Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
PETITIONER:
EVEREST INDUSTRIAL CORPORATION & OTHERS.
Vs.
RESPONDENT:
GUJARAT STATE FINANCIAL CORPORATION.
DATE OF JUDGMENT21/07/1987
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
SINGH, K.N. (J)
CITATION:
1987 AIR 1950 1987 SCR (3) 607
1987 SCC (3) 597 JT 1987 (3) 113
1987 SCALE (2)75
CITATOR INFO :
R 1989 SC2113 (17,20,29)
ACT:
State Financial Corporations Act, 1951: ss. 31 &
32--Nature of proceedings under--Loan--Rate of interest
chargeable on principal amount--Whether governed by s. 34
C.P.C. or payable at contractual rate.
Civil Procedure Code, 1908: s. 34, O. 34, rr. 6 &
11--Applicability of to orders passed under s. 32, State
Financial Corporations Act, 1951.
HEADNOTE:
The appellants had borrowed from the respondent Corpora-
tion a certain sum for the acquisition of fixed assets under
a deed of hypothecation. They also created an equitable
mortgage, mortgaging the land and factory building by depos-
iting the original title deeds of the properties with the
Corporation. The loan had to be repaid within a period of 8
years by half yearly instalments. The appellants were liable
to pay interest at 8.5 per cent per annum and that was to be
calculated and charged at the end of every half year.
The appellants committed default in payment of instal-
ments and interest due to the Corporation. The Corporation
filed an application under s. 31 of the State Financial
Corporations Act, 1951 before the District Judge claiming
the entire outstanding loan, interest and commitment
charges. The appellants having admitted the claim of the
Corporation, an order of compromise was passed by the Court
under which the appellants undertook to pay a sum of
Rs.15,000 every month towards the claim of the Corporation.
The appellants failed to pay the amount as ordered by the
Court.
The respondent thereupon filed an application under s.
32(8) of the Act requesting that the property hypothecated
in favour of the Corporation be directed to be sold by the
Commissioner appointed by the Court and the amount so rea-
lised be appropriated towards the dues.
The appellants raised an objection that since the Court had
not in
608
its order expressly directed payment of any interest on the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
amount, the Corporation was not entitled to recover any
amount by way Of interest due on the principal amount for
the period subsequent to the date of the order, and since
payment of interest subsequent to the date of the decision
of the Court was governed by s. 34 of the Code of Civil
Procedure, the appellants were not liable to pay any inter-
est. The first appeal and the Letters Patent Appeal filed by
the appellants were dismissed by the High Court.
In this appeal by special leave, it was contended for
the appellants that a proceeding under s. 31 of the Act is
in the nature of a suit, an order made thereon under s. 32
thereof is a decree, and since by subs. (6) of s. 32 of the
Act, the District Judge was required to investigate the
claim of the Corporation in accordance with the provisions
of the Code, s. 34 of the Code would be attracted to the
proceeding instituted under s. 31 of the Act also, and that
since the decree passed in this case is silent on the ques-
tion of payment of any interest on principal sum from the
date of the decree to the date of payment, the Court should
be deemed to have refused such interest by virtue of sub-s.
2 of s. 34 of the code.
Disposing of the appeal,
HELD: 1. The High Court was right in holding that inter-
est would be payable on the principal amount due in accord-
ance With the terms of the agreement between the parties
till the entire amount due was paid as per the order passed
under s. 32 of the State Financial Corporations Act, 1951.
[613GH]
2. Section 34 of the Code of Civil Procedure, 1908 is
not applicable to this case. A proceeding instituted under
s. 31(1) of the Act is something akin to an application for
attachment of property in execution of a decree at a stage
posterior to the .passing of the decree. That being so, no
question of passing any order under s. 34 of the Code would
arise since that provision would be applicable only at the
stage of the passing of the decree and not to any stage
posterior to the decree. Even under the Code, the question
of interest payable in mortgage suits filed in civil courts
is governed by Order 34 rule 11 of the Code and not by s. 34
of the Code which may be applicable only to cases of person-
al decrees passed under Order 34 rule 6 of the Code. [614C,
613F]
3. In the instant case, the Joint Judge is to redeter-
mine the actual amount due and payable to the Corporation as
per the contract between the parties before directing sale.
[614D]
609
Karnataka State Financial Corporation, Bangalore v.
Sri Nithyananda Bhavan & Anr., A.I.R. 1982 Karnataka 179 and
Gujarat State Financial Corporation v. M/s Natson Manufac-
turing Co. (P) Ltd. & Ors., [1979] 1 S.C.R. 372, referred
to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1446 of
1987.
From the Judgment and Order dated 2.1.1985 of the Guja-
rat High Court in L.P.A. No. 94 of 1984.
K.N. Bhatt, P.H. Parekh and M.K.S. Menon for the Appellants.
S.C. Patel for the Respondent.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. The short question which arises for
consideration in this case is whether the rate of, interest
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
chargeable on the amount payable under an order passed under
section 32 of the State Financial Corporations Act, 195 1
(63 of 195 1) (hereinafter referred to as ’the Act’) from
the date of the said order is governed by section 34 of the
Code of Civil Procedure, 1908 (hereinafter referred to as
’the Code’) or whether it is payable at the contractual
rate.
The Appellant No.1 --M/s. Everest Industrial Corporation
Private Limited, Baroda and its Directors had borrowed from
the Gujarat State Financial Corporation (hereinafter re-
ferred to as ’the Corporation’) a sum of Rs.6 lakhs for the
acquisition of fixed assets, namely, land bearing original
Survey No. 163 and now bearing Survey No. 949 of Baroda
measuring 1 acre and 3 gunthas and the factory building to
be constructed thereupon and for purchasing plant and addi-
tional machinery under a deed of hypothecation dated April
24, 1970 hypothecating all machinery and equipment situated
at the factory premises situated on Survey no. 949. They
also created an equitable mortgage mortgaging the said land
and factory building by depositing the original title deeds
of the properties with the Corporation by signing the letter
evidencing the said deposit of title deeds. Under the said
transaction the loan of Rs. 6 lakhs had to be repaid within
a period of 8 years by half yearly instalments, such first
half yearly instalment of 1/13th of the loan being payable
at the end of 24 months of the disbursement of the first
instalment of the loan and subsequent half yearly instal-
ments of 1/13th of the loan to be paid. each half year and
610
the last half yearly instalment of 1/13th of the loan to be
paid on 24.4.1978. According to the said agreement the first
instalment of Rs.46,153 was to be paid on 27.4.1972 and
second instalment of Rs.46,153 was to be paid on 27.10.1972.
The appellants were liable to pay interest at 8.5 per cent
per annum and that was to be calculated and charged at the
end of every half year and was payable on the 31st of March
and 30th September in each year. The appellants committed
default in payment of instalments and interest due to the
Corporation. Hence the Corporation filed an application on
9th August, 1973 under section 31 of the Act before the
District Judge, Baroda in Civil Miscellaneous Application
No. 123 of 1973 claiming that in view of the default, the
entire outstanding loan, interest and commitment charges
amounting to Rs.6,73,390.42 paise had become due and pay-
able. In the said proceedings the appellants having admitted
the claim of the Corporation a compromise was arrived at
under which the 1st Appellant--M/s. Everest Industrial
Corporation undertook to pay a sum of Rs.15,000 every month
towards the claim of the Corporation and further agreed that
if there was a default in payment of any two instalments at
a time, then the Corporation could recover the entire out-
standing amount then due forthwith. On the basis of the
above compromise an order was passed on 29.4.1977 by the
learned Joint Judge, Baroda before whom the case was pending
at that time. The operative portion of the order read as
follows:
"ORDER
Claim of the applicant is decreed.
Opponent No. 1-to pay the amount of Rs.15,000
(fifteen thousand) per month through the Bank
of Maharashtra to the applicant towards his
claim. If two instalments of Rs.15,000 each at
a time are not paid by Opponent No. 1, then
the applicant shall be entitled to recover the
remaining amount then due, at a time. Decree
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
to be drawn on payment of Court fees by the
applicant. 2/3 of the Court fee amount be
refunded to the applicant advocate. Costs to
be borne by Opponent No. 1. Costs to be
assessed after deducting the amount of court
fees refundable to the applicant."
Because the 1st Appellant failed to pay the amount as
ordered by the Court an application was filed by the Corpo-
ration under section 32(8) of the Act before the District
Judge, Baroda requesting that the property hypothecated in
favour of the Corporation be directed to be sold by the
Commissioner appointed by the Court and the amount so
611
realised might be appropriated towards the dues of the
Corporation. Accordingly an order directing the sale of the
properties was passed on 8.2.1980. Before the property could
be sold the appellants raised an objection regarding the
actual amount which could be realised by the Corporation by
the sale of the properties mortgaged in its favour. The
objection which related to the amount of interest payable by
the appellants was formulated thus. Since under the order
dated 29.4.1977, which was described as a decree, the Court
had not expressly directed payment of any interest on the
decretal amount, the Corporation was not entitled to recover
any amount by way of interest due on the principal amount
for the period subsequent to the date of the order. It was
further submitted that since the question of payment of
interest on the amount due for the period subsequent to the
date of the decision of the Court is governed by section 34
of the Code the appellants were not liable to pay any inter-
est because the Court had not ordered payment of any amount
by way of interest to be paid as required by that section.
In other words the contention of the appellants was that
when the "decree" was silent about the payment of interest
for the period between the date of the "decree" and the date
of payment the Corporation was not entitled to recover it.
It may be mentioned that the Corporation had claimed inter-
est at the rate agreed upon under the transaction, i.e., 8.5
per cent per annum and that had not been disputed by the
borrowers. The said objection was overruled by the Joint
Judge by his Order dated February 25, 1983. He determined
that Rs.9,35,547.84 paise was due as on February 8, 1983 and
that thereafter interest at the rate of Rs.178.60 paise per
day would be accruing. Aggrieved by the order of the Joint
Judge, the appellants filed an appeal in First Appeal No.
1474 of 1983 before the High Court of Gujarat. That appeal
was dismissed by the learned Single Judge on February 2,
1984. Under the Letters Patent Appeal No. 94 of 1984 filed
by the appellants, a Division Bench of the High Court af-
firmed the judgment of the learned Single Judge by its
decision dated January 2, 1985. This appeal by special leave
is filed against the judgment of the Division Bench of the
High Court.
The main contention urged on behalf of the appellants
before this Court is that a proceeding under section 31 of
the Act is in the nature of a suit, an order made thereon
under section 32 thereof is a decree and since by sub-sec-
tion (6) of section 32 of the Act the District Judge is
required to investigate the claim of the Corporation in
accordance with the provisions of the Code insofar as the
said provisions would be applicable thereto, section 34 of
the Code which governs the question of levy of interest on
the amount due from the date of the suit
612
to the date of the decree and from the date of the decree to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
the date of payment would be attracted to the proceedings
instituted under section 31 of the Act also. It is urged
that since the "decree" passed in this case is silent on the
question of payment of any interest on the principal sum
from the date of the decree to the date of payment, the
Court should be deemed to have refused such interest by
virtue of subsection (2) of section 34 of the Code. In
support of the above contention of the appellants, reliance
is placed on the decision of the High Court of Karnataka in
Karnataka State Financial Corporation, Bangalore v. Sri
Nithyananda Bhavan and another, A.I.R. 1982 Karnataka 179 in
which the High Court had applied section 34 of the Code to a
proceeding instituted under section 31 of the Act. In that
case the District Judge had awarded future interest at 6 per
cent per annum on the amount payable under a transaction
under the Act from the date of the application to the date
of payment. The Karnataka State Financial Corporation which
was aggrieved by the order of the District Judge filed an
appeal against that order before the High Court. In the said
appeal the Karnataka State Financial Corporation claimed
interest on the principal amount due from the date of the
application at the rate of 18 per cent per annum. In decid-
ing the said case the High Court did not go into the ques-
tion whether section 34 of the Code would be applicable to a
proceeding under the Act. It was assumed on all hands that
section 34 of the Code was applicable. Ultimately, the High
Court increased the rate of interest to 11 per cent per
annum which was the contractual rate of interest treating
that as a reasonable rate of interest that could be awarded
under section 34 of the Code. It may be mentioned here that
an earlier decision of this Court in Gujarat State Financial
Corporation’ v. M/s Natson Manufacturing Co. (P) Ltd. &
Ors., [1979] 1 S.C.R. 372 in which the nature of a proceed-
ing instituted under section 31 of the Act and of the order
passed thereon under section 32 thereof had been considered
was not brought to the notice of the High Court.
In Gujarat State Financial Corporation v. M/s.
Natson Manufacturing Co. (P) Ltd. & Ors. (supra) no doubt
the question involved was whether court fee was payable on
an application made under section 31 of the Act on an ad
valorem basis as if the proceeding was a suit or not. But
this Court after analysing the provisions of the Act held
that an application for any of the reliefs that can be
granted under the Act was not certainly a plaint in a suit
for recovery of mortgage loan and that it was not even
something akin to a suit by a mortgagee to recover mortgage
money by sale of the mortgage property. The Court held that
the applicant in such a case could not pray
613
for a preliminary decree for sale of the property or a final
decree for the payment of the money nor it could seek to
enforce any personal liability even if such a liability had
been incurred under the contract of mortgage as the law
stood then. This Court held that the form of the relief to
be granted under the Act did not attract Article 1 or Arti-
cle 7 of Schedule 1 of the Bombay Court Fees Act, 1959 which
required payment of court fee on ad valorem basis on any
plaint or application in the nature of a plaint instituted
for recovery of mortgage amount. Accordingly it held that
the demand for payment of ad valorem court fee was unsus-
tainable. In the course of its judgment the Court rejected
the contention based on sub-section (6) of section 32 of the
Act which required a District Judge to apply the procedure
of the Code to applications made under section 31 of the Act
and ultimately held that the substantive relief in any claim
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
under section 31(1) of the Act was something akin to the
relief that could be granted on an application for attach-
ment of property for execution of a decree at a stage poste-
rior to the passing of the decree. The Court further ob-
served that "we are unable to appreciate the view taken by
the High Court that the proceeding is not in the nature of
execution of the decree because the question of enforcement
of the order of attachment or sale would only arise after
the same is made absolute under sub-section (7)." Even
though in the above decision the question which arose for
consideration was whether ad valorem court fee was payable
on an application under section 31 of the Act as if it was a
suit, the Court has decided the said question after deter-
mining the true nature of a proceeding instituted under
section 31(1) of the Act on a detailed analysis of the
provisions of the Act.
If as held by this Court the proceeding instituted under
section 31(1) of the Act is something akin to an application
for attachment of property in execution of a decree at a
stage posterior to the passing of the decree no question of
passing any order under section 34 of the Code would arise
since section 34 of the Code would be applicable only at the
stage of the passing of the decree and not to any stage
posterior to the decree. It may also be mentioned here that
even under the Code the question of interest payable in
mortgage suits filed in civil courts is governed by order 34
rule 11 of the Code and not by section 34 of the Code which
may be applicable only to cases of personal decrees passed
under order 34 rule 6 of the Code. The High Court was right
in holding that interest would be payable on the principal
amount due in accordance with the terms of the agreement
between the parties till the entire amount due was paid as
per the order passed under section 32 of the Act. We hold
that the decision of the Karnataka High
614
Court, referred to above, which has applied section 34 of
the Code to a proceeding instituted under section 31(1) of
the Act is not correctly decided.
It was lastly urged on behalf of the appellants that the
amount due and payable to the Corporation has not been
properly calculated by the Joint Judge. We do not have all
the material before us to enable us to determine the actual
amount due. It is also seen that subsequent to the date of
the order passed by the Joint Judge a sufficiently long time
has elapsed. In the circumstances we feel that the Joint
Judge before whom the proceeding for recovery of the amount
by sale of the properties has been instituted should be
directed to redetermine the amount due and payable to the
Corporation in this case.
We accordingly affirm the judgment of the High Court
holding that section 34 of the Code of Civil Procedure, 1908
is not applicable to this case but remand the matter to the
Joint Judge to redetermine the actual amount due and payable
to the Corporation in these proceedings calculating the same
as per contract between the parties before directing the
sale of the properties. We direct the Joint Judge to deter-
mine the amount payable by the appellants within one month
from the date of the receipt of a copy of the order of this
Court. Both the parties are directed to file their state-
ments of accounts before the Joint Judge within one week
from the date of receipt of the copy of this order by the
Joint Judge to enable him to decide the case as directed
above.
The appeal is accordingly disposed of. There shall,
however, be no order as to costs.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
P.S.S. Appeal disposed
of.
1
?615