Karnataka High Court
Industrial Investment Bank Of India ... vs Indiana Dairy Specialities Limited, ... on 21 August, 1998
Equivalent citations: [1999]96COMPCAS313(KAR), 2000(3)KARLJ283
Author: Mohamed Anwar
Bench: Mohamed Anwar
ORDER
1. This petition by the Industrial Investments Bank of India Limited and another is filed on 24-11-1997 under Section 40 of the Industrial Reconstruction Bank of India Act, 1984 ('the Act of 1984' for short) for the following reliefs against respondent-Indiana Dairy Specialities Limited:
"The petitioners therefore most humbly pray:
(i) that orders under sub-clauses (i), (iii) and (iv) of Section 40(1)(b) of the Industrial Reconstruction Bank of India Act, 1984 may be passed;
(ii) such other order may be made in the premises as shall be just".
2. The substance of the petitioners' case pleaded in the petition is that the respondent is a public company within the meaning of Companies Act, 1956 which was established for manufacturing dairy products. The petitioner-Bank is a financial institution to which the undertaking of the erstwhile Industrial Reconstruction Bank of India ('IRBI' for short) which was established under the Act of 1984 has been transferred with effect from 27-3-1997 under the provisions of Industrial Reconstruction Bank (Transfer of Undertakings and Repeal) Act, 1997 (for short, 'the Transfer Act of 1997'). On transfer of IRBI, all the rights, liabilities, assets, powers, debentures, securities etc., stood transferred and acquired by the petitioner-Bank by virtue of the provisions of the Transfer Act of 1997. Petitioner 2 who is Chief General Manager of the petitioner-Bank was duly authorised by an authorisation to file this petition.
3. On tbe application made by respondent to the petitioner-Bank for grant of loan of Rs. 225 lakhs under the equities finance scheme the said loan was sanctioned to it by the petitioner under its Letter of Intent dated 10-4-1996. This financial assistance was provided to the respondent-Company on the security of its assets mentioned in Schedule-A appended to the petition. Then respondent-Company entered into a loan agreement at Annexure-D dated 22nd April, 1996 with petitioner-Bank incorporating the terms and conditions of the loan. Respondent defaulted in payment of the quarterly instalments regularly as stipulated in Annexure-D agreement, with the result it has become liable to pay the total amount of Rs. 2,86,66,516/- to the petitioner on account of the said loan, as detailed below:
(a) Principal :
Rs. 2,25,00,000
(b) Interest :
Rs. 54,49,316
(c) Additional interest :
Rs. 5,86,521
(d) Liquidated damages :
Rs. 1,30,679 Total :
Rs. 2,86,66,516 At para 13 of the petition it is further stated that apart from this amount the petitioner-Bank is also entitled to receive from the respondent:
(a) Interest from 31st October, 1997, till repayment at 20% per annum.
(b) Liquidated damages at the rate of 2.1% per annum from 31st October, 1997, till repayment.
(c) All other moneys payable by the respondent-Company to the petitioner 1 in terms of the above mentioned loan agreement and special conditions.
4. The petition is, therefore, filed for the above stated reliefs against respondent towards realisation of the aforesaid specified amount and for other reliefs stated at para 13 of the petition. The Court-fee of Rs. 100/-is paid on the petition.
5. Initially, the petition was registered as Company Petition No. 166 of 1997 treating the same as a petition under the Companies Act and it was listed before the learned Single Judge who was dealing with company matters. On 6-3-1998 when the matter came up before the Honourable Judge, he took the view that the petition has been wrongly filed as a company petition. Therefore, he directed the Registry to renumber it as a original petition after placing the matter before the Hon'ble Chief Justice. The said order of the learned Judge was as under;
"This petition has been filed under Section 40 of the Industrial Reconstruction Bank of India Act, 1984 read with Section 12(2) of Industrial Reconstruction Bank (Transfer of Undertaking and Repeal) Act, 1997. Admittedly, this petition has nothing to do with the provisions of the Indian Companies Act of 1956. Therefore, it has wrongly been filed as a company petition. In that view of the matter, the petition be placed before the Hon'ble Chief Justice for advising appropriate orders for assigning the petition for appropriate Bench. It appears to be the first case of its kind. Therefore, it needs to be renumbered as a original petition".
6. Then, the petition was registered as O.S. No. 1 of 1998 by the Registry and it was listed before me with office raising its objection that the deficit Court-fee of Rs. 3,58,358/- on the petition is payable by the petitioner.
7. Learned High Court Government Pleader was called upon to take notice of the matter on behalf of the State Government who accordingly represented the State and filed his counter supporting the office objections.
8. Learned Counsel for petitioner, Mr. Gopal Hegde and the learned High Court Government Pleader Mr. M.H. Ibrahim were both heard on the point of proper Court-fee payable on the petition/plaint.
9. Mr. Gopal Hegde argued that the remedy provided to the petitioner-Bank for the petition reliefs under the Act of 1984, which is a special enactment, is a special remedy which ensures speedy recovery of the debts from the defaulting debtor industrial concerns in consonance and furtherance of the object of the Act, and the proceeding contemplated under the Act for enforcement of the said remedy against the defaulting debtors is in the nature of post-decretal proceedings and, therefore, the same cannot be stated and held as constituting the proceeding in an original suit. In support of this contention he placed reliance on two decisions of Supreme Court in the case of Gujarat State Financial Corporation v M/s. Natson Manufacturing Company Private Limited and Others and Maganlal v Mis, Jaiswal Industries, Neemach and Others . Therefore, he maintained that the petition cannot be treated as a plaint in law and, as such, the proper Court-fee payable on the petition is Rs. 12/- only per sub-clause (ii) of clause (m) of Article 11 of Schedule II of the Karnataka Court Fees and Suits Valuation Act, 1958 'the Court Fees Act' for short.
10. Mr. M.H. Ibrahim, learned High Court Government Pleader representing the State argued otherwise contending that since the substantial relief prayed for in the petition is for the recovery of the aforestated amount mentioned therein, the petitioner is liable to pay the ad valorem Court-fee on the said amount and that regard being had to the nature of the relief sought to be enforced against respondent, the petition has to be treated as a plaint and the proceeding need be conducted as the original suit proceeding. He did not cite any authority supporting his submissions.
11. To appreciate the rival view points canvassed by both sides it is essential to have a bird's eye-view of the Act of 1984 under which the reliefs are prayed for by the petitioner.
12. Preamble of the Act indicates that it is enacted to provide for the establishment of the Industrial Reconstruction Bank of India, initially, with a view to enabling the Reconstruction Bank to function as the principal credit and reconstruction agency for industrial revival and to co-ordinate similar work of the other institutions engaged therein and to assist and promote industrial development, and to rehabilitate industrial concerns and for matters connected therewith or incidental thereto. The Act consists of 72 sections and it is divided into 9 Chapters. Chapter I contains Sections 1 and 2. Section 1 defines the title of the Act and provides for its commencement. Section 2 defines various terms used in the Act. Chapter II deals with the establishment of the Industrial Reconstruction Bank of India. Sections 5 to 8 of Chapter III provide for acquisition and transfer of the undertaking of the Industrial Corporation Bank of India Limited, and Chapter IV relates to the management of the Reconstruction Bank. Chapter V containing Sections 18 to 24 spells out the objects of and business to be transacted by the Reconstruction Bank. Section 18 enumerates the various businesses which the Reconstruction Bank is empowered and authorised to carry on for attaining the objects of the Act indicated in its preamble as also under sub-section (1) of Section 18. Under sub-clause (a) of Section 18(1) it is empowered to grant loans and advances including working capital to any industrial concern. Section 19 describes the kind of business which the Bank is prohibited to carry on. Sections 20 to 23 relate to loans borrowing transactions to be carried on by the Bank. Chapter VI provides for establishment of reconstruction assistance fund by the Bank. The provisions dealing with the Bank's general fund, accounts and audit are contained in Chapter VII.
13. Chapter VIII containing Sections 36 to 51 deals with special powers of the Bank. This is the material and important chapter for our purpose. Section 36 confers powers on the Bank to impose conditions for financial assistance to be provided under Section 18 to any industrial concern. Section 39 spells out the rights of the Bank in case of default by the debtor industrial concern in repayment of any dues to the Bank. Sub-section (1) of Section 39 contemplates:
"Where an assisted industrial concern, which is under a liability to the Reconstruction Bank under any agreement with the Bank, makes any default in the payment of any dues, or in meeting its obligation in relation to any other assistance given by the reconstruction Bank or otherwise fails to comply with the terms of the agreements with that Bank, the Reconstruction Bank shall have the right to take over the management, or possession, or both, of the industrial concern, as well as the right to transfer by way of lease or sale of the property assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank for the purpose of realising its dues or for the revival of the industrial concern".
The other provisions of sub-sections (2) to (5) of Section 39 deal with the incidents of the action by the Reconstruction Bank under sub-section (1) thereof. Section 40 under which the present petition is filed provides for the enforcement of the claims by the Reconstruction Bank against the defaulting assisted industrial concern. The material provisions of this relevant section are extracted below since they sufficiently throw light on the nature of the legal proceeding required to be conducted by the High Court on a petition under Section 40 of the Reconstruction Bank:
"40(1)(a) Where an assisted industrial concern makes any default in the payment of any dues to, or in meeting its obligation in relation to any other assistance given by the Reconstruction Bank or otherwise fails to comply with the terms of agreement with that Bank, or
(b) Where the Reconstruction Bank makes an order under Section 38 requiring the assisted industrial concern to make immediate repayment of any assistance granted to it and the industrial concern fails to make such repayment.
Then, without prejudice to the provisions of Section 39 of this Act and of Section 69 of the Transfer of Property Act, 1882, any officer of the Reconstruction Bank generally or specially authorised by the Board in this behalf, may apply to the concerned High Court for one or more of the following reliefs, namely;--
(i) for an order for sale or lease of the property assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank as security for the assistance granted to it, or for the sale or lease of any other property, of the industrial concern; or
(ii) for transferring the management of the industrial concern to the Reconstruction Bank or to its nominee; or
(iii) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment from the premises of the industrial concern without the previous permission of the Board, where such transfer or removal is apprehended; or
(iv) for an order for the appointment of a receiver where there is apprehension of the machinery, equipment or any other property of substantial value which has been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank, being removed from the premises of the industrial concern or of being transferred without the previous permission of the Reconstruction Bank.
(2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Reconstruction Bank, the ground on which it is made and such other particulars as may be necessary for obtaining the relief prayed for.
(3) Where an application is for any relief mentioned in sub-clause (i) of sub-section (1), the High Court may,--
(a) by an order, authorise the Reconstruction Bank to grant lease of such properly to such person and on such terms and conditions as may be specified in the said order; or
(b) pass an order calling upon the person whose property has been assigned, charged, hypothecated, mortgaged or pledged to Reconstruction Bank to show cause, on a date to be specified in the notice, as to why an order for sale of such property or so much of such property, as would, on being sold, realise, in its estimation, an amount equivalent in value to the outstanding dues of the industrial concern to the Reconstruction Bank, together with costs of the proceedings taken under this section, shall not be made; or
(c) pass an ad interim order attaching any property of the industrial concern which has not been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank, or so much of such property, as would, on being sold, realise, in its estimation, an amount equivalent in value to the outstanding dues of the industrial concern to the Reconstruction Bank, together with costs of the proceedings taken under this section, and pass an order calling upon the industrial concern to show cause on a date to be specified in the notice as to why such an order of ad interim attachment shall not be made absolute.
(4) .....
(5) Where an application is for the relief mentioned in sub-clause (iii) of sub-section (1), the High Court shall grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery or other equipment and issue a notice calling upon the industrial concern to show cause, on a date to be specified in the notice, as to why such ad interim injunction shall not be made absolute.
(6) Where an application is for the relief mentioned in sub-clause (iv) of sub-section (1), the High Court shall pass an ad interim order appointing a receiver in respect of the property assigned, charged, hypothecated, mortgaged, or pledged and shall issue a notice calling upon the industrial concern to show cause, on a date to be specified in the notice, as to why the ad interim order appointing the receiver shall not be made absolute.
(7) .....
(8) .....
(9) .....
(10) .....
(11) .....
Sub-section (12) of Section 40 provides for an appeal by any bank aggrieved by an order of the High Court made under sub-section (3), (7) or (9). The other provisions in Sections 41 to 48 enumerates other powers of the Reconstruction Bank to take over management, possession qua the assisted industrial concern making default in payment of dues to the bank and provide for protection for the action taken by them in accordance with the provisions of the Act. Section 49 deals with the power of Central Government to grant relief in the case of certain assisted industrial concerns. Section 50 empowers the High Court to authorise Reconstruction Bank to prepare the scheme for reconstruction etc., of industrial concern in a winding up proceeding. Section 51 casts a duty on the Chief Metropolitan Magistrate and the District Magistrate to assist the Reconstruction Bank in taking charge of the property, effects or auctionable claims of any defaulting assisted industrial concern pursuant to the action taken under Section 39, Section 40 or Section 41 or where the management of an industrial concern is taken over by or on behalf of Reconstruction Bank or an undertaking or industrial concern is amalgamated under Section 49. Chapter IX contains the provisions for miscellaneous matters.
14. Consideration of the object and scheme of the Act shows that it is a self-contained Act providing for establishment of the Reconstruction Bank as a special financial institution principally to function as a principal credit and reconstruction agency for industrial revival by undertaking modernisation, expansion, reorganisation, diversification or rationalisation of industries and by co-ordinating with other similar institutions indicated therein and such other like functions. Section 40 lays down the procedure for enforcement of the relief stipulated under sub-clauses (i) to (iv) of Section 41(b) through the High Court.
15. The structure of the Act of 1984 further reveals that it is in pari materia with the State Financial Corporation Act, 1951 ('Financial Corporations Act' for short). Sections 31 and 32 of the Financial Corporation Act embody the provisions similar to the provisions of Section 40 of the Act of 1984. Sub-clauses (a), (aa), (b) and (c) of Sections 31(1) of this Act, envisage the same relief as are provided under sub-clauses (i) to (v) of Section 40(b) of the Act of 1984, as available to the creditor financial corporation against the defaulting debtor industrial concern on an application made to the District Judge under sub-section (1) of Section 31 for enforcement of all or any of the said reliefs. For clear perception of the various provisions of Sections 31 and 32 of the Financial Corporation Act in juxtaposition with the provisions of Section 40 of the Act of 1984, they are reproduced below:
"31. All receipts of the Reconstruction Bank other than those which are to be credited to the Reconstruction Assistance Fund under this Act shall be credited to a Fund to be called the General Fund and all payments by the Reconstruction Bank, other than those which are to be debited to the Reconstruction Assistance Fund, shall be made out of the General Fund.
32. (1) The balance-sheet and accounts of the Reconstruction Bank shall be prepared in such form and manner as may be provided for in the regulations.
(2) The Board shall cause the books and accounts of the Reconstruction Bank to be closed and balanced as on the 30th day of June each year".
16. Section 32 of the Financial Corporation Act, 1951 provides for the procedure to be followed by the District Judge in respect of application in Section 31 made by a creditor Financial Corporation. In sub-section (6) of Section 32 of the Financial Corporation Act same procedure as stipulated in sub-section (8) of the Act of 1984 is provided to investigate the claim of the applicant-Corporation.
17. In the case of Gujarat State Financial Corporation, the identical question relating to the proper Court-fee payable on the application made under Section 31(1) before the District Judge by the Gujarath State Financial Corporation seeking the reliefs stipulated thereunder against the defaulting industrial concern, had arisen for decision. The fixed application on the basis that the Court-fee payable thereunder was governed by the residuary Article l(c) of Schedule II of the Bombay Court Fees Act, 1959. On the other hand it was contended for the State that having regard to the nature of the reliefs prayed in the application in respect of recovery of the dues payable to the Corporation by the defaulting industrial concern, the Court-fee payable by the corporation was ad valorem on the amount of value of the subject-matter in dispute and that the application has to be treated as a plaint. The learned trial District Judge arrived at his opinion that the application under Section 31(1) was in the nature of an execution application and the Court-fee payable thereon would be governed by Article l(c) of the said Schedule II. The contention of the applicant-Corporation was, thus, upheld by the District Judge.
18. When the matter was taken up before the High Court of Gujarat in revision by the State of Gujarat, the High Court held that regard being had to the nature of relief sought to be enforced against the defaulting industrial concern and as against its properties mortgaged as security for the loan advanced, the application under Section 31(1) has to be treated on par with a plaint in a suit and, therefore, the Court-fee payable thereon was the ad valorem Court-fee. Aggrieved by the said order of the High Court the Corporation challenged the legality and correctness thereof before Supreme Court. The Supreme Court on a detailed consideration of the nature of reliefs provided under Section 31(1) to the creditor Financial Corporation as against the defaulting debtor industrial concern in the context of the scheme of the Financial Corporation Act, observed at para 8 of its judgment:
"Article (1) Schedule I of Court-fees Act provides for ad valorem Court-fee on a plaint or memorandum of appeal (not otherwise provided for in the Act) or of cross-objections presented to any Civil or Revenue Court, to be levied according to the scale set out in the Schedule on the value of the subject-matter in dispute. Article 7 provides for Court-fees on a plaint or application or petition other than those provided in the earlier articles to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss including cases where an application or petition is treated either as a plaint or is described as the mode of obtaining the relief as aforesaid, the fee to be calculated on the amount of the monetary gain or monetary loss to be prevented according to the scale prescribed under Article 1".
Another pertinent observation made at para 11 concerning interpretation of taxation provision is as follows:
"Let it be recalled at this stage that if the Court Fees Act is a taxing statute, its provisions have to be construed strictly in favour of the subject litigant vide State of Maharastra v Mishrilal Tarachand Lodha".
Throwing light on the nature of the legal proceedings initiated on an application under Section 31(1)of the Financial Corporation Act, the Supreme Court proceeded to hold at para 13 of its judgment:
"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 Article 1 of Schedule I nor an application in the nature of a plaint as contemplated by Article 7 of Schedule I of Court Fees Act."
In the light of its conclusion, the Supreme Court held:
"Once Article 7 of Schedule I of the Court Fees Act is excluded. There was (and could be) no dispute that an application under Section 31(1) of the Act would be covered by the residuary Article l(c) of Schedule II of the Court Fees Act and it should bear a fixed Court-fee in the sum of 65 paise. Therefore, the High Court was clearly in error in holding that the application should bear ad valorem Court-fee".
19. The afore-stated pronouncement of Supreme Court in Gujarat State Financial Corporation's case, supra, provides a clear answer to the question in the case in hand concerning the proper Court-fee payable on the petition herein. Having regard to the object, scheme and structure of the Act of 1984 as also the prescribed manner in which the reliefs provided for the creditor Reconstruction Bank under sub-clauses (i) to (iv) of Section 40(a) thereof are to be enforced, it could be stated and held that the legal proceeding initiated on such a petition would not be the suit proceeding proper requiring passing of a formal decree adjudicating the rights and liabilities of the parties but it is merely in the nature of post-decretal or an execution proceeding. Therefore, any petition made under Section 40 does not fully partake of the character of a plaint in the suit. Hence, the Court-fee payable on such a petition is not the ad valorem fee but the fixed Court-fee of Rs. 12/- made payable by the residuary clause (m)(ii) of Article 11 of Schedule II read with Section 20 of Court Fees Act. This clause states:
"11 .....
(m) Original petitions not otherwise provided for when filed in--
(i) xxx xxx xxx. (ii) the High Court Twelve rupees".
The petitioner having already paid the Court-fee of Rs.100/- on the petition, the office objection raised in this regard is legally untenable and it is rejected.
20. Furthermore, since the petition in the instant case is not and cannot be legally treated as a plaint the Registry shall register the same as a miscellaneous petition and it may be listed as such.