Himachal Pradesh High Court
Himachal Pradesh Financial ... vs Tourist Hotel And Restaurant And Ors. ... on 2 May, 1989
Equivalent citations: [1991]71COMPCAS492(HP)
JUDGMENT N.M. Kasliwal, C.J.
1. We would narrate the facts of F. A. O. No. 108 of 1982, as the order of reference has been made initially in the above appeal.
2. The Himachal Pradesh Financial Corporation (hereinafter referred to as "the Corporation") filed a petition under Section 31 of the State Financial Corporations Act, 1951 (in short "the Act"), in the court of the District Judge, Dharmasala, on October 28, 1972. According to the Corporation, an amount of Rs. 56,320.97, including interest, had fallen due against the respondents. The Corporation also claimed future interest from the date of the petition to the date of payment in accordance with the terms of the agreement. The learned District Judge by his order dated August 5, 1982, disallowed the claim of the appellant for future interest, placing reliance on a Division Bench judgment of this court in Himachal Pradesh Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980--decided on August 26, 1980). Aggrieved against the above order of the District Judge, the Corporation filed the above appeal.
3. The matter came up for admission before a learned single judge of this court on September 17, 1982. Mr. Khanna, learned counsel for the appellant-Corporation, pointed out that the operation of the judgment of the Division Bench given in H.P. Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980, decided on August 26, 1980) on which reliance had been placed by the learned District Judge, had been stayed by the Supreme Court. It was further contended by Mr. Khanna that another Division Bench of this court had also taken a different view about the scope of enquiry by the District Judge under Section 31 of the Act. The learned single judge held that in view of the fact that two different views had been taken by two different Division Benches of this court, he thought it proper to place the matter before Hon'ble the Chief Justice for constituting a Full Bench.
4. After the passing of the above order in F. A. O. No. 108 of 1982, an identical question arose in the above-mentioned two appeals No. F. A. O. No. 130 of 1982 and F. A. O. No. 42 of 1978 and as such, in both the above cases also orders were passed on October 15, 1982, and April 24, 1987, respectively, for referring the matter to a Full Bench along with F. A. O. No. 108 of 1982.
5. The short controversy which has to be resolved by the Full Bench is as to which of the two Division Benches of this court, namely, H. P. Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980, decided on August 26, 1980 or Bhawani Parshad Kapur v. Himachal Pradesh Financial Corporation, AIR 1983 HP 43, lays down the correct law and whether the future interest from the date of the filing of the petition under Section 31 of the Act till realisation of the amount can be awarded or not under Section 32 of the Act. The Division Bench consisting of V.D. Misra C. J. and H.S. Thakur J. in H. P. Financial Corporation v. Himachal Printing Press (F.A.O. No. 73 of 1980--decided on August 26, 1980), took the view that future interest cannot be allowed, while another Division Bench consisting of T.R. Handa and V.P. Gupta JJ. in Bhawani Parshad Kapur v. H. P. Financial Corporation, AIR 1983 HP 43, held that such future interest could be awarded to the financial corporation in accordance with the agreement arrived at between the parties. It may also be mentioned that P.D. Desai C. J. in Laxmi Furniture and Saw Mills v. H. P. Financial Corporation, AIR 1985 HP 108, followed the Division Bench decision in H. P. Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980--decided on August 26, 1980). Mr. K.D. Sood and Mr. Indar Singh, appearing on behalf of the industrial concerns, supported the view taken in H. P. Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980--decided on August 26, 1980). Mr. Sood contended that neither Section 31 nor 32 of the Act contained any provision for the award of future interest to the Corporation. Thus, his contention was that no order for future interest could be passed on a petition filed under Section 31 of the Act and such future interest, if at all, could be granted in the execution proceedings. Mr. Indar Singh contended that such future interest cannot be granted even at the stage of execution and it was an intentional omission on the part of the Parliament in not laying down any provision for the award of future interest to the Corporation under the provisions of the Act.
6. Mr. D.K. Khanna, appearing on behalf of the Corporation, contended that the Supreme Court in Gujarat State Financial Corporation v. Natson Manufacturing Co. Pvt. Ltd., AIR 1978 SC 1765 ; [1979] 49 Comp Cas 187 and Everest Industrial Corporation P. Ltd. v. Gujarat State Financial Corporation [1987] 62 Comp Cas 513 ; AIR 1987 SC 1950 has clearly laid down that future interest could be awarded under the provision of the Act while passing an order under Section 32. It was thus contended that the question of law to be decided by this Hon'ble Court is no longer res integra as the same has already been decided by the Supreme Court of India in the above two cases. Mr. Khanna also placed reliance on a decision of the Punjab and Haryana High Court in Man Singh v. Punjab Financial Corporation, AIR 1985 P & H 149, in which the Division Bench decision given in H. P. Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980--decided on August 26, 1980), has not been followed. It was also contended that this decision of the Himachal Pradesh High Court is already under challenge in the Supreme Court and the operation of this judgment has also been stayed.
7. In order to decide the controversy raised in the present reference, it would be proper to quote Sections 31 and 32 of the Act:
"31. Special provision for enforcement of claims by Financial Corporations.--(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, 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.
(2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed.
32. Procedure of District Judge in respect of application 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.
(1A) 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) When the application is for the relief mentioned in Clause (b) of Sub-section (1) of Section 31, the District Judge shall grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment and issue a notice calling upon the industrial concern to show cause, on a date to be specified in the notice, why the management of the industrial concern should not be transferred to the Financial Corporation.
(3) Before passing any order under Sub-section (1) or Sub-section (2) or issuing a notice under Sub-section (1A), 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.
(4A) If no cause is shown on or before the date specified in the notice under Sub-section (1A), 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, in so far 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:
Provided that when making an order under Clause (c), or making an order rejecting the claim to enforce the liability of the surety under Clause (da) or making an order rejecting the claim to transfer the management of the industrial concern to the Financial Corporation under Clause (e), the District Judge may make such further orders as he thinks necessary to protect the interest of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit:
Provided further that unless the Financial Corporation intimates to the District Judge that it will not appeal against any order releasing any property from attachment or rejecting the claim to transfer the industrial concern to the Financial Corporation, such order shall not be given effect to, until the expiry of the period fixed under Sub-section (9) within which an appeal may be preferred, or if an appeal is preferred, unless the High Court otherwise directs until the appeal is disposed of.
(8) An order of attachment or sale of property under this section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure, 1908, for the attachment or sale of property in execution of a decree, as if the Financial Corporation were the decree-holder.
(8A) An order under this section transferring the management of an industrial concern to the Financial Corporation shall be carried into effect, as far as may be practicable, in the manner provided in the Code of Civil Procedure, 1908, for the possession of immovable property or the delivery of movable property in execution of a decree, as if the Financial Corporation were the decree-holder.
(9) Any party aggrieved by an order under Sub-section (4A), Sub-section (5) or Sub-section (7), may, within thirty days from the date of the order, appeal to the High Court, and upon such appeal, the High Court may, after hearing the parties, pass such orders thereon as it thinks proper.
(10) Where proceedings for liquidation in respect of an industrial concern have commenced before an application is made under Sub-section (1) of Section 31, nothing in this section shall be construed as giving to the Financial Corporation any preference over the other creditors of the industrial concern not conferred on it by any other law.
(11) The functions of a District Judge under this section shall be exercisable:
(a) in a presidency town, where there is a city civil court having jurisdiction, by a judge of that court and in the absence of such court, by the High Court, and
(b) elsewhere, also by an Additional District Judge (or by any judge of the principal court of civil jurisdiction).
(12) For the removal of doubts, it is hereby declared that any court competent to grant an ad interim injunction under this section shall also have the power to appoint a receiver and to exercise all the other powers incidental thereto."
8. Section 31 thus lays down a special provision for enforcement of claims by the Financial. Corporation. If an industrial concern in breach of any agreement makes any default in repayment of any loan or advance or any instalment, or in meeting its obligation 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 Corporation requires an industrial concern to make immediate repayment of any loan or advance under Section 30, then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, the Corporation can apply to the District Judge for one or more of the reliefs mentioned in Clauses (a), (b) and (c) of Sub-section (1) of Section 31.
9. Section 32 provides for the procedure to be followed by the District Judge in respect of the applications filed under Section 31. Under Sub-section (4) of Section 32, the District Judge shall issue to the industrial concern a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it 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. Under Sub-section (5), if no cause is shown, 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. Sub-section (6) provides that if cause is shown, the District Judge shall proceed to investigate the claim in accordance with the provisions contained in the Code of Civil Procedure, 1908, in so far as such provisions may be applied thereto. Under Sub-section (7), the District Judge, after making an investigation under Sub-section (6), may confirm or vary the order of attachment, release the property from attachment, confirm or dissolve the injunction or transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf. Under the first proviso, when making an order under Clause (c) releasing the property from attachment, the District Judge may make such further orders as he thinks necessary to protect the interest of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit. Under Sub-section (8), an order of attachment or sale of property shall be carried into effect as far as practicable in the manner provided in the Code of. Civil Procedure, 1908, for the attachment or sale of property in execution of a decree, as if the Financial Corporation were the decree-holder.
10. Thus, the substantive relief sought 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. Thus, we find no force in the contention of Mr. Sood that future interest could be allowed at any stage in the execution proceedings. The scheme of the above two Sections 31 and 32 clearly shows that there is no further stage of any execution and the order passed by the District Judge under Section 32 itself is an order akin to an order for attachment of property in execution of a decree which is a stage which automatically conies after the passing of the decree.
11. We also find no substance in the argument of Mr. Indar Singh that, in not providing a specific provision for the award of future interest under Sections 31 and 32 of the Act, the intention of Parliament was not to allow future interest, that is, from the filing of the petition till realisation. If we read both Sections 31 and 32 together, it becomes abundantly clear that Section 31 provides special provision for enforcement of claims by the Financial Corporation and the Corporation can apply for any one or more of the three reliefs mentioned in Clauses (a), (b) and (c) of Sub-section (1) of Section 31. Thus, it provides for special reliefs for enforcement of claims by the Financial Corporation which are more beneficial and advantageous to the Corporation in comparison to an ordinary creditor. While passing any order on an application filed under Section 31 of the Act by the Corporation, the procedure given in Section 32 has to be followed. The provisions contained in Sub-section (6) of Section 32 which envisage making an investigation into the claim of the Corporation cannot expand the contest to render the application to be a suit between the parties. Thus, after making an investigation under Sub-section (6), while passing an order of attachment or sale of property under Sub-section (8), the District Judge will certainly determine the amount due under the claim and while doing so, future interest on the basis of the terms in the agreement shall have to be allowed from the date of the petition till realisation. We find no plausible reason whatsoever to hold that Parliament may not have intended to allow future interest to the Financial Corporation in the above scheme of the Act.
12. The Financial Corporation could not have been put to a more disadvantageous position than an ordinary creditor in whose case the court could have awarded future interest from the date of the filing of the suit till realisation under Section 34 of the Code of Civil Procedure, 1908.
13. If we look at this matter from another angle also, then any dishonest or intransigent industrial concern which may have taken loan from the Financial Corporation may delay the investigation envisaged under Sub-section (6) of Section 32 of the Act and get benefited by not paying any interest from the date of filing of the petition under Section 31 till the realisation of the amount, in case the argument of Mr. Indar Singh is accepted. There cannot be any plausible reason to hold that Parliament may have intended to give such an advantageous position to the industrial concern that it may itself delay the disposal of the application filed under Section 31 of the Act by taking frivolous pleas and then not to pay future interest for this period.
14. Now, if we examine the case of Himachal Pradesh Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980--decided on August 26, 1980), V.D. Misra C. J., in this case, gave two reasons for not allowing future interest. Firstly, it was observed that the above provisions were silent about the future interest and under Sub-section (1) of Section 32, it specified the amount as "an amount equivalent in value to the outstanding liability of the industrial concern". Another reason given was that the District Judge could not have granted future interest and in the instant case he had not in fact done so. That order admittedly had become final and so it did not lie in the mouth of the appellant Corporation to claim interest in terms of the order passed by the judge. In our view, both the above reasons are not correct, looking to the scheme of the Act and the provisions contained in Sections 31 and 32. While determining the outstanding liability of the industrial concern, the District Judge is bound to calculate and include future interest which may have fallen due from the date of filing of the application till its payment in terms of the agreement between the parties. There was no reason to restrict the scope of the words "outstanding liability" to mean such liability only upto the date of filing of the application under Section 31 and not future liability having arisen on account of the pendency of such application. Now, so far as the question of finality of the order of the District Judge is concerned, that cannot be a valid reason for holding that future interest cannot be given to the Corporation. If this reasoning of finality alone is considered to be correct, then it would lie with the District Judge to decide the matter either way and on that reasoning every order of the District Judge will be correct and not liable to challenge in the High Court. We find no logic in such reasoning while deciding the question whether future interest can be awarded or not to the Corporation under Section 32 of the Act.
15. So far as the case Laxmi Furniture and Saw Mills v. H. P. Financial Corporation, AIR 1985 HP 108, decided by P.D. Desai C. J. is concerned, it has followed the Division Bench decision in H. P. Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980--decided on August 26, 1980) and no independent reasons have been given for taking the above view. Now, apart from the above position, the question in controversy in the present case also stands concluded by the above-cited two Supreme Court decisions. In Gujarat State Financial Corporation v. Natson Manufacturing Co. Pvt. Ltd. [1979] 49 Comp Cas 187 (SC), the Supreme Court clearly held that Section 31(1) prescribed a special procedure for enforcement of claims by the Financial Corporation. 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. The question of award of future interest was directly involved in the later case of Everest Industrial Corporation P. Ltd. v. Gujarat State Financial Corporation [1987] 62 Comp Cas 513 (SC), decided by the Supreme Court. The short question which arose for consideration in the above case was whether the rate of interest chargeable on the amount payable under an order passed under Section 32 of the Act from the date of the said order was governed by Section 34 of the Code of Civil Procedure, 1908, or whether it was payable at the contractual rate. The Corporation, in the above case, filed an application on August 9, 1973, under Section 31 of the Act before the District Judge, Baroda, claiming that, in view of the default, the entire outstanding loan, interest and commitment charges amounting to Rs. 6,73,390.42 had become due and payable. In the said proceedings, Everest Industrial Corporation, the industrial concern, having admitted the claim of the Corporation, a compromise was arrived at. On the basis of the above compromise, an order was passed on April 29, 1977, by the learned Joint Judge, Baroda, before whom the case was pending at that time. The operative portion of the order read as follows (at page 515);
"Claim of the applicant is decreed. Opponent No. 1 to pay the amount of Rs. 15,000 (fifteen thousand) per month through the Bank of Maharashtra to the applicant towards his claim. If two instalments of Rs. 15,000 each at a time are not paid by opponent No. 1, then the applicant shall be entitled to recover the remaining amount then due, at a time. Decree to be drawn on payment of court-fees by the applicant. 2/3rds of the court-fee amount be refunded to the applicant's advocate. Costs to be borne by opponent No. 1. Costs to be assessed after deducting the amount of court-fees refundable to the applicant."
16. As the Everest Corporation failed to pay the amount as ordered by the court, an application was filed by the Corporation under Section 32(8) of the Act before the District Judge, Baroda, requesting that the property hypothecated in favour of the Corporation be directed to be sold by the Commissioner appointed by the court and the amount so realised may be appropriated towards the dues of the Corporation. Accordingly, an order directing the sale of the property was passed on February 8, 1980. Before the property could be sold, the appellants raised an objection regarding the actual amount which could be realised by the Corporation by the sale of the properties mortgaged in its favour. The objection which related to the amount of interest payable by the appellants was formulated thus: Since under the order dated April 29, 1977, which was described as a decree, the court had not expressly directed payment of any interest on the decretal amount, the Corporation was not entitled to recover any amount by way of interest due on the principal amount for the period subsequent to the date of the order. It was further submitted that since the question of payment of interest on the amount due for the period subsequent to the date of the decision of the court is governed by Section 34 of the Code, the appellants were not liable to pay any interest because the court had not ordered payment of any amount by way of interest to be paid as required by that section. In other words, the contention of the appellants was that when the "decree" was silent about the payment of interest for the period between the date of the "decree" and the date of payment, the Corporation was not entitled to recover it. The Corporation had claimed interest at the rate agreed upon under the transaction, that is, 8.5 per cent. per annum. The said objection was overruled by the Joint Judge by his order dated February 25, 1983. He determined that Rs. 9,35,547.84 was due as on February 8, 1983, and that thereafter interest at the rate of Rs. 178.60 per day would be accruing. Aggrieved by the order of the Joint Judge, the appellants filed an appeal before the High Court of Gujarat. That appeal was dismissed by the learned single judge on February 2, 1984. Under Letters Patent Appeal No. 94 of 1984, filed by the appellants, a Division Bench of the High Court affirmed the judgment of the learned single judge. The Everest Industrial Corporation, in the above circumstances, filed a special leave before the Supreme Court. Their Lordships of the Supreme Court confirmed the earlier decision in Gujarat State Financial Corporation v. Natson Manufacturing Co. Pvt. Ltd. [1979] 49 Comp Cas 187 (SC) and then held as under (at page 518 of 62 Comp Cas):
"If, as held by this court the 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 arise since at the stage of the passing of the decree and not to any stage posterior to the decree. It may also be mentioned here that 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. The High Court was right in holding that 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 the Act. We hold that the decision of the Karnataka High Court, referred to above, which has applied Section 34 of the Code to a proceeding instituted under Section 31(1) of the Act is not correctly decided."
17. Mr. Indar Singh, learned counsel for the industrial concern tried to distinguish the above Supreme Court case, but, in our view, the decision clearly clinches the issue raised before us and is applicable with all force in the present case.
18. In the result, the reference is answered in the following manner. The decision in H. P. Financial Corporation v. Himachal Printing Press (F. A. O. No. 73 of 1980--decided on August 26, 1980) and followed by P.D. Desai C. J. in Laxmi Furniture and Saw Mills v. H. P. Financial Corporation, AIR 1985 HP 108, do not lay down the correct law and the Division Bench decision in Bhawani Parshad Kapur v. H. P. Financial Corporation, AIR 1983 HP 43, lays down the correct law. It is further laid down that future interest from the date of the filing of the petition under Section 31 of the Act till the entire amount due is paid can be allowed under Section 32 of the Act according to the terms of the agreement.
19. Mrs. P. Malhotra, appearing on behalf of the industrial concern in F. A. O. No. 130 of 1982 contended that the entire principal amount has been paid to the Corporation and as such there is no liability of any future interest in the above case. We have answered only the legal question referred to us and so far as the question, whether any liability in respect of future interest in fact arises or not against the industrial concern, can be raised and decided by the appropriate Bench hearing the case. All the above appeals shall now be decided on merits by the appropriate Bench in accordance with the legal question answered by us.