Karnataka High Court
Ifci Limited vs The India Sugars And Refineries Limited on 21 February, 2025
Author: S.G.Pandit
Bench: S.G.Pandit
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NC: 2025:KHC:7917-DB
WA No. 288 of 2023
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 21ST DAY OF FEBRUARY, 2025
PRESENT
THE HON'BLE MR JUSTICE S.G.PANDIT
AND
THE HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR
WRIT APPEAL NO. 288 OF 2023 (GM-RES)
BETWEEN:
1. IFCI LIMITED
A COMMON REGISTERED UNDER THE
COMPANIES ACT, 1956 HAVING ITS OFFICE
AT IFCI TOWER, 61, NEHRU PLACE
NEW DELHI-110 019
REPRESENTED BY ITS GENERAL MANAGER.
2. SUGAR DEVELOPMENT FUND
THROUGH ITS DIRECTOR SDF,
DEPARTMENT OF FOOD AND
PUBLIC DISTRIBUTION,
DTE OF SUGAR, KRISHI BHAVAN,
NEW DELHI-110001
REPRESENTED BY ITS DEPUTY DIRECTOR.
Digitally signed ...APPELLANTS
by SHAKAMBARI
Location: HIGH (BY SRI. JAYKUMAR S. PATIL, SENIOR ADVOCATE FOR
COURT OF SRI. K. NAGENDRA KUMAR, ADVOCATE)
KARNATAKA
AND:
1. THE INDIA SUGARS AND REFINERIES LIMITED
A COMPANY REGISTERED UNDER THE COMPANIES
ACT 1956, HAVING ITS OFFICE AT 102 AND 108,
MIDFORD HOUSE, OFF M G ROAD,
BENGALURU-560001
REPRESENTED BY ITS MANAGER FINANCE,
MR P S KRISHNAMURTHY,
S/O. P K SOUNDARAJAN, AGED ABOUT 61 YEARS.
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WA No. 288 of 2023
2. I.S.R. WORKERS UNION
BEARING REGISTRATION NO.31/B./D,
HAVING ITS OFFICE AT 3-179,
PATEL NAGAR, HOSPET,
BELLARY DISTRICT-583211
REPRESENTED BY ITS PRESIDENT,
SRI. M. D. GHOUSE
3. UNION OF INDIA
GOVERNMENT OF INDIA,
MINISTRY OF CONSUMER AFFAIRS,
DEPARTMENT OF FOOD AND PUBLIC DISTRIBUTION,
KRISHI BHAVAN,
NEW DELHI-110001.
4. THE JOINT SECRETARY
(SUGAR AND ADMIN)
GOVERNMENT OF INDIA,
MINISTRY OF CONSUMER AFFAIRS,
DEPARTMENT OF FOOD AND PUBLIC DISTRIBUTION,
KRISHI BHAVAN,
NEW DELHI-110001.
...RESPONDENTS
(BY SRI. RAJESH CHANDER KUMAR ROHRA
SENIOR COUNSEL FOR
SRI. HARSHAVARDHAN B. SHARMA, ADVOCATE FOR R1;
SRI. K. RAVINDRANATH, ADVOCATE FOR R2;
SRI. N. SHANTHI BHUSHAN, DSGI FOR R3 & R4)
THIS WRIT APPEAL IS FILED U/S OF THE
KARNATAKA HIGH COURT PRAYING TO SET-ASIDE THE
IMPUGNED ORDER DATED 18/01/2023 IN WP NO.1486/2021
PASSED BY THE LEARNED SINGLE JUDGE, HON'BLE HIGH
COURT OF KARNATAKA, AT BENGALURU AND ALLOW THIS
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NC: 2025:KHC:7917-DB
WA No. 288 of 2023
APPEAL BY DIRECTING THE RESPONDENT TO PAY A PENAL
INTEREST OF 6 PERCENT FROM THE PERIOD OF 30/07/2012
TO 06/08/2020 AND PENAL INTEREST OF 4 PERCENT FROM
THE PERIOD OF 07/08/2020 TILL DATE AND CALL FOR THE
ENTIRE RECORD IN WP NO.1486/2021 ON THE FILE OF
BEFORE THIS HON'BLE COURT.
THIS WRIT APPEAL HAVING BEEN RESERVED FOR
JUDGMENT COMING ON FOR PRONOUNCEMENT OF THIS DAY,
RAMACHANDRA D. HUDDAR J., DELIVERED/PRONOUNCED
THE FOLLOWING:
CORAM: HON'BLE MR JUSTICE S.G.PANDIT
and
HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR
CAV JUDGMENT
(PER: HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR) The appellant nos. 1 and 2 have filed this intra- Court appeal under Section 4 of the Karnataka High Court Act. The appellants were respondent nos. 1 and 2 and respondent no.1 was the petitioner in WP No.1486/2021. -4-
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2. The parties to this appeal are referred to as per their rank before the writ Court.
3. In this intra-Court appeal, the appellants have assailed the validity of the order passed by the learned Single Judge by which, the respondent no.1 preferred the writ petition against the present appellant questioning the notices dated 4.10.2018, 13.11.2018 and 25.4.2019 addressed to the petitioner to make a payment of 6% penal interest on account of the alleged default in payment of the loan availed and also sought direction to issue a writ in the nature of mandamus by holding that additional interest has to be fixed at 2.5% p.a. as per the agreement dated 13.01.2004 entered into between both the parties.
4. It is the case of the petitioner before the writ Court that, to run the business of sugar production and distribution, the petitioner requested the first respondent to grant the loan, entered into agreement i.e., IFCI on 13.1.2004 with certain terms and conditions towards disbursement of the loan. The petitioner committed default -5- NC: 2025:KHC:7917-DB WA No. 288 of 2023 in making the payment on account of alleged loss sustained by it during the course of business operations of the petitioner company. Therefore, it resulted in initiation of certain proceedings against the petitioner by respondent no.1. The petitioner questions about demand made by the first respondent for payment of 6% penal interest on account of default in making the payment. The records reveal that, several orders were passed by this Court with regard to the properties of the petitioner company and even certain properties were sold to realize the loan amount. With regard to the remainder amount, this Court has passed an order to deposit the amount realized for the purpose of disbursement of dues to the labourers of the company.
5. Most of the facts with regard to availment of loan by the petitioner company is admitted. With regard to sanction of the loan, a sanction letter dated 7.4.2003 is produced by the petitioner. So also, there is agreement between the parties with regard to payment of penal -6- NC: 2025:KHC:7917-DB WA No. 288 of 2023 interest in case of default committed by the petitioner company.
6. The respondent no.1 before the writ court contends that, in view of amendment in the year 2012, the petitioner-company is under obligation to pay the penal interest as per the demand notice so stated above and there is no ground to quash the said demand notices dated 4.10.2018, 13.11.2018 and 25.4.2019. It is further contended that, the petitioner-company is under obligation to pay the same and cannot maintain the present writ petition. Thus, the claim of the petitioner and respondent no.1 is restricted with regard to the charging penal interest as per the demand notices impugned in the writ petition.
7. On contest, the said writ petition came to be allowed in part maintaining the rate of interest as per the agreement and thereby quashed the demand notices marked at Annexure-A, B and C with further direction to the first respondent to consider refund of the amount i.e. -7- NC: 2025:KHC:7917-DB WA No. 288 of 2023 paid to them during the pendency of the writ petition i.e. penal interest at 6% p.a., by withholding 2.5% penal interest per annum, and refund the excess deposit with further directions at Sl.Nos.4 to 7.
8. We have heard the arguments of both the side at length. Meticulously perused the records. Submissions of the advocates for both the side
9. The learned Sr.Counsel Sri. Jayakumar S. Patil, appearing for the appellant would vehemently submit that, the charging interest as per the amended rules under the Sugar Development Fund Rules, 1983 amended in the year 2012 is proper as the petitioner company committed default in payment of the loan amount. He submits that, the petitioner company has committed default. As per the amended rules, the petitioner company is under obligation to pay the penal interest as charged because of default committed in repayment of the loan amount. Therefore, -8- NC: 2025:KHC:7917-DB WA No. 288 of 2023 the learned Sr. Counsel for the appellant justifies the imposition of penal interest as per the amended rules.
10. As against this submission, learned counsel for the petitioner being respondent no.1 submits that, the said amendment to the Sugar Development Fund Rules, 1983 though amended on 30.07.2012, but, it has no retrospective effect. He would submit that, the parties to the litigation are bound by the contract of the year 2004. The petitioner respondent No.1 is under obligation to pay the interest as well as penal interest in case of default as per the agreement and not based upon the amendment which has got a prospective effect. He would submit that the learned Single Judge is justified in allowing the writ petition and quashing the demand notices.
11. As most of the factual features are admitted between both the parties, the only point that is to be considered is:- with regard to the tenability of the demand notices which are questioned in the writ petition. -9-
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12. In view of the petitioner approaching the first respondent IFCI seeking financial assistance with approval of Government of India, a contract came to be entered into between petitioner and respondent no.1 on 13.01.2004, as per the said agreement, in addition to the other terms and conditions between the parties to the contract, the main conditions are:
"ii. The amount of loan advanced shall carry a simple interest at the rate of 6 percent per annum or as may be decided by the Central Government from time to time from the date of its release to the IFCI.
vii. the repayment of principal and payment of interest thereon to commence after the expiry of such period as may be decided by the Central Government after due verification by financial institution subject to a maximum of five years reckoned from the date of disbursement of fund loan to the concerned sugar undertaking or IFCI, whichever is earlier, in accordance with the provisions of Rule 21 (11) (iv) of the Sugar Development Fund Rules 1983, as amended form time to time, in half yearly installments not exceeding ten in number."
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13. As per these terms and conditions, in case of default in repayment of the installment of loan and interest on the outstanding loan amount, there was a sanction letter with regard to the payment of additional interest at the rate of 2.5% p.a. on account of the default which would be payable by the borrower/petitioner. It is not in dispute that, the said agreement is based upon the statute i.e., the Sugar Development Fund Rules, 1983 then prevailing in the year 2003. Even there is a covenant between the parties as per the Rules 16 or 22 or 23 which gives an obligation that, the petitioner undertaking shall not be eligible for a loan under the Rule if more than one loan is availed. Condition No.11(iii) also is incorporated with regard to the levying of a simple interest at concessional rate which reads as under:
"11(iii) The loan from the Fund shall carry a concessional rate of simple interest of [two percent below the rank rate] (substituted for the words "six percent per annum" w.e.f. 21.10.2004) and in case of any default in repayment of the amount of loan, or
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 payment of any installment thereof or interest thereon, an additional interest at the rate of two and half percent per annum of the amount of default shall be payment by the sugar undertakings."
14. So also in case of default in repayment of loan amount, it is agreed that the petitioner has to pay the penal interest.
15. It is the grievance of appellant that, because of the Sugar Development Fund (Rules), 2012 notified by the Central Government dated 30.07.2012, the loans shall carry a concessional rate of simple interest of 2% below the bank rate. The said amendment clause(3) and (4) in chapter - XIV of the said Rules reads as follows:
"(3) In case of any default in repayment of the amount of the loan or payment of any installment thereof or interest thereon, an additional interest at the rate of [six percent per annum on the amount of default or at such rate as may be decided by the Central Government shall be] payable by the sugar undertaking.
(4) The sugar undertaking shall, after the execution of the agreement required to be entered into and before
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 the disbursement of the loan under Rules, furnish security for the loan to the satisfaction of the Central Government."
16. The learned Sr.Counsel for the appellant much relies upon this amended rules notified by the Central Government dated 30.07.2012 and would submit that, because of the terms of the contract between the petitioner and respondent no.1, this amended rule being substitution to the earlier rule of levying the interest is applicable and it has got a retrospective effect, therefore, charging of such an interest is proper and tenable. The demand notices so issued by the respondent no.1 ought not to have been quashed by the Single Judge. In support of his submission, the learned Sr.Counsel much relies upon the terms and conditions stated above and also default committed by the petitioner-company in repayment of the loan amount. He would submit that, the conduct of petitioner-company itself shows that, when a default is committed and notices were issued demanding
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 to pay the penal interest, instead of complying the contents of the notice, the petitioner preferred the writ petition. He would submit that, only upon the orders passed by this Court, the petitioner-company could deposit certain amount before this Court. He would submit that, now the petitioner cannot seek quashing of the said demand notices. He prays to set aside the impugned order of the learned Single Judge.
17. Law with regard to payment of enhanced interest as well as penal interest is very much clear in case of concluded contract. The learned Single Judge, has relied upon the judgment of the Hon'ble Apex Court in Delhi Development Authority and another v. Joint Action Committee, Allottee of SFS Flats, reported in (2008) 2 SCC 672 where in, it is held that, "in case of such contract, therefore, must be construed so as to lead to a conclusion that the parties understood the meaning thereof. The terms of agreement cannot be vague or indefinite. No mechanism has been provided for
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 interpretation of the terms of the contract. When a contract has been worked out, a fresh liability cannot be thrust upon a contracting party".
18. In this case, the undisputed facts are that, the said agreement dated 13.01.2004 between the parties is admitted. The terms of the agreement are not vague and they are definite. So while interpreting the terms and conditions of the agreement, now the appellant cannot contend that, to the loan so availed by the petitioner company in the year 2004, for imposing the higher interest on the said loan because of default, it would apply the amended rules i.e. Sugar Development (Amendment) Rules, 2012.
19. The learned counsel for petitioner in support of his submission, relied upon the judgment cited supra so also relied upon the Division Bench judgment of P & H High Court was in Karambir Nain v. State of Haryana and others, reported in 2014 SCC OnLine P&H 12589. In this judgment, the provisions with regard to the
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 statutory contract is discussed and held that "when there is a unilateral change in the terms of the contract, the other party is entitled to invoke the writ jurisdiction". It is settled principle of law that, when once a contract is reduced into writing, it is binding on the parties and none of the parties to the contract can unilaterally relieve itself of contractual obligations as per the provisions of Section 62 of the Indian Contract Act.
20. The learned counsel for the petitioner also relied upon the judgment of the Hon'ble Apex Court in Katta Sujatha Reddy v. Siddamsetty Infra Projects (P) Ltd., reported in (2023) 1 SCC 355, a full bench judgment with other connected cases that, under the contract and the Specific Relief Act, if there is a amendment, it is prospective in application, as the said amendment to Section 10 in the said case is substantive in nature. Here also, the amendment so made to the Sugar Development Fund Rules, 1983 is substantive in nature. In para. Nos.46, 47 and 48, it is observed as under:
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 " 46. However, this was not the position under the Civil Law. Under the Civil Law of contracts, adherence to the sanctity of contract is enforced with greater rigour by inversing the situation. The reason for choice of damages and specific performance range from legal to economic. It is in this context that the courts cannot engage on the merits of having damages or specific performance or a hybrid. It is best left to the legislature to choose the course best-suited to the economy without sheepishly following the typecast approach in England or Civil Law systems.
47. The High Court, in the impugned order, has taken a different approach in categorising the Specific Relief Act, 1963 as procedural and holding that the 2018 Amendment is also a procedural provision which requires to be g given retrospective effect. The High Court places reliance on an old case of Radheshyam Kamila v. Kiran Bala Dasis, wherein the High Court, while relying upon the commentary of Pollock & Mulla on Indian Contract Act and Specific Relief Act (4th Edn.) specifically observed that "specific relief, as a form of judicial process, belongs to the law of procedure". In this context, the Court came to a conclusion that such procedural amendment ought to be given retrospective effect.
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48. We do not subscribe to the aforesaid reasoning provided by the High Court for the simple reason that after the 2018 Amendment, specific performance, which stood as a discretionary remedy, is not (sic now) codified as an enforceable right which is not dependent anymore on equitable principles expounded by Judges, rather it is founded on satisfaction of the requisite ingredients as provided under the Specific Relief Act. For determination of whether a substituted law is procedural or substantive, reference to the nature of the parent enactment may not be material. Instead, it is the nature of the amendments which determine whether they are in the realm of procedural or substantive law."
21. If this analogy is applied to the present facts of the case, there is a contract between the parties in the year 2004 which is admitted by both the parties and the petitioner Sugar Company committed default in repayment of the loan amount, but, under the Civil Law of Contracts, it depends upon the sanctity of the contract which can be enforced against the borrower based upon the terms and conditions of the agreement. Law is very much clear that,
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 in such a situation, the Courts cannot interfere. As observed by the Hon'ble Apex Court in the aforesaid judgments, as the amendment notified by the Central Government is prospective in nature, now the respondent no.1 being the appellant in this appeal cannot enforce such demand notices and call upon the petitioner-Company to pay the penal interest as demanded in the said notices. The learned Single Judge taking into consideration about the effect of the Sugar Development (Amendment) Rules, 2012, has categorically held that, such an amendment is prospective in nature and parties to the agreement are bound by the Contract.
22. Further, there is no material placed on record by the appellant that, it has obtained the consent of the borrower and with intimation, there was variation in the rate of interest. Simply it had issued the impugned notices calling upon the borrower to pay the higher rate of interest as per the amended rules of 2012. Therefore, as contended by the borrower i.e., the petitioner, the
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 appellant should have given an opportunity to be heard and should have been duly informed about the said amendment and then would have issued the notices so impugned. It is true that, the financier like the appellant could charge floating rate of interest on loans based on the market rates, but it should be transparent and mutually accepted by both the parties and that interest rates could be revised only after seeking consent from the borrower. This was not adhered to by the appellant - financier according to the case of the petitioner.
23. It is argued by the counsel for the appellant that, the petitioner was well aware about the rates, which are variable and about the amendment to the rules of 2012. No doubt with regard to the grant of a loan by the Nationalized bank and other scheduled Corporation, the Reserve Bank of India had issued master directions and even the banks had greater freedom in fixing the floating charges. But as rightly observed by the Single Judge of this Court, the appellant - respondent has not stated any
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 valid reasons as to why no information was sent with regard to the charging of higher rate of interest as per the circular. No opportunity was given to the petitioner to respond to the said charging of higher rate of interest.
24. The Hon'ble Apex Court in Central Bank of India v. Ravindra, reported in (2002) 1 SCC 367 held that "the banks fixing exorbitant interest rates has been a recurring issue and that when the RBI has issued directions/circulars, it has not taken measures to implement them. The Hon'ble Apex Court has also noted that Ombudsmen in the present case, who are tasked with dealing with grievances of the parties, have also violated the procedure laid down under the scheme, 2006. In the said judgment, the Hon'ble Apex Court directed the Ombudsmen to reassess the petitioner's complaint by applying his independent mind and provide due redressal after giving the petitioner the opportunity to be heard."
25. In this regard, the Madras High Court in Avathani Muthukrishnier v/s Shankarlingam Pillai
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 reported in (1913) 24 MLJ 135 decided on 10.12.1912 had an occasion to deal with the charging of higher rates of interest by the bank. During the course of the judgment, the Madras High Court referred the Money Lenders Act, 1900, so also other provisions based upon the Indian situation and has also referred Section 74 of the Contract Act and observed in para 12 of the judgment that " a liability agreed to by the parties to be imposed as a indicative punishment on the party committing the breach of a contract and not merely as reasonable and even liberal compensation to the other side injured by the breach of the contract, the Indian Court said that even if a harsh and excessive rate of interest is provided for, to be enforced from date of the fault, it should not be treated as a penalty. It is further held that the Contract Act does not make any distinction between money lenders and other obliges, but has enacted a comprehensive provision to apply to all the contract containing harsh and unconscionable provisions in the nature of penalties. The High Courts in India were inclined sometimes to follow the earlier cases decided before 1903, i.e., the principle of the extreme Manchester School of Economists and at other times to take a more extended view of their power under Section 74 of the Contract Act." But Appellant ought to have given
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 opportunity to the Petitioner/borrower before issuing impugned notices, sudden issuance of notices, against the terms and conditions of the contract cannot give absolute right to charge higher rate of interest.
(Emphasis supplied)
26. Further, there was no subsequent agreement in between the appellant and respondent No.1 to pay the higher rate of interest. That means the facts of this case do reveal that, the parties to the said transaction have not entered into a second agreement to pursue the liability of paying interest. As per the agreement of 2004 only, the appellant financer is entitled to claim rate of interest. Considering all these aspects, the learned Single Judge has partly allowed the writ petition. We do not find any factual or legal flaws in the order passed by the single judge. There is no merit in this appeal and hence it is liable to be dismissed upholding the impugned order of the learned Single Judge. Therefore, this intra-Court appeal
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NC: 2025:KHC:7917-DB WA No. 288 of 2023 has to be dismissed with no orders as to cost. Resultantly we pass the following:
ORDER i. Writ Appeal is dismissed.
ii. No orders as to cost in this appeal.
Sd/-
(S.G.PANDIT) JUDGE Sd/-
(RAMACHANDRA D. HUDDAR) JUDGE SK/CT:VG List No.: 19 Sl No.: 3