Advocates appeared : G.R. Joshi i/b. P.M. Mithi Co, for the applicant. D.R. Zaiwalla with F. Devitre i/b. Little Co., for the respondent No. 1. P.K. Samdani i/b. Dhru Co., for the respondent No. 2. JUDGMENT - S. N. VARIAVA, J.:---This is a petition by the custodian for recovery of amounts from the 1st respondent. 2. The 2nd respondent is a notified party. It is admitted that between the 1st respondent and the 2nd respondent there are three Lease Agreements. Under these Lease Agreements certain lease rentals have to be paid by 1st respondent to the 2nd respondent. It is admitted that towards these rentals the 1st respondent has paid a sum of Rs. 13,01,083.53p. It is admitted that arrears of lease rentals, if any, are to be paid with compound interest. It is admitted that under the Lease Agreements there is now due and payable by the 1st respondent to the 2nd respondent a sum of Rs. 55,36,903.13p. On this aspect there is no dispute between the parties. 3. The 2nd respondent had also granted to the 1st respondent a Bridge Loan in a sum of Rs. 5 crores. The amounts were disbursed as follows :--- a) On 22nd February, 1992 a sum of Rs. 50,00,000/- b) On 13th April, 1992 a sum of Rs. 2,00,00,000/-. c) On 20th April, 1992 a sum of Rs. 2,50,00,000/-. 4. In respect of each of these amounts the 1st respondent has executed separate Letters of undertaking-cum-indemnity. Therein they have confirmed receipt of these amounts. They have also confirmed that the amount is to be re-paid with interest. The letter of undertaking cum indemnity for Rs. 50,00,000/- provides that this sum was to be repaid, on or before 30th March, 1992, with interest at 27% p.a. Similarly the other letters of undertaking cum indemnity provide that the sum of Rs. 2,00,00,000/- was to be repaid, on or before 12th August, 1992, with interest at 28% p.a. and the sum of Rs. 2,50,00,000/- was to be repaid, on or before 19th August, 1992, with interest at 28% p.a. These letters of undertakings also provide that if there was delay in re-payment beyond the repayment date mentioned therein, penal interest at 5% p.a. had to be paid. 5. The 1st respondent had also, under forwarding letters, sent three promissory notes for all the above amounts. The forwarding letters also mention the rates of interest. 5. The 1st respondent had also, under forwarding letters, sent three promissory notes for all the above amounts. The forwarding letters also mention the rates of interest. The forwarding letters also mention that penal interest at 5% would be payable in event of delayed payment. The promissory notes, however, only mention the interest amounts. 6. The 2nd respondent got notified on 2nd July, 1992. After the 2nd respondent was notified, the custodian issued Public Notices calling upon all parties who owed monies or properties to the 2nd respondent to send intimation to the custodian. It was the duty of the 1st respondent to immediately intimate the custodian. The 1st respondent keeps quite and does nothing. 7. Thereafter the 2nd respondent informed the custodian that the 1st respondent owed them monies. By his letter dated 6th May, 1992, the custodian calls upon the 1st respondent to pay up the amounts along with interest due thereon. The 1st respondent fails and neglects to reply to this letter and/or to pay up the amounts. 8. On 26th April, 1994, the 2nd respondent writes to the 1st respondent, calling upon them to pay to the custodian a sum of Rs. 9,16,67,810.65p. The 1st respondent still does not pay up the amount. The 2nd respondent, thereafter by their letter dated 2nd May, 1994, state that the figure of Rs. 9,16,67,810.65p. was wrongly calculated. The 2nd respondent state that actually a sum of Rs. 10,76,83,069.75p. was due and payable. The 2nd respondent call upon the 1st respondent to pay this amount to the custodian. Again the 1st respondent fails to comply with the directions and do not pay the amount. It must also be mentioned that in arriving at the figures of Rs. 9,16,67,810.65p. and/or Rs. 10,76,83,069.75p. the 2nd respondents had calculated interest on a compounded basis. 9. Thereafter the custodian, by his letter dated 24th May, 1994 addressed to the 1st respondent, again calls upon the 1st respondent to pay up these amounts. The custodian also calls upon the 1st respondent to explain as to why information had not been furnished earlier. The custodian warns the 1st respondent that the Special Court could levy penal interest for delay in furnishing information as well as delay in repayment. 10. This warning has its effect. For the first time, on 8th June, 1994, the 1st respondent write to the custodian. The custodian warns the 1st respondent that the Special Court could levy penal interest for delay in furnishing information as well as delay in repayment. 10. This warning has its effect. For the first time, on 8th June, 1994, the 1st respondent write to the custodian. They state that according to the 2nd respondent a sum of Rs. 9,16,67,810.65p. is due and payable. To be noted that the 2nd respondent has already corrected this figure to Rs. 10,76,83,069.75. The 1st respondent do not point this out to the custodian. The 1st respondent, for the first time, mention that there is to be a public issue. They state that they would re-pay the amounts from this public issue. They mention that they would be creating a lien on the monies received from the public issue. To be noted that at this stage it is not mentioned of any alleged agreement to repay only from the amounts received from the public issue. 11. The custodian, by his letter dated 4th July, 1994 addressed to the 1st respondent, rightly asks the 1st respondent why this was not disclosed earlier. The custodian calls for copies of the documents. The custodian states that he is not agreeable to the postponement of re-payment any further. Again there is no reply by the 1st respondent. Again they fail to comply with the directions of the custodian. The 1st respondent still do not pay the amounts. No explanation is given why earlier information was not given to the custodian. 12. The 3rd respondents, by their letter dated 2nd July, 1994 addressed to the custodian, state that they are the principal Bankers to the public issue of the 1st respondent. They state that the entire proceeds of the issue would stand credited and remain in a separate account for discharge of the 1st respondents liability to the 2nd respondent. They undertake to re-imburse the loan amounts with interest. I am informed that on 6th October, 1994 the 3rd respondent has forwarded to the custodian a sum of Rs. 8.49 crores. 13. Thus, ultimately the amount is repaid. This repayment is just prior to the filing of this petition. This repayment does not end the dispute between the parties. The 2nd respondent claims that these amounts were to be repaid with compound interest. Mr. 8.49 crores. 13. Thus, ultimately the amount is repaid. This repayment is just prior to the filing of this petition. This repayment does not end the dispute between the parties. The 2nd respondent claims that these amounts were to be repaid with compound interest. Mr. Samdani submits that the 1st respondent have themselves in their letter dated 8th June, 1994, accepted liability of Rs. 9,16,67,810.65p. He submits that this liability has also been shown in the prospectus of the 1st respondent. He submits that this figure is arrived at by compounding interest. He submits that 1st respondent would not have accepted this figure unless, they had agreed to pay compound interest. Mr. Zaiwalla denies that there is any agreement to pay compound interest. Mr. Zaiwalla submits that rate of interest is mentioned in the promissory note and the other documents. He points out that there is no written agreement to pay compound interest. 14. As set out above, under the documents there is provision for payment of interest and penal interest. There is no provision for payment of compound interest. Under these circumstances the submission Mr. Samdani that the amounts are to be re-paid with compound interest cannot be and is not accepted. 15. The other controversy between the parties is whether the penal interest at 5% can be levied. 16. In this behalf, it must be mentioned that before the arguments started today Mr. Zaiwalla sought to tender an Affidavit dated 27th March, 1995. Mr. Joshi and Mr. Samdani opposed on the ground that a copy of affidavit had only been given to them today. They rightly submitted that 1st respondent had already filed an affidavit in reply. They pointed out that if this affidavit was taken on record, it would entail an adjournment. In my view, they were right. The affidavit was therefore not taken on file. 17. Mr. Zaiwalla submitted that the 2nd respondents were to be the Lead Managers to the public issue of the 1st respondent. He submitted that it was for that reason that the 2nd respondent had given the Bridge Loan to the 1st respondent. He submitted that monies were to be re-paid only from the amounts which were received from the public issue. He submitted that it is for that reason that the due dates of the amounts had a reference to the public issue. This is denied by Mr. Samdani. 18. He submitted that monies were to be re-paid only from the amounts which were received from the public issue. He submitted that it is for that reason that the due dates of the amounts had a reference to the public issue. This is denied by Mr. Samdani. 18. I am unable to accept the submission of Mr. Zaiwalla. This case is contrary to the documents between the parties. What the 1st respondent are now seeking to do is to set up an understanding which is contrary to written agreement between the parties. As stated above, the letter of undertaking-cum-indemnity clearly shows that the amounts were to be re-paid on the dates mentioned therein. These dates have no reference to the public issue. If the amounts were to be repaid only from amounts received from the public issue, how could the due dates be 30th March, 1992, 12th August, 1992 and 19th August, 1992 respectively. To be noted that the due dates are three separate dates. This itself shows that they have no reference to any public issue. These are specific dates by which the amounts were to be re-paid. Under the letters of undertaking cum indemnity the 1st respondent undertake to repay on or before the due date. The written agreement provides for payment of penal interest if the amounts were not repaid by the due dates. Where is the question of having any provision for penal interest if the amounts were to be repaid only out of amounts received from the public issue. Also to be noted that 2nd respondent by their letter dated 26th April, 1994 point out that the amount has not been repaid for a long time. The custodian by his letters also claimed that the amounts were due a long time back. In their letter of 8th June, 1994, it is not mentioned that the amounts were agreed to be repaid only out of amounts realised from the public issue. In this letter all that is stated is that 1st respondent proposes to repay out of the proposed public issue. 19. Also it must be noted that the alleged arrangement, even if one existed, was only entered into because the 2nd respondents were to be Lead Managers to this issue. The moment that the 2nd respondents got notified they could no longer be the Lead Managers. 19. Also it must be noted that the alleged arrangement, even if one existed, was only entered into because the 2nd respondents were to be Lead Managers to this issue. The moment that the 2nd respondents got notified they could no longer be the Lead Managers. As they could no longer be the Lead Managers the arrangement, if any, got frustrated. By reason of such frustration and of 2nd respondent being notified there was an obligation to immediately repay. There was then no question of repayments being linked to the public issue. 20. Mr. Zaiwalla next submitted that three promissory notes have been issued in respect of the amounts of Rs. 50,00,000/-, Rs. 2,00,00,000/- and Rs. 2,50,00,000/-. He submitted that these promissory notes mention the rates of interest. He submitted that under section 79 of the Negotiable Instruments Act, interest can only be at the rate mentioned on the promissory notes. He submitted that no evidence can be given of a contemporaneous agreement to pay interest once the rate of interest had been mentioned on the promissory note. 21. In support of his submission, he relied upon the authority in the case of (Bhanwarlal and anothers v. Sm. Ratanjot)1, reported in A.I.R. 1955 AJMER page 13. This was a case where a suit was filed on a promissory note. It is in this context that the Court held that interest must be what is mentioned on the promissory note. It is in this context that the Court held that no contemporaneous agreement to pay interest can be proved. 22. To be noted that in the present case, the claim is not on the promissory note. The promissory notes are given as and by way of collateral security. The letters under which the promissory Notes are forwarded provide for payment of penal interest. The undertaking cum indemnity also provides that penal interest would have to be paid if there was delayed payment. Also to be noted that two of the promissory notes are not stamped. The third promissory note is inadequately stamped. Thus none of the promissory notes could have been relied upon in evidence. There is thus no substance in this submission. 23. Mr. Zaiwalla next submitted that penal interest cannot be recovered under section 74 of the Indian Contract Act, as well as under the Usurious Loans Act. The third promissory note is inadequately stamped. Thus none of the promissory notes could have been relied upon in evidence. There is thus no substance in this submission. 23. Mr. Zaiwalla next submitted that penal interest cannot be recovered under section 74 of the Indian Contract Act, as well as under the Usurious Loans Act. He submitted that the interest at 27% and 28% is itself very high. He submitted that for these reasons also penal interest should not be granted. 24. This Court has seen that the 2nd respondent has been borrowing monies at very high rates of interest. They have been borrowing monies at interests rates of 28% and 29%. It is to offset this that they in their turn are charging high rates of interest. 25. Also, what is more important is the fact that in spite of the amounts becoming due and payable as far back as 30th March, 1992, 12th August, 1992 and 19th August, 1992, the 1st respondent has failed and neglected to repay these amounts till 6th October, 1994. To the knowledge of the 1st respondent, the 2nd respondents had become notified. The custodian had issued a Public Notice. The 1st respondent was bound and liable to inform the custodian. The 1st respondent omits to inform the custodian. They purposely omit to reply to the custodian when the custodian writes to them in 1993. The 1st respondent has thus not returned amounts for a period of over 2 years. 26. The Court has been noticing that a lot of parties, who owe monies or property to notified parties have been purposely keeping quiet. They have not informed the custodian. Unless all parties inform the custodian, it will be difficult to trace all assets. The concerned parties are keeping quiet in the hope that the custodian will not find out. It the custodian does not find out, then the parties would be able to retain the monies and/or properties. Till the custodian finds out, like the 1st respondent, parties continue to use and enjoy the monies and/or property. It must be mentioned that the period of limitation for recovery of amounts is fast approaching. Many of such parties may succeed in their design, if the custodian does not find out in time. Not in this case, but it is possible that some of these parties may have an understanding/arrangement with the notified party. It must be mentioned that the period of limitation for recovery of amounts is fast approaching. Many of such parties may succeed in their design, if the custodian does not find out in time. Not in this case, but it is possible that some of these parties may have an understanding/arrangement with the notified party. After de-notification or distribution they might share. It must also be mentioned, that as contrasted to parties like the 1st respondent, Court has before it so many honest debtors, who on their own have come before this Court. some have admitted liability, expressed inability to pay immediately and taken instalments from Court. For such honest parties Court will and has been reducing interest and granting instalments. Such cases have to be differentiated from cases, where a party first actively conceals, then even when custodian finds out evades replying and then only pays when forced to do so or at his convenience. Parties who do not disclose and sit on monies or properties must be made to pay penal interest even if there is no provision under the contract for payment of penal interest. In this case, there is a provision for payment of penal interest. In this case the custodian had warned that penal interest may be levied. The 1st respondent had not voluntarily disclosed. The 1st respondent has evaded payment for a period of 2 years. The 1st respondent must be made to pay penal interest. I, therefore, hold that the 1st respondents are bound and liable to pay penal interest at 5% p.a. over and above the stipulated rates of interest. 27. Mr. Zaiwalla submitted that penal interest can only be levied provided there is delayed payment. He submitted that the 2nd respondents have themselves admitted in a letter dated 1st June, 1994 addressed to them with a copy being sent to the custodian that the amounts were to be re-paid only from the proceeds of the public issue. This letter had so far not been disclosed/annexed any where. Copy of this letter was sought to be disclosed for the first time today in the affidavit dated 27th March, 1995. As this letter was not disclosed, Court has not looked at his letter. However, Mr. Samdani submits that the letter is being misconstrued by Mr. Zaiwalla. He submits that there is no admission as contended by Mr. Zaiwalla. 28. Copy of this letter was sought to be disclosed for the first time today in the affidavit dated 27th March, 1995. As this letter was not disclosed, Court has not looked at his letter. However, Mr. Samdani submits that the letter is being misconstrued by Mr. Zaiwalla. He submits that there is no admission as contended by Mr. Zaiwalla. 28. This Court has in Misc. Petition No. 21 of 1994 on 3rd October, 1994 already noted that Directors of the 2nd respondents are falsely making admissions in favour of the third parties. In this case the Court has not seen whether any admission is made or not. However, the letter is dated 1st June, 1994, i.e. much after notification. Even presuming there was an admission it would be of no avail to the 1st respondent. There are contemporaneous written documents between parties. Those clearly show that amounts were to be repaid on 30th March, 1992, 12th August, 1992 and 19th August, 1992. After notification, contrary to these contemporaneous documents, a Director of the 2nd respondent cannot make any admission in favour of the 1st respondent. Such an admission, even if there is one, is entirely worthless and cannot be relied upon. 29. Parties are agreed that, if penal interest is payable, the 1st respondent would have to pay to the 2nd respondent a sum of Rs. 9,08,93,648.47p. This agreement is without prejudice to 1st respondents contention that penal interest is not payable. The 1st respondent has already paid a sum of Rs. 8.49 crores. They have also paid, on 21st April, 1994, tax deducted at source in a sum of Rs. 65,88,894/-. Mr. Zaiwalla states that the certificate has already been sent to the 2nd respondent. He states that copies of the chalan and certificate will be sent to the custodian within one week from today. In my view, the 1st respondent are entitled to a credit in this sum of Rs. 65,88,894/-. Taking this credit into account, the 1st respondent have paid Rs. 9,14,88,894, there is thus excess payment of Rs. 5,95,245,53p. 30. However, under the Lease Agreements, a sum of Rs. 55,36,903.13p. is payable till 31st March, 1995. The amount of Rs. 5,95,245.53p. will therefore be adjusted against this payment. 31. Mr. Zaiwalla states that the 3rd respondents have app. Rs. 3 crores of 1st respondents monies with them. He states that the balance amount of Rs. 55,36,903.13p. 5,95,245,53p. 30. However, under the Lease Agreements, a sum of Rs. 55,36,903.13p. is payable till 31st March, 1995. The amount of Rs. 5,95,245.53p. will therefore be adjusted against this payment. 31. Mr. Zaiwalla states that the 3rd respondents have app. Rs. 3 crores of 1st respondents monies with them. He states that the balance amount of Rs. 55,36,903.13p. can be paid by the 3rd respondent to the custodian out of these amounts. The 3rd respondent is therefore directed to pay to the custodian a sum of Rs. 55,36,903.13p. within two weeks from today. 32. Mr. Zaiwalla undertakes to Court that the lease rentals for the period 1st April, 1995 onwards will be paid, to the custodian for and on behalf of the 2nd respondent, regularly as per the agreements. Mr. Zaiwalla also undertakes to Court that in the event of sales tax being payable, the 1st respondent will pay the same. Undertakings are accepted. Mr. Zaiwalla, however, states that it is the contention of the 1st respondent that sales tax is not payable. The 2nd respondent to furnish forthwith to the 1st respondent copies of any demand notice or letters, if any, received from the sales tax authorities. The 1st respondent at liberty to agitate, at its own costs, that sales tax is not payable. 33. The 3rd respondent to, after payment of the sum of Rs. 55,36,903.13p. to the custodian, release the balance amount with interest, if any, to the 1st respondent. This is subject to claims, if any, which they may have against the 1st respondent. 34. No order as to costs. No order as to costs. *****