Punjab-Haryana High Court
M/S. Amar Cold Storage & Ice Factory And ... vs Punjab Financial Corporation on 24 February, 1994
Equivalent citations: AIR1994P&H235, (1994)107PLR250, AIR 1994 PUNJAB AND HARYANA 235, (1994) 1 CURLJ(CCR) 835, (1994) 1 BANKLJ 327, 1994 REVLR 2 26, (1994) 2 RRR 301, (1994) 1 RRR 76, (1994) 2 LANDLR 289, 1993 PUNJ LJ 693, (1994) 2 PUN LR 250
Bench: S.P. Kurdukar, H.S. Bedi
JUDGMENT
1. This Letters Patent Appeal is directed against the judgment and order dated July 10, 1990, passed in F.A.O. No. 23 of 1985 by the learned single Judge. The appellants are the original respondents in an application under Section 31 of the State Financial Corporation Act, 1951 (hereinafter referred to as "the Act"). The learned Additional District Judge, Ludhiana, who heard the said application, by his judgment and order dated 13th December, 1984, held that the appellants are liable to pay Rupees 6,95,559.20 with future interest at the rate of 15% per annum from 1st August, 1980, till realisation. The appellants being aggrieved, filed the abovereferred appeal. The learned single Judge by his impugned judgment and order, dismissed the appeal. Against these two concurrent judgments, the appellants have filed this Letters Patent Appeal.
2. It may be stated that the learned single Judge heard batch of appeals involving identical issues and disposed them of by a common judgment. The learned single Judge in his judgment set out the facts from F.A.O. No. 23 of 1985 and we propose to follow the same.
3. The learned single Judge has very succinctly narrated the necessary facts and it would not be necessary to summarise all the pleadings in this judgment. We may summarise only few facts, which are necessary for disposal of this Letters Patent Appeal:
First appellant--M/s. Amar Cold Storage and Ice Factory is a partnership firm of which appellants Nos. 2 and 3 are partners. They wanted to start the business of cold storage and ice factory at Jagraon (district Ludhiana). Since they needed financial help, they approached the Punjab Financial Corporation, the respondent (hereinafter referred to as "the Corporation") for grant of loan of Rs. eight lacs. Their application was processed and the Corporation sanctioned a loan of Rs. Seven lacs. Disbursement of the loan of Rs. Seven lacs was agreed to be made on certain terms and conditions and upon appellants' executed a mortgage-deed, signed by appellants Nos. 2 and 3 in favour of the Corporation. The said mortgage-deed is at Exhibit P-6. On the day of execution and registration of the mortgage-deed, the Corporation paid a sum of Rupees 81,000/-(cheque) to the appellants. The balance amount of Rs. 6,19,000/- was agreed to be paid to the appellants within six months on certain terms and conditions, incorporated in the mortgage-deed. The relevant terms read thus:--
"(ii) Rs. 6,19,000/- (Rs. Six lacs and nineteen thousand only) within six months of the first instalment, in the event of the mortgagors complying with all the obligations hereunder, subject to the conditions that the value of the fixed assets, i.e. land, building and machinery mortgaged to the Corporation, is not less than 4/3 times but on racks two time.s the amount to the loan including the second instalment; provided that the industrial concern raises its capital to Rs. 1,83,000/-) (over and above the figure of Rs. 2,85,000/-) which are linked to the disbursement of the loan as under:--
Capital Amount to be disbursed (over and above the figure of Rs. 2,85,000/-) Rs. 21,300/-
Rs. 81,000/-
Rs. 1l,6,700/-(more) Rs.69,000/-(more) Rs. 1,83,000/-
Rs. 7,00,000/-
The repayment schedule has been set out. There are certain terms and conditions, which are also incorporated and reference thereof will be made at appropriate places. It may also be stated that under the very same mortgage deed, it was agreed that the appellants will pay the interest at the rate of 6 1/2% above the bank rate, subject to a minimum of 15 1/2% p.a. It was agreed further that 3% rebate was to be allowed to the Industrial Concern in case of timely payments.
As stated earlier, the Corporation paid in-initially a cheque of Rs. 81,000/- to the appellants on August 5, 1975. Some difficulty arose because of calculations in working out the capital assets or value of the fixed assets and to sort out the said difficulty, it appears that the second appellant was called to the office of the Corporation and upon discussion, it was found that the total amount of capital assets (value of the fixed assets) was not correctly reproduced in the mortgage-deed and as a result thereof, there was difficulty in releasing instalments of loan to the appellants. In order to enable the appellants to get the loan amount in terms of the mortgage deed, the appellants wrote a letter dated October 6, 1975 (Exhibit PW 2D) to the Managing Director, agreement to raise the amount of capital assets (value of the fixed assets) by the firm. In terms of this letter dated October 6, 1975, the Board of Directors of the Corporation on October 27, 1975, passed a resolution (Exhibit PW 2B) raising value of the fixed assets to be tune of Rs. 5,83,000/-. Consistent with this agreement, Torlochan Singh and Parsin Kaur, appellants Nos. 2 and 3, executed a document, purporting to be an agreement (Exhibit PW 2-A) on December 3, 1975, on a stamp paper which was purchased on October 6, 1975. This agreement assumes some importance in the present proceedings and, therefore, we may reproduce the relevant portion, which reads thus:--
"Whereas the Borrowers have executed a mortgage deed dated the 5th of August, 1975, registered with the Sub-Registrar, Jagraon, to secure a loan of Rs. 7,00,000/- for the construction of building and racks and purchase of machinery and generating set." "Whereas it was agreed in clause l(ii) of the said mortgage deed that the industrial concern would raise the capital to Rs. l,83,000/- (over and above the figure of Rs. 2,85,000/-) which would be linked to the disbursement of loans as under :-
Capital Amount to be dis-bursed (over and above the figure of Rs. 2,85,000/-) Rs. 21,300/-
Rs. 81.000/-
Rs. 1,61,700/-(more) Rs. 6,19,000/-(more) 1,83,000/-
Rs. 7,00,000/-
"and whereas it was also provided under clause 5 (xiv) that in particular capilal shall not be allowed to fall below Rs.4,68,000/-(Rs. four lacs and sixty eight thousand only) during the currency of the loan from the Corporation. Whereas the industrial concern is to set up a cold storage with a capacity to store 35,000 bags of potatoes and the total cost of the project estimated at Rupees 13,27,000/- is to be met as follows :-
Loan from P. F. C. Rs. 7,00,000/-
Additional Capital 20% subsidy for Rs. 5,83,000/-
generating set.
Rs. 440,000/-
Total Rs. 13,27,000/-
And consequently the industrial concern is under obligation for the completion of the project to raise additional capital to the extent of Rs.5,83,000/-"
"Now this agreement witnesseth as follows:
The borrowers hereby agree to raise additional capital to the extent of Rs. 5,83,000/-(over and above the original figure of Rs. 2,85,000/- and consequently the disbursement of loan may be linked with the raising of capital as under:--
Capital Amount to be disbursed Rs. 3,06,000/-
Rs. 2,46,000/-
Rs. 5,62,000/-(more) Rs.4,54,000/-
(more) Rs.8,68,000/-
Rs. 7,00,000/-
"The borrowers further agree that they shall not allow their capital to fall below Rs. 8,68,000/- (Rs. Eight lacs and sixty eight thousand only) during the currency of the loan from the Corporation."
"The other terms and conditions governing the loan of Rs. 7,00,000/- (Rs. seven lacs only) as contained in the said mortgage deed dated the 5th August, 1975, executed by the Borrowers in favour of the Corporation shall remain unchanged."
4. Pursuant to this agreement dated the 3rd December, 1975, (PW 2-A), the Corporation advanced further sum of Rs. 2,61,000/-to the appellants and there is no dispute about receipt of this amount.
5. It appears that since the appellants could not complete the construction and start the factory for want of finance, they could not adhere to the repayment schedule and committed defaults. On April 10, 1978 the Corporation issued notice under Section 30 of the State Financial Corporation Act, (Exhibit P8). On April 21, 1980, another notice (Exhibit P9) under Section 31 of the Act was also issued and served upon the appellants. Since the appellants failed and neglected to comply with the notices, the Corporation on January 20, 1981 filed application under Sections 31 and 32 of the Act.
6. In the application, the Corporation has set out the necessary details as regards the loan advanced to the appellants and interest thereon due and recoverable from them on the date of application. The Corporation in their application, therefore, prayed for sale of immovable property, plant and machinery (described in Annexure A) and the payment from the sale proceeds to the Corporation its full dues, amounting to Rs. 6,95,559.20 (as per details set out in the Annexure) with further interest at the rate of 15% per annum from August 1, 1980, till realization. In the very same application, the Corporation also prayed for ad interim relief of attachment of the mortgaged properties, as provided under Section 32 of the Act.
7. The respondents filed their reply and contested the said application. The sum and substance of the defence raised by the appellants is as under:
The appellants admitted execution and correctness of the mortgage-deed dated August 5, 1975 (Exhibit P6). According to them, they are not liable to pay any amount as claimed by the Corporation in view of the fact that the Corporation committed breach of terms and conditions of the mortgage deed. Since the Corporation did not release the loan amount as agreed under the terms and conditions of the mortgage deed, the appellants' Cold Storage and Ice fatory could not take off. The appellants were ready and willing to abide by the terms and conditions of the mortgage deed, but it is the Corporation, which has committed the breach of terms and conditions of the mortgage-deed and as a result thereof, the appellants have suffered heavy losses apart their investment being wasted. The appellants further prayed that the application of the Corporation under Sections 31 and 32 of the Act is not maintainable and the only remedy for the Corporation would be to enforce the mortgage-deed by way of appropriate suit. The application should, therefore, be dismissed.
8. It appears that during the pendency of the said application, the Corporation moved an application for amendment to the original application filed under Sections 31 and 32 of the Act sometime in the year 1984. By this amendment, the Corporation sought to plead the agreement dated 3rd December, 1975 (Exhibit PW 2A). The application for amendment was also contested on behalf of the appellants. Learned Additional District Judge on March 7, 1983, dismissed the application for amendment. However, Civil Revision No. 1067/1983 filed by the Corporation against the said order was allowed by this Court vide its order dated 23rd January, 1984. The result the being that the application filed by the Corporation under Sections 31 and 32 of the Act stood amended.
9. The appellants submitted their reply to this amended application and pleaded that the agreement dated December 3, 1975, is a fabricated document and that the same is inadmissible in evidence for want of registration under Section 17 of the Indian Registration Act. They also pleaded that the Corporation could not have modified the terms of the mortgage deed (Exhibit P6) by this unregistered document.
10. On the basis of the above said pleadings, the learned trial Judge relevant issued and allowed both the parties to lead oral as well as documentary evidence. After considering pleadings of the parties and their oral as well as documentary evidence on record, the learned trial Judge negatived the contention of the appellants that the agreement dated December 3, 1975 (Exihibit PW2A) is fabricated one. He held that the said agreement is an undetaking given by the appellants to enable them to get the loan from the Corporation and having accepted the loan of Rs. 2,61,000/- on 6th of December, 1975, they cannot be permitted to resile from the terms and conditions set out in the said agreement dated 3rd December, 1975. The learned trial Judge also negativated the contention of the appellants as regards damages etc. on the ground that the scope of enquiry under Sections 31 and 32 of the Act being limited, such question cannot be gone into in the present proceedings. Aggrieved by this Order, the appellants preferred F.A.O. No. 23 of 1985 in this Court and the learned single Judge after considering the arguments of both the parties, dismissed the same. It is against these concurrent judgments given by the Courts that the appellants have filed this Letters Patent Appeal.
11. Mr. R. C. Setia, learned counsel appearing in support of this appeal firstly assailed the impugned judgment on the ground that the agreement dated December 3, 1975, (Exhibit PW 2/A) is inadmissible in evidence for want of registration and the Courts below could not have relied upon the same. In support of this submission, he drew our attention to Section 17 of the Indian Registration Act and urged that the agreement dated December 3, 1975, which modifies the terms and conditions of the original registered mortgage-deed dated August 5, 1975, is void. Mr. Setia further urged that the agreement dated 3rd of December, 1975 is fabricated one inasmuch as the same was not singed by any competent officer on behalf of the Corporation. He also urged that the Corporation had been taking signatures of the appellants on blank papers and it is quite likely that such of the signed papers must have been used by the Corporation to bring out the agreement dated 3rd of December, 1975.
12. We may first deal with the second part of the argument, as regards the fabrication of the agreement dated December 3, 1975. We have carefully perused the original document. It is on a stamp paper, which was purchased by the second appellant on October 6, 1975. This agreement runs into three pages and on each page both the appellants have signed. The spacing of lines in the agreement as well as signatures thereon do not even remotely suggest that this document could have been fabricated by the Corporation taking advantage of the signed papers. Apart from this fact, signatures on the said agreement have also been denied by the appellants at one time. Therefore, the disputed document was required to be sent to the handwriting expert, whose evidence is in favour of the Corporation. We have gone through this agreement very carefully and other evidence connected therewith and we are of the opinion that this agreement is neither fabricated, nor the same is written out on the signed papers, which were alleged to have been obtained by the Corporation. This is mere allegation without any cogent evidence.
13. Our finding in this behalf is also supported by some more circumstances, which were rightly pointed out to us by Mr. Nehra, learned counsel appearing for the Corporation. He urged that on October 6, 1975, Tarlochan Singh approached the Corporation authorities and on that day he undertook to execute a document amending the terms of the mortgage-deed, particularly in regard to raising value of the fixed assets. Stamp paper of the agreement was purchased on 6th October, 1975. It is on the basis of this undertanding that the Board of Directors of the Corporation passed a resolution on 27th October, 1975, in regard to raising of the value of the fixed assets by the appellants to Rs.5,83,000/-. Thereafter inspection of the premises was undertaken and on the basis of the report and pursuant to the discussion between Tarlochan Singh and the Corporation, and agreement (Exhibit PW 2/A) dated December 3, 1975, came to be executed. It is only after execution of this agreement on Decemebr 3, 1975, that an instalment of Rupees 2,61,500/- came to be released by the Corporation to the appellants on December 6, 1975. As indicated earlier, it is not disputed before us on behalf of the appellants that they did not receive the amount of Rs. 2,61,500/-from the Corporation on December 6, 1975. It is thus clear that pursuant to the execution of agreement dated December 3, 1975, the Corporation released the loan instalment of Rs. 2,61,500/- to the appellants. The said agreement thus has been acted upon by both the parties.
14. The next limb of argument advacned on behalf of the appellants is that the agreement dated 3rd of December, 1975, was not signed by any of the competent officers of the Corporation. It is true that the said agreement was not signed on behalf of the Corporation by any competent authority. Now the question is as to whether it is an agreement. In fact if one looks at its title, it may appear to be an agreement, but if one peruses contents of the documents, it would be quite clear that it is an undertaking given by the appellants to the Corporation agreeing to raise value of the fixed assets to Rupees 5,83,000/- and on raising such capital, the Corporation would release the loan instalment. It is, therefore, in substance and, in fact, an undertaking given by the appellants to raise the capital ot Rs. 5,83,000/- and on raising this capital the Corporation was to release the instalments of loan. It is on this undertstanding and undertaking given by the appellants that the Corporation believed the appellants and released the instalment of Rs.2,61,500/- on December 6, 1975. The evidence led on behalf of the Corporation unmistakably indicates that but for this undertaking dated December 3, 1975, they were not prepared to release the loan instalment because the capital investment of the appellants, which should be have been 4/3 times, but on racks two times could not have been fulfilled as per the terms of the motgage-deed dated August 5, 1975 (Exhibit P6). It is this mistake, which later on was noticed by the Corporation and with a view to correct this mistake, an understanding was reached between the parties and pursuant thereto, on December 3, 1975, undertaking/agreement was executed by the appellants (Exhibit PW 2/A). The learned Additional District Judge in his judgment has dealt with this aspect in details and has pointed out what would be the correct amount of capital investment that would come to 4/3 times, but on racks two times. The calculation in the mortgage deed in this behalf was a mistake. It is thus clear that the appellants by this undertaking dated 3rd December, 1975, undertook to raise the capital to Rs. 5,83,000/-. Having failed to do so, the corporation did not release the remaining loan instalments. True, the appellants' project could not take off.
15. Coming to the first argument that the agreement dated December 3, 1975 (Exhibit PW 2/A) is inadmissible in evidence for went of registration, Mr. Setia drew our attention to Section 17 of the Indian Registration Act. In our opinion, the submission of learned counsel is misconceived because it is not an agreement in true sense to modify the terms of the agreement dated 5th August, 1975. On the contrary, fair reading of the document, i.e. agreement dated December 3, 1975 (Ehibit PW 2/A) it appears to us that it was an undertaking given by the appellants to raise capital assets to Rs. 5,83,000/- and upon raising such capital they would be entitled for release of instalments of loan sanctioned by the Corporation. It is also clear that only after raising the capital assets the Corporation was to release the loan amount as per the agreement. It is also confirmed in the said agreement that the rate of interest as per the terms and conditions of the mortgage-deed dated August 5, 1978, (Exhibit P6) to remain unaltered. In view of this, in our opinion, the first contention raised on behalf of the appellants is without any merits.
16. It was then vehemently urged by Mr. Setia that it is Corporation which has committed breach of the terms and conditions of the mortgage-deed and as a result thereof, the appellants' project was totally jeopardised, because of non-release of loan instalments by the Corporation the appellants could not start their factory and as a result thereof they have suffered heavy losses to the tune of Rs. 4,68,000/-. In paragraph 15 of the written statement, the appellants have stated that they have suffered a loss of Rs. 4,68,000/-due to the fault of the Corporation. In paragraph 17 the appellants have claimed an amount of Rs. 4,68,000/- plus Rs. 2,62,500/-(capital investment, total amounting to Rs. 7,30,500/-) after adjusting Rs. 3,42,500/-received from the Corporation. The appellants sought to recover a sum of Rs. 3,88,000/-. They also lodged a counter claim in the claim petition filed by the Corporation. Mr. Setia after drawing our attention to Ss. 32 and 33 of the Act urged that it was open to the Additional District Judge to determine the damages sustained by the appellants in the application under Ss. 31 and 32 of the Act. Mr. Setia also urged that the Corporation being an instrumentality of the State, it was expected to act fairly and justly, but in this case the Corporation neither acted fairly nor justly and the entire action of the Corporation was arbitrary and most irresponsible. In support of this submission he relied upon the decision of Supreme Court in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation, 1992 (2) JT SC 326 : (AIR 1993 SC 935). After going through this decision, we are of the opinion that this decision is clearly distinguishable on facts. In this reported decision, admittedly the entire loan was not disbursed. The appellant therein was needing the capital. The Corporation refused to release the amount at a crucial time when the unit was nearing completion or was ready to start functioning. The unit then fell short of the capital as the partners did not co-operate. The Corporation without any explanation refused to release the full amount. The Corporation thereafter proceeded to take action under S. 29 of the Act and tried to justify the same. It is in these circumstances that the Supreme Court observed that the action of the Corporation was neither fair, nor just. But in the case before us, the appellants who had undertaken to raise the capital asset to Rs.5,83,000/- failed to abide by the said undertaking and as a result thereof, the Corporation did not release the remaining instalments of loan. In our opinion, having regard to the facts and circumstances of the case, it is the appellants who had failed to carry out the condition of raising capital asset to Rs. 5,83,000 / - and as a result thereof the Corporation, in our opinion, was right in not releasing any further loan. The decision of the Supreme Court in the above said case is thus clearly distinguishable.
17. Mr. Nehra, learned counsel appearing for the respondents, vehemently joined an issue and urged that the scope of enquiry under Ss. 31 and 32 of the Act is very limited. In an enquiry of this nature, no claim for damages can be looked into or decided. In support of his submission, he drew our attention to Ss. 31 and 32 of the Act. Section 31 of the Act enables the Corporation alone to approach the District Courts for relief under Ss. 31 and 32 of the Act. No other party can avail the benefit of Ss. 31 and 32 of the Act. It is needless to set out these provisions because the issue as regards scope of enquiry under Ss. 31 and 32 of the Act is no more res integra. 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 Ss. 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. Mr. Nehra rightly drew our attention to various authorities. With a view to complete the judgment, we may only refer to few of them:
AIR 1978 SC 1765; AIR 1983 SC 1950 (sic); 1985 (1) JT SC 579 (sic); AIR 1983 HP 43; AIR 1983 All 234; AIR 1985 P&H 149 and AIR 1986 P&H 21.
18. Bhiwani Parshad Kapur v. Himachal Pradesh Financial Corporation, the decision reported in AIR 1983 HP 43 is directly on the point and has dealt with the scope of Sections 31 and 32 of the Act. We are in agreement with the view taken by the Himachal Pradesh High Court.
19. We have perused the decision of learned single Judge and we are of the opinion that the impugned judgment and order does not suffer from any illegality. There is no substance in the Letters Patent Appeal and the same is dismissed. In the circumstances of the case, we direct the parties to bear their own costs.
20. On the application of Mr. Setia, operation of this order is stayed for a period of three months.
21. Appeal dismissed.