Featured image for Supreme Court Judgment dated 24-09-2018 in case of petitioner name M/s Empee Distilleries Limited vs M/s Gimpex Private Ltd. & Anr.
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Commercial Dispute: Supreme Court Directs Bank Guarantee in Business Transaction Case

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The case of M/s Empee Distilleries Limited & Ors. vs. M/s Gimpex Private Ltd. & Anr. involves a commercial dispute over the recovery of dues from business transactions related to the supply of coal. The Supreme Court had to determine whether an order restraining payments to the appellants was legally justified and whether the appellants should provide security for the claim amount.

Background of the Case

The dispute originated when the respondent, M/s Gimpex Private Ltd., filed a commercial suit (C.S. Comm.Div. No.161/2018) against the appellants, M/s Empee Distilleries Limited & Ors., before the Madras High Court. The suit sought the recovery of Rs.19.54 crores, claiming that the amount was due for coal supplied to the appellants.

Simultaneously, the respondent filed an application seeking a prohibitory order against the Tamil Nadu State Marketing Corporation (TASMAC), which owed Rs.24 crores to the appellants. The respondent requested that TASMAC be restrained from releasing funds to the appellants to secure their claim in the suit.

Proceedings Before the High Court

  • The Single Judge of the Madras High Court passed an ex-parte prohibitory order on March 13, 2018, restraining TASMAC from disbursing funds to the appellants.
  • The appellants challenged the order, but on March 28, 2018, the Single Judge confirmed the restraint order, making it applicable to payments due up to March 19, 2018.
  • The appellants then approached the Division Bench, which dismissed their appeal on June 4, 2018, affirming the Single Judge’s order.

The appellants subsequently filed an appeal before the Supreme Court.

Arguments by the Petitioner (Appellants)

  • The appellants contended that the impugned order was not legally sustainable as it did not satisfy the requirements of Order 37 Rule 5 of the Civil Procedure Code (CPC).
  • They argued that a blanket restriction on receiving payments was unjustified and would severely impact their business operations.
  • As an alternative, they suggested that instead of an absolute restraint, they should be permitted to provide adequate security to safeguard the respondent’s claim.

Arguments by the Respondents

  • The respondents maintained that the appellants owed a substantial amount for coal supplies and that the prohibitory order was necessary to prevent the appellants from diverting funds.
  • They asserted that the High Court’s order was justified as it ensured that the appellants would not dissipate assets before the final decision in the suit.

Supreme Court’s Observations

The Supreme Court considered whether the order was in compliance with Order 37 Rule 5 CPC, which deals with security for amounts in commercial disputes. The key observations were:

  • Security for claim amount is a valid alternative: The Court agreed that instead of a blanket prohibition, a reasonable security arrangement should be made to balance the interests of both parties.
  • Commercial transactions should be safeguarded: The Court recognized that restricting payments could adversely affect the appellants’ business, and providing security was a more balanced approach.
  • Merits of the case are yet to be decided: Since the case was still pending trial and the appellants had not yet filed their written statements, the Court refrained from commenting on the merits of the dispute.

Key Judgment Excerpts

The Supreme Court ruled:

“The appellants shall furnish Bank Guarantee for a sum of Rs.10 crores (Ten crores) of any Nationalized Bank.”

Additionally, the Court directed:

“The appellants shall also furnish solvent security for the balance suit amount to the satisfaction of the concerned Court.”

Final Judgment

  • The Supreme Court set aside the High Court’s prohibitory order, replacing it with a directive for the appellants to furnish security.
  • The appellants were required to provide a Rs.10 crore Bank Guarantee from a Nationalized Bank.
  • They were also required to furnish solvent security for the remaining amount to the satisfaction of the trial court.
  • The Supreme Court directed the trial court to expedite the proceedings and dispose of the case within one year.

Conclusion

This judgment highlights the importance of striking a balance in commercial disputes. While securing creditors’ interests is necessary, courts must ensure that businesses are not unduly crippled by restrictive orders. The Supreme Court’s decision ensures that the respondent’s claim is protected while allowing the appellants to continue their business operations.


Petitioner Name: M/s Empee Distilleries Limited & Ors..
Respondent Name: M/s Gimpex Private Ltd. & Anr..
Judgment By: Justice Abhay Manohar Sapre, Justice Mohan M. Shantanagoudar.
Place Of Incident: Madras High Court.
Judgment Date: 24-09-2018.

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