Punjab-Haryana High Court
Diwjinder Sharma vs Punjab Financial Corporation on 26 March, 2003
Equivalent citations: (2004)136PLR130
JUDGMENT G.S. Singhvi, J.
1. This is a petition under Section 115 of the Code of Civil Procedure (for short, the CPC) for setting aside order dated 26.7.1994 passed by Additional District Judge, Patiala in Civil Misc. No. 28 of 1993.
The facts:
2. The petitioner's son-Kamal Krishan Sharma formed a partnership firm on 30.11.1971 along with Jangeshwar Parkash Batish, Smt. Raj Sharma and Smt. Prem Sharma for doing the business of stone crushing under the name and style of M/s Sharma Stone Crashing Industries (hereinafter referred to as the firm). The firm approached Punjab Financial Corporation (for short, the Corporation) for sanction of loan for purchase of machinery etc. The Corporation sanctioned loan subject to the terms and conditions incorporated in mortgage deed dated 15.5.1973. The petitioner executed a separate mortgage deed in respect of his house bearing No. 516/2, Situated at Guru Nanak Street, Patiala for securing repayment of the loan advanced by the Corporation. After about 3 years, the Corporation filed an application dated 5.8.1976 under Section 31 of the State Financial Corporations Act, 1951 (for short, 'the Act') for recovery of its dues. The petitioner was impleaded as one of the non-applicants apart from the firm and its partners. While issuing notice of the application filed by the Corporation, learned Additional District Judge, Patiala restrained the non-applicants from transferring or removing the machinery, plaint and equipments from the premises of the firm. He also issued ad interim attachment warrant in respect of the mortgaged properties situated in village Bartana, Tehsil Rajpura, District Patiala. After few adjournments, Kamal Krishan Sharma, who was impleaded as non-applicant No. 2 appeared before the Additional District Judge on 7.1.1977 along with his Advocate-Shri Dev Raj Garg and made a statement that the partnership had been dissolved vide deed of dissolution dated 30.12.1974 and he had become the sole proprietor of the firm. He undertook the responsibility to pay the outstanding dues to the Corporation and executed compromise deed Ex.XI for payment of Rs. 1,28,000/- to the Corporation in monthly instalments of Rs. 3200/-. Thereupon, the learned Additional District Judge passed decree dated 7.1.1977 in favour of the Corporation and against Kamal Krishan Sharma.
3. After three years of the passing of the afore-mentioned decree, the Corporation filed application for execution of decree dated 7.1.1977 by impleading the petitioner as a party. The Corporation claimed that the decree be got executed by sale of the house which was mortgaged by the petitioner.
4. In response to the notice issued by Additional District Judge, Patiala, the petitioner filed an objection petition dated 21.3.1980. He averred that in view of the compromise entered into between the Corporation and Shri Kamal Krishan Sharma, he will be deemed to have been discharged of his liability as a surety and the property mortgaged by him cannot be sold for realisation of the amount which may be due to the former. The Corporation contested the objection petition by asserting that the petitioner is liable to pay the dues of the Corporation in terms of the mortgage deed executed by him.
5. By an order dated 30.9.1989, Additional District Judge, Patiala upheld the objection of the petitioner and declared that his house is not liable to be sold in execution of decree dated 7.1.1977. The relevant extracts of that order are reproduced below:
"Admittedly, the applicant/objector Shri Diwijendra Sharma was impleaded as respondent No. 6 in the main application under Section 31 of the Act. However, he had not appeared in the proceedings and only Kamal Krishan Sharma, respondent No. 2 had appeared therein and had made a statement. Besides a compromise was entered into between him and the Corporation. Accordingly, he had become the sole proprietor of the firm after its dissolution and had acknowledged his sole liability to discharge the loan amount on the basis of which a decree was passed against the firm through him alone the recovery of the secured properties. Admittedly, the objector/applicant Diwijendra had mortgaged his property i.e. House No. 516/2 situated in Guru Nanak Street, Patiala at the time of the taking of the loan by the firm but there was subsequent change in the constitution of the firm which was dissolved and converted into a sole proprietorship firm. The applicant/objector had never mortgaged his house for the repayment of the loan of the proprietorship firm. Even otherwise, he was not a party to the compromise and the Corporation-Decree Holder had elected to obtain a decree against the firm through Kamal Krishan Sharma its proprietor alone, though the objector/applicant Shri Diwijendra Sharma was originally impleaded as respondent No. 6. In case, the D.M. wanted the recovery of the loan amount from the property mortgaged by the objector/applicant Shri Diwijendra Sharma, it was incumbent for the Corporation to get the objector/applicant served in the proceedings under Section 31 of the Act and to have made him a party to the compromise or the Corporation should have obtained a decree against him on merits but it has not been done so in the present case. The property mortgaged by the objector/applicant Shri Diwijendra Sharma cannot be sold in execution and the decree which is not against him. The learned counsel for the objector/applicant-argued that the possibility cannot be ruled out that no decree was passed against the objector/applicant Shri Diwijendra Sharma in case he had an opportunity to contest the application under Section 31 of the Act.
In view of my above discussions, the objection/petitions dated 21.3.80 and 16.9.80 succeed and are hereby accepted. Consequently, I order that H.No. 516/2, situated in Guru Nanak Street, Patiala belonging to Shri Diwijendra Sharma, objector/applicant is not liable to be sold in execution of the decree dated 7.1.77 passed in favour of the Corporation and against the firm M/s Sharma Stone Crushing Industries, Village Baltana, through its proprietor Kamal Krishan Sharma. The attachment if effected stands released."
6. After 4 years, the Corporation filed an application under Section 31(1)(aa) of the Act for recovery of Rs. 6,31,298.24 from the petitioner in terms of mortgage deed dated 15.5.1973. In his reply, the petitioner challenged the maintainability of the application on the ground that it was barred by resjudicata. He relied on order dated 30.9.1989 and averred that having not challenged the finding recorded by the learned Additional District Judge in the execution application filed by it, the Corporation cannot seek recovery of the amount which may be payable by Kamal Krishan Sharma in terms of compromise dated 7.1.1977.
7. On the pleadings of the parties, learned Additional District Judge, Patiala framed the following issues: .
'(1) Whether the petition is maintainable? OPP (2) Whether the petition is barred by resjudicata? OPR (3) Whether the petition has been filed by a duly authorised person? OPP (4) Whether the petitioner is entitled to recover disputed amount from the respondent? OPP (5) Relief."
8. After hearing the arguments of the counsel for the parties, the learned Additional District Judge rejected the petitioner's plea that the application filed under Section 31(1)(aa) of the Act was barred by resjudicata. He held that judgment and decree dated 7.1.1977 cannot be treated as an adjudication of the lis between the petitioner and the Corporation because he had not been served with notice of the application filed under Section 31 of the Act. He further held that order dated 30.9.1989 cannot be made basis for dismissing the application filed under Section 31(1)(aa) of the Act as barred by resjudicata because the only point decided in that case was whether H. No. 516/2 was liable to attachment in execution of order dated 7.1.1977. He further held that neither the liability of the respondent (petitioner herein) under Section 31(1)(aa) of the Act was adjudicated between the parties nor it was directly or substantially in issue and, therefore, the earlier order cannot operate as resjudicata. In the end, he held that the plea of discharge of surety raised by the respondent shall be separately examined on the basis of evidence on record.
9. Shri R.K. Battas argued that the application filed on behalf of the Corporation under Section 31(1)(aa) of the Act for enforcing the liability of M/s Sharma Stone Crushing Industries against the petitioner was clearly barred by resjudicata because even though he was impleaded as a party in the application filed under Section 31(1) no decree was passed against him and vide order dated 30.9.1989, the then Additional District Judge unequivocally held that H. No. 516/2 mortgaged by the petitioner cannot be sold in execution of decree dated 7.1.1977. He further argued that even though Section 11 of the CPC may be not strictly applicable to the proceedings under Section 31 of the Act, the principle underlying the doctrine of resjudicata is certainly applicable to such proceedings and the learned Additional District Judge committed a jurisdictional error by holding that decree dated 7.1.1977 passed on the application filed by the Corporation under Section 31(1) and order dated 30.9.1989 in the execution application filed by it will not operate as a bar to the application filed under Section 31(1)(aa) of the Act. In support of his arguments, Shri Battas relied on the decision of Full Bench of Kerala High Court in Koran v. Kamala Shetty, A.I.R. 1978 Kerala 172.
10. Ms. Sangeeta Dhanda, learned counsel for the Corporation argued that the provisions of the Code of Civil Procedure are not applicable to the proceedings under Section 31 or the Act and, therefore, the petitioner cannot invoke the doctrine of resjudicata for relieving himself of the liability to repay the loan advanced to M/s Sharma Stone Crushing Industries. She relied on the judgment of Division Bench of Delhi High Court in Rajeev Anand v. Union of India, A.I.R. 1998 Delhi 259 and argued that the certificate of recovery issued against sureties can be enforced by filing an application under Section 31(1)(aa) of the Act. She further argued that even though the petitioner was a party to the application filed under Section 31(1) of the Act, decree dated 7.1.1977 passed by learned Additional District Judge on the basis of compromise arrived at between the Corporation and Shri Kamal Krishan Sharma cannot be used by him for raising the plea of resjudicata in the proceedings initiated under Section 31(1)(aa) of the Act because there was no determination of his liability. In the end, she argued that the proceedings under Section 31 of the Act are summary in nature and, therefore, the doctrine of resjudicata cannot be invoked in such proceedings. In support of this argument, Ms. Dhanda relied on the decisions of the Supreme Court Madhvi Amma Bhawani Amma v. Kunjikutty Pillai Meenakshi Pillai, A.I.R. 2000 S.C. 2301 and Joginder Pal v. Indian Red Cross Society, (2000-2)125 P.L.R. 230 and of this Court in Bhagirath v. The Divisional Canal Officer, Sirsa, (2000-2)125 P.L.R. 197.
11. I have considered the respective arguments. Section 31(1) of the Act lays down that 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 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 Corporation; or
(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 is apprehended.
12. Section 32 contains the procedure to be followed by District Judge on an application made under Section 31(1) of the Act. It postulates passing of an ad interim order attaching the security, or so much of the property of the industrial concern as would, on being sold, realise an amount equivalent to standing liability. The District Judge may also restrain the industrial concern from transferring or removing its machinery, plant or equipment. The District Judge is also required to issue notice to the industrial concern or to the owner of the security attached and call upon it/him to show cause as to why the order of attachment may not be made absolute. After hearing the notice, the District Judge can confirm or vary the order of attachment or direct the sale of the property for realisation of the dues of the Financial Corporation. Sub-section (1) of Section 32 of the Act lays down that when an application is filed 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 as to why his liability should not be enforced. If no cause is shown on or before the date specified in the notice issued under Sub-section (1-A), the District Judge is required to immediately pass an order for enforcing the liability of the surety [Section 32(4-A)]. If cause is shown, the District Judge is required to investigate the claim of the Corporation in accordance with the provisions contained in the CPC so far as such provisions may be applied [Section 32(6)]. After making an investigation under Sub-section (6), the District Judge can confirm the order of attachment and direct the sale of the attached property; 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; release the property from attachment; confirm or dissolve the injunction; direct the enforcement of the liability of the surety or reject the claim made in this behalf or transfer the management of the industrial concern to the Corporation or reject the claim made in this behalf.
13. From what I have noted above, it is clear that Sections 31 and 32 prescribe the special procedure for enforcement of claims by the Corporation. These provisions enable the Corporation to make an application not merely for sale of mortgaged property but even for transferring the management of the industrial concern to the Corporation or injunct industrial concern from transferring or removing its machinery, plant or equipment from the premises of the concern without the permission of the Corporation. In The Gujarat State Financial Corporation v. Natson Manufacturing Co. Pvt. Ltd. and Ors., A.I.R. 1978 S.C. 1765, their Lordships of the Supreme Court, while dealing with the question whether ad valorem court fee under Bombay Court Fees Act, 1978 is required to be paid on the application filed under Section 31(1) of the said Act, reversed the judgment of Gujarat High Court and rejected the argument that by virtue of the provision of investigation under Sub-section (6) of Section 32, the claim of the Corporation will be deemed to be a suit between the mortgagee and the mortgagor. The relevant extract of the judgment of the Supreme Court is reproduced below:
"Sub-section (6) of Section 32 of the Act has to be read in the context in which it is placed. The claim of the Corporation is not the monetary claim to be investigated though it may become necessary to specify the figure for the purpose of determining how much of the security should be sold. But the investigation of the claim does not involve in a suit. The claim of the Corporation is that there is a breach of agreement or default in making repayment of loan or advance or instalment thereof and, therefore, the mortgaged property should be sold. It is not a money claim, The contest can be that the jurisdictional fact which enables the Corporation to seek the relief of sale of property is not available to it or no case is made out for transfer of management of the industrial concern. Sub-section (7) of Section 32, prescribes what reliefs can be given after investigation under Sub-section (6) is made, and it clearly gives a clue to the nature of contest under Sub-section (6). Sub-section (8) of Section 32 only prescribes the mode and method for executing the order of attachment or sale of property as provided in the Civil P.C. Sub-sections (6), (7) and (8) of Section 32 read together would give an opportunity to the industrial concern to appeal and satisfy the District Judge that the situation envisaged by Section 31(1) has not arisen and the relief should not be granted. In the absence of a provision giving such an opportunity to the industrial concern to whose detriment the order is required to be made a serious question may arise about the constitutional validity of the procedure prescribed under Section 31(1) inasmuch as it would be violative of principles of natural justice and that too in a proceedings in a Court of Law. The provision contained in Sub-section (6) does not expand the contest in the application under Section 31(1) as to render the application to be a suit between a mortgagee and the mortgagor for sale of mortgaged property. It may be, as contended by Mr. Patal, that in the ultimate analysis the result would be that the property will be sold for repayment of the loan or advance taken by the industrial concern from the Corporation but it could not be said that it is a substantive relief claimed by the Corporation which can be valued in terms of monetary gain or prevention of monetary loss as envisaged by Article 7 of Schedule I of Court Fees Act. 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 mortgaged 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."
14. In Everest Industrial Corporation and Ors. v. Gujarat State Financial Corporation, A.I.R. 1987 S.C. 1950, their Lordships of the Supreme Court relied on the observations made in Gujarat State Financial Corporation v. Natson Manufacturing Co. Pvt. Ltd. (supra) and held that "proceeding instituted 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, no question of passing any order under Section 34 of the Code would therefore arise since Section 34 of the Code would be applicable only at the stage of the passing of the decree. Moreover even under the Code the question of interest payable in mortgage suits filed in civil courts is governed by Order 34 Rule 11 of the Code and not by Section 34 of the Code which may be applicable only to cases of personal decrees passed under Order 34 Rule 6 of the Code."
15. From the above noted judgments of the Supreme Court, it is clear that proceedings under Section 31 read with Section 32 of the Act are summary in nature and the provisions of the CPC are strictly not applicable to such proceedings though in terms of Sub-section (6) of Section 32 of the Act, the District Judge has to make investigation of the claim of the Corporation in accordance with the provisions contained in the CPC in so far as such provisions may be applied thereto.
16. However, the moot question which remains to be considered is whether the doctrine of res judicata or the principles underlying that doctrine can be applied to the proceedings under Section 31(1) read with Section 32 of the Act. In Inder Singh and Anr. v. Financial Commissioner, Punjab and Ors., 1997(1) P.L.J. 52, their Lordships of the Supreme Court reversed an order passed by this Court and held that the doctrine of resjudicata is not applicable to the proceedings under the Pepsu Tenancy and Agricultural Lands Act, 1955. The facts of that case were that the tenant had filed an application under Section 22 of that Act for conferment of the proprietary rights. The same was rejected by the competent authority on 25.4.1960 on the ground that he was not in possession for 12 years. After the dismissal of appeal and revision and even the writ petition filed by him, the tenant made second application on 26.3.1965 for conferment of ownership rights based on tenancy. That application was allowed on 15.12.1965 and the appeal and revision were dismissed by the higher authorities. However, in a writ petition filed against the orders conferring ownership on the tenant, a Division Bench of this Court held that the second application under Section 22 was not maintainable. Their Lordships of the Supreme Court over-ruled the decision of the High Court and held:
"Since the proceedings before the authorities is of summary nature, the doctrine of resjudicata has no application. The Act does not prescribe any principle of res judicata as such. The proceedings before the authorities are of summary nature. It would not be correct to apply the principle of res judicata. We find force in the contention. It is not in dispute that the order passed by the authorities is without any elaborate trial like in a suit but in a summary manner. It is well settled that the doctrine of res judicata envisaged in Section 11 of C.P.C. has no application to summary proceedings unless the statute expressly applies to such orders/The authorities are not civil Court nor the petition a plaint. No issues are framed nor tried as a civil suit. Under these circumstances, the Division Bench of the High Court was clearly in error to conclude that the earlier proceedings operate as res judicata."
17. The judgment in Inder Singh's case (supra) was followed by a Division Bench in Bhajirath v. The Divisional Canal Officer, Sirsa (supra). The Division Bench held that the proceedings under the Haryana Canal and Drainage Act, 1974 are summary in nature and the principles of res judicata do not apply to such proceedings.
18. In Madhvi Amma Bhawani Amma v. Kunjikutty Pillai Meenakshi Pillai (supra), the Supreme Court held that any decision made in proceedings under Section 372 of the Indian Succession Act, 1925 for grant of succession certificate would not bar any party to the said proceedings to raise the same issue in subsequent suit. In the course of the judgment, their Lordships of the Supreme Court explained the principle of res judicata in the following words:
"The principle of res judicata as enshrined in Section 11, is evolved from the maxim "nemo debt bis vexari prouna et eadem causa;. This principle enunciates that no man should be vexed twice over for the same cause. This principle gradually developed further by bringing within its compass more such litigations. Thus with the passage of time this principle gradually expanded. This shows that sphere of res judicata as enshrined in Section 11 C.P.C. is not exhaustive, it is ever growing. One such example of its growth is exhibited by the incorporation of Explanation VIII in Section 11 by means of Amending Act in 1976. The submissions made are broadly under two heads. Firstly under the broad and general principle of res judicata in view of Explanation VIII and secondly, whether in a proceeding for the grant of Succession Certificate, any adjudication or issue deciding therein would operate as res judicata to a suit proceeding. In order to apply the general principle of res judicata court must first find, whether an issue in a subsequent suit, was directly and substantially in issue in the earlier suit or proceeding, was it between the same parties, and was it decided by such court. Thus there should be an issue raised and decided, not merely any finding on any incidental question for reaching such a decision. So if no such issue is raised and if on any other issue, if incidentally any finding is recorded it should not come within the periphery of the principle of res judicata."
19. In Koran v. Kamala Shetty (supra), a Full Bench of Kerala High Court considered the applicability of the principle of res judicata to proceedings before Land Tribunal under Section 80-B of Kerala Land Reforms Act, 1969 and held:
"The principle of finality or conclusiveness of a prior decision or the general principle of res judicata is applicable even to quasi judicial bodies like the Land Tribunals functioning under the Kerala Land Reforms Act. On principle this should be so, as these Tribunals are invested with the task of deciding important rights and have to do so on principle of natural justice and fair play. In these circumstances, the rules of res judicata are applicable to them."
20. Reference may also be made to the judgment of the Supreme Court in Sarguja Transport service v. State Transport Appellate Tribunal, Gwalior, 9 A.I.R. 1987 S.C. 88. In that case, their Lordships of the Supreme Court considered the question of applicability of Section 11 and Order 23 Rule 1 of the CPC and held that even though the principle of res judicata is not applicable, the principle underlying the rule that a litigant should not be allowed to abuse the process of the Court by instituting successive proceedings deserves to be applied to such proceedings. Some of the observations made in that case, which have bearing on this petition, are reproduced below:
"The principle underlying the above rule is founded on public policy, but it is not the same as the rule of res judicata. This principle underlying Rule 1 of Order 23 should be extended in the interests of administration of justice to cases of withdrawal of writ petition also, not on the ground of res judicata but on the ground of public policy."
21. In view of the judicial precedents noted above, it must be held that the doctrine of resjudicata does not apply in strict terms to the proceedings under Sections 31 and 32 of the Act which are summary in nature. However, the principle that a litigant should not be allowed to file successive applications on the same subject-matter/cause can be invoked in such proceedings as well on the ground of public policy.
22. Reverting back to the case in hand, I find that the Corporation had impleaded the petitioner as party in the application filed under Section 31 of the Act for recovery of its dues. However, instead of prosecuting that application to its logical end, it entered into a compromise with Kamal Krishan Sharma who claimed to have become sole proprietor of the firm after the partnership was dissolved vide deed dated 31.12.1974. By entering into compromise with Kamal Krishan Sharma, the Corporation will be deemed to have given up its claim against the petitioner and decree dated 7.1.1977 passed by Additional District Judge, Patiala had the effect of dismissing the Corporation's application qua him. Therefore, the application filed by the Corporation under Section 31(1)(aa) of the Act for recovery of that amount from the petitioner which it could not recover from the properties of Kamal Krishan Sharma and the firm was clearly not maintainable and the learned Additional District Judge erred in over-ruling the objection raised on behalf of the petitioner.
23. I am further of the view that the learned Additional District Judge committed a serious legal error by not deciding the question whether the surety given by the petitioner stood discharged by virtue of compromise entered into between the Corporation and Kamal Krishan Sharma. It is an undisputed position that the Corporation had given loan to the firm and the petitioner had executed the mortgage deed to secure repayment of the loan. By entering into a compromise with Kamal Krishan Sharma in his capacity as sole proprietor of the firm, the Corporation will be deemed to have discharged the petitioner of his liability to repay the amount on behalf of the partnership firm. Thus, the application filed by it under Section 31(1)(aa) of the Act is liable to be dismissed.
24. For the reasons mentioned above, the revision is allowed. Order dated 26.7.1994 passed by Additional District Judge, Patiala is set aside and the application filed by the Corporation under Section 31(1)(aa) of the Act is dismissed.