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Bhawani Parshad Kapur Vs. the Himachal Pradesh Financial Corporation - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtHimachal Pradesh High Court
Decided On
Case NumberF.A.O. No. 81 of 1980
Judge
ActsState Financial Corporations Act, 1951 - Sections 30, 31, 31(1) and 32(6)
AppellantBhawani Parshad Kapur
RespondentThe Himachal Pradesh Financial Corporation
Appellant Advocate Indar Singh, Adv.
Respondent Advocate D.K. Khanna, Adv.
DispositionAppeal dismissed
Cases ReferredGujarat State Financial Corporation v. Natson
Excerpt:
- t.r. handa, j.1. this appeal has been filed under section 32 of the state financial corporations act, 1951, hereinafter to be referred as 'the act', and is directed against the order dated 9-9-1980, passed by the district judge. mandi. the impugned order was passed in the proceedings initiated by the respondent against the appellant under section 31 of the act and it directs that the property of the appellant mortgaged with the respondent as security for the loan raised by the appellant from the respondent be put to sale for realization of the principal amount of loan along with interest thereon till the date of its realization.2. the facts and circumstances giving rise to this appeal may now be stated in brief:--the respondent is a body corporate established under section 3 of the act......
Judgment:

T.R. Handa, J.

1. This appeal has been filed under Section 32 of the State Financial Corporations Act, 1951, hereinafter to be referred as 'the Act', and is directed against the order dated 9-9-1980, passed by the District Judge. Mandi. The impugned order was passed in the proceedings initiated by the respondent against the appellant under Section 31 of the Act and it directs that the property of the appellant mortgaged with the respondent as security for the loan raised by the appellant from the respondent be put to sale for realization of the principal amount of loan along with interest thereon till the date of its realization.

2. The facts and circumstances giving rise to this appeal may now be stated in brief:--

The respondent is a body corporate established under Section 3 of the Act. One of the functions of this Corporation is to grant loans or advances to industrial concerns. The appellant who runs an industrial concern under the name and style of Himachal Automatic Electric Bakery, Mandi wanted to set up an automatic bakery plant at Mandi. He was short of finance and, therefore, approached the respondent Corporation for a loan of Rs. 80,000/-. The respondent Corporation offered him a loan of Rs. 60,000/-against the mortgage of property of adequate value and on the terms and conditions as found in their reply dated, 23-5-1970, which is Ex. D. A. on the record. These terms were acceptable to the appellant. The appellant, therefore, on 12-12-1969, executed the mortgage deed Ex. PA in favour of the respondent Corporation for securing the amount of loan which he was to receive from the Corporation. This deed besides functioning as security for the repayment of the loan also mentions in details the terms and conditions on which the loan was to be paid as also the manner in which it was to be repaid.

Later the appellant realized that the loan of Rupees 60,000/- sanctioned in his favour by the respondent Corporation and in respect of which he had executed mortgage deed Ex. PA was not sufficient to meet his requirements. He, therefore, applied to the respondent Corporation for a further loan of Rs. 40,000/-. This additional loan of Rs. 40,000/- was sanctioned by the respondent Corporation on the same terms on which the initial loan of Rs. 60,000/-had been sanctioned. The appellant then executed a fresh mortgage deed in favour of the respondent on 3-7-1970, This second mortgage deed describes the manner in which the second loan was to be disbursed by the respondent Corporation to the appellant and also provided for the mode of repayment of the amounts of both the loans of Rs. 60,000/-and Rs. 40,000/-. The revised schedule of the instalments in which these loans were to be repaid finds mention in condition No. 1 of this second mortgage deed Ex. P.B., the relevant portion of which reads like this :--

'The mortgagors hereby covenant with the Corporation that they shall repay to the Corporation at the Head Office of the Corporation or such other place as the Corporation may appoint in this behalf, the said sum of Rs. 40,000/- as well as Rs. 60,000/- according to schedule in the said indenture which is substituted as per schedule given hereunder:

(For Schedule see Table below) together with interest on the said principal sum or the balance thereof remaining unpaid for the time being at a rate 3% (three per cent) per annum above the bank rate subject to a minimum of 9% (nine per cent) per annum, calculated on the basis of daily products.

The appellant did not pay even a single instalment onwards repayment of the principal amount of loan. Even towards interest he paid only two instalments. In this manner he committed a default in complying with the agreed terms as contained in the mortgage deeds Exs. P. A. and P. B. on account of such persistent defaults on the part of the appellant, the executive committee of the respondent Corporation decided to recall the entire loan amount from him in accordance with the terms of the mortgage deeds. The respondent Corporation then served a legal notice on the appellant calling upon him to repay the entire outstanding amount along with interest. The appellant having failed to comply with the notice, the respondent Corporation approached the Court of the District Judge under Section 31 of the Act with the prayer that an order for the sale of the mortgaged property (Contd. on Col. 2) be passed and from the sale proceeds the dues of the respondent Corporation be recovered.

3. The case of the appellant before the District Judge on the other hand was that it was the respondent Corporation and not he who had committed breach of the agreed terms as contained in the mortgage deeds on which the loans were to be advanced. According to the appellant, the respondent Corporation failed to release the agreed amount of loan in his favour on due dates with the result that he had to suffer a huge loss in his business. On account of the delay in releasing the loan to him by the Corporation, the appellant could not start his business and this naturally resulted in his failure to pay the instalments in accordance with the agreed schedule. According to the appellant, as against the agreed loan amount of Rs. 1,00,000/- the respondent Corporation had advanced him only Rs. 92,925-70 and further as per agreed terms the entire amount of Rs. 1,OO,OOO/-was to be advanced to him by 31-8-1970 whereas actually the last instalment was released in his favour only on 27-10-1971. Even after this last instalment the total amount of loan advanced to him fell short of the stipulated amount by Rs 7.074.30. The appellant further claimed that on account of the non-fulfilment of the terms of the contract by the Corporation, he had suffered a loss of Rs. 27,800/- for which he was entitled to be reimbursed by the respondent Corporation. He also disputed his liability to pay interest at the agreed rate on the plea that it was excessive and the respondent Corporation was not entitled to charge it.

(i) Rs. 5.000/-

(Rupees Five Thousand only)

on 12-6-1971.

(ii) Rs 5.000/-

(Rupees Five Thousand only)

on 12-12-1971.

(iii) Rs. 5000/-

(Rupees Five Thousand only)

on 12-6-1972.

(iv) Rs. 5000/-

(Rupees Five Thousand only)

on 12-2-1978.

(v) Rs. 5000/-

(Rupees Five Thousand only)

on 12-11-1973.

(vi) Rs. 5000/-

(Rupees Five Thousand only)

on 12-12-1873.

(vii) Rs. 5000/-

(Rupees Five Thousand only)

on 12-8-1974.

(viii) Rs. 5000/-

(Rupees Five Thousand only)

on 12-12-1974.

(ix) Rs. 6000/-

(Rupees Six Thousand only)

on 12- 6-1975.

(x) Rs. 6000/-

(Rupees Six Thousand only)

on 12-12-1975.

(xi) Rs. 6000/-

(Rupees Six Thousand only)

on 18-1-1978.

(xii) Rs. 6000/-

(Rupees Six Thousand only)

on 12-12-1978.

(xiii) Rs. 6000/-

(Rupees Six Thousand only)

on 12-6-1977.

(xiv) Rs. 6000/-

(Rupees Six Thousand only)

on 12-12-1977.

(xv) Rs. 6000/-

(Rupees Six Thousand only)

on 19- 8-1978.

(xvi) Rs. 6000/-

(Rupees Six Thousand only)

on 12-12-1978.

(xvii) Rs. 6000/-

(Rupees Six Thousand only)

on 12- 6-1979.

(xviii) Rs. 6000/-

(Rupees Six Thousand only)

on 13-12-1978.

4. On the pleas raised by the parties, the District Judge framed the following issues :--

1. Whether the petitioner Corporation has failed to advance the entire amount of loan contracted between the parties, if so to what effect ?

O. P. R. (onus objected).

2. Whether the petitioner Corporation did not make available the loan amount in time, if so to what effect ?

O. P. R.

3. What is the amount due from therespondents to the petitioner Corporation ?

O. P. P.

4. Whether the petitioner Corporation has violated the terms of the contract dated 3-7-1970, in matter of deducting the interest of 38 thousand and odd charging other sundry charges for T.A. and Insurance 'etc. ?

5. Whether the Corporation petitioner is competent to claim the entire loan balance amount in lump sum ?

O. P. P.

6. Whether the respondents sufferedloss on account of non-fulfilment of theterms of the contract by the petitionerCorporation, if so to what extent andwith what effect?

O. P. R.

7. Whether the relief claimed by theCorporation for sale of the entire mortgaged property is unreasonable andunjust ?

O. P. R.

8. Relief.

5. The respondent Corporation produced the original mortgage deeds Exs. PA and PB which were executed by the appellant in its favour and also a statement of account showing the particulars of the loan account of the appellant. Ex. PE is the statement of such account up to 13-3-1974, while Ex. PD represents the position of the account up to 26-2-1975. The appellant put himself into the witness box to state that the amount of loan had not been advanced to him within the stipulated periods and for that reason he had to incur a huge loss. He also stated that as against the sanctioned loan of Rs. 1,00,000/- he had been advanced only Rs. 92,925-70 by the respondent Corporation.

6. The learned District Judge found no substance in the objections raised on behalf of the appellant. According to the learned District Judge, in case the respondent Corporation had committed any breach in terms of the agreement, it was open to the appellant to rescind the contract and sue the Corporation for damages. The appellant, however, by receiving the amounts of loan from time to time without raising any objection was now estopped from pleading any default on the part of the Corporation. The default on the part of the appellant was apparent and in fact the same had not been denied, Finding therefore that the appellant had committed default in the repayment of the loan in accordance with the agreed terms, the learned District Judges ordered for issue of warrant of sale of the mortgaged property for realization of the amount of loan both] principal and interest.

7. Shri Indar Singh, the learned counsel appearing for the appellant contended that in view of the express provisions of Section 32 (6) of the Act, it was obligatory on the part of the District Judge to investigate into all the facts and circumstances pleaded by the appellant and to return a finding whether the respondent Corporation had committed any breach in performance of its part of the contract and whether such breach had resulted into a loss of Rupees 27,800/-, to the appellant as had been pleaded by him. According to the learned counsel, if it was found that the respondent Corporation was guilty of breach of the contract the appellant could not' be held liable for any default so as to justify the order of sale of his mortgaged property. His further contention was that the appellant having specifically pleaded that the respondent Corporation was not entitled to charge compound interest at I he agreed rate, the District Judge was bound to adjudicate on that plea.

8. Shri D. K. Khanna, the learned counsel appearing for the respondent Corporation argued on the other hand that in view of the provisions contained in Section 30 of the Act the respondent Corporation had the undoubted right to recall the entire amount of loan at once and the respondent. Corporation having once exercised that right, the jurisdiction of the District Judge under Sections 31 and 32 of the Act was very limited and he had only to investigate the claim of the respondent Corporation which was only to the effect that the appellant had committed a breach of the terms on which the loan was to be repaid.

9. Section 30 of the Act does provide in clear terms that under certain circumstances the Financial Corporation may by notice in writing demand the payment of full amount of the loan advanced to any industrial concern. The circumstances in which the Financial Corporation can exercise such power of recalling the entire amount of loan find mention in Clauses (a) to (f) of this section. Section 31 then provides for a special mode for enforcement of its claims by the Financial Corporation. This section reads :

'31. Special Provision for Enforcement of Claims by Financial Corporation: -- (1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where 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 T. P. Act. 1882, any officer of the Financial Corporation, generally Or specially authorized 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.

(2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed.'

10. Section 32 of the Act next provides for the procedure which is to be adopted by the District Judge in dealing with the applications filed under Section 31. Sub-sections (1) and (2) of this sectionpertain to the passing of interlocutory orders. Sub-section (3) empowers the District Judge, if he so thinks fit, to examine the officer who makes the application before issue of an interlocutory order. The subsequent sub-sections provide for the procedure for final determination. Sub-sections (4) to (7) are important and may, therefore, be extracted:

'32. Procedure of District Judge in respect of applications under Section 31.

XX XX XX XXXX XX XX XX (4) At the same time as he passes an order under Sub-section (1), the District Judge shall issue to the industrial concern a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it to show cause on a date to be specified in the notice why the ad interim order of attachment should not be made absolute or the injunction confirmed.

(5) If no cause is shown on or before the date specified in the notice under Sub-sections (2) and (4) the District Judge shall forthwith make the ad interim order absolute and direct the sale of the attached property or transfer the management of the industrial concern to the Financial Corporation or confirm the injunction.

(6) If cause is shown, the District Judge shall proceed to investigate the claim of the Financial Corporation in accordance with the provisions contained in the Civil P. C., 1908, in so far as such provisions may be applied thereto.

(7) After making an investigation under Sub-section (6), the District Judge may.-

(a) confirm the order of attachment and direct the sale of the attached property;

(b) vary the order of attachment so as to release a portion of the properly from attachment and direct the sale of the remainder of the attached property;

(c) release the property from attachment;

(d) confirm OT dissolve the injunction; or

(e) transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf;

Provided that when making an order under Clause (c) the District Judge may make such further orders as he thinks necessary to protect the interests of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit:

Provided further that unless the Financial Corporation intimates to the District Judge that it will not appeal against any order releasing any property from attachment, such order shall not be given effect to, until the expiry of the period fixed under Sub-section (9) within which an appeal may be preferred or, if an appeal is preferred, unless the High Court otherwise directs until the appeal is disposed of.'

11. Under Sub-section (4) a notice is to be issued to the industrial concern to show cause why the interlocutory order passed should not be made absolute and a copy of the order is to be sent to the industrial concern along with this notice. In case no cause is shown by the industrial concern, the District Judge under Sub-section (5) is required to forthwith make the interim order absolute. Sub-section (6) would be attracted where the industrial concern offers to show cause. When cause is shown the District Judge is required to investigate the claim of the Financial Corporation in accordance with the provisions contained in the Civil P. C. in so far as they may be applied thereto. It is on the basis of the provisions of Sub-section (6) of Section 32 that the learned counsel for the appellant contended that the District Judge was bound to investigate the pleas set up by the appellant in his reply and that by failing to investigate such pleas, the District Judge is deemed to have refused to exercise the jurisdiction vested in him.

12. A conjunctive reading of the provisions of Section 31 and Sub-section (6) of Section 32 of the Act would suggest that the scope of investigation within the contemplation of Sub-section (6) of Section 32 is very narrow and limited. This subsection does not contemplate the investigation of each and every plea that might be raised before the District Judge by either party. The scope of the investigation is restricted to the claim of the Financial Corporation which has to be established in order to entitle it for any of the reliefs as mentioned in Sub-section (1) of Section 31. Under Section 31 of the Act the Financial Corporation can approach the District Judge for any of the three reliefs mentioned in Sub-clauses (a), (b) and (c) of Sub-section (1) of that section. Any of such reliefs can be granted to the Financial Corporation on its showing (i) that the industrial concern in breach of any agreement has made any default in repayment of any loan or advance or any instalment thereof, or (ii) that the industrial concern has otherwise failed to comply with the terms of its agreement with the Financial Corporation, or (iii) that the Financial Corporation had required the industrial concern to make immediate repayment of the loan or advance under Section 30 of the Act and the industrial concern has failed to make such repayment. Once the Financial Corporation succeeds in establishing any of the above three grounds, it becomes entitled to the grant of the relief as specified in Sub-section (1) of Section 31. In this view of the matter all that the Financial Corporation is required to claim and prove is the existence of any of the three grounds enunciated above and which entitle it to the grant of the relief. The investigation within the contemplation of subsection (6) of Section 32 is, therefore, restricted to such claim of the Financial Corporation. The investigation of such claim of the Financial Corporation would, therefore, involve an enquiry with respect to the terms and conditions on which the loan is advanced by the Financial Corporation to the industrial concern and whether there has been any breach in such terms by the industrial concern. The investigation may also relate to the fact whether the Financial Corporation had in accordance with the provisions of Section 30 called upon the industrial concern to repay the loan and whether the industrial concern had failed to comply with such repayment. Only such pleas of the industrial concern could call for investigation which could directly influence the findings of the court on the above points. The parties may raise various pleas before the District Judge in the proceedings initiated under Section 31 of the Act, but the District Judge is required to investigate and adjudicate only such of them as are relevant from the purpose of determining claim of the Financial Corporation. The interpretation of the words 'Claim of the Financial Corporation' as used in Sub-section (6) of Section 32 came up for consideration before the Supreme Court in the case of Gujarat State Financial Corporation v. Natson reported in AIR 1978 SC 1765, where their Lordships observed as under (at p. 1769):--

'Sub-section (6) of Section 32 of the Act has to be read in the context in which it is placed. The claim of the Corporation is not the monetary claim to be investigated though it may become necessary to specify the figure for the purpose of determining how much of the security should be sold. But the investigation of the claim does not involve all the contentions that can be raised in a suit. The claim of the Corporation is that there is a breach of agreement or default in making repayment of loan or advance or instalment thereof and, therefore, the mortgaged property should be sold. It is not a money claim. The contest can be that the jurisdictional fact which enables the Corporation to seek the relief of sale of property is not available to it or no case is made out for transfer of management of the industrial concern. Sub-section (7) of Section 32 prescribes what reliefs can be given after investigation under Sub-section (6) is made, and it clearly gives a clue to the nature of contest under Sub-section (6). Sub-Section (8) of Section 32 only prescribes the mode and method for executing the order of attachment or sale of property as provided in the Civil P. C. Subsections (6), (7) and (8) of Section 32 read together would give an opportunity to the industrial concern to appear and satisfy the District Judge that the situation envisaged by Section 31 (1) has not arisen and the relief should not be granted.'

It is thus obvious that the claim of the appellant that he had suffered a loss of Rs. 27,800/- On account of breach of the terms of the contract committed by the respondent corporation and that he was entitled to adjust this amount against the claim of the corporation cannot form subject matter of investigation in the proceedings under Section 31, of the Act.

13. The other contention of the learned counsel for the appellant that the respondent corporation was not entitled to charge compound interest at the agreed rate and that the District Judge was bound to give a finding if such interest could be legally charged, is also devoid of force. A bare reading of the provisions of Section 31 would suggest that the law requires the industrial concern to repay the amount of loan as also the interest in accordance with the agreement , arrived at between the Financial Corporation and the industrial concern. The validity of that agreement cannot be questioned in the proceedings under Section 31 of the Act. In case the industrial concern feels that the agreement or a particular term of the agreement is invalid in law, and should be declared as such, its remedy lies in filing a civil suit to that effect and not in taking an objection in the proceedings under Section 31 of the Act.

14. Now coming to the facts of this case we find that the appellant was in the first instance sanctioned a loan of Rs. 60,000/- by the respondent Corporation. The security against which and the terms on which this loan was to be advanced are contained in the mortgage deed Ex. P-A which was executed by the appellant on 12-12-1969. Out of the agreed loan of Rs. 60,000/-, a sum of Rs. 15,000/-was received by the appellant on the very day when this mortgage deed was executed and this payment was made in accordance with Sub-Clause (a) of condition No. 1 of this deed. With respect to the balance loan amount of Rs, 45,000/-, Sub-clause (b) of condition No. 1 of this deed provided that the same would be released after the industrial concern, that is, the appellant, satisfied the respondent Corporation with regard to the purchase of machinery detailed in Schedule 'B' to that deed. The machinery which is derailed in Schedule 'B' referred to above comprises of -

1. Dough mixture (cap 150 kg/HR).

2. Dough Divider (cap 200 kg/HR).

3. Bread slicing and wrapping ma chine (cap 15 to 20 pounds/minute).

4. Trolly,

5. Electric oven.

6. Packing machine.

7. Baking pans, moulds, bowls etc.

The second mortgage deed which relates to the additional loan of Rs. 40,000/- was executed by the appellant on 3-7-1970 and the same is Ex. P-B on the record. Condition No. 1 (i) of this mortgage deed specifically provides that the loan of Rs. 40,000/- forming subject matter of this mortgage deed was to be paid after the previous loan of Rs. 60,000/- had been fully availed of. Now as already stated in terms of condition No. 1 (b) of the earlier mortgage deed Ex. P-A the balance amount of Rs. 45,000/- was to be - released by the respondent Corporation in favour of the appellant only after the appellant satisfied the Corporation with regard to the purchase of machinery mentioned above. The machinery was obviously to be purchased by the appellant from his own funds after he had been advanced the first instalment of Rs. 15,000/-. The appellant, however, failed to purchase any such machinery and, therefore, he was not entitled to the release of the balance loan amount of Rs. 45,000/- in his favour. The respondent Corporation, however, still releaped the subsequent instalments of the loan in his favour to enable him to buy the requisite machinery. The statement of account Ex. P-E would show that the appellant had availed of the full amount of the agreed loan, that is, Rs. 1,00,000/- by 12-6-1971. Of course this entire amount of Rs. 1,00,000/- had not been paid to the appellant in the form of cash and a part of it had been adjusted towards interest which had fallen due from him to the respondent Corporation. This mode of payment of the amount of loan by way of adjustment of interest was, however, in accordance with the agreed terms between the parties. A provision to this effect finds mention in Sub-clause (vi) of condition No. 5 of the mortgage deed Ex. P-A. It reads.

'Provided always and it is hereby agreed and declared that it shall be lawful for the Corporation to deduct from any money to be advanced by it to the proprietor of the industrial concern, as aforesaid, any arrears of interest or instatment (s) of principal sum or other moneys then remaining due and payable by the proprietor of the industrial concern to the Corporation.'

It is thus clear that the respondent Corporation had advanced the full amount of the loan as had been agreed between the parties. It is also clear that there was no default on the part of the Financial Corporation in advancing the amount of the loan inasmuch as the appellant never became entitled to the release of the second instalment as he did not purchase the machinery mentioned in schedule 'B' to the mortgage deed Ex. p-A which was a condition precedent for the release of the subsequent instalments. It being not the case of the appellant that he has paid even a single instalment towards repayment of the loan, the default on his part is clearly established. Apart from this Ex. P-O, is a copy of the legal notice Dt. 23-6-1973 which was served by the Corporation on the appellant under Section 30 of the Act calling upon it to repay the entire amount of loan and which notice has admittedly been not complied with by the appellant.

15. In these circumstances the respondent Financial Corporation was fully justified in approaching the District Judge under Section 31 of the Act for an order for the sale of the mortgaged property and the learned District Judge was similarly fully justified in passing the impugned order directing the sale of the property mortgaged by the appellant with the respondent Corporation as security for the loan advanced to him. This appeal, therefore, fails and is dismissed with costs.


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