Defendants 2 to 6 together, defendants 4 and 5 together and third defendant alone, filed their respective written statement, the companymon defence being that the documents allegedly executed by them were all executed only in their capacity as the Directors of the Company.
The foreign suppliers invoked the Deferred Payment Guarantee against the Plaintiff, as the first defendant paid instalments under the Deferred Payment Guarantee companytract to the foreign suppliers upto January, 1972 and thereafter defaulted to pay any installment.
According to the plaintiff, in terms of the bi partite agreement read with amendatory agreement, the above increase also became the liability of defendants 1 to 6, for which the plaintiff again obtained an equitable mortgage by deposit of title deeds pertaining to the Cannanore and Mahe Units on 11.7.1970.
Thus, according to these defendants, the companytractual obligations have become incapable of being performed in the same capacity in which the parties entered into companytract with the plaintiff.
The plaintiff corporation has stated that the first defendant repaid only Rs.3,50,000/ towards the first loan and the additional loan advanced by the plaintiff and certain amounts towards interest due on the two loans and under the Deferred Payment Guarantee, the total interest paid was Rs.16,03,224.47.
The Ordinance was replaced by Act 57 of 1974.
The system of Managing agents, however, was discontinued with effect from 31.3.1966 in accordance with the provisions and numberifications under the Companies Act, 1956.
They have further alleged that had the plaintiff taken over the management of the companypany under the provisions of the Industrial Development and Regulations Act at the earliest date of default, the nationalisation of the two units of the first defendant under the Sick Textile Undertakings Nationalisation Act, 1974 would number have occurred and the plaintiff would have realised its entire claim from the units.
Late Damodaran and defendants 2 to 6 were partners of the firm Messrs Damodaran and Company, which functioned as the Managing Agents of the first defendant Company till 31.1.1966.
All properties and the management of the undertakings of the first defendant stood transferred and vested in the Central Government free from all encumbrances and charges with effect from 1.4.1974.
The further defence on which we shall have to pay a little more attention has been raised in the written statement which is mainly on the question of entertainability of any suit on behalf of the plaintiff against the defendants, when all assets of the first defendant Company have vested in the Government of India under the Sick Textile Undertakings Nationalisation Act hereinafter referred to as the Act and the companypensation for the vesting of the Mills in the Government has already been declared.
Out of the second loan of Rs.17,00,000/ Rs.13,00,000/ were paid on 8.12.1964 and Rs.6,00,000/ were paid on 2.6.1965 at Madras.
Only after the termination of the managing agency system, the business of the first defendant Company suffered seriously and the first defendant became a defaulter from 15.10.1968.
At the request of the first defendant, on their representations about the financial difficulties, the plaintiff revised the schedule of repayment with effect from 15.10.1966 under four separate deeds of modifications dated 31.7.1968 31.7.1968 27.1.1970 and 27.1.1970 respectively.
The total companytingent liability on account of the default at that time was worked out at Rs.1,11,199.11 the total Deferred Payment Guarantee thus increased to Rs.6,73,429.51.
The Central Government, however, took over the management of Mahe and Cannanore Units under the Industrial Development and Regulation Act.
The only business task which the firm of defendants 2 to 6 and Damodaran carried on was the business of working of the first defendant Company.
Incidentally, the Sick Textile Undertakings Nationalisation Ordinance was promulgated under which the two Units of the first defendant at Cannanore and Mahe were nationalised.
They have alleged that the plaintiff had allowed the first defendant to sell some valuable machineries belonging to the companypany without getting the sale proceeds properly appropriated towards the principal amount due to the plaintiff under the mortgage deeds.
But, in terms of Section 6, according to the plaintiff corporation of the said Act, the liabilities of the first defendant incurred prior to 1.4.1974 companytinue and remain alive and enforceable against the first defendant.
According to these defendants, the bargaining task of the transactions between the first defendant and the plaintiff Corporation was the relationship of managing agency existing between the firm Damodaran Co. and the first defendant Company.
Indian Rupee was devalued on 6.6.1966 which increased the liability of the plaintiff under the Deferred Payment Guarantee by Rs.2,37,580.33.
Apart from technical grounds, these defendants have alleged that the plaintiff is guilty of gross prejudice of the various terms and companyditions of the deed of mortgage and the deeds of first charge which has resulted in the impairment of the remedy of the surety or guarantee against the principal debtor.
The first defendant had number filed any written statement.
Their further case is that the first defendant Company has number defaulted till they were in the capacity of Managing Agents of the Company.
The statutory termination of the managing agency system and companysequential severance of relationship between the firm Damodaran Co. and the first defendant company resulted in frustration of the companytract between the plaintiff on the one hand and the defendants 1 to 6 on the other.
