National
Textile Corporation (Guj.) Ltd. Vs. State Bank of India & Ors [2006] Insc
479 (8 August 2006)
S.B.
Sinha & P.P. Naolekar
W I T
H CIVIL APPEAL NOS.2315 TO 2321 OF 2000 S.B. SINHA, J :
These
appeals involving identical questions of law and fact were taken up for hearing
together and are being disposed of by this common judgment.
The
factual matrix of the matter, however, would be noticed from Civil Appeal
No.2316 of 2000.
The
management of the New Manekchowk Spinning and Weaving Mills Company Limited was
taken over in terms of Section 18(1) of the Industries (Development &
Regulation) Act, 1951. The Gujarat State Textile Corporation Limited was
appointed as its Authorized Controller.
The
period of takeover was extended upto 31.03.1974.
The
Parliament thereafter enacted the Sick Textile Undertakings (Nationalization)
Act, 1974, (for short, 'the Act) which came into force with effect from
01.04.1974 in terms whereof the right, title and interest of the said textile
mills vested absolutely in the Central Government. The Central Government,
however, issued an appropriate notification whereby and whereunder the said
mills instead of continuing to vest in the Central Government were directed to
vest in the National Textile Corporation (Gujarat).
Statutory
provisions :
Before
we advert to the rival contentions of the parties, we may notice some of the
relevant provisions of the Act.
"Appointed
day" had been defined in Section 2(1) of the the Act to mean the "1st
day of April, 1974".
The
term "owner" has been defined in Section 2(h) of the Act as under
:
-
"owner",
when used in relation to a sick textile undertaking, means any person or firm
who or which is, immediately before the appointed day, the immediate proprietor
or lessee or occupier of the sick textile undertaking or any part thereof, and
in the case of a textile company which is being wound up or the business
whereof is being carried on by a liquidator or receiver, includes such
liquidator or receiver, and also includes any agent or manager or such owner
but does not include any person or body of persons authorized under the
Industries (Development and Regulation) Act, 1951, or the Sick Textile
Undertakings (Taking Over of Management) Act, 1972, to take over the management
of the whole or any part of the sick textile undertaking" Before the
Commissioner of Payments, the creditors became entitled to file their
respective claims for the purpose of disbursement thereof out of the amount of
compensation towards nationalization of the mills deposited with it by the
Central Government.
The
claims under the Act are divided into two distinct categories
-
post-takeover
management period; and
-
pre-takeover
management period.
The
post-takeover management period was 14.02.1969 to 31.03.1974.
The
Second Schedule appended to the 1974 Act provided :
"Order
of priorities for the discharge of liabilities in respect of a sick textile
undertaking PART A Post-Takeover Management Period
Category
I
-
Loans advanced
by a bank.
-
Loans advanced
by an institution other than a bank.
-
Any other loan.
-
Any credit
availed of for purpose of trade or manufacturing operations.
Category
II
-
Revenue, taxes, cesses,
rates or any other dues to the Central Government or a State Government.
-
Any other
dues." In terms of Section 3 of the Act, the right title and interest of
the owner in relation to every sick textile undertaking vested absolutely in
the Central Government. Section 5 provides that every liability, other than the
liability specified in sub-section (2) thereof in respect of any period prior
to the appointed day, shall be that of such owner and shall be enforceable
against him and not against the Central Government or the National Textile
Corporation. Sub-section (3) of Section 5 reads as under :
5.3
"For the removal
of doubts, it is hereby declared that
-
save as
otherwise expressly provided in this section or in any other section of this
Act, no liability, other than the liability specified in sub- section (2), in
relation to a sick textile undertaking in respect of any period prior to the
appointed day, shall be enforceable against the Central Government or the
National Textile Corporation;
-
no award, decree
or order of any court, tribunal or other authority in relation to any sick
textile undertaking passed after the appointed day in respect of any matter,
claim or dispute, in relation to any matter not referred to in sub- section
(2), which arose before that day, shall be enforceable against the Central
Government or the National Textile Corporation.
-
no liability of
any sick textile undertaking or any owner thereof for the contravention, before
the appointed day, of any provision of law for the time being in force, shall
be enforceable against the Central Government or the National Textile
Corporation." Section 8 provides for deposit of the amount of compensation
in cash by the Central Government. Section 17 provides for appointment of
Commissioners of Payments, whereas priority and examination of claims filed
before it are contained in Section 21 and 22 of the Act, which read as under
:
-
"The claims arising out of the
matters specified in the Second Schedule shall have priorities in accordance
with the following principles, namely :-
-
category I will
have precedence over all other categories and category II will have precedence
over category III and so on;
-
the claims
specified in each of the categories, except category IV, shall rank equally and
be paid in full, but if the amount is insufficient to meet such claims in full,
they shall abate in equal proportions and be paid accordingly;
-
the liabilities
specified in category IV shall be discharged, subject to the priorities
specified in this section, in accordance with the terms of the secured loans
and the priority, inter se, of such loans; and
-
the question of
payment of a liability with regard to a matter specified in a lower category
shall arise only if a surplus is left after meeting all the liabilities
specified in the immediately higher category."
-
-
"On receipt
of the claims under section 20, the Commissioner shall arrange the claims in
the order of priority specified in the Second Schedule and examine the same in
accordance with the said order;
-
If on
examination of the claims, the Commissioner is of the opinion that the amount
paid to him under this Act is not sufficient to meet the liabilities specified
in any lower category, he shall not be required to examine the liabilities in
respect of such lower category." Section 27 which occurs in Chapter VII of
the Act provides as under :
-
-
"Where any
liability of the owner of a sick textile undertaking arising out of any item
specified in category I of the Second Schedule is not discharged fully by the
Commissioner out of the amount paid to him under this Act, the Commissioner
shall intimate in writing to the Central Government the extent of the liability
which remains undischarged, and that liability shall be assumed by the Central
Government.
-
The Central
Government may, by order, direct the National Textile Corporation to take over
any liability assumed by that Government under sub-section (1), and on receipt
of such direction, it shall be the duty of the National Textile Corporation to
discharge such liability." Proceedings :
The
company took some loan from the State Bank of India. During the period of takeover also, the State Bank of India continued to extend various credit
facilities to the management. The Respondent Bank in its claim stated :
-
"The
appellant has given various credit facilities before and after the authorized
controller took over the management. The appellant had given the facility of
hypothecation account with the limit of Rs.13,50,000.00p. the amount in that
account outstanding as on March 31, 1974
was Rs.1,34,148.39p. and the amount outstanding as on March 31, 1974 was Rs.7,22,343.02p. In the
Mortgaged account the limit was Rs.20,00,000/- and the amount outstanding as on March 31, 1974 was Rs.19,74,399.85p. and the
amount outstanding as on March
31, 1977 was
Rs.24,86,190.93p.
In the
Pledge account the limit was Rs.30,00,000.00p. and the amount outstanding as on
March 31, 1974 was Rs.20,65,989.90p. and the one
outstanding on March
31, 1977 was
Rs.28,65,735.15p. In the deferred payment guarantee account, the appellant had
paid installments of Rs.6,43,709.20p. and the installments to be paid by the
appellant were to the extent of Rs.6,35,218.42p. the appellant paid over due
interest of the amount of Rs.16,800.49p. Thus, in this account the total amount
claimed was Rs.12,95,828.20p. The appellant had issued cheques on or before March 31, 1974 but paid on or before Sept. 21, 1974, bills cheques of the value of
Rs.6,16,291.58p. The appellant had debited Rs.21,911.65p. in the account of the
National Textile Corporation as the bills or cheques of this value purchased on
or before March 31,
1974 but returned or
paid on or before Sept.
21, 1974. The
appellant also claimed bank charges, and other amounts relating to the period upto
March 31, 1974 but debited before September 21, 1974. The appellant also claimed Bank
charges Rs.,17,39,648.00p. being the amount of bills/cheques purchased by the
appellant on or before March
31, 1974 but realized
on or after April 1,
1974.
Thus
the appellant in all claimed Rs.99,97,944.32p. under four head as per the
statement of the account annexed with the application of claim." By an
order dated 30.09.1978, the Commissioner of Payments held as under :
"That
out of total claims, an amount of Rs.51,55,524.81p. could be admitted in
Category I, an amount of Rs.24,86,109.93ps. could be admitted in Category IV
and the rest of the amount of Rs.23,55,939.58ps. could not be considered for
the purposes of categorization." An appeal was preferred thereagainst
before the City Civil
Court. The said
appeal was dismissed by an order dated 18.08.1980, holding :
"As
discussed in the earlier part of the judgment, only those liabilities falling
under the aforesaid two periods are required to be discharged out of the
compensation amount fixed from the undertaking except as mentioned in
sub-section (1) of Section 27 of the Act.
The
appellant had made payments to the supplier after 1.4.1974 i.e. after the
appointed day. The Act restricted discharge of certain liabilities enumerated
in the Second Schedule only falling due upto 31.3.1974. The appellant's claim
cannot be covered in any of the categories in the Second Schedule..Since the
liability of the respondent No.1 does not exist on account of the contract
having ceased to have effect on 1.4.1974, the appellant's claim for the same
reasons become non- existent.It appears from the award of the Assistant Commissioner
of Payments that the adjustments with the respondent No.2 for the bills
purchased or the cheques realized was made. That has been done as the bills
discounted or purchased on or before March 31, 1974, remained with the erstwhile owners
and such ownership on rights vested in the nationalized textile corporation by
virtue of Section 4 of the Act." A writ petition was thereafter filed
before the High Court. By reason of the impugned judgment, a learned Judge of
the High Court while allowing the said writ petition held as under :
-
"I have
given anxious thought to the submissions made on behalf of the parties. The
main question for determination by this Court is whether outstanding dues in
different accounts for the pre-take- over as on 14.2.1969 were the liabilities
of the Authorized Controller, or that liabilities which were thereafter can be
considered under Section 5 of the Act for the purpose of awarding the
compensation amount.
For
this purpose, we have to see the actual meaning of loan and advances. Loans and
advance loans have been explained by the Apex Court in the case of Jiwanlal Acharya
vs. Rameshwar Agarwalla, reported in AIR 1967 SC 1118, wherein it has been held
that the loan means an advance, whether of money or in kind on interest, made
by a money-lender and shall include a transaction on a bond bearing interest in
respect of post liability and in transaction, which in substance is a loan.
When a
loan is renewed by the execution of a fresh document of removal, there is no
difficulty in holding that the former loan was repaid by borrowing a fresh loan
on the document of renewal. So, the transaction itself can be treated as a
fresh loan. The word "advance" appears to have been used there for
convenience of the language, particularly to indicate that the loan must have
been made after commencement of the Act. It does not imply that there should
have been an actual advance, whether of money or any kind.
Thus,
in view of the proposition of law laid down by the Apex Court, the loans
advanced by the petitioner bank prior to 14.2.1969, guaranteed by the
Authorized Controller and by the State Government and by the State Government
and guarantee for the post-take-over period would fall under the category
no.1(a) of the Second Schedule and it would not fall in category no.4 of part
"B". The Bombay High Court has completely answered the question
regarding the liability of the Authorised Controller for the amount due prior
to 1.4.1974 and thereafter." Submissions :
Mr. L.
Nageshwara Rao, the learned Senior Counsel appearing on behalf of the
appellant, would submit that the High Court committed a serious error in
holding :
-
loan was
advanced during post-takeover period during which the management was with the
corporation;
-
the facility was
given by the bank to continue to avail the credit facilities to pay the amount
of loan on renewal thereof;
-
the undertaking
given by the Controller for continuing to obtain the said facilities would not
make the outstanding dues on account of priority claim of the company;
-
There exists a
difference between a loan and liability; whereas the principal amount would
come within the purview of priority claim, claim of interest would not.
Mr. R.
Sundaravardan, the learned Senior Counsel appearing on behalf of the State Bank
of India, on the other hand, submitted that:
-
the bank acted
to its detriment at the instance of the Controller and relying on the guarantee
furnished by it as also by the State of Gujarat continued to extend the facilities which would amount to a new loan.
-
Such credit
facility had been given so that the mills may survive and, thus, the Appellant
cannot now be permitted to contend that the loan advanced by the Bank would not
be disbursed on a priority basis.
-
In any event, as
part of the amount to be paid had been apportioned for past dues in terms of
Section 60 of the Indian Contract Act, this Court should not interfere with the
impugned judgment.
Mr.
T.L. Vishwanatha Iyer, the learned Senior Counsel appearing for the Bank of
Baroda, supplemented Mr. Sundaravardan contending that the deferred payment
guarantee should be treated as an advance given during post management period
and, thus, would come within the purview of Category I of the Second Schedule
of the Act. It was submitted that for all intent and purport, the liability is
akin to the concept of loan and in that view of the matter any amount which was
payable as on 31.3.1974 including the amount of interest would come within the
purview of the expression 'loan'.
Priority
claims :
The
basic fact of the matter is not in dispute. Although the managements of the
textile mills were taken over in terms of the provisions of the 1951 Act, the
Authorized Controller managed the affairs of the mills for or on behalf of the
owners. The liabilities incurred or profits made during the said period were to
be credited to the account of the owners. The owners in terms of the provisions
of the Act were not entitled to receive the amount of compensation but also the
interest provided for in the said Act as also the amount of compensation
payable for taking over of the management of the mills under the 1956 Act.
The
claim of every claimant was required to be determined by the Commissioner of
Payments strictly in terms of the provisions of the Act.
For
the purpose of enabling it to disburse his claim from the amount deposited with
it by the Central Government, priorities were to be accorded to the specified
category of claim in terms of the Second Schedule of the Act.
The
Commissioner of Payments as a statutory authority was to act within the
four-corners of the Act.
In
terms of the provisions of the Act, the liability of the owner has not ceased
to run. The entire claim of the bank, if not capable of being disbursed from
the amount deposited by the Central Government, the same would abate. The
claimants, therefore, are entitled to realize their remaining claims from the
owners.
The
Authorized Controller and the State of Gujarat furnished guarantees. Guarantees furnished by the State of Gujarat were de'hors the provisions of the
Act. In terms of the provisions of the Act, the State of Gujarat had no role to pay. It might have
encouraged the Authorized Controller to revive the functioning of the mills
upon continuing to obtain the facilities of the erstwhile owners from the banks
and other industrial institutions for revival of the mill as a part of social
welfare measure. Under the Act, however, it could not have intermeddled with
the affairs of the functioning of the mills by the Authorized Controller. Any
action taken pursuant to or in furtherance of any representation made by the
State of Gujarat would, thus, be of its own
liability. Such liabilities can be enforced by the claimants. For the self same
reasons any guarantee furnished by the Gujarat Financial Corporation would also
be an act on its own behalf. It, while carrying out the management of the mill,
could have incurred loan on behalf of the owner but if it had furnished any
guarantee, the same would constitute an independent act, although furnished for
obtaining loan or continue to obtain the facilities for running the mills. It
could not act both as a loaner and a guarantor. The liability of the owner and
guarantor would depend upon the terms of the documents executed in favour of
the Bank and/or the provisions of the Indian Contract Act. Similarly if a claim
comes within the purview of Section 27 of the Act, the Central Government would
continue to be liable therefor. A similar guarantee furnished by the Gujarat
State Financial Corporation on its own behalf subject to the terms of the
guarantee may become enforceable against it.
We are
in these appeals, however, only concerned with the interpretation of the
relevant provisions of the Second Schedule of the Act.
Continuing
the credit facilities given by the banks to the owner, in our opinion, would
not amount to a fresh agreement.
For
the purpose of attracting the provisions of the Second Schedule, the amount
mentioned in Category I must be confined to loans advanced by the banks or
other financial institutions, or any other loan or any credit availed of for
the purpose of trade or manufacturing operations. A distinction, therefore,
exists between a loan given to the Controller and availing of the credit
facilities which were available to the owner of the textile mills so as to
enable it to carry on the manufacture operation thereof after its take over.
The textile undertakings were sick ones. The managements of such mills were
taken over for the purpose of revival thereof. If in that process the
Authorized Controller was required to raise loan either from a bank or from a
financial institution other than a bank or from any other person or availed any
other credit, indisputably, the same would come within the purview of
Category-I liability being a post-takeover management period.
Such
loan, however, it will bear repetition to state, would not be renewal of
pre-takeover loan. In Jiwanlal Achariya v. Rameshwar Lal Agarwalla [AIR 1967 SC
1118], this Court was concerned with interpretation of the expression 'loan'
contained in Section 2(f) of the Bihar Money Lending (Regulation of
Transactions) Act, 1939, which was in the following terms :
"Loan"
means "an advance, whether of money or in kind, on interest made by a
money-lender, and shall include a transaction on a bond bearing interest
executed in respect of past liability and any transaction which in substance is
a loan, but shall not include" This Court in the context of the said
definition of 'loan' opined that when a loan is renewed by execution of a fresh
document, there is no difficulty in holding that the former loan was repaid by
borrowing a fresh loan on the document of renewal.
In
that case, the appellant therein claimed that no money was in fact advanced on February 4, 1954 and that the promissory note executed
on that date was to pay by renewal of a loan for Rs.4,000/- which had been
taken as far back as October 1946. The sum of Rs.10,000/- included the
principal amount of Rs.4,000 and the remainder was towards interest.
In the
aforementioned factual matrix, it was held that all that S.2(f) requires is
that there should be an instrument in writing by which the obligor obliges
himself to pay the past liability and the instrument should bear interest In
this case, no such document admitting and acknowledging the past loan and a
fresh document was executed. Jiwanlal Achariya (supra), therefore, was decided
in the fact situation obtaining therein.
The
High Court in its impugned judgment relied upon State Bank of India v. Edward Textile Mills Ltd. &
Ors. [AIR 1988 Bombay 313]. The said decision was
reversed by this Court in State Bank of Indore v. Commissioner of Payments and Others [(2004) 11 SCC 516], holding :
"Thus,
the heading of the Second Schedule provides "priorities for the discharge
of liabilities". The term "liability" as stated above would
include interest. It would include a loan. It would also include credits
availed of. It would include revenue, taxes, cesses, rates and other dues.
However, the payment in priority is for a loan. The distinction in language
makes it very clear that what was to be paid in priority was only the amount of
the loan i.e. the principal amount and not the interest amount due thereon. Of
course, payments towards interest would remain liabilities. But for recovery of
that the remedy would be to proceed against the owner/surety.
This
Court has in the case of Industrial Finance Corpn. of India Ltd. v. Cannanore Spg.
and Wvg. Mills Ltd held that by virtue of the provisions of the Act the
liability of the principal debtor and that of the surety does not come to an
end. It is held that if the compensation to be paid by virtue of Section 21 and
the Second Schedule does not satisfy the full claim then the creditor is not
barred from filing a civil suit for the balance. Further, in the case of Punjab
National Bank v. State of U.P. it has been held that even though mode of
recovery, against a surety, may be affected the liability of the principal
debtor and the guarantor does not get affected by the provision of this Act.
Not only are these authorities binding us but we are in complete agreement with
what is laid down therein.
It is
thus clear that the interest amounts are not to be paid in priority under the
provisions of this Act. In this view, strictly speaking, even interest up to 31-3-1974 was not payable in priority" Mr. Iyer placed
strong reliance upon a decision of this Court in Commissioner of Income-tax, Lucknow v. The Bazpur Co-operative Sugar
Factory Ltd. [AIR 1989 SC 1866]. In that case, this Court was dealing with the
provisions of Income Tax Act, 1961 vis-`-vis the bye-laws framed by a
cooperative society. The question, which arose for consideration therein, does
not arise before us. It was held therein that the deposits made by the members
could not be regarded as loans advanced by the members to the assessee. The
moneys deposited represented contribution by the members for converting the
partly paid up shares into fully paid up shares and thereafter for defraying
the loan taken from the Industrial Finance Corporation. Any balance remaining
was to be refunded to the members.
Such a
question does not arise in the instant case.
In
Industrial Finance Corporation of India Ltd. v. Cannanore Spinning and Weaving
Mills Ltd. and Others [(2002) 5 SCC 54], a Division Bench of this Court
interpreting the provisions of the 1974 Act, held :
"Turning
attention to the effect of the Sick Textile Undertakings (Nationalisation) Act,
1974, a bare perusal of some of the provisions will indicate that there is no
discharge of the liability of principal debtor, leave alone that of the surety.
Sections 3, 4, 5 and 20 of the Act of 1974, if read together, would depict that
the liability of the owner of the undertaking/the debtor continues and it is
only the claim against the security which stands discharged by reason of the
statutory shift of the charge on to the compensation. The liability of the
principal debtor does not in any way come to an end, neither that of the
guarantor" While doing so, it relied upon a decision of this Court in
Punjab National Bank v. State of U.P. and Others [(2002) 5 SCC 80], wherein it
had been held that the loan of a guarantor does not come to end with the coming
into force of the 1974 Act, stating :
"We
have gone through the provisions of the said Act and in our opinion the
decision of the courts below is not correct. Section 5 of the said Act provides
for the owner to be liable for certain prior liabilities and Section 29 states
that the said Act will have an overriding effect over all other enactments.
This Act only deals with the liabilities of a company which is nationalised and
there is no provision therein which in any way affects the liability of a
guarantor who is bound by the deed of guarantee executed by it. The High Court
has referred to a decision of this Court in Maharashtra SEB v. Official
Liquidator, High Court, Ernakulam where the liability of the guarantor in a
case where liability of the principal debtor was discharged under the
insolvency law or the company law, was considered. It was held in this case
that in view of the unequivocal guarantee, such liability of the guarantor
continues and the creditor can realise the same from the guarantor in view of
the language of Section 128 of the Contract Act as there is no discharge under
Section 134 of that Act.
In our
opinion, the principle of the aforesaid decision of this Court is equally
applicable in the present case.
The
right of the appellant to recover money from Respondents 1, 2 and 3 who stood
guarantors arises out of the terms of the deeds of guarantee which are not in
any way superseded or brought to a naught merely because the appellant may not
have been able to recover money from the principal borrower. It may here be
added that even as a result of the Nationalisation Act the liability of the principal
borrower does not come to an end. It is only the mode of recovery which is
referred to in the said Act." In Rashtriya Mill Mazdoor Sangh v. National
Textile Corporation (South
Maharashtra) Ltd. and
Others [(1996) 1 SCC 313], this Court held that gratuity payable by erstwhile
owner cannot be recovered from the Central Government or the Corporation,
stating :
"The
submission is that since the Act has been enacted to protect the interests of
the workmen employed in the textile undertakings whose management has been
taken over, sub-section (7) of Section 3 should be construed in a manner that
the interests of the workmen are protected and are not jeopardised and
therefore, sub-section (7) of Section 3 should be confined in its application
to liabilities other than the liabilities relating to the dues of the workmen
in respect of the gratuity payable under the Payment of Gratuity Act. We find
it difficult to accept this contention. It is one of the cardinal principles of
the statutory construction that where the language of an Act is clear, the
preamble cannot be invoked to curtail or restrict the scope of the enactment
and only where the object or meaning of an enactment is not clear the preamble
may be resorted to explain it. [See: Burrakur Coal Co. Ltd. v. Union of India SCR at
p. 49 and Motipur Zamindary Co. (P) Ltd. v.
State of Bihar SCR at p. 504.] Here we find that
the language of sub-section (7) of Section 3 is clear and unambiguous inasmuch
as in the said provision it has been declared that any liability incurred by
the textile company in relation to the textile undertaking before the appointed
day shall be enforceable against the textile company concerned and not against
the Central Government or the Custodian.
The
words "any liability" in sub-section (7) of the said Section 3 are of
wide amplitude to cover every liability that was incurred by the textile
company in relation to the textile undertaking before the appointed day.
Moreover, the statement in the preamble on which reliance has been placed by
the learned counsel for the appellant, regarding giving protection to the
interests of the workmen employed therein, also indicates that what was
intended was to reorganise and rehabilitate the textile undertakings whose
management was being taken over with a view to prevent the closure of such
undertakings and consequent unemployment of workmen and thereby protect the
interests of the workmen who were employed in the textile undertaking at the
time of the taking over of the management of the said undertaking. The said
statement in the preamble does not refer to persons who had ceased to be in
employment of the textile undertaking on the date of such taking over of the
management. We are, therefore, unable to hold that sub-section (7) of Section
3, must be so construed as to exclude its applicability in respect of liability
for payment of gratuity under the Payment of Gratuity Act." The liability
of the owner continues even during the take-over period.
Indisputably,
however, that would not mean that any act done by the statutory authority or
the State would be binding on the owner. The Gujarat Financial Corporation or
the State of Gujarat having furnished guarantee on their
own behalf, the same indisputably would continue to remain binding on them. Such
guarantees which were furnished by the Gujarat Financial Corporation or the
State of Gujarat would, thus, be enforceable against
them.
We,
however, may clarify that we, at present advised, have not gone into the
question of effect of abatement of claims against the owner. 1958 Act :
The
question now arises for consideration is as to whether the provisions of the
Bombay Relief Undertaking (Special Provision) Act, 1958 would be applicable in
the instant case. The 1958 Act was a temporary Act.
Clause
(iv) Sub-section (1) of Section 4 of the said Act provided :
4.iv
"any right,
privilege, obligation or liability accrued or incurred before the undertaking
was declared a relief undertaking and any remedy for the enforcement thereof
shall be suspended and all proceedings relative thereto pending before any
court, tribunal, officer or authority shall be stayed;" The provisions of the
said Act, however, do not bar adjustment of any account; but what was suspended
was a declaration of relief undertaking and suspension of any remedy for the
enforcement thereof. What was stayed was the proceedings pending before any
court, tribunal, officer or authority, but the same had nothing to do with the
adjustment of accounts in terms of the provisions of the Indian Contract Act,
1872. Section 59 of the Indian Contract Act provides for application of payment
where debt to be discharged is indicated. Section 60 thereof provides for
application of payment where debt to be discharged is not indicated. Section 61,
however, provides that in absence of any party making appropriation, the payment
shall be applied in discharge of the debts in order of time, whether they are or
are not barred by the law in force for the time being as to the limitations of
suits.
If the
High Court was not correct in holding that the Authorized Controller had
renewed the loan taken by the owner, the facilities continued and in that view
of the matter Sections 60 and 61 of the Indian Contract Act would become
applicable.
In The
Union of India v. Kishorilal Gupta and Bros. [AIR 1960 SCR 493], upon which Mr.
Sundaravardan placed strong reliance, wherein the question which arose for
consideration was as to where the parties to an original contract could by
mutual agreement enter into a new contract in substitution of an old one, which
does not contain an arbitration clause, wherein the dispute resolution
mechanism occurring in an earlier contract could be taken recourse to. Subba Rao,
J., speaking for the majority, in the fact situation obtaining therein, stated
the principle thus :
"The
following principles relevant to the present case emerge from the aforesaid
discussion:
-
An arbitration
clause is a collateral term of a contract as distinguished from its substantive
terms; but nonetheless it is an integral part of it;
-
however
comprehensive the terms of an arbitration clause may be, the existence of the
contract is a necessary condition for its operation; it perishes with the
contract;
-
the contract may
be non est in the sense that it never came legally into existence or it was
void ab initio;
-
though the
contract was validly executed, the parties may put an end to it as if it had
never existed and substitute a new contract for it solely governing their
rights and liabilities thereunder;
-
in the former
case, if the original contract has no legal existence, the arbitration clause
also cannot operate, for along with the original contract, it is also void; in
the latter case, as the original contract is extinguished by the substituted
one, the arbitration clause of the original contract perishes with it; and
-
between the two
falls many categories of disputes in connection with a contract, such as the
question of repudiation, frustration, breach etc. In those cases it is the
performance of the contract that has come to an end, but the contract is still
in existence for certain purposes in respect of disputes arising under it or in
connection with it. As the contract subsists for certain purposes, the
arbitration clause operates in respect of these purposes." The said decision
would apply in the instant case.
In Lalit
Mohan Pandey v. Pooran Singh and Others [(2004) 6 SCC 626], whereupon also the
learned counsel placed reliance, this Court emphasized the need to construe the
statute having in mind the object underlying the same by stating the principle
of purposive construction.
Thus,
the remedies available to the Bank under the Indian Contract Act would continue
to remain available to the respondent-Bank even if the 1958 Act applies.
For
the reasons aforementioned, we are of the opinion that the High Court was not
correct in taking the views, it did. The judgments and orders passed by the
High Court are, therefore, set aside with liberty to the parties to file
appropriate suits or proceedings before appropriate forum(s) for recovery of
the remaining amount, provided any cause of action therefor survives.
Subject
to the observations made herein, the appeals are allowed. No costs.
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