Punjab-Haryana High Court
Haryana Financial Corporation Ltd., ... vs Bags And Cartons And Another on 3 December, 1996
Equivalent citations: AIR1997P&H176, [1998]94COMPCAS704(P&H), (1997)115PLR757, AIR 1997 PUNJAB AND HARYANA 176, 1997 (3) COM LJ 248 P&H, (1997) 2 ICC 783, (1997) 115 PUN LR 757, (1997) 33 BANKLJ 129, (1997) 1 BANKCAS 587, (1997) 2 RECCIVR 66, (1997) 1 CURLJ(CCR) 648, (1997) 4 LANDLR 471
Bench: K.S. Kumaran, R.L. Anand
ORDER Jawahar Lal Gupta, J.
1. Are the remedies under Ss. 29 and 31 of the State Financial Corporations Act, 1951 mutually exclusive? This is the primary question that arises for consideration in this appeal. The learned single Judge has taken the view that once the Corporation had made a choice and resorted to the remedy under S. 31 it cannot "fall back on the remedy under S. 29 of the Act." Reliance in support of this view has been placed on the judgment of a Full Bench of Andhra Pradesh High Court in K. Subba Reddy v. Andhra Pradesh State Financial Corporation, AIR 1987 Andh Pra 119 and the judgment of a Division Bench of the Orissa High Court in M/s. Gulf Fishing and Co. v. Orissa State Financial Corporation, AIR 1987 Orissa 119.
2. At the hearing of this appeal, Mr. Daya Samp Nehra, learned counsel for the respondent, has pointed out that the view of the Full Bench of the Andhra Pradesh High Court has been endorsed by a Division Bench of this Court in M/s. Hemyog Hotels Pvt. Ltd. v. The Delhi Financial Corporation, 1993 (1) Recent Revenue Reports 256.
3. After hearing learned counsel for the parties, we are prima facie of the view that the remedy under S. 31 of the Act being "without prejudice to the provisions of S. 29", the view taken by the Full Bench of the Andhra Pradesh High Court in K. Subba Reddy's case (supra) which has been endorsed by a Division Bench of this Court in M/ s. Hemyog Hotel's case (supra) does not contain the correct statement of law. Even otherwise, we are satisfied that the question involved in this case is of considerable importance. It is likely to arise in a number of cases. It has serious implications regarding the rights of the Corporation to recover the loans from Industrial concerns. An authoritative pronouncements regarding the provisions of the Act especially those contained in Ss. 29 and 31, is necessary. We are, thus, of the view that the matter deserves to be examined by a Full Bench of this Court.
4. In view of the above, this appeal along with Letters Patent Appeal No. 571 of 1993 is ordered to be placed before a Full Bench for a final decision.
Judgment dated 3-12-1996 : Passed by Full Bench.
Jawahar Lal Gupta, J.
5. Are the remedies under Ss. 29 and 31 of the State Financial Corporations Act, 1951, mutually exclusive? This is the primary question that arises for consideration in these two appeals which have been referred to this Bench. A few facts may be noticed.
6. M/s. Bags and Cartons is an industrial concern. It was engaged in printing labels, making plastic pauches and even bags etc. It needed additional finances. In the year 1967, the Haryana Financial Corporation agreed to advance a sum of Rs. 4,90,000/- as loan. The industrial concern executed a registered mortgage deed in favour of the Corporation on October 11, 1967 by way of security. The amount of loan was released. It had to be repaid along with interest in 9 yearly instalments commencing from April, 1968. The industrial concern defaulted. On April 1, 1974, the Corporation filed a petition under S. 31 of the Act against the concern and its partners in the Court of District Judge, Gur-gaon. On July 2, 1976, an ex parte order was passed holding that a sum of Rs. 6,91,644.78 had become due to the Corporation on March 31, 1974. It was further ordered that the Corporation shall be entitled to interest @ 10% per annum from April 1, 1974 till the realisation of the amount. It was directed that the mortgaged property including the plant and machinery be sold and the dues of the Corporation be paid out of the sale proceeds. An application for execution of the order was filed. On February 27, 1982, the District Judge, Gurgaon, directed the sale of the attached property. The case was adjourned to May 5, 1982 for report. It appears that there was a settlement. On March 20, 1982, an application was filed on behalf of the Corporation. The written compromise deed was also filed. According to this deed, a schedule of payment had been settled. It was also agreed that the Corporation shall be entitled to charge interest @ 10% per annum upto March 20, 1982 but for the subsequent period, the interest shall be charged @ 17.5% per annum. However, the industrial concern did not abide by the terms of agreement. It defaulted. The Corporation issued several notices till the year 1987 pointing out that a sum of more than Rs. 20 lacs had become due up to February 28, 1987. The judgment-debtors not only disputed this but even alleged that the compromise had been recorded on March 20, 1982 under coercion and that the amounts which had been actually paid had not been accounted for. Faced with this situation, the Corporation decided to invoke the provisions of S. 29 and take possession of the factory. A communication dated May 30, 1988 was sent to the industrial concern pointing (Tut that an amount of Rs. 22,60,177.50 had already fallen due with further interest from March 1, 1988. Since the payment had not been made in spite of various notices, the Corporation had decided to take over possession of the factory under S. 29. It asked the concern to deliver the possession on June 20, 1988 failing which the Corporation "shall be constrained to take over the possession with the help of the police..... The property will then be sold either by public auction or by private negotiations for the recovery of the amount". The two respondents viz. the industrial concern and its sole proprietor (who had replaced the partners) challenged this order through a petition under Art. 226 of the Constitution. The Corporation contested this petition. The learned single Judge took the view that the Corporation having chosen the remedy under S. 31, it could not "fall back on the remedy under S. 29 of the Act." Accordingly, the challenge to the order dated May 30, 1988 by which the Corporation had decided to take over possession of the factory under S. 29 of the Act was sustained. However, the plea of the writ petitioners that the agreement had been recorded under coercion or that the demand of interest @ 17.5% per annum was unfair, was rejected. Resultantly, the petition was allowed to the extent that the order dated May 30, 1988 by which the Corporation had decided to take over possession of the factory under S. 29 of the Act was quashed. It was, however, left free to enforce the order of the District Judge dated July 26, 1976, as modified by the order dated March 20, 1982 and to recover its dues in accordance with law.
7. Aggrieved by this Judgment, the Corporation filed L. P. A. No. 218 of 1993. The writ petitioners also filed an appeal viz. LPA No. 571 of 1993 claiming that the learned single Judge had erred in upholding the claim of the Corporation for payment of interest @ 17.5% per annum. Both the appeals were listed before a Division Bench. The Bench having expressed its reservations about the view taken by a Division Bench in M/s. Hemyog Hotels v. The Delhi Financial Corporation, 1993 (1) Recent Revenue Reports 256, the matter was referred to a larger Bench. This is how the appeals have been placed before this Bench.
8. We have heard learned counsel for the parties.
The short question that arises for consideration is--was the Financial Corporation debarred from proceeding under S. 29 after it had resorted to its remedy under S. 31 of the Act?
9. The Society has gradually moved from self-financing to State-financing. In the post-Independence India, various Financial Institutions have been established with the object of promoting growth of economy in all sectors. Initially, the Industrial Finance Corporation of India was established by the Act of 1948. A little later, the State Financial Corporations Act, 1951 was enacted on the same lines as the Industrial Finance Corporation Act, 1948. The 1951 Act was enacted to provide for finance to the "medium and small scale industries which fell outside the field of operation of the Industrial Finance Corporation of India. "In the year 1954, the National Industrial Development Corporation was constituted. This was followed by the setting up of the Industrial Credit and Investment Corporation of India in 1955 and the Industrial Development Bank of India in 1964. Subsequently, even the banks were nationalised to promote social justice. Periodic amendments have been made in the various statutes.
10. The State Financial Corporations Act, 1951 was enacted "to provide for the establishment of State Financial Corporations." These have been set up in different States to promote industrial growth by meeting with the requirements of the entrepreneurs. These "have been conceived as Regional Development Bank for accelerating the industrial growth in various States, by providing financial assistance mainly to small and smaller of the medium scale industries."
11. The Statute is divided into five Chapters. The short title etc. and the definition clause are given in Chapter I. Chapter II provides for the incorporation of the State Financial Corporations, their capital, the constitution of the Board of Directors, the term of office of the Directors and other cognate matters. Chapter IV contains provisions regarding investment of funds and the audit of accounts. Various miscellaneous provisions are contained in Chapter V. The provisions relevant for the decision of the present case are contained in Chapter III. In the context of the question that arises for consideration in this case, a few of these provisions may be briefly noticed.
12. Section 24 provides that the Board shall "act on business principles, due regard being had by it to the interest of industry, commerce and the general public." Section 25 which has been amended more than once enumerates "the kinds of business which Financial Corporation may transact." It also permits the Corporation to do "such acts and things as may be incidental to, or consequential upon, the exercise of its power or discharge of its duties under the Act." Sections 25A, 26, 27 regulate the power of the Corporation to acquire rights, the "limit of accommodation" and to "impose the conditions for accommodation." Section 28 debars the State Financial Corporation from performing certain kinds of business. The remaining provisions--Sections 29 to 32G enu-merate the rights and remedies of the Financial Corporations and the procedure for enforcement of claims.
13. A Financial Corporation is established to finance small and medium scale industry.
However, in doing so, it deals with public money. Consequently, the legislative man date to the Corporation is to act "on business principles" with "due regard being had to the interests of industry, commerce and the general public." Thus, the Corporation is not visualised as the traditional 'money lender' who was crafty and exploited the helpless.
However, while being helpful to the loanee, the Corporation cannot ignore its own interests. Thus, the Statute has made a provi sions to ensure that it does not indulge in any and every kind of business so as to squander public funds. The Corporation can only carry on and transact the kinds of business per mitted under S. 25, when it gives loan, its power to call for repayment even before the due date has been preserved under S. 30. The theme of the Statute is to promote industry as well as to secure public funds. For attaining this twin objective, the Corporation has been armed with rights and remedies under Ss. 29 and 31.
14. Section 29 inter alia provides that whenever "any industrial concern ... makes any default in repayment ...the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern as well as the right to transfer by way oflease of sale ..."Similarly, under Section 31 when "an industrial concern ... makes any default in repayment of any loan or advance .. then, without prejudice to the provisions of Section 29 of this Act ... any officer of the Financial Corporation ... may apply to the District Judge... for an order for the sale of the property... or for enforcing the liability of any surety ...or for transferring the management of the industrial concern to the Financial Corporation or 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 ..." The procedure for dealing with an application under Section 31 is laid down in Section 32.
15. The Parliament has advisedly conferred wide powers on the Corporation. It can on its own and without invoking the jurisdiction of the Court proceed to take over the management and/or possession of the industrial concern under Section 29. It has also the choice to invoke the jurisdiction of the Court under Section 31 of the -Act. However, the remedy under Section 31 is without prejudice to the provisions of Section 29. Thus, the Parliament has clearly preserved the right of the Corporation to proceed under Section 29 even after it has initiated proceedings under Section 31 of the Act.
16. There is a clear rationale for this provision, Today, materialism has come to have its sway. The Business and Industry talk in 'money-syllables'. To some, even matrimony is a 'matter, money'. The industrial list has the tendency to live within his financier's means. The familiar pattern is--take loan and go sick. Many find it against their "principle to pay interest and against their interest to pay the principal." It is in order to meet such a situation that the Parliament has armed the Corporation with a power to not only invoke the jurisdiction of the Court under Section 31 but even to take over the management and possession of the indusirial concern under Section 29 and to transfer it by way of lease or sale so as to recover its dues. As observed by their Lordships of the Supreme Court in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation, AIR 1993 SC 935, the "Corporations deal with publicmoney for public benefit. The approach has to be public-oriented, helpful to the loanee, without loss to the Corporation". The two provisions are calculated to ensure speedy recovery of the dues. The remedies are not mutually exclusive.
17. It can happen that a Corporation initiates proceedings under Section 31. The industrial concern on getting the notice may realise that it has to carry out its obligation. It may make the payment. That would be the end of the problem. However, in case, the industrial concern does not make the payment and persists in default, the Court can speedily proceed with the matter and it may pass an order for the sale of the property which has been pledged, mortgaged or hypothecated. Notice of sale may be duly published. However, at the time of sale/auction, it may be found that all the prospective buyers are the members of the family of the defaulter. The property is not likely to fetch the real price. The Corporation will not be able to recover its dues. To meet with such a situation, the Legislature has preserved the right of the Corporation to proceed under Section 29. The Corporation can forthwith abandon the proceedings under Section 31 and invoke its right under Section 29. It can take over the management and possession of the property. It can carry out the sale or transfer as provided under Section 29. Such a course of action would be perfectly legitimate and permissible under the provisions of the Act. Of course, the position would be different in a case where the Court in proceedings under Section 31 may find that the claim made by the Corporation is not tenable. In the case, the Corporation would have to seek its remedy before the appellate Court. However, merely by resorting to proceeding under Section 31, the Corporation does not lose its right under Section 29 of the Act. In fact, such a right has been duly preserved by the Legislature.
18. The learned single Judge has taken the view that initially, the Corporation had "the right to choose which of the two remedies it should resort to and once the choice is made.... the Corporation cannot fall back on the remedy under Section 29 of the Act. ..." Reliance has been placed on the decision of a Full Bench of the Andhra Pradesh High Court in K. Subba Reddy v. Andhra Pradesh State Financial Corporation, AIR 1987 Andh Pra 119 and a Division Bench judgment of the Orissa High Court in M/s. Gulf Fishing Co. v. Orissa State Financial Corporation, AIR 1987 Orissa 119. In fact, even a Division Bench of this Court in M/s. Hemyog Hotels Pvt. Ltd, v. The Delhi Financial Corporation, 1993 (1) Recent Revenue Reports 256, has taken a similar view. We regret our inability to accept it. However, the necessity of a detailed examination of the views expressed in these decisions has been obviated by the decision of their Lordships of the Supreme Court in Andhra Pradesh State Financial Corporation v. M/s. GAR Re-Rolling Mills, AIR 1994 SC 2151. Their Lordships have been pleased to inter alia observe as under:--
(Para 13) "The expression 'without prejudice to the provisions of Section 29 of this Act' as appearing in Section 31 of the Act clearly demonstrates that the Legislature did not intend to confine that Corporation to take recourse to only a particular remedy against the defaulting industrial concern for recovery of the amount due to it. It left the choice to the Corporation to act in the first instance under Section 31 of the Act and gave its rights and remedies under Section 29 of the Act to be availed at later stage, with the sole object of enabling the Corporation to recover its dues."
(Para 16) "The doctrine of election, as commonly understood, would, thus, not be attracted under the Act in view of the express phrra-seology used in Section 31 of the Act, viz. without prejudice to the provisions of Section 29 of this Act."
(Para 17) "The relief available to the Corporation under Section 29 of the Act to realise its dues in the manner prescribed therein is wider in scope than the limited relief available to it under Section 31 of the Act and is not controlled by Section 31 of the Act. The Legislature clearly intended to preserve the rights of the Corporation under Section 29 of the Act, by expressly stating in Section 31 of the Act, that its recourse to action under that Section is without prejudice to the provisions of Section 29 of the Act. What alone is not desirable or permitted by the Act is to pursue both the remedies simultaneously by the Corperation and not that it cannot withdraw or abandon the proceedings initiated under Section 31 at 'any stage' and then take recourse of the provisions of Section 29 of the Act. Any interpretation which frustrates the right of the Corporation to recover its dues must be eschewed .....
(Para 18) There is no equity in favour of a defaulting party which may justify interference by the Courts in exercise of its equitable extra-ordinary jurisdiction under Article 226 of the Constitution of India to assist it in not repaying its debts. The aim of equity is to promote honesty and not to frustrate the legitimate rights of the Corporation which after advancing the loan takes steps to recover its dues from the defaulting party."
19. In view of the above, it is clear that the remedies under Sections 29 and 31 are not mutually exclusive. Resort to one does not always debar the Corporation from abandoning the proceedings and invoking the alternative remedy. The doctrine of election does not apply. It is only when the claim made by the Corporation in proceedings under Section 31 is rejected by the Court and inter se rights of the parties are determined that it may be debarred from invoking its rights under Section 29. Otherwise, the Corporation can abandon the proceedings under Section 31 and take action in accordance with the provisions of Section 29.
20. Accordingly, the question posed at the outset is answered in the negative. The view to the contrary taken by the learned single Judge is set aside. We are also unable to endorse the view taken by the Division Bench in M/s. Hemyog Hotel's case (1993 (1) Rec Rev Rep 256) (supra). It is, consequently, overruled.
21. Mr. Nehra, learned counsel for the industrial concern states before us that after the reference of the case to the Full Bench, all the dues had been paid to the Corporation. He did not even press and we think rightly, the claim made by the industrial concern in LPA No. 571 of 1993.
22. In view of the above, LPA No. 218 of 1993 is allowed. LPA No. 571 of 1993 is dismissed. However, in the circumstances, we make no order as to costs.
23. Appeal allowed.