State of U.P. Vs.
Hindustan Uni-Levers & Ors.  INSC 1737 (15 October 2008)
JURISDICTION CIVIL APPEAL NO. 6126 OF 2008 [Arising out of SLP(C) No.3146/2006]
STATE OF U.P. .......APPELLANT(S) Versus WITH C.A. NO. 6127 OF 2008 (Arising
out of SLP(C) No.25725/2008 @ CC.NO.3609/2006)
ORDER Leave granted.
U.P. Cooperative Spinning Mills Federation Ltd. (hereinafter 'Federation', for
short) invited applications for private placement of debenture bonds in the
year 1998 representing that the repayment thereof was unconditionally and
irrevocably guaranteed by the U.P. Government. The State Government issued
Government Order dated 12.8.1998 guaranteeing the repayment of the principal
and interest in respect of debenture bonds issued by the U.P. Cooperative
Spinning Mills Federation Ltd.
on the invitation for private placement of applications, and in view of the
guarantee by the State Government, the first respondent invested Rs.15,00,000/-
-2- (Rupees fifteen
lakhs only) from the provident fund deposits of its employees, in the said
bonds. The Federation issued an allotment letter dated 25.12.1998 confirming
that the amount invested will carry interest @ 14.9% p.a. and the bonds will be
redeemed at the end of 48 months, 54 months and 60 months at the rate of 33%,
33% and 34% respectively.
Federation sustained losses and went under liquidation. It did not redeem the
bonds as agreed and undertaken, inspite of demands. The amounts due were not
paid except part payment of Rs.1,73,980/- and Rs.1,15,118/- in all
Rs.2,89,098/- towards interest. As the amounts due under the bonds and interest
were not paid by the State Government in terms of guarantee, inspite of demand
for payment, the respondent approached the Delhi High Court for relief. The
High Court, by order dated 21.11.2005, directed the State Government, as
guarantor, to pay the sum of Rs.15,00,000/- (Rupees fifteen lakhs) with
interest at the rate of 14.9% (the rate agreed under the bonds) less amounts
already paid. The said order is challenged in these two appeals by the State
Government and the Federation.
several contentions were urged by the State Government and the Federation, when
the matter came up today, the learned counsel for the State Government handed
over a Pay Order for Rs.15,00,000/- (Rupees fifteen lakhs) to the learned
-3- counsel for
respondent towards the refund of the principal amount. In regard to interest,
the learned counsel for the Federation and the State Government submitted that
as the Federation is under liquidation and as the State Government has paid the
principal amount, the respondent should be relegated to other remedies in law
for recovery of interest.
a contention is not tenable. The amount invested by first respondent belongs to
the workmen of first respondent. The amount was invested in the bonds of the
Federation in view of the express guarantee by the State Government that the
same will be repaid with interest upto 15.5% p.a. The very purpose of the State
Government guarantee is to ensure payment in case the Federation was not able
to make payment. In the circumstances, the fact that the Federation is in
financial difficulties cannot be a ground for the State Government to say that
it will not make payment of interest, even though it had guaranteed the repayment
with interest. If such a contention is accepted, the very purpose of the
guarantee will be defeated. We are indeed surprised that such a plea is put
forward on behalf of the State of Uttar Pradesh.
the circumstances, we are of the view that the State Government should pay the
interest also. However, on the facts and circumstances, we are of the view that
-4- should be paid
at the rate of 14.9% p.a. for a period of five years from the date of deposit
and thereafter at the rate of 9.5% per annum (which is equal to the minimum
rate of interest that is payable by the first respondent to its workers on the
provident fund dues). The above concession regarding interest is granted on the
peculiar facts of these appeals. Three months' time is granted to the
Government of Uttar Pradesh to pay the balance of interest.
are disposed of accordingly. Parties to bear their respective costs.
( R.V. RAVEENDRAN )