Orissa High Court
Orissa State Financial Corporation vs Bhargabi Cold Storage on 9 August, 2019
Author: A.K.Rath
Bench: A.K.Rath
HIGH COURT OF ORISSA: CUTTACK
RSA No.292 of 2002
From the judgment and decree dated 2.9.2002 and 13.9.2002 respectively
passed by Sri S.C Mishra, learned District Judge, Cuttack in TA No.11 of
2001 reversing the judgment and decree dated 28.3.2000 and 11.4.2000
respectively passed by Sri K.K. Mohanty, learned 2nd Addl. Civil Judge
(Senior Division), Cuttack in Title Suit No.65 of 1997.
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Orissa State Financial Corporation & another .... Appellants Versus Bhargabi Cold Storage .... Respondent For Appellants ... Mr.P.K. Routray, Adv.
Mr.Jagannath Bhuyan, Adv.
For Respondent ... Mr.S.P. Mishra, Sr. Adv.
Mr.Soumya Mishra and
Mr.Ashutosh Mahanta, Advocates
PRESENT:
THE HONOURABLE DR. JUSTICE A.K.RATH
Date of hearing: 25.07.2019 : Date of judgment: 09.08.2019
Dr. A.K.Rath, J Defendants are the appellants against the reversing judgment.
2. Case of the plaintiff-respondent was that it was a partnership firm. The firm availed a loan from the defendants in the year 1961 to establish a cold storage. Due to disturbance of electricity supply, the firm could not be carried on business and became sick. The defendants issued a notice under Sec.29 of the State Financial Corporations Act (in short, "S.F.C. Act") in the year 1986. Plaintiff filed a suit in the court of Munsif, Puri for permanent injunction. The defendants initiated a proceeding under Sec.31 of the 2 S.F.C Act in the court of the learned District Judge, Puri. The same was withdrawn to initiate a fresh proceeding under Secs.29 and 31 of the S.F.C. Act. Thereafter, the defendants issued notice under Sec.29 of the S.F.C Act to recover the dues of Rs.7,10,965.05 ps. The plaintiff requested the defendants to accept an amount of Rs.5,00,000/- and settle the outstanding dues, but the same was turned down. The claim is time barred. With this factual scenario, the plaintiff instituted the suit for declaration that the defendants are not entitled to recover the outstanding dues since the same is time barred and permanent injunction.
3. Defendants filed a written statement pleading, inter alia, that the plaintiff availed the loan. The plaintiff became a chronic defaulter. The claim was not barred by time. As on 31.12.1997 the outstanding dues on the plaintiff was Rs.35,95,326.76 ps.
4. Stemming on the pleadings of the parties, learned trial court struck nine issues. Parties led evidence, oral and documentary. Learned trial court dismissed the suit holding that the Corporation cannot simultaneously pursue two remedies i.e. one under Sec.31 of the S.F.C. Act and another under Sec.29 of the S.F.C. Act. The Corporation can take recourse to Sec.29 of the S.F.C. Act even after an order under Sec.31 of the S.F.C Act has been passed. Its right is not extinguished. The District Judge allowed the petition for withdrawal of the petition under Sec.31 of the S.F.C Act filed by the Corporation. The Corporation is not precluded from taking action under Sec.29 of the S.F.C Act. The Court cannot injunct the statutory body from exercising the statutory power. Assailing the judgment and decree, plaintiff filed T.A. No.11 of 2001 before the learned District Judge, Cuttack. Learned appellate court held that special statute does not exclude the operation of the Limitation Act. As there is no specific provision in the S.F.C. Act providing the period 3 of limitation to start a proceeding under Sec.29 or Sec.31 of the S.F.C. Act and there being no bar for application under the Limitation Act, the provisions of the Limitation Act shall apply. Period of limitation shall commence from the date of recall the notice issued on 18.6.1988 vide Ext.3 under Sec.30 of the S.F.C. Act. Article 137 of the Limitation Act shall apply. Thus the period of limitation is three years from the date of notice under Sec.29 of the S.F.C. Act. The defendants cannot take recourse to the provisions of Sec.29 of the S.F.C Act for realisation of dues from the plaintiff as the period of limitation of three years from 18.6.1988 has already expired. Taking a cue from the Division Bench decision of this Court in the case of Orissa State Financial Corporation v. Sri Sailendra Narayan Patnaik, 2011 (1) OLR 87, it held that the proceeding under Sec.31 of the S.F.C Act is in the nature of execution proceeding of the decree and as such, the period of limitation would be 12 years under Article 136 of the Limitation Act. The period of limitation to start a proceeding under Sec.31 of the S.F.C Act is 12 years from 18.6.1988. Held so, it allowed the appeal. It is apt to state here that during pendency of the appeal, the original plaintiff died; whereafter his legal heirs have been substituted.
5. The second appeal was admitted on 13.01.2003 on the following substantial questions of law;
"(i) Admittedly the plaintiff incurred loan from the defendants and failed to pay the dues of the Corporation whether the action of the Corporation to recover its dues U/s 29 of the S.F.C.'s Act can be said to be in the nature of suit ?
(ii) The plaintiff incurred loan from the Corporation by mortgaging/hypothecating immovable properties in favour of Corporation as the security for payment of the loan, in order to recover the dues by the Corporation whether Art.137 or 62 of the Limitation Act is applicable ?
(iii) The plaintiff admitting (even the time barred) dues of the Corporation vide Ext.F promised to pay the same 4 whether the provisions of Sec.25(3) of Contract Act will save the limitation or not ?"
In course of hearing, the following substantial question of law was framed.
"(iv) Whether the defendant no.1-Corporaiton can proceed against the industrial concern under Sec.29 of the State Financial Corporations Act, 1951 when the last transaction was 18.6.88 and notice was issued on 18.6.88 ?"
6. Heard Mr.P.K. Routray along with Mr.Jagannath Bhuyan, learned counsel for the appellant and Mr. S.P. Mishra, learned Senior Advocate along with Mr.Soumya Mishra and Mr.Ashutosh Mahanta, learned counsel for the respondent.
7. Mr. Routray, learned counsel for the appellant submitted that the starting point of limitation is 18.6.1988 and as such, Article 62 of the Limitation Act, 1963 will apply. Plaintiff instituted O.S No.76 of 1986. The same was dismissed on 21.3.1995. In computing the period of limitation, any period during which any proceeding is stayed by an order of the court, shall be excluded. In view of the pendency of the suits and interim orders, the period of limitation cannot be computed from 18.6.1988, since the proceeding was pending till date. When the plaintiff lost in all courts, he instituted the suit. No period of limitation has been prescribed for taking action by the Corporation under Sec.29 of the S.F.C Act. The provisions of the Limitation Act do not bar the Corporation from invoking the provision of Sec.29 of the S.F.C. Act. When the Corporation take steps for recovery of the amount by restoring to the provisions of Sec.29 of the S.F.C Act, the limitation period for recovery of the balance amount would start only after adjusting the proceeds for the sale assets of the industrial concern. The word 'liability' has a wide import. It is a broad term. Learned appellate court has committed a patent error in holding that the period of limitation for taking action 5 under Sec.29 of the S.F.C. Act is three years. He placed reliance on the decisions in the case of Karnataka State Financial Corporation v. N. Narasimahaiah, 2008 (I) CLR (SC) 781, Deepak Bhandari v. Himachal Pradesh State Industrial Development Corporation Limited, (2015) 5 SCC 518 and Mohd. Yaqub v. Union of India, AIR 1971 Delhi 45.
8. Per contra, Mr. Mishra, learned Senior Advocate for the respondents submitted that in Maharashtra State Financial Corporation v. Ashok Kumar Agarwal, 2006 (9) SCC 617, the apex Court held that the period of limitation for initiation of proceeding under Sec.31 of the S.F.C Act is three years under Article 137 of the Limitation Act. The language used in Secs.29 and 31 of the S.F.C Act, though little different, but the purpose is identical. The entire purpose of taking action either under Sec.29 or under Sec.31 of the S.F.C Act is for realisation of the liability as on the date of the notice. The power assigned under Sec.29 of the S.F.C Act is an unbridled power. It is mandatory for the Corporation to issue a prior notice before any action under Sec.29 of the S.F.C Act is taken. Such notice prior to any action taken under Sec.29 of the S.F.C Act is the date of cause of action before any steps is taken for either taking delivery of possession or disposal of the property to mitigate the liability. It is not the legislative intention that the Corporation will wait for an indefinite period to take action under Sec.29 of the S.F.C Act after the notice of recall of loan or demand. If the proposition of indefinite period is accepted, then the borrower will always be under the threat of the Corporation throughout his life like a Damocles sword handing over his head. The action to be taken either under Sec.31 or under Sec.29 of the S.F.C Act must be within the period of limitation as contemplated under Article 137 of the Limitation Act. The period of limitation is three years from the date of accrual of the cause of 6 action, which is from the date of either date of recall notice or notice of demand.
9. Sec.29 of the S.F.C Act, which is the hub of the issue, is quoted hereunder.
"29. Rights of Financial Corporation in case of default.--
(1) Where any industrial concern, which is under a liability to the Financial Corporation under an 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, the Financial Corporation shall have the [right to take over the management orpos-
session or both of the industrial concerns], as well as the [right to transfer by way of lease or sale] and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers [***] under sub- section (1), shall vest in the transferee all rights in or to the property transferred [as if the transfer] had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
(4) [Where any action has been taken against an industrial concern] under the provisions of sub-section (1), all costs, [charges and expenses which in the opinion of the Financial Corporation have been properly incurred] by it [as incidental thereto] shall be recoverable from the industrial concern and the money which is received by it [***] shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.] (5) [Where the Financial Corporation has taken any action against an industrial concern] under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of [the concern]."
710. On a bear reading of the provision, it is evident that the Financial Corporation shall have the right to take over the management or possession or both of the industrial concerns, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation, where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or otherwise fails to comply with the terms of its agreement with the Financial Corporation.
11. The word 'liability' occurring in Sec.29 of the S.F.C Act means there exists a legally enforceable debt or liability.
12. In the instant case, plaintiff availed a loan from the Corporation. Somanath Mishra, partner of Bhargabi Cold Storage- plaintiff and his two sons Sasadhar Mishra and Sarangadhar Mishra executed a deed of hypothecation of tangible property in favour of the Corporation on 1.2.1970, Ext.D. The Corporation agreed to lend a sum of Rs.2,79,000/- on the security of (a) an equitable mortgage of the borrowers and mortgagor's collateral property with all buildings and structures on borrower's land and plant and fixed machinery, (b) the hypothecation of all tangible movable property, furniture, fixtures, assets and other movable assets described in general terms in the schedule of the deed as the borrowers acknowledging and to be secured by the hypothecation of the hypothecated assets with the Corporation on the terms mentioned in the deed. Clause (2) of the deed provides that the borrowers shall pledge and hypothecate with the Corporation by way of first charge all the plant, fixed and unfixed machinery and other equipments. Clause (3) of the deed provides that the hypothecated assets shall be held as the Corporation's 8 exclusive property. The borrowers had also executed a mortgaged deed in favour of the Corporation vide Ext.A in respect of the properties mentioned therein and the deed of mortgage vide Ext.E.
13. Sec.29 of the S.F.C Act does not prescribe the period of limitation. Sub-section (2) of Sec.29 of the Limitation Act provides that where any special or local law prescribes for any suit, appeal or application a period of limitation different from the period prescribed by the Schedule, the provisions of Sec.3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribes for any suit, appeal or application by any special or local law, the provisions contained in Sec.4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law. Article 62 of the Limitation Act stipulates that to enforce payment of money secured by a mortgage or otherwise charged upon immovable property, the period of limitation is twelve years, when the money sued for becomes due.
14. The Corporation issued notice under Sec.29 of the S.F.C Act to take over the management and possession of the industrial concern as well as right to transfer and realize the property pledged, mortgaged, hypothecated or assigned to the financial corporation. In view of the same, Article 62 of the Limitation Act shall apply. The period of limitation is twelve years to enforce payment of money secured. So calculated, it cannot be said that the Corporation has issued notice under Sec.29 of the S.F.C Act to recover a time barred debt. Further, a statutory authority cannot be injuncted by way of permanent injunction to discharge the statutory function. The substantial questions of law enumerated in Ground Nos.(i), (ii) and
(iv) are answered accordingly. The substantial question of law enumerated in ground no.(iii) does not require consideration.
915. The apex Court in Maharashtra State Financial Corporation v. Ashok K. Agarwal, AIR 2006 SC 1584 had the occasion to interpret Sec. 31 S.F.C Act. The apex Court held that while dealing with an application under Sec.31 and 32 of the S.F.C Act, there is no decree or order of a civil court being executed. It was only on the basis of a legal fiction that the proceedings under Sec.31 of the S.F.C Act are treated as akin to execution proceedings. There is no decree to be executed nor there is any decree holder or judgment debtor and therefore in a strict sense it cannot be said to be a case of execution of a decree. The application under Secs.31 and 32 of the S.F.C Act is not by way of execution of a decree or order of any civil court. Article 137 of the Limitation Act applies. Under Article137, the period of limitation is three years.
16. In view of the authoritative pronouncement of the apex Court in the case of Ashok K. Agarwal, the Division Bench decision of this Court in the case of Shri Sailendra Narayan Patnaik has been impliedly overruled.
17. Deepak Bhandari and N. Narasimahaiah are distinguishable on facts. In Deepak Bhandari, the apex Court held that the Corporation takes steps for recovery of the amount by resorting to the provisions of Sec.29 of the S.F.C Act, the limitation period for recovery of the balance amount would start only after adjusting the proceeds from the sale of assets of the industrial concern. As the Corporation would be in a position to know as to whether there is a shortfall or there is excess amount realised, only after the sale of the mortgage/hypothecated assets. Merely because the Corporation acted under Sec.29 of the S.F.C Act did not mean that the contract of indemnity came to an end. Sec.29 of the S.F.C. Act merely enabled the Corporation to take possession and sell the assets for recovery of the dues under the main contract. On the 10 Corporation taking action under Sec.29 of the S.F.C Act and on their taking possession they became deemed owners. The mortgage may have come to an end, but the contract of indemnity, which was an independent contract, did not. The right to claim for the balance arose, under the contract of indemnity, only when the sale proceeds were found to be insufficient. The right to sue on the contract of indemnity arose after the assets were sold.
18. In N. Narasimahaiah, the apex Court held that Sec.29 of the S.F.C Act nowhere states that the corporation can proceed against the surety even if some properties are mortgaged or hypothecated by it. The right of the financial corporation in terms of Sec.29 of the S.F.C Act must be exercised only on a defaulting party. There cannot be any default as is envisaged in Sec.29 of the S.F.C. Act by a surety or a guarantor. The liabilities of a surety or the guarantor to repay the loan of the principal debtor arises only when a default is made by the latter.
19. In Mohd. Yaqub, the Full Bench of the Delhi High Court held that the word 'liability' has a wide connotation. It is a broad term of large and comprehensive significance and means legal responsibility or obligation to do a thing. There is no quarrel over the proposition of law.
20. In Messers Kharavela Industries Private Limited, this Court held that the power given to the Corporation under Sec.29 of the S.F.C Act is an extraordinary power and the same must be resorted to only when the Corporation bona fide forms the opinion after taking into consideration all relevant factors including all payments made by the entrepreneur till the date of the order that the pre-conditions of Sub-section (1) of Sec.29 of the S.F.C of the Act have been fully satisfied. If the Corporation fails to take into account the upto date payments made by the entrepreneur while deciding to 11 take action under Sec.29 of the S.F.C. Act, then even though the conditions prescribed under Sub-section (1) might have been satisfied, yet the decision will be vitiated on account of non- consideration of relevant materials. If Sec.29(1) is literally interpreted and if the power of the Corporation to take over the industry is conceded as soon as one of the instalments falls due notwithstanding some payments being made in the interregnum, then that would be contrary to the purpose for which the Corporation has been set up. The decision is distinguishable on facts.
21. In view of the foregoing discussions, the appeal is allowed. The judgment of the learned appellate court is set aside. There shall be no order as to costs.
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DR. A.K.RATH, J Orissa High Court, Cuttack.
Dated 9th August, 2019/PKS