Madras High Court
Tamil Nadu Industrial Investment ... vs M/S.Kalathi & Co on 13 February, 2013
Author: R.Sudhakar
Bench: R.Sudhakar
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 13.2.2013
Coram
THE HONOURABLE Mr.JUSTICE R.SUDHAKAR
Original Petition No.869 of 2010
Tamil Nadu Industrial Investment Corporation Limited,
represented by its Branch Manager,
Special Recovery Branch,
No.692, Anna Salai,
Nandanam,
Chennai-600 035. ... Petitioner
Vs.
1. M/s.Kalathi & Co.,
Represented by its Managing Partner,
No.1/11A, (New No.22/20),
Kalani Street,
Sorakkaipettai Village & Post,
Pallipattu 631 208.
2. Thiru M.O.Kalathi Mudaliar,
3. Thiru M.K.Jayabalan. .. Respondents
The Original Petition is filed under Sections 31(aa) and 32 of the State Financial Corporation's Act, 1951 praying to pass the following orders:-
(a) determining the liability and direct the respondents 1 to 3 to pay jointly and severally a sum of Rs.49,46,166/- (Rupees Forty Nine Lakhs Forty Six Thousand One Hundred and Sixty Six only) to the petitioner corporation with interest at the rate of 18.50% p.a., from the date of the petition till the date of realization in full.
(b) Order the sale of A schedule property herein towards the realization of the above sum and
(c) pass such further or other orders as this Hon'ble Court may deem fit in the circumstances of the case.
For petitioner : Mr.A.Ramesh Kumar
For respondents : No appearance
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O R D E R
This Original Petition has been filed under Sections 31(a), 31(aa) and 32 of the State Financial Corporation's Act, 1951 praying to determine the liability and direct the respondents 1 to 3 to pay jointly and severally a sum of Rs.49,46,166/- to the petitioner corporation with interest at the rate of 18.50% p.a., from the date of the petition till the date of realization in full and order the sale of A Schedule property towards the realization of the above sum.
2. In the Original Petition it is stated that the petitioner is a public financial institution incorporated under the Companies Act to grant loans and advances to industries in the State of Tamil Nadu and Pondicherry on the security of hypothecation and mortgages. The petitioner obtains funds from Apex Financial Institutions of India and lend the same to entrepreneurs at concessional rate of interest. The first respondent, to set up a Weaving Mill for manufacture of cotton fabrics approached the petitioner corporation for term loan. Petitioner corporation sanctioned a term loan for Rs.2.50 lakhs towards purchase and erection of machinery on 13.7.1994. As per the terms and conditions, the term loan is to be repaid in 20 quarterly installments with interest at the rate of 17.50% per annum. Thereafter by letter dated 19.10.1994 the term loan has been enhanced to Rs.3.00 lakhs from Rs.2.50 lakhs.
3. The respondents hypothecated the machinery by the Deed of Hypothecation on 27.4.1995 for a sum of Rs.3,00,000/- and the second respondent created equitable mortgage in respect of A schedule property for the loan amount and deposited title deeds as per B schedule with the petitioner corporation. The fact of deposit of title deeds was confirmed by the first respondent on 23.4.1995. Respondents made initial repayment by installments. But in respect of subsequent installments respondents defaulted. During December, 2000, petitioner advised the first respondent to remit Rs.2,99,877/- alone to settle the loan under concessions. But the first respondent did not remit the same. The first respondent removed the machinery beyond the reach of the corporation. The first respondent has not remitted any sum as principal and Rs.29,553/- as interest.
4. Therefore, the respondents are liable to pay the balance term loan in a sum of Rs.2,99,877/- towards principal; the sum of Rs.45,18,134/- towards interest and the sum of Rs.1,27,988/- towards subsidy bridge loan interest and the sum of Rs.167/- towards other dues totalling to a sum of Rs.49,46,166/- as on 24.10.2010. The petitioner is entitled to recover the above sum from the respondents 2 and 3. The petitioner sent a notice to the respondents on 24.8.2010 calling upon them to repay the outstanding loan. Since the respondents did not repay the above amount, the Original Petition is filed.
5. Though respondents appeared through counsel Mr.S.F.Mohamed Yousuf, no counter has been filed. Thereafter none appears on behalf of the respondents. Hence, ex parte evidence was recorded.
6. One Mr.V.Jothikumar, a Senior Officer of the petitioner's corporation was examined as P.W.1. Exs.P-1 to P-9 were marked and the details of which are as follows:-
Ex.P-1 is the authorization letter dated 13.12.2012 given to Mr.V.Jothikumar to depose on behalf of the petitioner corporation.
Ex.P-2 is the office copy of the terms and condition of the sanction order dated 13.7.1994.
Ex.P-3 is the original deed of hypothecation dated 27.4.1995 executed by the respondents in favour of the petitioner corporation.
Ex.P-4 is the original letter dated 28.4.1995 confirming the deposits of the title deeds of the respondents.
Ex.P-5 is the office copy of the notice dated 24.12.2009 sent by the petitioner to the respondents.
Ex.P-6 series (two) are the postal acknowledgment cards for the receipt of the notice Ex.P-5 by the respondents 2 and 3.
Ex.P-7 is the copy of notice dated 24.8.2010 sent by the petitioner to the respondents.
Ex.P-8 series (three) are the postal acknowledgment cards for the receipt of the notice Ex.P-7 by the respondents.
Ex.P-9 is the certified copy of the accounts sheets in respect of the respondents.
7. Heard Mr.A.Ramesh Kumar, learned counsel appearing for the petitioner.
8. On perusal of the petition and documents, the points that arise for consideration are as follows:-
(1)Whether the claim of the petitioner is barred by limitation? (2)Whether the petitioner is entitled to a decree as prayed for?
(3)Whether the interest claimed at the rate of 18.5% is excessive?
(4)To what relief?
9. Point No.1:- According to the petitioner, the loan was granted on 13.7.1994 as per Ex.P-2, the terms and conditions and sanction order. In terms of Ex.P-3, the respondents hypothecated the machinery by the deed of hypothecation on 27.4.1995. The fact of deposit of title deeds was confirmed by the first respondent 28.4.1995 as per Ex.P-4. This Original Petition is filed on 22.11.2010 (i.e.) after lapse of 14 years 6 months and 24 days. In view of the above, a doubt arises with regard to limitation.
10. In the Original Petition, petitioner states as follows:-
7.The cause of action arose at Chennai where the loan was granted on 13.7.94 when the loan was sanctioned, on 27.04.95 when the loan documents were executed, on 20.06.02 when the last installments become due, on 24.12.09 when the concession in interest was offered and on 24.08.2010 when final notice of demand was made by the petitioner corporation.
11. According to the petitioner, the limitation period has to be calculated from the date when the last installment became due and not from the date of execution of the mortgage deed. According to the petitioner the last installment became due on 20.06.2002. To consider this issue it may be necessary to refer to the following reported decisions of the Apex Court and other courts including this court.
12. The Karnataka High Court in Lingaiah - v. - Chikkahonnalagaiah and others reported in AIR 1978 Karnataka 146 in para 4 held as follows:-
From the above observations, it is clear that the suit to recover the mortgage-money on the basis of the personal covenant of the mortgagor is governed by Art.116 of the Limitation Act (1908) which is similar to Art. 62 of the Limitation Act, 1963. It provides for 12 years when the money sued for becomes due. The money sued for becomes due in the instant case only after five years from the date of mortgage. The suit instituted on 4th Nov. 1971 must, therefore, be held within time.
13. Article 62 of the Limitation Act, 1963 reads as follows:
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Description of suit Period of Time from which limitation period begins to run
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62.To enforce payment of money secured by Twelve years When the money a mortgage or otherwise charged upon sued for becomes immovable property. due.
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14. In this case, the term loan was granted on 13.7.1994. The respondents hypothecated the machinery by the deed of hypothecation on 27.4.1995. The fact of deposit of title deeds was confirmed by the first respondent on 23.4.1995. It is stated that the term loan is repayable in 20 quarterly installments. Accordingly, the money becomes due only after five years. According to the petitioner, the last installment became due on 20.06.2002. Thereafter, this Original petition is filed on 22.11.2010 (i.e.) after lapse of 8 years 5 months and 2 days.
15. Further, with regard to the limitation, the following decisions of this Court, the Supreme Court, the Rajasthan High Court and the Karnataka High Court may be relevant.
16. This Court in Tamil Nadu Industrial Investment Corporation Ltd., represented by its Branch Manager, Chennai-14 - vs. - Tvl.Trinity Music Recorders, a partnership firm represented by its partner S.Vaidyanathan, Chenni-18 and 2 others reported in 2000(III) CTC 525 in paragraph 11 held as follows:-
11. Learned counsel for the petitioner also relied on M/s.Easwari Industries, Shencottai and others v. Tamil Nadu Indl. Investment Corporation Ltd., by its Branch Manager, Tirunelveli, 1998(I) MLJ 1 wherein it is observed that the order passed under Section 31 of the State Financial Corporation Act is not a decree under the Code and procedure of making, the calculation held, was a process of execution of a decree already passed under the Act. Learned counsel for the petitioner also relied upon Maganlal v. M/s.Jaiswal Industries, Neemach, AIR 1989 SC 2113, and also Rajasthan Financial Corpn. v. Banwari Lal, AIR 1997 Raj.273. It is stated that where an application is filed by State Financial Corporation under Section 31(1) 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 application is like the relief sought in an execution proceedings. Hence, it cannot be treated as a plaint and it would not be barred by limitation provided under Article 137 of Limitation Act. These decisions are applicable to the case on hand.
17. The Supreme Court in Maganlal v. M/s.Jaiswal Industries, Neemach, AIR 1989 SC 2113 observed that application under Section 31(1) of the State Financial Corporation Act cannot be treated as a plaint for the purposes of payment of court fee.
18. The Rajasthan High Court in Rajasthan Financial Corporation, v. Banwari Lal and others reported in AIR 1997 RAJASTHAN 273 in para 8 held as follows:
8. 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 was not appreciated sections 31 and 32 of the Act in right perspective. As already stated the application under section 31(1) of the Act cannot be treated as plaint. The substantive relief sought in the application is alike the relief sought in the execution application.
19. In the Original Petition it is stated that the last installment is due as on 20.6.2002. The Original Petition is filed on 22.11.2010 (i.e.) after lapse of 8 years 5 months and 2 days, but within twelve years. In view of the above, the Original Petition is not barred by limitation. Accordingly, the first point is answered affirmatively.
20. Point No.2 and 3: According to Ex.P-2, the petitioner corporation granted loan to the first respondent. As per Ex.P-3, respondents executed a deed of hypothecation. Since the respondents defaulted in payment of installments, petitioner issued a notice Ex.P-5 dated 24.12.2009 calling upon the respondents to repay the amount due. The respondents have not replied to the notice. The borrowal of term loan is not denied. No counter is filed. Hence, petitioner filed this original petition under Sections 31(a), 31(aa) and 32 of the State Financial Corporation's Act 1951 for the above stated relief.
21. Sections 31(a), 31(aa) and 32 of the State Financial Corporation Act 1951 reads as follows:-
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 any 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 (4 of 1882), any officer of the Financial Corporation, general or specially authorized 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 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 ....
32.Procedure of District Judge in respect of applications under section 31:- (1) When the application is for the reliefs mentioned in clauses (a) and (c) of sub-section (1) of section 31, the District Judge shall pass an ad interim order attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equivalent in value to the outstanding liability of the industrial concern to the Financial Corporation, together with the costs of the proceedings taken under section 31, with or without an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment.
(1-A) When the application is for the relief mentioned in clause (aa) of sub-section (1) of section 31, the District Judge shall issue a notice calling upon the surety to show cause on a date to be specified in the notice why his liability should not be enforced.
(2).......
(3)Before passing any order under sub-section (1) or sub-section (2) or issuing a notice under sub-section (1-A), the District Judge may, if he thinks fit, examine the officer making the application.
(4)At the same time as he passes an order under sub-section (1), the District Judge shall issue to the industrial concern or to the owner of the security attached a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it or him to show cause on a date to be specified in the notice why the ad interim order of attachment should not be made absolute or the injunction confirmed.
(4-A) If no cause is shown on or before the date specified in the notice under sub-section (1-A), the District Judge shall forthwith order the enforcement of the liability of the surety.
(5)If no cause is shown on or before the date specified in the notice under sub-sections (2) and (4), the District Judge shall forthwith make the ad interim order absolute and direct the sale of the attached property or transfer the management of the industrial concern to the Financial Corporation or confirm the injunction.
(6)If cause is shown, the District Judge shall proceed to investigate the claim of the Financial Corporation in accordance with the provisions contained in the Code of Civil Procedure, 1908 (5 of 1908), insofar as such provisions may be applied thereto.
(7)After making an investigation under sub-section (6), the District Judge may:-
(a)confirm the order of attachment and direct the sale of the attached property;
(b)vary the order of attachment so as to release a portion of the property from attachment and direct the sale of the remainder of the attached property.
(c)release the property from attachment;
(d)confirm or dissolve the injunction;
(da)direct the enforcement of the liability of the surety or reject the claim made in this behalf; or
(e)transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf:
(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 (5 of 1908) for the attachment or sale of property in execution of a decree, as if the Financial Corporation were the decree-holder. ..... It is, therefore, clear that the original petition is filed for execution of the petitioner's claim as if it is a decree.
22. In terms of the above provision, this court issued notice to the respondents. Respondents appeared through counsel. But no counter was filed by them and none appeared on behalf of the respondents. Hence, this court examined the authorised officer of the petitioner's corporation as per procedure and documents in proof of the petitioner's case were filed. The claim of the petitioner is not refuted by the respondents. Hence, the claim is accepted.
23. Further in this case, the interest at 18.50% is claimed. The Supreme Court in Everest Industrial Corporation vs. Gujarat State Financial Corporation reported in AIR 1987 held as follows:-
... the proceedings instituted under section 31(1) of the State Financial Corporation Act is something akin to an application for attachment of the property in execution of a decree at a stage posterior to the passing of the decree, hence no question of passing any order under section 34 of Civil procedure Code would therefore arise. Since Section 34 of CPC would be applicable only at the stage of the passing of the decree and not to any stage posterior to the decree. The Court has further held that the interest would be payable on the principal amount due in accordance with the terms of the agreement between the parties till the entire amount due was paid as per the order passed under section 32 of State Financial Corporation Act.
24. In view of the above decision, this court has no role to play with regard to interest. In view of the reasons stated above, the petitioner is entitled to a decree as prayed for. The point Nos.2 and 3 are answered in favour of the petitioner.
25. Point No.4:- In view of the answer given for the point Nos.1 to 3, the petitioner is entitled to recover the amount as claimed in the Original Petition from the respondents. There shall be no order as to costs. One year time is granted to the respondents to repay the loan amount. In default by the respondents, the petitioner corporation is entitled to bring the hypothecated A schedule property for sale and realise the amount. This Original Petition is ordered accordingly.
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