only further  depreciation of the value and under the circumstances the  valuer had grossly overvalued the plant and machinery at  Rs.1,15,16,000/- and in determining the written down  value at Rs. 74,44,600/-.  Learned counsel also submitted  that 10% of the written down value fixed as royalty by the  court receiver and approved by the court, was also on the  higher side.  Learned counsel for the Bank on the other  hand contended that there was no proper or tenable  objection to the valuation made by the valuer and it was  too late in the day for the appellant to question the  valuation.  Learned counsel further submitted that there  was no reason to interfere with the acceptance of that  valuation and the fixation of royalty at 10% thereof by the  receiver.  He also submitted that 10% of the written down  value was reasonable under the circumstances.  

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9.              We think that on the facts and in the  circumstances of the case, taking note of the various  aspects that had been projected before us, it would be  appropriate to fix the royalty at 6% of the written down  value as found by the valuer.  That would mean that the  royalty would come to Rs.4,46,676/- per year.  We think it  appropriate to round off that figure to Rs.5 lakhs per year.   The order of the receiver as affirmed by the Debts  Recovery Tribunal and the High Court fixing the quantum  at Rs. 70,000/- per month therefore requires modification.   We therefore modify that part of the order and hold that  the royalty payable by the appellant per year in addition to  the sum of Rs. 20 lakhs (minus Rs. 1 lakh to be adjusted  out of the security) would be Rs. 5 lakhs and the yearly  sum at that rate has to be paid towards liability for the  period from 5.7.1996 to 30.9.2000.   

10.             It is seen that the appellant had deposited a sum  of Rs. 34,99,232.87 on 12.10.2004 in the light of the order  passed by the Debts Recovery Tribunal and the extension  of time granted by this Court for making that payment.   Out of this amount, the Debts Recovery Tribunal will  disburse to the Bank of Maharashtra royalty at the rate of  Rs.5 lakhs per year for the relevant period and refund the  balance to the appellant.  If the amount deposited had  earned any interest, the interest on the sum of Rs. 5 lakhs  per year will also be disbursed to the respondent Bank.   Since the appellant had surrendered the premises on  expiry of the term on 30.9.2000, the above adjustment  would put an end to the obligation of the appellant  imposed by the court on appointing a receiver at the  instance of the Bank of Maharashtra.  The balance  amount with interest, if any, would be refunded to the  appellant.   

11.             The appeal is thus allowed as above to the  limited extent with a direction to the parties to suffer their  respective costs in this Court.