Full Judgment Text
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PETITIONER:
STATE BANK OF INDIA
Vs.
RESPONDENT:
SAKSARIA SUGAR MILLS LTD. AND ORS.
DATE OF JUDGMENT14/02/1986
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
THAKKAR, M.P. (J)
CITATION:
1986 AIR 868 1986 SCR (1) 290
1986 SCC (2) 145 1986 SCALE (1)244
CITATOR INFO :
D 1992 SC1740 (23)
ACT:
The Sugar Undertakings (Taking over of Management) Act
1978, s.7(1)(b) - Sugar Undertaking Notified - Only
obligations, rights, liabilities etc. arising out of
contracts, assurances of properties or agreements specified
in the Notification issued remain suspended and
unenforceable - Remedies against guarantor/surety - Not
suspended.
Indian Contract Act, 1872, s. 128 - Liability of surety
- Whether co-extensive with that of principal debtor.
HEADNOTE:
The Sugar Undertakings (Taking over of Management) Act,
1978, by Clause (b) of section 7(1) empowers the Central
Government to issue a notification declaring that the
operation of all or any of the contracts, assurances of
property, agreements, settlements, awards, standing orders
or other instruments, in force (to which a notified sugar
undertaking or the person owning such undertaking is a party
or which may be applicable to such sugar undertaking or
person) immediatley before the date of issue of the
notification shall remain suspended or shall be enforceable
with such adaptations and in such manner as may be specified
in the notification. Sub-section (4) of section 7 of the Act
provides that any remedy for the enforcement of any right,
privilege, obligation or liability referred to in clause (b)
of sub-section (1) of section 7 and suspended or modified by
a notification, remain suspended or modified and all
proceedings relating thereto pending before any Court,
tribunal, officer or other authority shall accordingly
remain stayed ro be continued subject to such adaptations,
so, however, that on the notification ceasing to have effect
(a) any right, privilege, obligation or
291
liability so remaining suspended or modified shall become
revived and enforceable as if the notification had never
been made; and (b) any proceeding so remaining stayed shall
be proceeded with subject to the provisions of any law which
may then be in force from the stage which had been reached
when the proceedings became stayed.
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The appellant, State Bank of India, had allowed cash
credit facility to respondent No. 1, M/s. Saksaria Sugar
Mills Ltd., on the security of goods produced at its Sugar
Factory and the title deeds of its immovable properties
deposited with the appellant by way of equitable mortgage to
secure the amount advanced under the said cash credit
facility. Respondents Nos. 2 to 5 had agreed to be the
guarantors for the repayment of any amount due from
respondent No. 1 under the said cash credit account. Since
there was default in the repayment of the amount due under
the said cash credit account, the appellant instituted a
suit against respondent Nos. 1 to 5 for recovery of a sum of
Rs. 54,89,822.99. In the meanwhile, the Central Government
took over the Sugar undertaking belonging to Respondent No.
1 under the provisions of the Act and appointed a Custodian
of the said undertaking.
In the suit, respondent Nos. 1 to 5 pleaded that the
suit was liable to be stayed in view of the provisions of
the Act. The Trial Court held that it had jurisdiction to
try the suit. In revision, the High Court held that the
trial of the suit in so far as prayer for decree for Rs.
54,89,822.99 against respondent Nos. 1 to 5 was concerned,
was liable to be stayed by virtue of the provisions of the
Act and that the trial of the suit with regard to all other
matters may proceed. The High Court also dismissed an
application flled by the appellant seeking clarification of
the aforesaid order. Hence these appeals by Special Leave.
Allowing the appeals,
^
HELD: 1. The order passed by the High Court is set
aside and the trial court is directed to proceed with the
suit. [299 F]
2. The Sugar Undertakings (Taking over of Management)
Act 1978 does not provide that on a sugar undertaking being
292
notified, automatically all the contracts, assurances of
property or agreement etc. entered into by such sugar
undertaking would become unenforceable. It states that only
those contracts, assurances of property or agreements etc.
which are specified in the notification issued under section
7(1)(b) (not all contracts) would become suspended and the
rights, privileges, obligations and liabilities arising
under them would not be enforceable. [297 D-F]
In the instant case, the Central Government has made a
declaration by Notification dated 21.3.84 to the effect
that the operation of all obligations and liabilities
accruing or arising out of all contracts, assurances of
properties, agreements, settlements, awards, standing orders
or other instruments in force immeditely before the 28th
March 1980 (other then those relating to secured liabilities
to banks and financial institutions) to which the said sugar
undertaking or the person owning the said sugar undertaking
is a party shall remain suspended up to March 12, 1985. It
is very clearly stated in the said Notification that it does
not apply to secured liabilities due to banks and financial
institutions. The liability involved in the suit was a
secured liability and the creditor is the State Bank of
India. Since all secured liabilities due to a bank or a
financial institution are excluded from the operation of the
Notification, the suit against respondent No. 1 as well as
respondent Nos. 2 to 5 remained unaffected by the
Notification. [298 E-G; 299E]
3. The Act does not say that when a notification is
issued under section 7(1)(b) of the Act, remedies against
the guarantors also stand suspended. Moreover, under section
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128 of the Indian Contract Act, 1872, save as provided in
the contract, the liability of the surety is co-extensive
with that of the principal debtor. The sureties thus became
liable to pay the entire amount. Their liability was
immediate and it was not deferred until the creditor
exhausted his remedies against the principal debtor.
Therefore, the order of the High Court against respondent
Nos. 2 to 5 is untenable. [299 B-D]
Bank of Bihar Ltd. v. Damodar Prasad & Anr. [1969] 1
S.C.R. 620, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 569-70
of 1986.
293
From the Judgment and Order dated 25.5.1984/22.2.1985
of the Allahabad High Court in C.M.An. No.644(M) of 1984 in
C.R. No. 136 of 1982.
Y.S. Chitale and S.A. Shroff for the Appellant.
Yogeshwar Prasad and S.R. Srivastava for the
Respondents.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. These appeals by special leave are
filed against the order dated May 25, 1984 passed by the
High Court of Allahabad in Civil Revision No. 136 of 1982
and the order dated February 22, 1985 in C.M.A. No.644(M) of
1984 on the file of that Court.
The appellant, the State Bank of India, had allowed
cash credit facility to M/s. Saksaria Sugar Mills Ltd.,
respondent No.1 herein, on the security of the goods
produced at the sugar factory belonging to respondent No.1.
Respondent No.1 had also deposited in the Bombay office of
the State Bank of India on February 2, 1962 by way of
equitable mortgage the title deeds of its immovable
properties to secure the amount advanced under the said cash
credit facility. Respondents Nos. 2 to 5 M/s. Govind Ram and
Brothers, Shri K.G. Saksaria, Shri G.L. Vaid and Shri R.K.
Saksaria had agreed to be the guarantors for the repayment
of any amount due from respondent No.1 under the said cash
credit account. Since there was default in repayment of the
amount due under the said cash credit account the State Bank
of India instituted a suit in Suit No. 18 of 1980 on the
file of the Additional District Judge, Gonda for recovery of
a sum of Rs.54,89,822.99 as on March 6, 1980 against
respondents Nos. 1 to 5 who were described as defendants
Nos.1 to 5 in the plaint praying for a decree in terms of
order 34, rule 4 C.P.C. and further consequential
directions. In the meanwhile by virtue of an order made by
the Central Government under the Sugar Undertakings (Taking
over of Management) Act, 1978 (Act No.49 of 1978)
(hereinafter referred to as ’the Act’) the sugar undertaking
belonging to respondent No.1 had been taken over by the
Central Government and one Raghubir Singh had been appointed
as the Custodian of the said undertaking. The State Bank of
India, therefore, impleaded Raghubir Singh and the Union of
India also as defendants Nos. 6 and 7 in the suit. In the
suit respondents
294
Nos. 1 to 5 pleaded inter alia that the trial court had no
territorial jurisdiction to try the suit and that the suit
was not maintainable and at any rate the suit was liable to
be stayed in view of the provisions of the Act. The trial
court had framed two issues arising out of the above pleas.
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The defendants filed an application before the trial court
on September 6, 1982 requesting it to decide first the above
two issues relating to its jurisdiction and its competence
to proceed with the suit. After hearing the parties the
trial court found that it had jurisdiction to try the suit
as the properties given as security were situated within its
jurisdiction and that there was no impediment to proceed
with the trial notwithstanding the fact that the management
of the mill of respondent No.1 had been taken over by the
Central Government under the Act. Aggrieved by the said
decision of the trial court, respondent No.1 filed a
revision petition in Civil Revision No. 136 of 1982 before
the High Court of Allahabad. The High Court allowed the
revision petition holding that the trial of suit in so far
as relief No.1 namely the prayer for decree for Rs.
54,89,822.99 against respondent Nos. 1 to 5 was concerned
was liable to be stayed by virtue of the provisions of the
Act. The High Court, however, directed that the trial of the
suit with regard to all other matters may proceed. Since the
only relief prayed in the suit was in respect of the
recovery of Rs.54,89,822.99 from respondents Nos. 1 to 5 in
accordance with the provisions of order 34, rule 4 C.P.C.
and that had been stayed, the State Bank of India applied to
the High Court by filing an application No. C.M.A. 644(M) of
1984 for clarification as to what other matter could be
tried in the suit. That application was rejected by the High
Court by its order dated February 22, 1985 holding that the
provisions of order 34, rule 4 C.P.C. were quite clear and
it was for the court below to proceed in accordance with
law. The High Court was of opinion that the order needed no
further clarification. Aggrieved by the others passed on
revision in Civil Revision No. 136 of 1982 and the order
passed in C.M.A. No. 644(M) of 1984 the State Bank of India
has filed this appeal by special leave.
The only question canvassed before us by the parties
relates to the question whether the trial of the suit should
be stayed by reason of the provisions of the Act. There is
no dispute about the territorial jurisdiction of the trial
court. It is contended by respondents Nos. 1 to 5 that since
the
295
management of the sugar undertaking belonging to the
respondent No. 1 had been taken over by the Central
Government under the Act, the trial of the suit filed
against respondent No. 1 for recovery of any amount due from
the sugar undertaking was liable to be stayed. It is no
doubt true that the Central Government has taken over the
management of the sugar undertaking belonging to the
respondent No. 1 by issuing a notification under section 3
of the Act and has appointed a Custodian under section 5
thereof. The material part of section 7 of the Act which is
relevant for the purposes of this case reads thus:
"7. Power of Central Government to make certain
declarations.- (1) The Central Government may, if
it is satisfied, in relation to a notified sugar
undertaking that it is necessary so to do in the
interests of the general public with a view to
preventing the fall in the volume of production of
the sugar industry, it may, by notification,
declare that-
(a)........................................
(b) the operation of all or any of the
contracts,assurances of property, agreements,
settlements, awards, standing orders or other
instruments in force (to which such sugar
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undertaking or the person owning such undertaking
is a party or which may be applicable to such
sugar undertaking or person) immediately before
the date of issue of the notification shall remain
suspended or that all or any of the rights,
privileges, obligations and liabilities accruing
or arising thereunder before the said date, shall
remain suspended or shall be enforceable with such
adaptations and in such manner as may be specified
in the notification.
..................................................
.
(4) Any remedy for the enforcement of any right,
privilege, obligation or liability referred to in
clause (b) of sub-section (1) and suspended or
modified by a notification made under that
subsection shall, in accordance with the terms of
the
296
notification, remain suspended or modified and all
proceedings relating thereto pending before any
Court, tribunal, officer or other authority shall
accordingly remain stayed or be continued subject
to such adaptations, so, however, that on the
notification ceasing to have effect -
(a) any right, privilege, obligation or liability
so remaining suspended or modified shall become
revived and enforceable as if the notification had
never been made;
(b) any proceeding so remaining stayed shall be
proceeded with subject to the provisions of any
law which may then be in force, from the stage
which had been reached when the proceedings became
stayed."
Clause (b) of section 7(1) of the Act which is
extracted above empowers the Central Government to issue a
notification declaring that the operation of all or any of
the contracts, assurances of property, agreements,
settlements, awards, standing orders or other instruments in
force (to which a notified sugar undertaking or the person
owning such undertaking is a party or which may be
applicable to such sugar undertaking or person) immediately
before the date of issue of the notification shall remain
suspended or that all or any of the rights, privileges,
obligations and liabilities accruing or arising thereunder
before the said date shall remain suspended or shall be
enforceable with such adaptations and in such manner as may
be specified in the notification. Subsection (4) of section
7 of the Act provides that any remedy for the enforcement of
any right, privilege, obligation or liability referred to in
clause (b) of sub-section (1) of section 7 and suspended or
modified by a notification made under that sub-section shall
in accordance with the terms of the notification, remain
suspended or modified and all proceedings relating thereto
pending before any Court, tribunal, officer or other
authority shall accordingly remain stayed or be continued
subject to such adaptations, so, however, that on the
notification ceasing to have effect (a) any right,
privilege, obligation or liability so remaining suspended or
modified shall become revived and enforceable as if the
noti-
297
fication had never been made; and (b) any proceeding so
remaining stayed shall be proceeded with subject to the
provisions of any law which may then be in force from the
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stage which had been reached when the proceedings became
stayed.
A reading of clause (b) of sub-section (1) and
subsection (4) of section 7 of the Act makes it clear that
it is only on the issuance of a notification by the Central
Govt. under section 7(1)(b) containing the necessary
declaration that the operation of all or any of the
contracts etc. entered into by the notified sugar
undertaking which are referred to in the said notification
shall remain suspended or that all or any of the rights,
privileges, obligations and liabilities accruing or arising
thereunder before the said date shall remain suspended. The
Act does not provide that on a sugar undertaking being
notified, automatically all the contracts, assurances of
property or agreements etc. entered into by such sugar
undertaking would become unenforceable. It states that only
those contracts, assurances of property or agreements etc.
which are specified in the notification issued under section
7(1)(b) (not all contracts) would become suspended and the
rights, privileges, obligation and liabilities arising under
them would not be enforceable. In the instant case the
Central Government has issued notifications from time to
time specifying the contracts, assurances of property,
agreements etc. the operation of which would stand suspended
or stayed during the period of its management of the sugar
undertaking in question. The latest notification issued in
that connection is dated March 21, 1984. It reads thus :
"S.O. 181(E) Whereas the Central Government is
satisfied that in relation to the Saksaria Sugar
Mills Limited manufacturing sugar at Badhanan in
the district of Gonda in the State of Uttar
Pradesh being the notified sugar undertaking, it
is necessary so to do in the interests of the
general public with a view to preventing the fall
in the volume of production of the sugar industry.
Now, therefore, in exercise of the powers
conferred by clause (b) of sub-section (1) read
with subsection (2) of section 7 of the Sugar
Undertakings (Taking Over of Management) Act, 1978
(49 of 1978),
298
and in continuation of the notification of the
Government of India in the Ministry of Food and
Civil Supplies (Department of Food) No. S.O.
196(E) dated the 22nd March 1983, the Central
Government hereby declares that the operation of
all obligations and liabilities accruing or
arising out of all contracts, assurances of
property, agreements, settlements, awards,
standing orders or other instruments in force
immediately before the 28th March, 1980 (other
than those relating to secured liabilities to
banks and financial institutions) to which the
said sugar undertaking or the person owning the
said sugar undertaking is a party, or which may be
applicable to the said sugar undertaking or that
person, shall remain suspended for a further
period from 28th March, 1984 to 12.3.1985."
The above notification clearly sets out the contracts,
assurances of property etc. the operation whereof is
suspended or stayed. The Central Government has made a
declaration by that notification to the effect that the
operation of all obligations and liabilities accruing or
arising out of all contracts, assurances of properties,
agreements, settlements, awards, standing orders or other
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instruments in force immediately before the 28th March 1980
(other than those relating to secured liabilities to banks
and financial institutions) to which the said sugar
undertaking or the person owning the said sugar undertaking
is a party shall remain suspended up to March 12, 1985. It
is very clearly stated in the said notification that it does
not apply to secured liabilities due to banks and financial
institutions. The liability involved in the suit was a
secured liablity and the creditor is the State Bank of
India. Yet the High Court surprisingly has proceeded to hold
that the operation of the contract, assurance of property
and agreement in respect of the undertaking and its property
entered into with the State Bank of India is to be suspended
and the suit in respect of them should be stayed in view of
the Act and the notification issued thereunder.
It is unfortunate that the High Court erred in
overlooking words "other than those relating to secured
liabilities to banks and financial institutions" referred to
in the notification which had the effect of excluding the
mortgage in
299
favour of the State Bank of India from the scope of the
notification issued under section 7 of the Act. The High
Court further erred in not noticing that even when a
notification is issued under section 7(1)(b) of the Act
suspeding the operation of any agreement or assurances of
property to which a notified sugar undertaking or the person
owning is a party, any proceeding againse the guarantor
would remain unaffected by the issuance of such a
notification. Under section 128 of the Indian Contract Act,
1872, save as provided in the contract, the liability of the
surety is co-extensive with that of the principal debtor.
The sureties thus became liable to pay the entire emount.
Their liability was immediate and it was not deferred until
the creditor exhausted his remedies against the principal
debtor. The Act does not say that when a notification is
issued under section 7(1)(b) of the Act the remedies against
the guarantors also stand suspended. In any event the order
of the High Court against respondents Nos. 2 to 5 is
untenable. (See Bank of Bihar Ltd. V. Damodar Prasad & Anr.,
[1969] 1 S.C.R. 620).
Since in the instant case all secured liabilities due
to a bank or a financial institution are excluded from the
operation of the notification, the suit against respondent
No.1 as well as respondents Nos. 2 to 5 remained unaffected
by the notification issued by the Central Government. The
order of the High Court in the Civil Revision is, therefore,
liable to be set aside. We accordinly set aside the orders
passed by the High Court against which these appeals are
filed and direct the trial court to proceed with the suit.
The appeals are accordingly allowed. Respondents Nos. 1 to 5
shall pay the costs of the appellant.
M.L.A. Appeals allowed.
300