Everest
Industrial Corporation & Ors Vs. Gujarat State Financial Corporation [1987]
INSC 180 (21 July 1987)
VENKATARAMIAH,
E.S. (J) VENKATARAMIAH, E.S. (J) SINGH, K.N. (J)
CITATION:
1987 AIR 1950 1987 SCR (3) 607 1987 SCC (3) 597 JT 1987 (3) 113 1987 SCALE
(2)75
CITATOR
INFO : R 1989 SC2113 (17,20,29)
ACT:
State
Financial Corporations Act, 1951: ss. 31 & 32--Nature of proceedings
under--Loan--Rate of interest chargeable on principal amount--Whether governed
by s. 34 C.P.C. or payable at contractual rate.
Civil
Procedure Code, 1908: s. 34, O. 34, rr. 6 & 11--Applicability of to orders
passed under s. 32, State Financial Corporations Act, 1951.
HEADNOTE:
The
appellants had borrowed from the respondent Corporation a certain sum for the
acquisition of fixed assets under a deed of hypothecation. They also created an
equitable mortgage, mortgaging the land and factory building by depositing the
original title deeds of the properties with the Corporation. The loan had to be
repaid within a period of 8 years by half yearly installments. The appellants
were liable to pay interest at 8.5 per cent per annum and that was to be
calculated and charged at the end of every half year.
The
appellants committed default in payment of installments and interest due to the
Corporation. The Corporation filed an application under s. 31 of the State
Financial Corporations Act, 1951 before the District Judge claiming the entire
outstanding loan, interest and commitment charges. The appellants having
admitted the claim of the Corporation, an order of compromise was passed by the
Court under which the appellants undertook to pay a sum of Rs.15,000 every
month towards the claim of the Corporation.
The
appellants failed to pay the amount as ordered by the Court.
The
respondent thereupon filed an application under s.
32(8)
of the Act requesting that the property hypothecated in favour of the
Corporation be directed to be sold by the Commissioner appointed by the Court
and the amount so realised be appropriated towards the dues.
The
appellants raised an objection that since the Court had not in 608 its order
expressly directed payment of any interest on the amount, the Corporation was
not entitled to recover any amount by way Of interest due on the principal
amount for the period subsequent to the date of the order, and since payment of
interest subsequent to the date of the decision of the Court was governed by s.
34 of the Code of Civil Procedure, the appellants were not liable to pay any
inter- est. The first appeal and the Letters Patent Appeal filed by the
appellants were dismissed by the High Court.
In
this appeal by special leave, it was contended for the appellants that a
proceeding under s. 31 of the Act is in the nature of a suit, an order made
thereon under s. 32 thereof is a decree, and since by subs. (6) of s. 32 of the
Act, the District Judge was required to investigate the claim of the
Corporation in accordance with the provisions of the Code, s. 34 of the Code
would be attracted to the proceeding instituted under s. 31 of the Act also,
and that since the decree passed in this case is silent on the question of
payment of any interest on principal sum from the date of the decree to the
date of payment, the Court should be deemed to have refused such interest by
virtue of sub-s. 2 of s. 34 of the code.
Disposing
of the appeal,
HELD:
1. The High Court was right in holding that interest would be payable on the
principal amount due in accordance With the terms of the agreement between the
parties till the entire amount due was paid as per the order passed under s. 32
of the State Financial Corporations Act, 1951.
[613GH]
2.
Section 34 of the Code of Civil Procedure, 1908 is not applicable to this case.
A proceeding instituted under s. 31(1) of the Act is something akin to an
application for attachment of property in execution of a decree at a stage
posterior to the .passing of the decree. That being so, no question of passing
any order under s. 34 of the Code would arise since that provision would be
applicable only at the stage of the passing of the decree and not to any stage
posterior to the decree. Even under the Code, the question of interest payable
in mortgage suits filed in civil courts is governed by Order 34 rule 11 of the
Code and not by s. 34 of the Code which may be applicable only to cases of
person- al decrees passed under Order 34 rule 6 of the Code. [614C, 613F]
3.
In the instant case, the Joint Judge is to redetermine the actual amount due
and payable to the Corporation as per the contract between the parties before
directing sale.
[614D]
609 Karnataka State Financial Corporation, Bangalore v. Sri Nithyananda Bhavan
& Anr., A.I.R. 1982 Karnataka 179 and Gujarat State Financial Corporation
v. M/s Natson Manufacturing Co. (P) Ltd. & Ors., [1979] 1 S.C.R. 372,
referred to.
Civil
Appellate Jurisdiction: Civil Appeal No. 1446 of 1987.
From
the Judgment and Order dated 2.1.1985 of the Gujarat High Court in L.P.A. No.
94 of 1984.
K.N.
Bhatt, P.H. Parekh and M.K.S. Menon for the Appellants. S.C. Patel for the
Respondent.
The
Judgment of the Court was delivered by VENKATARAMIAH, J. The short question
which arises for consideration in this case is whether the rate of, interest
chargeable on the amount payable under an order passed under section 32 of the
State Financial Corporations Act, 195 1 (63 of 195 1) (hereinafter referred to
as 'the Act') from the date of the said order is governed by section 34 of the
Code of Civil Procedure, 1908 (hereinafter referred to as 'the Code') or
whether it is payable at the contractual rate.
The
Appellant No.1 --M/s. Everest Industrial Corporation Private Limited, Baroda
and its Directors had borrowed from the Gujarat State Financial Corporation
(hereinafter referred to as 'the Corporation') a sum of Rs.6 lakhs for the
acquisition of fixed assets, namely, land bearing original Survey No. 163 and
now bearing Survey No. 949 of Baroda measuring 1 acre and 3 gunthas and the
factory building to be constructed thereupon and for purchasing plant and
additional machinery under a deed of hypothecation dated April 24, 1970
hypothecating all machinery and equipment situated at the factory premises
situated on Survey no. 949. They also created an equitable mortgage mortgaging
the said land and factory building by depositing the original title deeds of
the properties with the Corporation by signing the letter evidencing the said
deposit of title deeds. Under the said transaction the loan of Rs. 6 lakhs had
to be repaid within a period of 8 years by half yearly installments, such first
half yearly installment of 1/13th of the loan being payable at the end of 24
months of the disbursement of the first installment of the loan and subsequent
half yearly instalments of 1/13th of the loan to be paid. each half year and
610 the last half yearly installment of 1/13th of the loan to be paid on
24.4.1978. According to the said agreement the first installment of Rs.46,153
was to be paid on 27.4.1972 and second installment of Rs.46,153 was to be paid
on 27.10.1972.
The
appellants were liable to pay interest at 8.5 per cent per annum and that was
to be calculated and charged at the end of every half year and was payable on
the 31st of March and 30th September in each year. The appellants committed
default in payment of installments and interest due to the Corporation. Hence
the Corporation filed an application on 9th August, 1973 under section 31 of
the Act before the District Judge, Baroda in Civil Miscellaneous Application
No. 123 of 1973 claiming that in view of the default, the entire outstanding
loan, interest and commitment charges amounting to Rs.6,73,390.42 paise had
become due and pay- able. In the said proceedings the appellants having
admitted the claim of the Corporation a compromise was arrived at under which
the 1st Appellant--M/s. Everest Industrial Corporation undertook to pay a sum
of Rs.15,000 every month towards the claim of the Corporation and further
agreed that if there was a default in payment of any two installments at a
time, then the Corporation could recover the entire out- standing amount then
due forthwith. On the basis of the above compromise an order was passed on
29.4.1977 by the learned Joint Judge, Baroda before whom the case was pending
at that time. The operative portion of the order read as follows:
"ORDER
Claim of the applicant is decreed.
Opponent
No. 1-to pay the amount of Rs.15,000 (fifteen thousand) per month through the
Bank of Maharashtra to the applicant towards his claim. If two installments of
Rs.15,000 each at a time are not paid by Opponent No. 1, then the applicant
shall be entitled to recover the remaining amount then due, at a time. Decree
to be drawn on payment of Court fees by the applicant. 2/3 of the Court fee
amount be refunded to the applicant advocate. Costs to be borne by Opponent No.
1. Costs to be assessed after deducting the amount of court fees refundable to
the applicant." Because the 1st Appellant failed to pay the amount as
ordered by the Court an application was filed by the Corporation under section
32(8) of the Act before the District Judge, Baroda requesting that the property
hypothecated in favour of the Corporation be directed to be sold by the
Commissioner appointed by the Court and the amount so 611 realised might be
appropriated towards the dues of the Corporation. Accordingly an order
directing the sale of the properties was passed on 8.2.1980. Before the
property could be sold the appellants raised an objection regarding the actual
amount which could be realised by the Corporation by the sale of the properties
mortgaged in its favour. The objection which related to the amount of interest
payable by the appellants was formulated thus. Since under the order dated
29.4.1977, which was described as a decree, the Court had not expressly
directed payment of any interest on the decretal amount, the Corporation was
not entitled to recover any amount by way of interest due on the principal
amount for the period subsequent to the date of the order. It was further submitted
that since the question of payment of interest on the amount due for the period
subsequent to the date of the decision of the Court is governed by section 34
of the Code the appellants were not liable to pay any interest because the
Court had not ordered payment of any amount by way of interest to be paid as
required by that section.
In
other words the contention of the appellants was that when the
"decree" was silent about the payment of interest for the period
between the date of the "decree" and the date of payment the
Corporation was not entitled to recover it.
It
may be mentioned that the Corporation had claimed interest at the rate agreed
upon under the transaction, i.e., 8.5 per cent per annum and that had not been
disputed by the borrowers. The said objection was overruled by the Joint Judge
by his Order dated February 25, 1983. He determined that Rs.9,35,547.84 paise
was due as on February 8, 1983 and that thereafter interest at the rate of
Rs.178.60 paise per day would be accruing. Aggrieved by the order of the Joint
Judge, the appellants filed an appeal in First Appeal No.
1474
of 1983 before the High Court of Gujarat. That appeal was dismissed by the
learned Single Judge on February 2, 1984. Under the Letters Patent Appeal No.
94 of 1984 filed by the appellants, a Division Bench of the High Court affirmed
the judgment of the learned Single Judge by its decision dated January 2, 1985.
This appeal by special leave is filed against the judgment of the Division
Bench of the High Court.
The
main contention urged on behalf of the appellants before this Court is that a
proceeding under section 31 of the Act is in the nature of a suit, an order
made thereon under section 32 thereof is a decree and since by sub-section (6)
of section 32 of the Act the District Judge is required to investigate the
claim of the Corporation in accordance with the provisions of the Code insofar
as the said provisions would be applicable thereto, section 34 of the Code
which governs the question of levy of interest on the amount due from the date
of the suit 612 to the date of the decree and from the date of the decree to
the date of payment would be attracted to the proceedings instituted under
section 31 of the Act also. It is urged that since the "decree" passed
in this case is silent on the question of payment of any interest on the
principal sum from the date of the decree to the date of payment, the Court
should be deemed to have refused such interest by virtue of subsection (2) of
section 34 of the Code. In support of the above contention of the appellants,
reliance is placed on the decision of the High Court of Karnataka in Karnataka
State Financial Corporation, Bangalore v. Sri Nithyananda Bhavan and another,
A.I.R. 1982 Karnataka 179 in which the High Court had applied section 34 of the
Code to a proceeding instituted under section 31 of the Act. In that case the
District Judge had awarded future interest at 6 per cent per annum on the
amount payable under a transaction under the Act from the date of the
application to the date of payment. The Karnataka State Financial Corporation
which was aggrieved by the order of the District Judge filed an appeal against
that order before the High Court. In the said appeal the Karnataka State
Financial Corporation claimed interest on the principal amount due from the
date of the application at the rate of 18 per cent per annum. In deciding the
said case the High Court did not go into the question whether section 34 of the
Code would be applicable to a proceeding under the Act. It was assumed on all
hands that section 34 of the Code was applicable. Ultimately, the High Court
increased the rate of interest to 11 per cent per annum which was the
contractual rate of interest treating that as a reasonable rate of interest
that could be awarded under section 34 of the Code. It may be mentioned here
that an earlier decision of this Court in Gujarat State Financial Corporation'
v. M/s Natson Manufacturing Co. (P) Ltd. & Ors., [1979] 1 S.C.R. 372 in
which the nature of a proceeding instituted under section 31 of the Act and of
the order passed thereon under section 32 thereof had been considered was not
brought to the notice of the High Court.
In
Gujarat State Financial Corporation v. M/s. Natson Manufacturing Co. (P) Ltd.
& Ors. (supra) no doubt the question involved was whether court fee was
payable on an application made under section 31 of the Act on an ad valorem
basis as if the proceeding was a suit or not. But this Court after analysing
the provisions of the Act held that an application for any of the reliefs that
can be granted under the Act was not certainly a plaint in a suit for recovery
of mortgage loan and that it was not even something akin to a suit by a
mortgagee to recover mortgage money by sale of the mortgage property. The Court
held that the applicant in such a case could not pray 613 for a preliminary
decree for sale of the property or a final decree for the payment of the money
nor it could seek to enforce any personal liability even if such a liability
had been incurred under the contract of mortgage as the law stood then. This
Court held that the form of the relief to be granted under the Act did not
attract Article 1 or Article 7 of Schedule 1 of the Bombay Court Fees Act, 1959
which required payment of court fee on ad valorem basis on any plaint or
application in the nature of a plaint instituted for recovery of mortgage
amount. Accordingly it held that the demand for payment of ad valorem court fee
was unsustainable. In the course of its judgment the Court rejected the
contention based on sub-section (6) of section 32 of the Act which required a
District Judge to apply the procedure of the Code to applications made under
section 31 of the Act and ultimately held that the substantive relief in any
claim under section 31(1) of the Act was something akin to the relief that
could be granted on an application for attachment of property for execution of
a decree at a stage posterior to the passing of the decree. The Court further
ob- served that "we are unable to appreciate the view taken by the High
Court that the proceeding is not in the nature of execution of the decree
because the question of enforcement of the order of attachment or sale would
only arise after the same is made absolute under sub-section (7)." Even
though in the above decision the question which arose for consideration was
whether ad valorem court fee was payable on an application under section 31 of
the Act as if it was a suit, the Court has decided the said question after
deter- mining the true nature of a proceeding instituted under section 31(1) of
the Act on a detailed analysis of the provisions of the Act.
If
as held by this Court the proceeding instituted under section 31(1) of the Act
is something akin to an application for attachment of property in execution of
a decree at a stage posterior to the passing of the decree no question of
passing any order under section 34 of the Code would arise since section 34 of
the Code would be applicable only at the stage of the passing of the decree and
not to any stage posterior to the decree. It may also be mentioned here that
even under the Code the question of interest payable in mortgage suits filed in
civil courts is governed by order 34 rule 11 of the Code and not by section 34
of the Code which may be applicable only to cases of personal decrees passed
under order 34 rule 6 of the Code. The High Court was right in holding that
interest would be payable on the principal amount due in accordance with the
terms of the agreement between the parties till the entire amount due was paid
as per the order passed under section 32 of the Act. We hold that the decision
of the Karnataka High 614 Court, referred to above, which has applied section
34 of the Code to a proceeding instituted under section 31(1) of the Act is not
correctly decided.
It
was lastly urged on behalf of the appellants that the amount due and payable to
the Corporation has not been properly calculated by the Joint Judge. We do not
have all the material before us to enable us to determine the actual amount
due. It is also seen that subsequent to the date of the order passed by the
Joint Judge a sufficiently long time has elapsed. In the circumstances we feel
that the Joint Judge before whom the proceeding for recovery of the amount by
sale of the properties has been instituted should be directed to redetermine
the amount due and payable to the Corporation in this case.
We
accordingly affirm the judgment of the High Court holding that section 34 of
the Code of Civil Procedure, 1908 is not applicable to this case but remand the
matter to the Joint Judge to redetermine the actual amount due and payable to
the Corporation in these proceedings calculating the same as per contract
between the parties before directing the sale of the properties. We direct the
Joint Judge to deter- mine the amount payable by the appellants within one
month from the date of the receipt of a copy of the order of this Court. Both
the parties are directed to file their statements of accounts before the Joint
Judge within one week from the date of receipt of the copy of this order by the
Joint Judge to enable him to decide the case as directed above.
The
appeal is accordingly disposed of. There shall, however, be no order as to
costs.
P.S.S.
Appeal disposed of.
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