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K.S. Kasimaris Ceramique (P.) Ltd. Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberWrit Appeal No. 208 of 1983
Judge
Reported in[1985]58CompCas809(Mad)
ActsState Financial Corporations Act, 1951 - Sections 31 and 46
AppellantK.S. Kasimaris Ceramique (P.) Ltd.
RespondentUnion of India and ors.
Appellant AdvocateR. Parthasarathy, Adv.
Respondent AdvocateR. Thyagarajan, ;C. Chinnaswamy and ;A.L. Somayaji, Advs.
Excerpt:
.....of state financial corporation act, 1951 - petitioner defaulted in payment of loan borrowed from financial institution - section 31 enacted to facilitate speedy recovery for financial institution by virtue of notification - invocation of section 31 challenged on ground that incident of borrowing and default happened before enactment of section 31 and sub-legislation cannot be applicable retrospectively - no where provided in notification that power limited to defaults and breaches committed after date of notification - section 31 applicable for continuing offences also - in present case at time of notification impugned default was continuing - section 31 applicable. - - having regard to the object of the provision which is to assist the financial institutions to have better..........act, 1951, which is intended to facilitate the speedy recovery of outstanding loans to all financial institutions such as the third respondent. the appellant has filed its counter-statement in the said original petition. one of the contentions urged by the appellant before the said district court was that the original petition was not maintainable and that court had no jurisdiction to try the matter. the appellant also moved the district court by filing an application under s. 113 read with o. 46, r. 1 of the cpc to refer the question of constitutional validity of s. 31 of the act to the high court. that application was, however, dismissed. the appellant thereafter filed a writ petition (w.p. no. 765 of 1982) seeking a writ of certiorari to quash the notification dated september.....
Judgment:

Ramanujam, J.

1. This writ appeal is directed against the decision of Mohan J. in W.P. No. 765 of 1982 dismissing the same. The third respondent herein had filed O.P. No. 114 of 1961 on the file of the court of the District Judge, Chingleput, for the recovery of a sum of Rs. 86,56,223.92 being the amount due in respect of two mortgage loans taken by the appellant. The said original petition has been filed under s. 31 of the State Financial Corporation Act, 1951, which is intended to facilitate the speedy recovery of outstanding loans to all financial institutions such as the third respondent. The appellant has filed its counter-statement in the said original Petition. One of the contentions urged by the appellant before the said District Court was that the original petition was not maintainable and that court had no jurisdiction to try the matter. The appellant also moved the District Court by filing an application under s. 113 read with O. 46, r. 1 of the CPC to refer the question of constitutional validity of s. 31 of the Act to the High Court. That application was, however, dismissed. The appellant thereafter filed a writ petition (W.P. No. 765 of 1982) seeking a writ of certiorari to quash the notification dated September 4, 1978, issued by the Ministry of Finance, Department of Economic Affairs (Banking Division), Government of India, the first respondent herein, on the basis of which the third respondent is invoking the aid of s. 31 of the Act. The points urged by the appellant in his writ petition were that the third respondent cannot invoke s. 31 as s. 46 of the State Financial Corporations Act is not retrospective. The said writ petition was resisted by the first respondent, the Union of India, contending that being a financial institution, the impugned notification applies to it and, therefore, it is entitled to invoke s. 31 and that there is no violation of art. 14 of the Constitution merely because the power to choose a remedy out of available plurality of remedies is given to any citizen or corporation. Having regard to the object of the provision which is to assist the financial institutions to have better liquidity of funds for reinvestment in other industrial units, a special procedure has been thought of under s. 31 and that it is also not correct to state that there are no guidelines prescribed under s. 31.

2. The third respondent has filed a counter-affidavit containing the following averments. Under s. 31 of the State Financial Corporations Act, 1951, the first respondent is empowered by notification in the Official Gazette to direct that all or any of the provisions of the Act shall apply to any institution in existence on the commencement of the Act which has for its objects the financing of industrial concerns. It further provides that on the issue of such notification, it shall be deemed to be a financial corporation established by the State Government for the State within the meaning of the Act and that the provisions of this Act will be applicable according to the tenor of the notification. It cannot be disputed that the third respondent is an institution having as its object the financing of industrial concerns and the fact that the institution is registered under the Companies Act does not alter its character as a financial institution. For the purpose of s. 31, it need not be a financial corporation established under s. 3 of the Act. It need not be a body corporate within the meaning of s. 3(2) of the Act as the deeming provision in s. 46 operates. According to the third respondent, once the notification under s. 46 is published, it will confer a right on the financial institutions to have recourse to the summary procedure to recover the loans already advanced prior to the date of the notification or granted after the notification if default has been committed and that it is incorrect to say that s. 31 will apply only in respect of loans advanced after the date of the notification.

3. Thus, the main controversies between the parties in the writ petition were : (i) whether the third respondent-corporation which is not a financial institution when the Act came into force is covered by the notification issued under s. 46 and whether the deeming provision under s. 46 can apply here; (ii) whether for the application of s. 31, the default should have occurred after the notification and if s. 31 is intended to apply to cases where default has occurred earlier to the date of the notification, s. 31 will be retrospective in operation and it is well-settled law that delegated legislation cannot have retrospective effect, and (iii) whether the notification issued under s. 46 is bad because it is not signed by the person who is authorised on behalf of the President of India under the Business Rules under art. 77 of the Constitution. All these contentions have been rejected by Mohan J. holding that the third respondent-institution is a financial institution as per the deeming provision contained in s. 46, that s. 31 can be applied even in respect of defaults committed prior to the date of the notification and that the notification has properly been issued. In this writ appeal, the learned counsel for the appellant did not question the validity of the notification on the ground that there is no express authorisation under art. 77 of the Constitution nor did he question the finding of the learned single judge that the third respondent is a financial institution by virtue of the deeming provision contained in s. 46. The only question that was canvassed by the appellant before us is as to the proper interpretation of s. 31.

4. The notification dated September 4, 1978, issued under s. 46 is as follows :

Government of India,Ministry of finance,Department ofEconomic Affairs,(Banking Division)New Delhi, the 4th September, 1978.NOTIFICATION

In exercise of the powers conferred by sub-section (1) of section 46 of the State Financial Corporation Act, 1951 (63 of 1951), the Central Government hereby directs that the provisions of sections 29, 30, 31, 32, 32B, 32C, 32D, and 32F of the said Act shall apply to the Tamil Nadu Industrial Investment Corporation Ltd., Madras.

(Sd.) M. G. GUPTA,

DIRECTOR.

Section 46, under which the above notification has been issued, runs as follows :

'46(1). The Central Government may, by notification in the Official Gazette, direct that all or any of the provisions of this Act shall, subject to such exceptions and restrictions as may be specified, apply to any institution in existence at the commencement of this Act which has for its object the financing of industrial concerns, and on the issue of such notification, the institution shall be deemed to be a financial corporation established by the State Government for the State within the meaning of this Act, and the provisions of the Act shall become applicable thereto according to the tenor of the notification.

(2) Any notification issued under sub-section (1) may suspend the operation of any enactment applicable to any such institution immediately before the issue of the notification.'

5. Section 31, the scope of which is to be considered, runs as follows :

'31(1). Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any installment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of section 29 of this Act and of section 69 of the Transfer of Property Act, 1882, any officer of the Financial Corporation generally or specially authorised by the Board in this behalf may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely :-

(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance; or

(b) for transferring the management of the industrial concern to the Financial Corporation; or

(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.'

6. In this case, the appellant had taken two loans, one on September 30, 1963, and another on October 30, 1969, in all amounting to Rs. 29 lakhs. As security for the repayment, it has also executed two mortgages on December 30, 1964, and April 24, 1970. The purpose of granting the loans was to enable the appellant to put up a factory for the manufacture of bricks by mechanical process, the machinery being imported from foreign country. The appellant did not repay any amount either towards principal or towards interest in spite of the offer of several concessions. Hence, the loans were foreclosed and a notice to that effect was issued on June 4, 1981. Since the appellant did not pay the amount as demanded, it should be taken to have committed breach of the terms and conditions of the sanctions and, therefore, steps for recovering the dues of Rs. 86,56,223.92 were taken by filing an application under s. 31 of the Act. As already stated, the appellant does not dispute before us that the third respondent is a financial institution as contemplated by section 46 of the Act, as admittedly, the third respondent is an institution established by the State Government with the object of financing industrial concerns and, therefore, on the issue of a notification under s. 46, ss. 29, 30, 31, 32, etc., of the said Act have to be applied to the third respondent as the notification specifically applies the provisions of said sections to the third respondent. We do not see how the notification under s. 46 applying certain provisions of the Act to the third respondent could be successfully challenged by the appellant. The notification extends certain provisions of the Act to an existing institution which is deemed to be a financial institution. According to the learned counsel, since the Central Government has issued the notification under s. 46 of the Act, it will have to be treated as a subordinate legislation and, therefore, the notification issued in this case can only be construed as prospective and not retrospective. According to him, a subordinate legislation cannot at all be retrospective and can only be prospective. It is said that since the notification issued can only be prospective, it can apply only to loans taken after the notification from the notified financial institutions and that even if it is construed as being applicable to loans taken earlier, the default or the breach of the contract of borrowal should have occurred subsequent to the date of the notification and it is only then, s. 31 will come to the aid of the notified financial institutions. We are not in a position to accept the contentions of the learned counsel for the appellant that the notification can apply only to the debts incurred from the notified financial institutions subsequent to the date of the notification. The notification issued under s. 46 merely applies certain provisions of the Act to an existing financial institution and the notification does not contain any qualification or fetter that the application of the provisions could only be in respect of debts incurred subsequent to the notification. We are, therefore, of the view that the application of the provisions to the notified financial institutions will be in respect of all debts realisable by the financial institutions whether such debts had been incurred before or after the commencement of the Act without reference to the fact as to when the debts were incurred. Similarly, we are not inclined to agree with the contention of the learned counsel that the default in payment of debts should have occurred after the notification and that only, in such cases, s. 31 could be invoked by the notified financial institutions. Here again, the appellant requires us to read into the notification under s. 46 some limitation, limiting the operation of the notification to the default or breach committed after the notification. If the intention of the notifying authority is to apply the provisions of the Act to the financial institutions only in respect of either debts incurred or defaults committed to the notification, such a limitation would have found a place in the notification itself. But here the notification is very general in terms and it says that certain sections of the Act will apply to the notified financial institutions. The notification, as it is, enables the financial institution to invoke the various sections of the Act referred to therein, in respect of the debts, whether old or new, whether incurred before or after the notification or whether default or breach committed either before or after the notification. The learned counsel for the appellant would then contend that if the notification issued under s. 46 in this case is construed as enabling the notified financial institutions to invoke s. 31 in respect of defaults or breach committed before the notification, then the notification itself will be become bad, for it will be retrospective in nature and it is well established that a subordinate legislation cannot be retrospective in operation. We do not see how the notification will have retrospective operation merely because the notified financial institutions invoke s. 31 in respect of either old loans or in respect of the breach or default committed before the notification. The power is given under the notification to the notified financial institution to apply certain provisions of the Act and the notified institutions apply the provisions of the Act only in future. In the matter of recovery of its debts, the financial institution is given the power to invoke s. 31. We do not see how that power is to be curtailed so as to limit it to defaults or breaches committed after the date of the notification when such a limitation is not contained in the notification itself. Further, we are of the view that in this case the appellant not having paid any amount either towards principal or towards interest ever since the dates of borrowing, the default continues up to the date of the repayment and it is a default continuing even after the date of the notification. Thus, even if the appellant's contention that the notification will apply only in respect of defaults or breaches committed after the notification is accepted, since the appellant's default is a continuing one, the notification will be operative in respect of such continuing defaults. We do not, therefore, see any merit in the contentions urged by the appellant.

The writ appeal fails and is, therefore, dismissed. There will be, however, be no order as to costs.

7. Learned counsel for the appellant makes an oral application for the grant of leave to appeal to the Supreme Court against the judgment just now rendered. However, having regard to the issue involved, we do not see that this is a fit case for the grant of leave to appeal to the Supreme Court. The application for leave is, therefore, rejected.


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