State Bank of India Vs. Saksaria Sugar
Mills Ltd. & Ors [1986] INSC 17 (14 February 1986)
VENKATARAMIAH, E.S. (J) VENKATARAMIAH, E.S.
(J) THAKKAR, M.P. (J)
CITATION: 1986 AIR 868 1986 SCR (1) 290 1986
SCC (2) 145 1986 SCALE (1)244
CITATOR INFO :
D 1992 SC1740 (23)
ACT:
The Sugar Undertakings (Taking over of
Management) Act 1978, s.7(1)(b) - Sugar Undertaking Notified - Only
obligations, rights, liabilities etc. arising out of contracts, assurances of
properties or agreements specified in the Notification issued remain suspended
and unenforceable - Remedies against guarantor/surety - Not suspended.
Indian Contract Act, 1872, s. 128 - Liability
of surety - Whether co-extensive with that of principal debtor.
HEADNOTE:
The Sugar Undertakings (Taking over of
Management) Act, 1978, by Clause (b) of section 7(1) empowers the Central
Government to issue a notification declaring that the operation of all or any
of the contracts, assurances of property, agreements, settlements, awards,
standing orders or other instruments, in force (to which a notified sugar
undertaking or the person owning such undertaking is a party or which may be
applicable to such sugar undertaking or person) immediatley before the date of
issue of the notification shall remain suspended or shall be enforceable with
such adaptations and in such manner as may be specified in the notification.
Sub-section (4) of section 7 of the Act provides that any remedy for the
enforcement of any right, privilege, obligation or liability referred to in
clause (b) of sub-section (1) of section 7 and suspended or modified by a
notification, remain suspended or modified and all proceedings relating thereto
pending before any Court, tribunal, officer or other authority shall
accordingly remain stayed ro be continued subject to such adaptations, so,
however, that on the notification ceasing to have effect (a) any right,
privilege, obligation or 291 liability so remaining suspended or modified shall
become revived and enforceable as if the notification had never been made; and
(b) any proceeding so remaining stayed shall be proceeded with subject to the
provisions of any law which may then be in force from the stage which had been
reached when the proceedings became stayed.
The appellant, State Bank of India, had
allowed cash credit facility to respondent No. 1, M/s. Saksaria Sugar Mills
Ltd., on the security of goods produced at its Sugar Factory and the title
deeds of its immovable properties deposited with the appellant by way of
equitable mortgage to secure the amount advanced under the said cash credit
facility. Respondents Nos. 2 to 5 had agreed to be the guarantors for the
repayment of any amount due from respondent No. 1 under the said cash credit
account. Since there was default in the repayment of the amount due under the
said cash credit account, the appellant instituted a suit against respondent
Nos. 1 to 5 for recovery of a sum of Rs. 54,89,822.99. In the meanwhile, the
Central Government took over the Sugar undertaking belonging to Respondent No.
1 under the provisions of the Act and
appointed a Custodian of the said undertaking.
In the suit, respondent Nos. 1 to 5 pleaded
that the suit was liable to be stayed in view of the provisions of the Act. The
Trial Court held that it had jurisdiction to try the suit. In revision, the
High Court held that the trial of the suit in so far as prayer for decree for
Rs.
54,89,822.99 against respondent Nos. 1 to 5
was concerned, was liable to be stayed by virtue of the provisions of the Act
and that the trial of the suit with regard to all other matters may proceed.
The High Court also dismissed an application flled by the appellant seeking
clarification of the aforesaid order. Hence these appeals by Special Leave.
Allowing the appeals, ^
HELD: 1. The order passed by the High Court
is set aside and the trial court is directed to proceed with the suit. [299 F]
2. The Sugar Undertakings (Taking over of
Management) Act 1978 does not provide that on a sugar undertaking being 292
notified, automatically all the contracts, assurances of property or agreement
etc. entered into by such sugar undertaking would become unenforceable. It
states that only those contracts, assurances of property or agreements etc.
which are specified in the notification
issued under section 7(1)(b) (not all contracts) would become suspended and the
rights, privileges, obligations and liabilities arising under them would not be
enforceable. [297 D-F] In the instant case, the Central Government has made a
declaration by Notification dated 21.3.84 to the effect that the operation of
all obligations and liabilities accruing or arising out of all contracts,
assurances of properties, agreements, settlements, awards, standing orders or other
instruments in force immeditely before the 28th March 1980 (other then those
relating to secured liabilities to banks and financial institutions) to which
the said sugar undertaking or the person owning the said sugar undertaking is a
party shall remain suspended up to March 12, 1985. It is very clearly stated in
the said Notification that it does not apply to secured liabilities due to
banks and financial institutions. The liability involved in the suit was a
secured liability and the creditor is the State Bank of India. Since all
secured liabilities due to a bank or a financial institution are excluded from
the operation of the Notification, the suit against respondent No. 1 as well as
respondent Nos. 2 to 5 remained unaffected by the Notification. [298 E-G; 299E]
3. The Act does not say that when a
notification is issued under section 7(1)(b) of the Act, remedies against the
guarantors also stand suspended. Moreover, under section 128 of the Indian
Contract Act, 1872, save as provided in the contract, the liability of the
surety is co-extensive with that of the principal debtor. The sureties thus
became liable to pay the entire amount. Their liability was immediate and it
was not deferred until the creditor exhausted his remedies against the
principal debtor.
Therefore, the order of the High Court
against respondent Nos. 2 to 5 is untenable. [299 B-D] Bank of Bihar Ltd. v.
Damodar Prasad & Anr. [1969] 1 S.C.R. 620, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 569-70 of 1986.
293 From the Judgment and Order dated
25.5.1984/22.2.1985 of the Allahabad High Court in C.M.An. No.644(M) of 1984 in
C.R. No. 136 of 1982.
Y.S. Chitale and S.A. Shroff for the
Appellant.
Yogeshwar Prasad and S.R. Srivastava for the
Respondents.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. These appeals by special leave are filed against the order
dated May 25, 1984 passed by the High Court of Allahabad in Civil Revision No. 136
of 1982 and the order dated February 22, 1985 in C.M.A. No.644(M) of 1984 on
the file of that Court.
The appellant, the State Bank of India, had
allowed cash credit facility to M/s. Saksaria Sugar Mills Ltd., respondent No.1
herein, on the security of the goods produced at the sugar factory belonging to
respondent No.1.
Respondent No.1 had also deposited in the
Bombay office of the State Bank of India on February 2, 1962 by way of
equitable mortgage the title deeds of its immovable properties to secure the
amount advanced under the said cash credit facility. Respondents Nos. 2 to 5
M/s. Govind Ram and Brothers, Shri K.G. Saksaria, Shri G.L. Vaid and Shri R.K.
Saksaria had agreed to be the guarantors for
the repayment of any amount due from respondent No.1 under the said cash credit
account. Since there was default in repayment of the amount due under the said
cash credit account the State Bank of India instituted a suit in Suit No. 18 of
1980 on the file of the Additional District Judge, Gonda for recovery of a sum
of Rs.54,89,822.99 as on March 6, 1980 against respondents Nos. 1 to 5 who were
described as defendants Nos.1 to 5 in the plaint praying for a decree in terms
of order 34, rule 4 C.P.C. and further consequential directions. In the
meanwhile by virtue of an order made by the Central Government under the Sugar
Undertakings (Taking over of Management) Act, 1978 (Act No.49 of 1978)
(hereinafter referred to as 'the Act') the sugar undertaking belonging to
respondent No.1 had been taken over by the Central Government and one Raghubir
Singh had been appointed as the Custodian of the said undertaking. The State
Bank of India, therefore, impleaded Raghubir Singh and the Union of India also
as defendants Nos. 6 and 7 in the suit. In the suit respondents 294 Nos. 1 to 5
pleaded inter alia that the trial court had no territorial jurisdiction to try
the suit and that the suit was not maintainable and at any rate the suit was
liable to be stayed in view of the provisions of the Act. The trial court had
framed two issues arising out of the above pleas.
The defendants filed an application before
the trial court on September 6, 1982 requesting it to decide first the above
two issues relating to its jurisdiction and its competence to proceed with the
suit. After hearing the parties the trial court found that it had jurisdiction
to try the suit as the properties given as security were situated within its
jurisdiction and that there was no impediment to proceed with the trial
notwithstanding the fact that the management of the mill of respondent No.1 had
been taken over by the Central Government under the Act. Aggrieved by the said
decision of the trial court, respondent No.1 filed a revision petition in Civil
Revision No. 136 of 1982 before the High Court of Allahabad. The High Court
allowed the revision petition holding that the trial of suit in so far as
relief No.1 namely the prayer for decree for Rs.
54,89,822.99 against respondent Nos. 1 to 5
was concerned was liable to be stayed by virtue of the provisions of the Act.
The High Court, however, directed that the trial of the suit with regard to all
other matters may proceed. Since the only relief prayed in the suit was in
respect of the recovery of Rs.54,89,822.99 from respondents Nos. 1 to 5 in
accordance with the provisions of order 34, rule 4 C.P.C.
and that had been stayed, the State Bank of
India applied to the High Court by filing an application No. C.M.A. 644(M) of
1984 for clarification as to what other matter could be tried in the suit. That
application was rejected by the High Court by its order dated February 22, 1985
holding that the provisions of order 34, rule 4 C.P.C. were quite clear and it
was for the court below to proceed in accordance with law. The High Court was
of opinion that the order needed no further clarification. Aggrieved by the
others passed on revision in Civil Revision No. 136 of 1982 and the order
passed in C.M.A. No. 644(M) of 1984 the State Bank of India has filed this
appeal by special leave.
The only question canvassed before us by the
parties relates to the question whether the trial of the suit should be stayed
by reason of the provisions of the Act. There is no dispute about the
territorial jurisdiction of the trial court. It is contended by respondents
Nos. 1 to 5 that since the 295 management of the sugar undertaking belonging to
the respondent No. 1 had been taken over by the Central Government under the
Act, the trial of the suit filed against respondent No. 1 for recovery of any
amount due from the sugar undertaking was liable to be stayed. It is no doubt
true that the Central Government has taken over the management of the sugar
undertaking belonging to the respondent No. 1 by issuing a notification under
section 3 of the Act and has appointed a Custodian under section 5 thereof. The
material part of section 7 of the Act which is relevant for the purposes of
this case reads thus:
"7. Power of Central Government to make
certain declarations.- (1) The Central Government may, if it is satisfied, in
relation to a notified sugar undertaking that it is necessary so to do in the
interests of the general public with a view to preventing the fall in the
volume of production of the sugar industry, it may, by notification, declare
that- (a)........................................
(b) the operation of all or any of the
contracts,assurances of property, agreements, settlements, awards, standing
orders or other instruments in force (to which such sugar undertaking or the
person owning such undertaking is a party or which may be applicable to such
sugar undertaking or person) immediately before the date of issue of the
notification shall remain suspended or that all or any of the rights,
privileges, obligations and liabilities accruing or arising thereunder before
the said date, shall remain suspended or shall be enforceable with such
adaptations and in such manner as may be specified in the notification.
..................................................
.
(4) Any remedy for the enforcement of any
right, privilege, obligation or liability referred to in clause (b) of
sub-section (1) and suspended or modified by a notification made under that
subsection shall, in accordance with the terms of the 296 notification, remain
suspended or modified and all proceedings relating thereto pending before any
Court, tribunal, officer or other authority shall accordingly remain stayed or
be continued subject to such adaptations, so, however, that on the notification
ceasing to have effect - (a) any right, privilege, obligation or liability so
remaining suspended or modified shall become revived and enforceable as if the
notification had never been made;
(b) any proceeding so remaining stayed shall
be proceeded with subject to the provisions of any law which may then be in
force, from the stage which had been reached when the proceedings became
stayed." Clause (b) of section 7(1) of the Act which is extracted above
empowers the Central Government to issue a notification declaring that the
operation of all or any of the contracts, assurances of property, agreements,
settlements, awards, standing orders or other instruments in force (to which a
notified sugar undertaking or the person owning such undertaking is a party or
which may be applicable to such sugar undertaking or person) immediately before
the date of issue of the notification shall remain suspended or that all or any
of the rights, privileges, obligations and liabilities accruing or arising
thereunder before the said date shall remain suspended or shall be enforceable
with such adaptations and in such manner as may be specified in the
notification. Subsection (4) of section 7 of the Act provides that any remedy
for the enforcement of any right, privilege, obligation or liability referred
to in clause (b) of sub-section (1) of section 7 and suspended or modified by a
notification made under that sub-section shall in accordance with the terms of
the notification, remain suspended or modified and all proceedings relating
thereto pending before any Court, tribunal, officer or other authority shall accordingly
remain stayed or be continued subject to such adaptations, so, however, that on
the notification ceasing to have effect (a) any right, privilege, obligation or
liability so remaining suspended or modified shall become revived and
enforceable as if the noti- 297 fication had never been made; and (b) any
proceeding so remaining stayed shall be proceeded with subject to the
provisions of any law which may then be in force from the stage which had been
reached when the proceedings became stayed.
A reading of clause (b) of sub-section (1)
and subsection (4) of section 7 of the Act makes it clear that it is only on
the issuance of a notification by the Central Govt. under section 7(1)(b)
containing the necessary declaration that the operation of all or any of the
contracts etc. entered into by the notified sugar undertaking which are
referred to in the said notification shall remain suspended or that all or any
of the rights, privileges, obligations and liabilities accruing or arising
thereunder before the said date shall remain suspended. The Act does not
provide that on a sugar undertaking being notified, automatically all the
contracts, assurances of property or agreements etc. entered into by such sugar
undertaking would become unenforceable. It states that only those contracts,
assurances of property or agreements etc.
which are specified in the notification
issued under section 7(1)(b) (not all contracts) would become suspended and the
rights, privileges, obligation and liabilities arising under them would not be
enforceable. In the instant case the Central Government has issued
notifications from time to time specifying the contracts, assurances of
property, agreements etc. the operation of which would stand suspended or
stayed during the period of its management of the sugar undertaking in
question. The latest notification issued in that connection is dated March 21,
1984. It reads thus :
"S.O. 181(E) Whereas the Central
Government is satisfied that in relation to the Saksaria Sugar Mills Limited
manufacturing sugar at Badhanan in the district of Gonda in the State of Uttar
Pradesh being the notified sugar undertaking, it is necessary so to do in the
interests of the general public with a view to preventing the fall in the
volume of production of the sugar industry.
Now, therefore, in exercise of the powers
conferred by clause (b) of sub-section (1) read with subsection (2) of section
7 of the Sugar Undertakings (Taking Over of Management) Act, 1978 (49 of 1978),
298 and in continuation of the notification of the Government of India in the
Ministry of Food and Civil Supplies (Department of Food) No. S.O.
196(E) dated the 22nd March 1983, the Central
Government hereby declares that the operation of all obligations and
liabilities accruing or arising out of all contracts, assurances of property,
agreements, settlements, awards, standing orders or other instruments in force
immediately before the 28th March, 1980 (other than those relating to secured
liabilities to banks and financial institutions) to which the said sugar
undertaking or the person owning the said sugar undertaking is a party, or
which may be applicable to the said sugar undertaking or that person, shall
remain suspended for a further period from 28th March, 1984 to 12.3.1985."
The above notification clearly sets out the contracts, assurances of property
etc. the operation whereof is suspended or stayed. The Central Government has
made a declaration by that notification to the effect that the operation of all
obligations and liabilities accruing or arising out of all contracts,
assurances of properties, agreements, settlements, awards, standing orders or
other instruments in force immediately before the 28th March 1980 (other than
those relating to secured liabilities to banks and financial institutions) to
which the said sugar undertaking or the person owning the said sugar
undertaking is a party shall remain suspended up to March 12, 1985. It is very
clearly stated in the said notification that it does not apply to secured
liabilities due to banks and financial institutions. The liability involved in
the suit was a secured liablity and the creditor is the State Bank of India.
Yet the High Court surprisingly has proceeded to hold that the operation of the
contract, assurance of property and agreement in respect of the undertaking and
its property entered into with the State Bank of India is to be suspended and
the suit in respect of them should be stayed in view of the Act and the
notification issued thereunder.
It is unfortunate that the High Court erred
in overlooking words "other than those relating to secured liabilities to
banks and financial institutions" referred to in the notification which
had the effect of excluding the mortgage in 299 favour of the State Bank of
India from the scope of the notification issued under section 7 of the Act. The
High Court further erred in not noticing that even when a notification is
issued under section 7(1)(b) of the Act suspeding the operation of any
agreement or assurances of property to which a notified sugar undertaking or
the person owning is a party, any proceeding againse the guarantor would remain
unaffected by the issuance of such a notification. Under section 128 of the Indian
Contract Act, 1872, save as provided in the contract, the liability of the
surety is co-extensive with that of the principal debtor.
The sureties thus became liable to pay the
entire emount.
Their liability was immediate and it was not
deferred until the creditor exhausted his remedies against the principal
debtor. The Act does not say that when a notification is issued under section
7(1)(b) of the Act the remedies against the guarantors also stand suspended. In
any event the order of the High Court against respondents Nos. 2 to 5 is
untenable. (See Bank of Bihar Ltd. V. Damodar Prasad & Anr., [1969] 1
S.C.R. 620).
Since in the instant case all secured
liabilities due to a bank or a financial institution are excluded from the
operation of the notification, the suit against respondent No.1 as well as
respondents Nos. 2 to 5 remained unaffected by the notification issued by the
Central Government. The order of the High Court in the Civil Revision is,
therefore, liable to be set aside. We accordinly set aside the orders passed by
the High Court against which these appeals are filed and direct the trial court
to proceed with the suit.
The appeals are accordingly allowed.
Respondents Nos. 1 to 5 shall pay the costs of the appellant.
M.L.A. Appeals allowed.
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