Orissa High Court
Orissa State Financial Corporation vs Shri Sailendra Narayan Patnaik And Anr. on 15 December, 2000
Equivalent citations: 2001(I)OLR87
Author: A.S. Naidu
Bench: P.K. Mohanty, A.S. Naidu
JUDGMENT A.S. Naidu, J.
1. This letters patent appeal is directed against the judgment dated 26.9.1996 passed in Miscellaneous Appeal No. 414 of 1994 by the Single Bench dismissing the said appeal solely on the ground that the application filed Under Section 31(1)(aa) of the State Financial Corporations Act, 1951 (hereinafter referred to as "the Act") was barred by limitation. The appellant-Corporation being aggrieved by the above-referred judgment has filed this Letters Patent Appeal.
2. Shorn of unnecessary details, the short facts as pleaded by the respective parties are as follows :
Admittedly, Respondent, No. 1 - Sailendra Narayan Patnaik availed a loan to the tune of Rs. 1,55, 800/- from the Orissa State Financial Corporation (hereinafter referred to as "the Corporation") for purchasing a truck and.his father Kailash Chandra Patnaik, respondent No. 2 stood surety for due repayment of the loan and executed necessary deed of guarantee. The vehicle which was purchased utilising the finance advanced by the appellant-Corporation, was hypothecated by means of a deed of hypothecation. The aforesaid term loan was availed on 29.10.1980. The borrower, however, defaulted in repayment of the loan amount and the Corporation finding no other way out, issued demand notice on 20.7.1982 and thereafter on 18.1.1983, seized the truck in exercise of the power conferred on it Under Section 29 of the Act. After serving due notice and publication in newspapers, the seized vehicle was put to auction sale on 11.3.1983. One Sisir Kumar Rout being the highest bidder, purchased the said vehicle for a consideration of Rs. 1.40,000/-. The said amount was duly adjusted towards the loan amount of the respondents. Thereafter, it was found that a sum of Rs. 67,277.82 paise still remained outstanding towards the principal amount from the borrower i.e. respondent No. l. On 18.4.198.3 a letter was issued to respondent No. 1 intimating him about the sale of the vehicle and the terms and conditions thereof. On 16.11.1989 a demand notice was issued to respondent No. 1 intimating him that as on June 30,1989, the outstanding amount including interest on his loan was Rs. 1,26,999.94 paise after adjustment of the consideration amount for which the vehicle was sold in auction. Respondent, No. l was called upon to pay the said amount on or before 15.11.1989. It is averred that a copy of the said demand notice was also served upon respondent No. 2, the guarantor. Subsequently another notice was issued on 19.11.1990 calling upon the respondent No. l to pay the dues, a copy whereof was also served on respondent No. 2. In spite of receipt of the aforesaid notice when no steps were taken by the loanee or the guarantor i.e. respondents 1 and 2 respectively, to repay the amount, the Corporation filed an application Under Section 31(1)(aa) of the Act on 22.1.1991 for enforcement of personal liability against respondents 1 and 2. The said application was registered as Misc. Case No. 5 of 1991 in the Court of the District Judge, Cuttack.
3. Respondents 1 and 2 appeared and filed their joint objection. Apart from disputing the amount claimed, they also challenged the legality of invocation of the power Under Section 31 of Act. It was contended that as the Corporation parted with hypothecated vehicle without giving any notice to the surety-respondent No. 2, the guarantor stood discharged from his liability as surety.
4. The trial Court by its order dated 7.4.1994 accepted the contentions raised by the opp. parties and rejected the application filed by the Corporation by observing that since the Corporation failed to move against the principal debtor as well as the guarantor to realise the outstanding dues within the reasonable time after sale of the truck in 1983, it would be improper to exercise jurisdiction Under Section 31 of the Act.
The Corporation-appellant assailed the order passed by the trial Court by filing an appeal Under Section 32(9) of the Act before this Court which was registered as Misc. Appeal No. 414 of 1994.
5. In course of hearing of the said appeal, a preliminary question cropped up i.e. as to whether the application Under Section 31(1)(aa) of the Act is barred by limitation ? This Court in paragraph-7 of the judgment observed as follows :
"An application Under Section 31 of the Act lies to the District Judge which is no doubt, a Court. Supreme Court in Maharashtra State Financial Corporation v. Jaycee Drugs and Pharmaceuticals Pvt. Ltd. and others, JT 1991 (1) SC 524 has already held that District Judge exercising jurisdiction Under Sections 31 and 32 of the Act functions as a Court of Ordinary Civil Jurisdiction. Thus, although no period of limitation has been prescribed for an application Under Section 31 of the Act, the same will be governed by Article 137 of the Limitation Act. It is now settled that Article 137 of the Limitation Act is applicable to all applications before a Court (Vide A.l.R. 1977 SC 282 (Kerala State Electricity Board v. T.P. Kunhaliuma). Mr. Mohanty appearing for the Corporation also does not dispute that Article 137 of the Limitation Act is applicable."
On the basis of the submissions made on behalf of the parties, this Court dismissed the Misc. Appeal solely on the ground that the Corporation's application Under Section 31(1)(aa) of the Act was grossly barred by limitation because of operation of Article 137 of the Act. However, in the concluding paragraph, it has been observed as follows :
" In view of the aforesaid findings that the application Under Section 31(1)(aa) of the Act was barred by limitation and accordingly not maintainable it is not necessary to consider the other questions raised on behalf of the appellant. However, it is kept on record that Mr. Mohanty, learned counsel for the appellant has raised substantial and important points about the correctness of the impugned judgment. The points raised by Mr. Mohanty are left open for being considered in an appropriate case and dismissal of this appeal should not be construed as affirmance of the reasons recorded and observations made in the judgment of the Court below."
6. Mr. Mohanty, learned counsel appearing on behalf of the appellant- Corporation assails the impugned judgment of the Single Bench and submitted that the finding that Article 137 of the Limitation Act governs a petition filed Under Section 31 of the Act and that the prescribed period is 3 years, is contrary to law. It is further submitted that a proceeding Under Section 31(1)(aa) of the Act being akin to an execution proceeding. Article 136 of the Limitation Act is applicable and the Corporation had a right to file an application Under Section 31(1)(aa) of the Act within a period of 12 years and not 3 years, as wrongly held by the Single Bench.
7. Perusal of the judgment reveals that the Advocate for the Corporation, in course of hearing, conceded and did not dispute that Article 137 of the Limitation Act is applicable. Thus, the judgment passed by the learned Single Judge is based on a concession of the Advocate. In normal course we would not have entertained a contrary submission by the Corporation who had conceded a point-before the Single Bench. However, we feel that he impugned decision has a far reaching consequence, inasmuch as, whether Article 136 or 137 of the Limitation Act applies to the petition filed Under Sections 31(1)(aa) and 32 of the Act would affect several transactions throughout the country. In that view of the matter, we are persuaded to examine the point of law raised by the appellant i.e. whether Article 136 or 137 of the Limitation Act applies to the proceedings initiated by.'the Corporation Under Section 31(1) of the Act.
Sec. 31 of the Act vests a special power upon the Financial Corporation to apply to the District Judge for enforcement of its claim against a defaulting debtor for repayment of any loan or advance granted to it. The occasion for invoking the provisions of Section 31 of the Act arise only when there is breach of agreement. The State Financial Corporation Act is a special statute conferring right upon the Corporation to take over the management or possession or both of the industrial concern and also vests a right upon the Corporation to transfer the assets pledged, mortgaged, hypothecated or assigned to the Financial Corporation by way of lease or sale and realise the outstanding dues.
On the basis of the discussions made above, only 2 points are to be answered in the present appeal :
(1) Whether the concession of the lawyer, in a pure question of law binds the parties;
(2) Whether the claim made by the Corporation Under Section 31(1)(aa) is governed under Article 136 or 137 of the Limitation Act.
Relevant provisions of Section 31 of the State Financial Corporation Act are quoted herein below :
"Sec. 31 : Special Provisions for enforcement of claims by Financial Corporation :
(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or an instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance Under Section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely :
(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance; or (aa) for enforcing the liability of any surety; or
(b) for transferring the management of the industrial concern to the Financial Corporations
(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal it apprehended.
(2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed."
It is pertinent to mention here that Clause (aa) was introduced by way of amendment on 21.8.1985.
8. The Apex Court in the case of Maharashtra State Financial Corporation v. Jaycee Drugs and Pharmaceuticals Pvt. Ltd. and others, J.T. 1991 (1) SC 524 held that the liabilities of the principal debtor and the surety are co-existing and the Corporation is not permitted to treat the surety differently than the borrower.
9. So far as the first point is concerned, the learned Single Judge in paragraph-7 of the impugned judgment (quoted supra) has observed that Mr. Mohanty, appearing for the Corporation also does not dispute that Article 137 of the Limitation Act is applicable. The question as to whether Article 136 or Article 137 of the Limitation Act is applicable to a proceeding initiated Under Sections 31 and 32 of the Act is a pure question of law. This Court in a decision reported in Vol 62 (1986) C.L.T. 298 relying upon a decision of the Apex Court in the case of Moran Mar Bassellios Catholicos and Anr. v. Most Rev. Mar Poulose Athanasius and others, AIR 1954 SC 526 has held that an erroneous concession of law by the defendant's advocate would not be relied upon by the plaintiff. This view was taken in view of the fact that in fact, there was no admission by the advocate and that was merely a concession on the question of law which was found to have no basis in law itself. Thus, we hold that the concession made by the Advocate for the Corporation before the Single Judge, on a pure question of law would not bind the Corporation. This conclusion of us is also fortified by a decision of the Apex Court reported in AIR 1987 SC 2381 (The Government of Tamil Nadu and Ors. v. Badrinath and others) which reads as follows :
"We have no manner of doubt that the appellants are not bound by the concession made by the learned Advocate General before the learned Single Judge. It is unfortunate that the State Government was not properly advised at the earlier stages of the proceedings in insisting upon the view that such permission was required under R. 17 and that it was justified in refusing to grant the permission prayed for. The concession made by the learned Advocate General being on a matter of law is not binding. That apart, Sri Asoke Sen, learned counsel for the appellants has very fairly accepted the point of view put forth by respondent No. 1 in the writ petition that no such permission was required."
The first point is answered accordingly.
So far as point No. 2 is concerned, Section 31(1) of the Act gives power to the Financial Corporations to enforce its claim by moving the District Judge by means of a petition. Section 32 of the Act lays down the prompt procedure to be followed by the District Judge. In other words, the cumulative effect of Sections 31 and 32 of the Act are aimed and enacted to provide speedy recovery of the claims of the Corporation.
In the case of the Gujarat State Financial Corporation v. M/s. Matson Manufacturing Co. Pvt. Ltd. and others, AIR 1978 SC 1765, the Apex Court held as follows :
"xx xx The substantive relief in an application Under Section 31(1) is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree. We are unable to appreciate the view taken by the High Court that the proceeding is not in the nature of execution of a decree because the question of enforcement of the order of attachment or sale would only arise after the same is made absolute under Sub-section (7), One has to look at the whole conspectus of provisions in Section 32 coupled with the nature of relief sought Under Section 31(1) and it becomes clear that special provision is made for certain types of reliefs that can be obtained by a Corporation by an application Under Section 31(1) which could not be styled as substantive relief for repayment of mortgage money by sale of mortgaged property. Nor can it be said to be a proceeding to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss. The form of the application, the nature of the relief, the compulsion to make interim order, the limited enquiry contemplated by Sub-section (6) of Section 32 and the nature of relief that can be granted and the manner of execution clearly show that the application Under Section 31(1) is neither a plaint as contemplated by Art. 1 of Sch. I nor an application in the nature of a plaint as contemplated by Art. 7 of Sch.I of Court-fees Act."
Relying upon the aforesaid decision, a Single Bench of Delhi High Court in the case of M/s. Parkash Playing Cards Manufacturing Co., Delhi and Ors. v. Delhi Financial Corporation, New Delhi, AIR 1980 Delhi 48, held that an application Under Section 31 of the State Financial Corporation Act cannot be deemed to be a suit.
In the case of M/s. Bharat Chemical Works and Ors. v. Gujarat State Financial Corporation, Ahmedabad, AIR 1983 Guj. 104, it is held that an application Under Section 31(1) of the State Financial Corporations Act is neither a plaint nor an application in the nature of a plaint. Such an application is not a suit by a mortgagee for the recovery of mortgage- money by the sale of mortgaged property, that the investigation therein of the claim of the Corporation, which is not a monetary claim, does not involve all the contentions that can be raised in a suit and that the substantive relief in such an application is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree.
10. The nature of the proceeding instituted Under Section 31(1) of the State Financial Corporations Act came into scrutiny once again by the Apex Court in the case of Everest Industries Corporation and Ors. v. Gujarat State Financial Corporation, AIR 1987 SC 1950.
The Apex Court once again reiterating the discussions made in the case of the Gujarat State Financial Corporation (AIR 1978 SC 1765) (supra) held that a proceeding instituted Under Section 31(1) of the State Financial Corporations Act is something akin to an application for attachment, of property in execution of a decree at a stage posterior to the passing of the decree. In paragraph-5 of the said judgment, the Apex Court quoted the observations made in the earlier case, i.e., "We are unable to appreciate the view taken by the High Court that the proceeding is not in the nature of execution of the decree because the question of enforcement of the order of attachment or sale would only arise after the same is made absolute under Sub-section (7)".
In the case of Abdul Mobin Ansari and Ors. v. The Maharashtra State Financial Corporation, AIR 1993 Bom. 48, a Single Bench of the Bombay High Court held that the proceeding Under Sections 31 and 32 of the State Financial Corporations Act is nothing but an execution proceeding. This finding was arrived at relying upon the ratio of the decision of the Apex Court in the case of the Gujarat State Financial Corporations' case reported in AIR 1978 SC 1765.
The question once again cropped up for consideration before a Full Bench of the Himachal Pradesh High Court in the case of Himachal Pradesh Financial Corporation v. M/s. Tourist Hotel, AIR 1990 HP 27. In the said decision it has been reiterated that the substantive relief sought in an application Under Section 31(1) of the Act is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing, of the decree.
The proceedings Under Sections 31 and 32 of the Act are in the nature of execution proceeding, is further apparent from a decision of the Apex Court in the case of Maganlal v. M/s. Jaiswal Industries, Neemach and others, AIR 1989 SC 2113. The Apex Court in paragraph-23 of the judgment observed as follows :
"The purpose of enacting Sections 31 and 32 of the Act was apparently to provide for a speedy remedy for recovery of the dues of the Financial Corporation. This purpose, however, was in cases covered by Clause (1) of Sub-section (1) of Section 31 confined to the stage of obtaining an order akin to a decree in a suit, in execution whereof the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance' could be sold. Sections 31 and 32 of the Act cut across and dispense with the provisions of the Code from the stage of filing a suit to the stage of obtaining a decree in execution whereof such properties as are referred to in Clause (a) of Sub-section (1) of Section 31 could be sold. After this stage was reached sale in execution of an Order Under Section 32 of the Act was for purposes of execution put at par with sell in execution of a decree obtained in a suit, by enacting Sub-section (8) of Section 32 of the Act. This sub-section as noted earlier provides that an order of attachment or sale of property under this Section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure, 1908, for the attachment or sale of property in execution of a decree as if the Financial Corporation were the decree-holder."
In paragraph-29 of the said judgment, the Apex Court held as follows :
"As is apparent from the plain language of Section 32(8) of the Act the legal fiction was created for the purpose of executing an order Under Section 32 of the Act for sale of attached property as if such order was a decree in a suit for sale and the Financial Corporation was the decree holder whereas the debtor was the judgment debtor. Consequently, the provisions of the Code of Civil Procedure with regard to execution of a decree for sale of mortgaged property contained in O.21 of the Code including the right to file an appeal against such orders passed during the course of execution which are appealable, shall apply mutatis mutandis to execution of an order Under Section 32 of the Act unless some provisions is not practicable to be applied, xx xx."
The nature of a proceeding Under Sections 31 and 32 of the Act also came up for consideration before Punjab and Haryana High Court in the case of M/s. Amar Cold Storage and Ice Factory and Anr. v. Punjab Financial Corporation, AIR 1994 P & H 235. Following the Full Bench decision of Himachal Pradesh High Court (AIR 1983 HP 43) and other decisions, it was observed as follows :
"xx xx xx There are catena of judgments of the Supreme Court, this Court as well as other High Courts wherein time and again this issue has been dealt with and it has been finally concluded that the scope of enquiry under Sections 31 and 32 of the Act is very limited and it is in the nature of an application for attachment of property in execution of a decree before a judgment, xx xx."
Our own High Court in the case of Orissa State Financial Corporation v. M/s. Azad Auto Servicing Garage and others, 1993 (1) OLR 541, held "it is no more res Integra that an application Under Section 31 of the Act is not a suit for recovery of money but in the nature of execution proceeding."
The Rajasthan High Court in the case of Rajsthan Financial Corporation v. Banwari Lal and others, AIR 1997 Raj. 273, held as follows :
"The observation of the Court below that the application was barred by the limitation in view of Article 137 of the Limitation Act, is also perverse and bad in law. The Court below has not appreciated Secs 31 and 32 of the Act in right perspective. As already stated the application under Sec .31 (1) of the Act cannot be treated as plaint. The substantive relief sought in the application is like the relief sought in the execution application.
The question as to whether the Article 136 or 137 of the Limitation Act applies to a proceeding Under Section 31(1) and Section 32 of the Act was also before this Court in the case of Orissa State Financial Corporation v. Desari Adinarayana, 1995 (II) OLR 12 and relying upon the decisions reported in AIR 1979 SC 1765, AIR 1987 SC 1950, AIR 1989 SC 2113 and JT 1991 (I) SC 524, in paragraph-6 of the judgment it was held as follows :
"In view of aforesaid position of law, conclusion is inevitable that the period prescribed under Art. 136 of the Limitation Act and not Art. 137 thereof is applicable to an application Under Section 31(1) of the Act."
In a recent decision reported in AIR 2000 Madras 205 (Tamil Nadu Industries Investment Corporation Ltd. v. M/s. Kaleeswari Industries and others), a Single Bench of the Madras High Court relying upon the decision reported in AIR 1997 Raj. 273 and AIR 1989 SC 2II3 held as follows :
"It is settled law that where a petition is filed by the State Financial Corporation Under Sections 31(1) and 32 of the State Financial Corporations Act, 1951 for enforcing the liabilities of the sureties which are co-extensive with the principal debtor who did not make the repayment of loan, the substantive relief sought in the petition is like the relief sought in an execution proceeding and hence, it cannot be treated as a plaint and, therefore, it would not be barred by limitation provided under Article 137 of the Limitation Act."
Even a perusal of Section 32(8) of the Act which reads as follows:
"32(8) : An order of attachment of sale of property under this Section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure, 1908 for the attachment or sale of property in execution of a decree as if the Financial Corporation were the decree-holder."
leads to an irresistible conclusion that the nature of the proceeding Under Section 31 read with Section 32 of the Act is akin to an execution proceeding.
11. On a cumulative consideration of the ratio of the decisions referred to above we have no hesitation to hold that a proceeding initiated Under Section 31 read with Section 32 of the Act by the Financial Corporation is akin to an execution proceeding. The word used by the Apex Court i.e. posterior to the passing of the decree; strengthens our view that the proceeding Under Sections 31 and 32 of the Act can be nothing, but akin to the execution proceeding and the status of the Corporation is that of a decree-holder.
12. Mr. P Mohanty, learned counsel appearing for the respondents while supporting the judgment of the Single Bench contended that the nature of the proceeding Under Section 31 of the Act is of the nature of an application for attachment before judgment in execution of a decree as contemplated under Order 38, Rule 11-A of the Code of Civil Procedure. Such a contention cannot be accepted specially in view of the decisions of the Apex Court that the proceeding Under Section 31 is akin to an application for attachment of property in execution of a decree at a stage posterior to passing of the decree. The words "posterior to the passing of the decree" clearly indicates that the proceeding Under Sections 31 and 32 of the Act are in the nature of the proceedings after passing of the decree which can be nothing, but an execution proceeding. In view of the legal position as discussed above, the contentions raised by Mr. Mohanty holds no water.
13. We, therefore, accept the view expressed in the case reported in 1995 (II) OLR 12 which finds support from the decision of the Rajsthan High Court and Madras High Court reported in AIR 1997 Raj. 273 and AIR 2000 Madras 205 respectively and the Apex Court and hold that Article 136 of the Limitation Act is applicable to a proceeding initiated Under Section 31(1) of the Act and the period of limitation is 12(twelve) years and not 3 (three) years. The decision of the Single Bench is, thus, not sustainable and is set aside.
14. A perusal of the order passed by the learned District Judge, Cuttack in Misc.Case No. 5 of 1991 reveals that the trial Court took exception to the fact that the Orissa State Financial Corporation remained silent for a long time and thereafter filed a petition Under Section 31 of the State Financial Corporations Act. In view of the fact that the petition Under Section 31 of the Act is akin to an execution case and Article I 36 of the Limitation Act is applicable, the O.S.F.C. had the right under law to initiate the proceeding Under Section 31 of the Act within the period of limitation i.e., 12 years. The trial Court has also not kept in mind the different provisions of the State Financial Corporations Act, 1951 and the findings are, thus, not sustainable in the eye of law. We, therefore also set aside the order dated 7.4.1994 passed in Misc. Case No. 5 of 1991 by the District Judge, Cuttack and remand the matter back to the District Judge to decide all points raised by the appellant afresh, on merits, in accordance with law.
Accordingly, the A.H.O. is allowed. The order of the learned Single Judge as well as the District Judge is set aside and the matter is remanded to the learned District Judge for fresh disposal within a period of three months from the date of receipt of this order. No costs.
The lower Court record be sent back immediately.
P.K. Mohanty, J.
15. I agree.