K.B. Daddarajjiappa
& Ors Vs. State of Karnataka & Ors [1989] INSC 9 (16 January 1989)
Oza,
G.L. (J) Oza, G.L. (J) Pandian, S.R. (J)
CITATION:
1989 AIR 751 1989 SCR (1) 108 1989 SCC (2) 390 JT 1989 (1) 73 1989 SCALE (1)70
ACT:
Mysore
State Aid to Industries Act 1951 Sections 7 and 19---Loan secured by
Industries--Recovery of--State Govern- ment standing as surety and guarantor to
repayment--Default in repayment of loan-State Government entitled to recover as
arrears of land revenue--'All moneys payable under this Act'--Interpretation
of.
HEAD NOTE:
The
appellants owned an industrial concern and sought aid from the State Government
under the Mysore State Aid to Industries Act, 1951 with a view to improve the
industry and develop it further. An application for aid was made to the
concerned authorities and the competent authority granted the financial
assistance by way of loan. This financial assistance was secured from the Bank
of Mysore and the State Government agreed to stand as surety and also to guarantee
the repayment of the loan with interest to the Bank. The appellants who
received the aid executed a deed of simple mortgage in favour of the State
Government of their proper- ties in consideration of their promise to guarantee
the repayment of the loan. The State Government in turn executed a deed of
guarantee in favour of the Bank. The appellants in addition also executed a
promote in favour of the Bank agreeing to repay the said sum with interest.
The
appellants were not in a position to pay the loan within the stipulated period
as the concern had become financially unsound. The State Government started
compelling the appellants to pay off the loan to the Bank and as it was not
paid the State Government got the properties of the appellant sold under the
proceedings for recovery of land revenue and got the money recovered.
The
appellants filed a civil suit and contended that the sale of the properties was
without the authority of law, and that the money could only be recovered from
the appellant if the State Government had paid the loan of the Bank first and
even thereafter the only course open to the State Government was to file a suit
for reimbursement on the basis of the mortgage.
109
The suit was dismissed by the trial court and the order was confirmed by the
High Court in appeal.
The
Trial Court and the High Court came to the conclu- sion that the Government of
Karnataka was entitled to recov- er the amount which they secured as an aid to
the respond- ents under the scheme of the Act and for that purpose law- fully
resorted to the sale of the properties by following the procedure of recovery
of arrears of land revenue as provided for in Section 19 of the Act.
In the
appeal to this Court, it was contended on behalf of the appellants that the
view taken by the High Court that if any sum was payable under the Act, the
State Government could take steps under Section 19 of the Act was not justi- fied.
Dismissing
the Appeal,
HELD:
1. The scheme of the Mysore State Aid to Indus- tries Act, 1951 indicate that
whether the aid has been provided for by the State or has been secured by the
State from other financial agencies, it was contemplated that the State would
secure the repayment of the loan or recovery of whatever aid was given, and
with a view to secure those repayments Section 19 was specifically enacted.
[113D-E]
2.
Legislature in its wisdom therefore did not use the words 'payable to the
State' but used 'all moneys payable under this Act' in the Section, it appears
with a clear intention that whenever money becomes payable which was secured to
the industry under the scheme of the Act, it will be open to the State
Government to follow the procedure for recovery as has been provided for in
clause (1) of Section 19. [113E-F]
3. It
is only in respect of the moneys payable under the scheme of this Act that
section 19(1) comes into operation and it appears that it was in accordance
with the scheme of the Act that the Legislature in its wisdom chose not to use
the further phrase payable to the Government under Section 19(1). [114B] S.
Peer Mohammed v. B. Mohan Lal Sowcer, [1988] 2 S.C.C. 513, referred to.
CIVIL
APPELLATE JURISDICTION: Civil appeal No. 239240 of 1975.
110
From the Judgment and Decree dated 13.3.1974 of the Karnataka High Court in
R.F. Appeal No. 103, 111, 120 of 1970 and 11 & 12 of 1971 and 142 of 1972
with Cross-objec- tions in R.F.A. No. 111 of 1970.
K.N.
Bhatt, G. Vishvanatha lyer, T.S. Krishnamurthy, M.K. Pandit, P.H. Parekh, K.R. Nagaraja,
M. Veerappa, P.R. Ramasesh, Vineet Kumar, S.S. Javalai, R.B. Datar, and R.S. Hegde,
for the appearing parties.
The
Judgment of the Court was delivered by OZA, J: These two appeals have been
filed by the two appellants against the judgment of the High Court of Karna-
taka, Bangalore dated 30.3.1974. This appeal has
been filed in this Court after getting a certificate from the High Court of
Karnataka under Article 133(1)(a) and (b) of the Constitution.
The
brief facts giving rise to the present appeal are that the appellants owned an
Industrial concern by the name of Bangalore Fancy Fire Works and with a view to
improve the industry and develop it further they sought aid from the GoVernment
of Mysore, one of the respondents, under the Mysore State Aid to Industries
Act, 1951 (hereinafter re- ferred to as the Act) and application for this aid
was made to the concerned authorities of the State on 23.1.1953 wherein an aid
in the nature of financial assistance to the tune of Rs. one lac was sought. By
the orders of the compe- tent authority dated 3.9.1953 the financial assistance
of Rs.60,000 by way of loan was sanctioned. This financial assistance by way of
loan was secured from the Bank of Mysore Ltd. and the State Government agreed
to stand as surety and also to guarantee the repayment of loan with interest to
the Bank of Mysore Ltd. It was also agreed that the appellants who receive the
aid will execute a deed of mortgage in favour of the Government of Mysore of
their properties in consideration of their promise to guarantee the repayment
of sums to be advanced to them by the Bank of Mysore. Pursuant to these
arrangements the appellant execut- ed a deed of simple mortgage in favour of
the Government of Mysore dated 14.11.1953. The Government of Mysore in their
turn executed a deed of guarantee dated 20.2.1954 in favour of the Bank of Mysore
Ltd. The appellants in addition also executed a pronote in favour of the Bank
of Mysore dated 8.12.. 1953 for a sum of Rs.60,000 agreeing to repay the said
sum together with interest @ 2 1/2 per cent per annum over and above the rate
of Reserve Bank of India with a minimum 6 per cent per annum.
111
This amount of Rs.60,000 was given to the appellants as loan by Bank of Mysore
according to the directions issued by the Government of Mysore.
It is
not disputed that at that time the banks ordinari- ly would not have advanced
the loan for industry for its further development and would not have advanced
on conces- sional rate of interest as was done in the present case as
admittedly this was an aid arranged by the Government of Mysore under the Act
and it was in accordance with the scheme of the Act that the Government of Mysore
arranged this loan at a concessional rate from the Bank as an aid under the
Act. This loan was to be repaid in two instalments and it is not in dispute
that the appellants did not pay the loan on the due dates of the instalments.
According to the appellants as alleged by them before the Trial Court they were
not in a position to pay the loan within the stipulated period as the concern
became financially unsound and that the respondent, the State Government of
Karnataka started compelling the appellants to pay off the loan to the bank and
as it was not paid the Government of Karnataka, the respondent got the plaint
schedule properties sold under the proceedings for recovery of land revenue and
got the money recovered. It was contended by the appellants that the respondent
defendant State could not got the properties sold by public auction in
accordance with the procedure of recov- ery for arrears of land revenue. As
they had only a mortgage deed of the property in their favour and that the
money could only be recovered from the appellants if the respond- ent State had
paid the loan of the Bank first and even thereafter the only course open to the
respondent State was to file a suit for reimbursement on the basis of the mort-
gage and it was therefore contended that the sale of the properties was without
the authority of law. The learned trial court and also the High Court came to
the conclusion that the Government of Karnataka was entitled to recover the
amount which they secured as an aid to the respondents under the scheme of the
Act and for that purpose lawfully resorted to the sale of the properties by
following the procedure of the recovery of arrears of land revenue as was
provided for in Section 19 of the State Act and dismissed the suit filed by the
plaintiff respondent.
Learned
counsel appearing for the appellant frankly conceded that the facts in the case
are not in dispute. The High Court of Karnataka has taken a view that as this
loan was given to the appellant by the State Bank of Mysore but it was secured
as an aid under the Act referred to above therefore proceedings under Sec. 19
could be taken but it was contended by learned counsel that the State was only
a 112 guarantor and the creditor was the State Bank of Mysore and so long as
the loan was not recovered from the guarantor it could not be said that there
was anything payable to the State Govt. and in view of the language of Sec. 19
it was contended that so long as there was nothing payable to the State Govt.
the action under Sec. 19 could not have been taken. Learned counsel frankly
conceded that although the language in Sec. 19 do not refer to the moneys
payable to the State but it only refers to moneys payable under the Act but it
was contended that in the scheme of the Act and the transactions between the
parties, State Govt. could take action to recover the money only if the State
Government has paid the loan in favour of the State Bank of Mysore on the terms
of the guarantee which was executed by the State Gov- ernment. Learned counsel
therefore contended that the view taken by the High Court that if any sum was
payable under the Act State Government could take steps under Section 19 is not
justified.
The
learned counsel for the respondent State and the other respondents who are
purchasers of the property in auction contended that the scheme of the Act
indicates that in order to industrialise the State this Act was enacted wherein
the State took upon itself the responsibility of providing aids in various
kinds to the industries and such aids were provided for under the Statutes. One
of the modes of providing this aid was to secure a loan from the bank in favour
of the industry which ordinarily was not available and it has been brought to
our notice that even in the application which the respondent made for this aid
to the State Government clearly admitted that no loan from bank could be
available unless the State secured aid under this Act. It was therefore
contended that the aid may have been secured from the bank but it was an aid
which was secured under the provisions of this Act and in this view Section 19
clearly comes into operation and hence the moneys were payable under this Act and
if it was so the State Government was entitled to realise the amount as arrears
of land reve- nue as contemplated in Section 19. The scheme of the Act was to
provide aid to industries. Preamble of the Act itself states:
Preamble--Whereas
it is expedient to regulate the giving of aid by the Government to industries
in the State of Mysore.
Under
Section 7 of this Act it was provided that the Government could give aid to the
industries in the following ways and sub-clause (b) provided for cash credit
facility, overdraft or fix advance with the bank.
113
Section 7.--Subject to the provisions of this Act and of the rules framed thereunder,
the Government shall have power to give aid to an industrial business or
enterprise in one or more of the following ways:
(a) by
granting loan;
(b) by
guaranteeing a cash credit, overdraft or fixed advance with a bank;
It is
not in dispute that this loan which was secured to the appellants from the bank
was an aid falling under Sub- clause (b) of Section 7. The provisions of the
Act indicate the manner in which the loans could be secured, the manner in
which it was to be paid and in view of all this it was not disputed that
although this loan became payable in favour of the State Bank of Mysore but it
may fall within the ambit of the definition of moneys payable under this Act.
The only controversy raised before us that Section 19 could be so interpreted
that the Govt. could use the author- ity under Section 19 for recovery only if
moneys were pay- able to the Government.
As
discussed earlier the scheme of the Act indicate that whether the aid has been
provided for by the State or has been secured by the State from other financial
agencies. It was contemplated that the State would secure the repayment of the
loan or recovery of whatever aid was given and with a view to secure those
repayments Section 19 was specifically enacted. Legislature in its wisdom
therefore did not use the words payable to the State but used 'all moneys
payable under the Act' in the Section, it appears with a clear intention that
whenever any money becomes payable which was secured to the industry under the
scheme of this Act. It will be open to the State Govt. to follow the procedure
for recovery as has been provided for in clause (1) Section 19.
Section
19 sub-clause (1).--All moneys payable under this Act, including any interest
chargeable thereon and costs, if any, incurred, if not paid when due, may be recov-
ered from the person aided and his surety if any, under the law for the time
being in force, as if they were arrears of land revenue.
It was
contended that ordinarily if the State was the guarantor and the creditor was
the Bank of Mysore guarantor State could only recover from the appellants if
the amount had been paid to the credi- 114 tors so far as the normal legal
procedures is concerned. It may depend upon the terms and the conditions of the
guaran- tee. But in the present case we are dealing with aids pro- vided for
under the scheme of this Act and it is only in respect of the moneys payable
under the scheme of this Act that Section 19(1) comes into operation and it
appears that it was in accordance with the scheme of the Act that Legis- lature
in its wisdom chose not to use the further phrase payable to the Government
under Section 19(1).
Learned
counsel placed reliance on a decision in the case of S. Peer Mohammed v. B.
Mohan Lal Sowcar, [1988] 2 S.C.C. 513. This decision in our opinion is not at
all relevant as in the present case we are dealing with the enactment where a
special procedure has been provided for recovery of moneys payable under this
Act. In this view of the matter therefore in our opinion the High Court was
fight in not accepting the contention of the appellant and main- taining the
dismissal of the suit. Appeal is therefore dismissed. In the circumstances of
the case no order as to costs.
N.V.K.
Appeal dismissed.
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