Patna High Court
Bihar State Electricity Board And Anr. vs Gaya Cotton And Jute Mills Ltd. on 14 May, 1976
Equivalent citations: AIR1976PAT372, AIR 1976 PATNA 372
Author: Lalit Mohan Sharma
Bench: Lalit Mohan Sharma
JUDGMENT Lalit Mohan Sharma, J.
1. The plaintiffs Bihar State Electricity Board and the State of Bihar have filed this suit for a decree for Rs. 235703.37 P. The defendant Gaya Cotton and Jute Mills is a limited company constituted under the Indian Companies Act. The defendant owned and possessed a power house for the purpose of generating electric energy required for running the Cotton and Jute Mills. It was in need of money and approached the State of Bihar, plaintiff No. 2, for a loan. On the 14th December, 1951, the State advanced a sum of Rs. 400000/- and interest payable on the loan was fixed at 4 per cent per annum. A deed of lease cum mortgage was executed whereby the property described in Schedule C to the document was mortgaged by way of security for recovery of the loan. A lease was created by the defendants company in favour of the State for the period 1st June, 1950, to 31st May, 1954, and it was stipulated that a consolidated annual rental of Rupees 24,472/- would be payable. The State had already taken the power house on lease before the execution of the document. This amount was equivalent to the interest at 4 per cent p. a. on a sum of Rupees 6,11,800/- which represented the value of the lease-hold property. It was also agreed upon between the parties that the State would get the plants repaired and a second turbine generating set established; but if the second turbine generating set was not fixed up, the rental would be Rs. 18,632/- only. The defendants company agreed to pay off the loan in three annual instalments beginning from 31st March, 1952, detailed in paragraph 8 of the document. In 1957, some of the mortgaged properties were sold to M/s. A. Ebrahim and Company of Bombay with the permission of the State for a sum of Rs. 2,02,500/- and out of the said amount, a sum of Rs. 1,98,501/- was paid to the State towards the principal and interest. The Bihar State Electricity Board was constituted under the provisions of the Electricity (Supply) Act 1948 and started functioning from 1-4-1958. On 15-1-1962, the suit was filed praying for a preliminary mortgage decree in favour of plaintiff No. 1 and/or plaintiff No. 2 for Rs. 2,35,703.37 P. and for a final decree after the period of grace was over. By the third relief, the plaintiffs prayed for liberty to apply for a decree for the balance, if the sale proceeds in the mortgage execution did not pay off the entire dues.
2. The defendants company filed a written statement pleading, inter alia, that the suit was barred under Order 2, Rule 2 of the Code of Civil Procedure, the suit was not maintainable in view of the provisions of Section 4 of the Bihar Money Lenders Act and the suit was not maintainable in view of an arbitration clause. It was also said that the second turbine generating set was not installed due to the default of the plaintiff-State and, therefore, the defendant could not be prejudiced thereby and would be entitled to a deduction of the annual rental at the rate of Rs. 24,472/-. Certain houses were said to have been taken possession of by the State and the defendants claimed the rent thereof. Certain other pleas were also raised by way of defence which were not pressed in the court below or in this Court.
3. The Court below rejected the defence pleas of Order 2, Rule 2 of the Code of Civil Procedure and the suit being barred by the arbitration clause. The Court also ruled that the defendants were not entitled to claim rent of certain houses by way of adjustment in the present case. These findings have not been challenged by the defendant in this Court. It is therefore, not necessary to give any details about them. It must, however, be mentioned that the court held that the defendant was entitled to a deduction of Rs. 30,000/- as against the plaintiffs' claim. This finding also has not been challenged by the plaintiffs in this appeal. The court further held that the defendants were entitled to the adjustment of the rental at the rate of Rs. 24,472/-. This finding also has not been challenged by the plaintiffs. The suit was, however, dismissed on the ground that it was barred by the provisions of the Bihar Money Lenders Act. The plaintiffs have appealed,
4. Mr. Lakshman Saran Sinha, learned Counsel for the appellants, at the very outset stated that it will be the State which will be entitled to the decree in case the suit succeeds, and not the Electricity Board. The learned Counsel for the respondents has not challenged this proposition. Mr. Sinha justified this stand by referring to Section 60 of the Electricity (Supply) Act. He also referred to Section 20. However, in view of the attitude of the defendant-respondent, it is not necessary to deal with the point. 1, therefore, assume that the real plaintiff in the suit is plaintiff No. 2, the State. 5. Mr. Sinha contended that the finding of the court below about the application of the Bihar Money Lenders Act to the suit is entirely erroneous and must be set aside and the suit must be decreed On the other findings of the court, Mr. Bameshwar Prasad, appearing for the defendants-respondents, besides defending the impugned finding of the court below, contended that in view of the provisions of the Sick Textiles Undertaking (Nationalisation) Act, 1974 (Act 57 of 1974), no decree could be passed in this suit.
5-A. The relevant portion of Section 4 of the Bihar Money Lenders (Regulation of Transactions) Act, 1939 reads as follows:--
"4. Suit for recovery of loan only maintainable by registered money lenders -- No court shall entertain a suit by a money lender for the recovery of a loan advanced by him after the commencement of this Act unless such money lender was registered under the Bihar Money Lenders Act, 1938, at the time when such loan was advanced."
It has been contended on behalf of the defendants that admittedly the State of Bihar is not registered under the Bihar Money Lenders Act, 1938 and, in that view, Section 4 quoted above, comes in the way of the Court entertaining the suit at all. In reply, the learned Counsel for the plaintiffs-appellants relied upon the definition of "loan" as given in Section 2 of 1959 Act. The relevant portion of the Section reads as follows:
"2. Definitions -- In this Act unless there is anything repugnant in the subject or context-
(f) "loan" means an advance whether of money or in kind, on interest made by a money lender and shall include a transaction on a bond bearing interest executed in respect of past liability and any transaction which, in substance, is a loan, but shall not include-
(i) a loan advanced by the State Government or by any local body authorised by the State Government;"
6. The argument is that since the loan in question was advanced by the State Government, the same is not covered by the provisions of the Bihar Money Lenders (Regulation of Transactions) Act, 1939 and, therefore, Section 4 has no application. The contention appears to be right. Even if the Bihar Electricity Board be deemed to be entitled to the benefits of the transaction, entered into by the State, it will not make any difference. Section 4 refers to the time when the loan was advanced and to the person which actually advanced the loan. If there is a transfer of the creditor's interest by law or otherwise to another person, the point regarding applicability of Section 4 cannot be answered with reference to the question whether the assignee was registered under the Act or not. The answer will depend on the point whether the original money lender satisfies the condition laid down by law or not. This was the view taken in Noor Mohammad v. Haridas, (AIR 1953 Pat 140) and Jugal Prasad Misser v. Bhadai Das, (AIR 1953 Pat 259). The point to be considered, therefore, is whether the State of Bihar should have been, as required by law, registered under the Bihar Money Lenders Act, 1938 in 1951 or not. The definition of 'loan' in Section 2 (f), clearly indicates that the State was not under a necessity of being registered; the law made an exception in its favour. That being the position, it has to be held that the present suit is not hit by Section 4 of the Bihar Money Lenders (Regulation of Transactions) Act, 1939. The finding of the court below on this question is set aside.
7. The next point argued on behalf of the respondents is that no decree can be passed in view of the provisions of the Sick Textile Undertakings (Nationalisation) Act, 1974 (hereinafter referred to as 'the Nationalisation Act'). The premable of the Act reads as follows:
"An Act to provide for the acquisition and transfer of the Sick Textile Undertakings, and the right, title and interest of the owners in respect of the Sick Textile Undertakings, specified in the First Schedule with a view to re-organising and rehabilitating such Sick Textile Undertakings so as to subserve the interests of the general public by the augmentation of the production and distribution at fair prices, of different varieties of cloth and yarn, and for matters connected therewith or incidental thereto."
Under Section 3, every Sick Textile Undertaking mentioned in the Act and the right, title and interest of the owner in relation to every such undertaking stood transferred to the Central Government on the "appointed day", and immediately thereafter another transfer took place vesting them in the National Textile Corporation defined in Section 2 (1) (e). By Section 2 (1) (a), the Ist day of April, 1974 was fixed as the "appointed day". The effect of vesting is dealt with in Section 4 which says that the textile undertaking taken over by the Central Government and thereafter by the National Textile Corporation will include all assets, rights, lease-holds, powers, authorities and privileges and all property, movable and immovable, including lands, buildings, workshops, stores, instruments, machinery and equipments, cash balances, cash on hand, reserve funds, investments and book debts and all other rights and interests in, or arising out of, such property as were immediately before the appointed day in the ownership, possession, power or control of the owner of the sick textile undertaking. Sub-section (2) of Section 4 reads as follows:
"All property as aforesaid which have vested in the Central Government under Sub-section (1) of Section 3 shall, by force of such vesting, be freed and discharged from any trust, obligation, mortgage, charge, lien and all other incumbrances affecting it, and any attachment, injunction or decree or order of any court restricting the use of such property in any manner shall be deemed to have been withdrawn."
Sub-section (4) enjoins every mortgagee of any property which vested under the Act to give an intimation about the mortgage to the Commissioner appointed under Section 17 of the Nationalisation Act. For the removal of any doubt, Sub-section (5) declares that the mortgagee of any property shall be entitled to claim in accordance with his rights payment of the mortgage money out of the amount specified in relation to such property in the First Schedule to the Nationalisation Act, but no such mortgage shall be enforceable against any property which vested in the Central Government. The provisions regarding payment of compensation have been included in Chapter VI of the Nationalisation Act. Section 18 says that the 1 Central Government shall, within thirty days from the specified date, pay in cash to the Commissioner, for payment to the owner of the undertaking, an amount equal to the amount specified in the First Schedule to the Act. Commissioner has to be appointed under Section 17. Section 20 of the Nationalisation Act states that-
"Every person having a claim against the owner of a sick textile undertaking shall prefer such claim before the Commissioner within thirty days from the specified date."
Section 2 (k) of the Nationalisation Act defines "specified date" as the date the Central Government may specify by notification. The other provisions of Chapter VI deal with the priority of claims, admission and rejection of claims and disbursement of money by the Commissioner.
8. Mr. Rameshwar Prasad firstly argued that even if the present litigation be assumed to be maintainable, it must be held to be maintainable against the National Textile Corporation and not against these defendants. Reliance was placed on Section 4 (6) of the Nationalisation Act which reads as follows:
"If, on the appointed day, any suit, appeal or other proceeding of whatever natures in relation to any matter specified in Sub-section (2) of Section 5 in respect of the sick textile undertaking instituted or preferred by or against the textile company, is pending, the same shall not abate, be discontinued or be, in any way, prejudicially affected by reason of the transfer of the sick textile undertaking or of anything contained in this Act but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the National Textile Corporation."
Clause (a) of Section 5 (2) which has been referred to in Section 4 (6) lays down that any liability arising in respect of loan advanced by the Central Government or the State Government to a sick undertaking after its management has been taken over by the Central Government shall be the liability of the Central Government, The other clauses of this subsection are irrelevant. It will be noticed that this sub-section deals with only such loans, which had been advanced by the State Government after the management of the undertaking had been taken over by the Central Government. Admittedly, the advance in the present case was made by the Government long before the management was taken over. Section 4 (6) of the Nationalisation Act, therefore, has no application and the argument of Mr. Prasad must be rejected.
9. Mr. Prasad next contended that the only remedy available to the plaintiffs is by way of a claim before the Com-
missioner under Section 2 of the Nationalisation Act. Section 4 (4) requires the mortgagee to send an intimation to the Commissioner about the mortgage and Sub-section (5) of Section 4 declares that no mortgage shall be enforceable against a property vested in the Central Government. The properties which were given in security, therefore, cannot be followed now and the plaintiffs cannot enforce their claim by a suit. Mr. Sinha on behalf of the appellants replied that apart from the Security, the defendants-company is also personally liable to pay the debt and its liability did not disappear under the provisions of the Nationalisation Act. The learned Counsel categorically stated that he on behalf of plaintiff No. 2 is, at this stage, pressing only for a simple money decree against the defendant and does not press in this appeal any of the other rights under the mortgage deed. The question, therefore, is whether in the circumstances, the plaintiff No. 2 can be granted a money decree against the defendant.
10. Whenever a loan is contracted and a mortgage is executed, the mortgagor subjects the property mortgaged to a liability of being sold for the realisation of the loan by the creditor and, at the same time, binds himself personally for payment of the loan. In Jangisingh v. Chander Mal, ((1908) ILR 30 All 388) it was held that the fact that there is no express personal, covenant to pay the mortgage money is no bar to the mortgagee obtaining a personal decree against the mortgagor; a personal covenant to pay is implied in and is an essential part of every simple mortgage. In Sutton v. Sutton, (1882) 22 Ch D 511 at page 516, Sir George Jessel M. R. observed that every mortgage contains within itself, so to speak, a personal liability to repay the amount advanced; in other words, that where there is in a mortgage nothing to the contrary, there is an implied promise to pay, presumed in law, from the fact of the acceptance of the loan. This view has been adopted by the Indian Courts in several decisions including (1906) 4 Cal LJ 246. In Ramnarain Singh v. Adhindra Nath Mukherji, (AIR 1916 PC 119), the Privy Council observed that in considering the question of the personal liability, of a mortgagor, it must be borne in mind, (i) that a loan prima facie involves such a personal liability and (ii) that such a liability is not displaced by the mere fact that security is given for repayment of the loan with interest. It was also pointed out that even if the mortgagor be in the first instance under no personal liability, such liability may arise under Section 68 (b) or (c) of the Transfer of Property Act of course the nature and terms of a mortgage document may negative any personal liability of the mortgagor. However, in view of the terms of Ext. 3, it cannot be suggested that the personal liability of the defendants in the present case may be negatived. In various paragraphs of Ext. 3 including paragraphs 1, 8, 10, 15 and 16, the defendant has expressly bound itself with a personal liability. Towards the end of paragraph 10 of Ext. 3, it has been stated that "the dues may be realised from other properties of the Mills" in case the value of the mortgaged property went down. In the 1 present case, the mortgaged property has became absolutely unavailable. There is an indemnity clause- in paragraph 15 of Ext. 23. In paragraph 1, the Company agreed to pay back to the State Government the amount of loan with interest and in paragraph 8 the Company agreed to pay back the money in three instalments as detailed therein. In the latter portion of paragraph 16, the creditor was given the right to demand additional security. Even if a mortgage document is silent, the presumption is in favour of personal liability. In the present case, the terms indicated that the defendant personally undertook to pay off the money in express terms. The further point however, is whether this liability can be enforced by a suit.
11. It follows that when a loan is advanced under a mortgage the creditor is clothed with two rights, first, to enforce the personal liability and, the second, to realise the money on the basis of the security. Both these rights are distinct and independent and the Limitation Act prescribes two periods applicable for enforcement of the two rights. Under the old Limitation Act which is applicable to the suit, Article 116 prescribing a period of six years was applicable to a suit for enforcement of a personal liability while a period of 12 years was available under Article 132 for enforcement of the right under the security. The two obligations of the debtor are independent of each other and the procedure for enforcing them is different though under certain conditions one suit may be brought to enforce both (See Sultan Singh v. Joti Sarup AIR 1928 Lah 269). In Puran Chand v. Har Prashad, (AIR 1935 Lah 672) (FB) it was held by the Full Bench that the right of the mortgagee to recover the money from the mortgagor personally arises out of the covenant to repay the Joan and his right to realise the security accrues from the hypothecation. Each of these two rights furnishes an independent end distinct cause of action to the mortgagee. It, therefore, follows that a mortgagee is not bound to sue for the realisation of his security in a suit to enforce the personal covenants of the mortgagor as the two claims arise out of distinct causes of action. On this basis it was held that a second suit could not be barred by Order 2, Rule 2 of the Code of Civil Procedure.
12. Under the provisions of the Nationalisation Act, a mortgagee has been deprived of his right under the mortgage, but his other right to recover money from the mortgagor personally has not been disturbed. The purpose of the Act is to reorganise and rehabilitate sick textile undertakings and to achieve that end the property, although mortgaged, has been put beyond the reach of any person including a creditor, The Nationalisation Act is not concerned with the rights and liabilities of debtors and creditors except in so far they affect the undertaking. The provisions regarding claims before the Commissioner have been included to cover only rights arising from hypothecation. The different provisions of the Nationalisation Act, referred to above, all point out to this conclusion, The matter has been further clarified by Sub-section (1) of Section 5 of the Nationalisation Act which reads as follows:--
"Every liability, other than the liability specified in Sub-section (2) of the owner of a sick textile undertaking, in respect of any period prior to the appointed day, shall be the liability of such owner and shall be enforceable against him and not against the Central Government or the National Textile Corporation."
It is, therefore, clear that so far the claim based upon personal liability of the defendants is concerned, it has hot been dealt with by the Nationalisation Act, and can be enforced by a suit.
13. Although the relief in the suit does not include, in express terms, a simple decree for money, but it is involved in the reliefs asked for. I, therefore, do not think that there is any difficulty in the way of the plaintiff on account of the pleading. Mr. Prasad, however, contended that the last date of payment mentioned in the document was 1954 and the suit having been brought in 1962, was barred by limitation as six years rule under Section 116 was applicable. The argument overlooks the fact that the claimant, plaintiff No 2, is the State Government and a period of 60 years is available therefor under Rule 149 of the old Limitation Act. On behalf of the appellant, the plea of limitation was also attempted to be met by reference to the statements made in paragraphs 14 and 20 of the plaint to the effect that part payment of the due had been made within six years of the suit. It does not appear, essential to deal with this argument inasmuch as six years rule of limitation cannot be applied against the State, I, therefore, hold that the suit for the relief, now pressed, is not barred by time.
14. Lastly, Mr, Prasad argued that the plaintiff was entitled to press personal liability, only after the remedy under the Nationalisation Act was exhausted. Reliance was placed on the decision in Krishna Prasad v. Gouri Kumari Devi, (AIR 1962 SC 1464). In that case, respondent Gouri Kumari Devi had executed a mortgage in respect of certain zamindari property in 1937 in favour of the plaintiff Krishna Prasad. The mortgagee filed a suit and obtained a decree in 1947 ordering that the mortgaged property would be charged preliminarily and if the decretal amount was not fully satisfied from them, "then alone the respondent would be personally liable for the satisfaction of the balance, if any'. The final decree was passed in 1947 and, thereafter, the Bihar Land Reforms Act came into operation vesting all Zamindari property in the State of Bihar. When the decree-holder started executing the decree, objection was raised on the basis of certain provisions of the Bihar Land Reforms Act. Section 4 (d) of the Act provided that no suit would lie in any Court for recovery of any money due from an intermediary whose zamindari had been abolished under the Act, the payment of which was secured by a mortgage, and all suits and proceedings for the recovery of such money should be dropped. In view of this provision and certain other provisions of that Act, the Court held that the execution was incompetent at that stage and the decree-holder should first seek to recover the amount through the machinery prescribed by that Act before he could proceed to execute the personal decree. This conclusion was reached on the basis of the scheme of the Land Reforms Act as also on the terms of decree itself. This case cannot, have any application to the present appeal inasmuch as the provisions of Section 4 (d) of the Land Reforms Act are absolutely different from Section 5 (1) of the present Nationalisation Act and the schemes of the two Acts are also quite dissimilar. Besides, the scope of the controversy in the reported case was covered in favour of the judgment-debtor by the very terms of the decree under execution. I, therefore, hold that the case of Krishna Prasad v. Gouri Kumari Devi is not relevant for decision in the present case.
15. In the result, this appeal is allowed and the decision of the court below is set aside. The suit is decreed in favour of the plaintiff No. 2 and against the defendant for a sum of Rs. 2,05,703.37 with interest pendente lite and future it the rate of 6 per cent. p. a. The plaintiff No. 2 will also be entitled to costs of both the courts.
Birendra Prasad Sinha, J.
1 agree.