Industrial Finance Corporation ... vs Shama Forge Co. Ltd. And Anr.
1993 Latest Caselaw 446 Del

JUDGMENT

D.P. Wadhwa, J.

(1) A petition Civil Misc. (Main) 85/74 under section 30 of the Industrial Finance Corporation Act, 1948 (for short 'the Act of 1948') and two suits (Suit No. 430/81 and Suit No. 1 179/82) have been heard together along with yet another suit (Suit No. 59/73). Under this Act of 1948 a corporation called the Industrial Finance Corporation of India ('IFCI' for short) was established. Ifci is a body corporate having perpetual succession and a common seal with powers, subject to provisions of the Act of 1948, to acquired, hold and dispose of property, both movable and immovable, and shall by the said name sue and be sued. As the preamble of the Act of 1948 would show, Ifci was established for the purpose of making medium and long-term credits more readily available to industrial concerns in India, particularly in circumstances where normal banking accommodation is inappropriate or recourse to capital issue methods is impracticable. Industrial Finance Corporation rules, 1957 (IFC Rules) have been framed under the Act of 1948.

(2) The three suits and the petition have been listed together at final stages, though there is no order consolidating these cases. Some issues arising in these cases would, however, appear to be inter-linked and that perhaps has been the reason why these have been heard together at the final stage.

(3) As to how these cases came to be filed, a brief back-ground may be necessary. The Agency for International Development, an Agency of the Government of the United States of America (US-AID), agreed to lend to the Ifci an amount of Us dollars 20,000,000 under agreement dated 28 June 1962. The loan had been guaranteed by the President of India. Under this agreement, Ifci had agreed to avail itself of the aforesaid loan for the purpose of carrying out a programme of extending 5 years to 25 years credits to industrial concerns in private sector in India for .certain specific projects. Ifci also agreed to cause this loan to be utilised in accordance with the terms of the loan agreement dated 28 June 1962 exclusively for sub-loans to finance the reasonable foreign exchange, costs of equipments, material and services required by the industrial concerns in India to carry out their projects.

(4) Ifci agreed in turn to lend to Shama Forge Company Ltd. ('Shama Forge' for short) Us dollars 4,90,280 for the purpose of its scheme of setting up a factory in Bhopal for the manufacture of 8000 tons of forgings per annum from mild and alloy type of steel. Ifci also agreed to advance to Shama Forge a rupee loan of Rs.3,06,000.00 . The loan in foreign currency as well as the rupee loan was to be returned by the Shama Forge with interest accrued thereon as per agreement.

(5) On 27 May 1969 Shama Forge as mortgagor executed a mortgage deed (English mortgage) in favor of Ifci as mortgagee whereby Shama Forge conveyed and assigned to Ifci all its "lands and buildings" and "the plant" as per details given in the deed to secure the repayment of the two loans and the interest accrued thereon.

(6) US-AID by a separate agreement also agreed to advance a rupee loan amounting to Rs.47.50 lakhs to Shama Forge directly under an agreement dated 28 October 1964. Union Bank of India ('UBI' for short) at the request of Shama Forge agreed to guarantee to the extent of Rs.32 lakhs out of the said rupee loan of Rs.47.50 lakhs on condition that Shama Forge shall give a pari passu charge to the extent of Rs.32 lakhs with interest and all costs, charges and expenses payable by Shama Forge to Ubi under a separate mortgage on its fixed assets along with the charge of IFCI. After the execution of the mortgage deed in favor of Ifci, another mortgage deed of the same day, i.e., 27 May 1969, was executed between Shama Forge as mortgagor and Ubi as mortgagee whereby Shama Forge granted, assigned and conveyed, etc., all "the lands and buildings" and also "the plant" in favor of Ubi as mortgagee. I may at once note here that description of "the lands and buildings" and "the plant" in both the mortgage deeds is the same.

(7) Ifci agreed to the mortgage executed between Shama Forge and Ubi that it was to rank pari passu to the extent of Rs. 32 lakhs and interest and all costs, charges and expenses payable by Shama Forge to UBI. Therefore, after the execution of the aforesaid two mortgages, Shama Forge, Ubi and Ifci entered into yet another agreement called the tripartite agreement again on the same day, i.e., 27 May 1969, reiterating the terms of the two mortgages wherein it was specifically mentioned that notwithstanding anything contained in the mortgage between Shama Forge and Ifci, and the mortgage executed between the Shama Forge and Ubi, the rights of Ifci and Ubi inter-se in respect of the securities created by the aforesaid two mortgages mentioned in the respective schedules thereto shall rank pari passu in points of security for all intent and purposes. This tripartite agreement also specified that insurance policies in respect of the mortgaged premises shall be taken out in the joint names of Shama Forge, Ifci and Ubi though the policy of insurance shall beheld and retained by Ifci for the common benefit of Ifci and the UBI. Both Ifci and Ubi had been sharing the expenses for taking out the insurance policies under this tripartite agreement. Clause 5 of the tripartite agreement is as under:- "5.Prior to taking any action for enforcement of the aforesaid securities Ifc (IFCI) and the Bank (UBI) shall duly inform the other of the same and each of them shall consult the other in respect of all matters pertaining to the security aforesaid, so far as the same is practicable without affecting its own rights and each of them shall at all times kept the other informed of all serious and important matters coming to its knowledge relating to the Mortgage Premises or any part or portion thereof or otherwise relating to the Borrowers."

Then clause 10 is as under:- "10.4 Subject to the pari passu rights of Ifc (IFCI) and the Bank (UBI) as aforesaid the rights and powers reserved to Ifc under the said Ifc Mortgage or under the Ifc Act, 1948 or otherwise shall not be prejudiced or affected by the rights and powers available to the Bank under the said Bank Mortgage."

(8) It may also be noted that M/s. B.K. Khanna & Company Pvt. Ltd. (for short 'Khanna & Company' ) had earlier entered into a technical collaboration agreement with an American firm which agreement is dated 1 August 1963. Under this agreement the American firm had agreed to make certain investments in Us dollars in a proposed company to be promoted by Khanna & Company which company was later on incorporated as Shama Forge Company Ltd. (Shama Forge). Khanna & Company thereafter assigned in favor of Shama Forge the benefits and interests of technical collaboration agreement dated 1 August 1963. Khanna & Company, Mrs. Shama Khanna, Mrs. Kamla Rathour, Mr. B.K. Khanna and Mr. K.N. Khanna executed a guarantee on 30 October 1965 in favor of Ifci guaranteeing the repayment of loan granted by Ifci to Shama Forge in terms of the conditions of agreement dated 5 November 1965, etc. This guarantee was supplemental to the mortgage that had been executed on 27 May 1969. On 30 October 1965, Shama Forge, Khanna & Company and Ifci executed a tripartite agreement. This agreement had to be entered into in view of the fact that pending the execution of legal mortgage by Shama Forge in favor of Ifci, Shama Forge was in urgent need of fund for opening letters of credit in favor of foreign suppliers. Ifci opened letters of credit on request of Shama Forge in favor of various foreign suppliers and made payment in foreign currency (US dollars) and also disbursed to Shama Forge rupee loan. The rupee loan and dollar loan were to be returned by Shama Forge to Ifci as per terms agreed.

(9) Shama Forge defaulted and this led to the present litigation by the IFCI. Again on default committed by Shama Forge, Ubi had to pay Rs. 44,33,468.48 under the Bank guarantee given by Ubi to secure loan of Rs. 32 lakhs out of Rs. 47.50 lakhs advanced by US-AID to Shama Forge. This amount was paid by Ubi on 24 April 1978. Since Shama Forge did not pay this amount, Ubi filed suit (No. 1179/82) for recovery of this amount together with interest accrued thereon and other charges amounting to Rs. 77,02,333.48. Ifci was also made a defendant because of the pari passu charge on the land and buildings and plant of Shama Forge.

(10) Civil Misc. (MAIN) 85 of 1974: On 14 March 1974 Ifci filed a petition under section 30 of the Act of 1948 making Shama Forge and Ubi as respondents. Ubi was imp leaded because the property in regard to which the petition was filed also stood mortgaged in favor of the Ubi as noted above. It was, however, stated that no relief was otherwise claimed against UBI. It was also stated that orders made on the petition would not adversely affect the interests of the Ubi but if anything would rather protect the interest of Ubi as mortgagee to the extent mentioned above.

(11) Suit NO. 430 Of 1981: This suit was filed by Khanna & Company, B.K. Khanna and K.N. Khanna as plaintiffs on 16 May 1981 against Ifci, Shama Khanna and Kamla Rathour. This suit, if appears, was filed as assets of Shama Forge were ordered to be sold and in fact sold under orders of the court in Civil Misc. (Main) 85/74. Earlier a Receiver had been appointed in that case by the Court who first took charge of the properties of Shama Forge, then sold the properties and deposited the sale proceeds in court. Apprehension of the plaintiffs in this suit, it appears, had been that no part of the assets s realised be made out to Ubi in that proceedings. The prayers in this suit for declaration and injunction filed under sections 34,37 and38 of the Specific Relief Act, 1963,are:-

A.A declaration that Defendant No. 1 is not entitled to use any money received/receivable by sale of the property of Shama Forge Co. Ltd., inC.M.(M)(IFCI)No.85of1974, except for repayment of Defendant No.1's loan to Shama Forge Co.Ltd;

B.A declaration that Defendant No. 1 cannot and is not entitled to deduct the costs incurred by it in C.M. (M) (IFC) No. 85 of 1974 and/or those incurred by the Receiver therein from out of the money received/ receivable by sale of the property of Shama Forge Co. Ltd. ;

C.A permanent injunction restraining Defendant No. 1 from using the sum of Rs. 85 lacs recovered/recoverable by sale of the property of Shama ForgeCo.Ltd.,in C.M.(M)(IFC)No. 85 of 1974, or any part of the said sum, for any purpose other than repayment of the loan given by Defendant No. 1 to Shama Forge Co. Ltd.;-

D.An ex-parte, ad-interim injunction in terms of prayer C above during the pendency of this suit before this Hon'ble Court;

E.Costs of and incidental to this suit.

(12) Written statement was filed in this suit only by Ifci and the plaintiffs filed replication thereto. That are all the pleadings in the case no issues were framed and no evidence recorded. At the time when the suit was instituted a miscellaneous application (IA 1784/81 ) was also filed by the plaintiffs wherein while issuing notice it was ordered that Ifci be restrained from paying any part of the sum of Rs. 85 lakhs recovered/recoverable by sale of properties of Shama Forge in Civil Misc. (Main) 85/74 to any creditor of Shama Forge or to any other person except Ifci itself in repayment of its loan to Shama Forge. This injunction was, however, not continued and on 1 October 1981 with the following order this application was disposed of :- "THE Finance Corporation is allowed to withdraw a sum of Rs.25 lacs which is in deposit in this court. The Corporation agrees to keep the amount in a separate account. They will hold it subject to the orders of the Court. I.A.I 784/81 stands disposed of."

(13) Then on 16 November 1981 the Joint Registrar of this Court passed the following order in the presence of counsel for the plaintiffs and defendant No. 1 (IFCI) :- "Counsel for both the sides agree that the record in C.M. 85/74 & Suit No. 59/73 be read as part of this case. In view of this position, counsel state that there is no necessity of admitting/denying any documents. Case is to go now for framing of the issues and directions regarding that will be given on 25th November, 1981."

(14) Thereafter, this suit had been adjourned from time to time. There is, however, an order dated 13 September 1985 that the suit should not be treated as part heard and should be listed before the Judge on the Original Side on the date fixed. Then there is an order that the suit to come up along with Suit No. 59/73 and Suit No. 1179/82. where after the suit is being listed for final arguments.

(15) Suit NO. 1179 Of 1982: This suit has been filed on 11 August 1982 by Ubi against Shama Forge and IFCI. The suit is for recovery of the amounts due from Shama Forge to the Ubi and as regards defendant No.2 (IFCI) the claim is for share of the sale proceeds of the assets of Shama Forge in Civil Misc. (Main) 85/74 in terms of the pari passu charge and the terms of the tripartite agreement. The prayers are :-

A)That this Hon'ble Court be pleased to declare and decree that the Defendant No.1 is bound and liable to pay to the plaintiff the sum of Rs.77,02,333.48 together with compound interest on Rs.42,33,468.48 at the rate of 12-1/2% per annum from the date of the filing of the suit till realisation and the costs of the suit under the said mortgage.

B)THATthis Hon'ble Court be pleased to declare that due repayment of the sums mentioned in prayer (a) above stands secured by the mortgage of the properties described herein created in the plaintiffs favor under the deed of mortgage dated 27th May, 1969; and by the substituted security of the sum of Rs.85,00,000.00 as mentioned in paragraph 23 above.

C)that since the mortgage assets have been sold by or under the directions of this Hon'ble Court, it be declared that the plaintiffs are entitled to recover the said amount from the sale proceeds; and the defendants are bound and liable to pay the same; and

D)that the defendant No.2 be ordered and decreed to pay to the plaintiffs its share under the said tripartite agreement dated 27-5-1969 out of the sale proceeds of the mortgaged properties.

E)to pass such other and further orders as this Hon'ble Court may deem fit and proper in the circumstances of the case.

(16) In this suit Khanna & Company, B.K. Khanna and K.N. Khanna filed an application (IA 761/83) under Order I Rules 8A and 10 of the Code of Civil Procedure. The application was filed on 1 November 1983, but by order dated 31 March 1987 it was dismissed when the court held that the applicants were neither necessary nor proper parties and in any case their rights could be well safe guarded in Suit No. 59/73. During the pendency of the suit it was recorded that Shama Forge had been wound up and that the plaintiff was allowed to proceed with this suit on permission granted by the Company Judge under the Companies Act, 1956. The plaint was accordingly amended and Shama Forge was now sued through the Official Liquidator who had been appearing in the proceedings through his counsel. 0n 31 March 1986 the court passed thefollowingorderonanapplication(IA 4109/83) filed by the plaintiff :- "THIS is an application by the plaintiff in Suit No. 1179/82 seeking orders restraining the Industrial Finance Corporation of India (IFCI for short) (defendant No.2) from appropriating any amount in excess of Rs.48,24,349.99 out of the amounts which were earlier deposited in this Court and were withdrawn by the IFCI. Counsel for the Ifci points out 205 that there is already an order by this court dated 18.5.1981 in Suit No. 430/ 81 restraining the Ifci from paying any part of the sum of Rs.85,00,000.00 recovered/recoverable by sale of property of M/s Shama Forge Co. Ltd. to any creditor of M/s. Shama Forge Co. Ltd. or to any other person except defendant No. 1, i.e. Ifci in repayment of the loan of defendant No. 1 to the said company. This order only restrains Ifci from paying to anybody the amount of Rs.85,00,000.00 recovered/recoverable by the sale of the property of the company. The property has been sold for Rs.85,00,000.00 and the Ifci has also withdrawn certain amounts subject to the orders of this Court. This it was permitted to do in this order itself and also by certain other orders of this court. However, since Ifci has already been restrained from paying any part of the sale proceeds to any creditor of M/s. Shama Forge Co. Ltd., there is an effective order restraining the Ifci from parting with the p73 funds in favor of any other creditors of the company. Counsel for the Ifci states that there is also an order by this court in CM(M) 85/74 under which the Ifci had been permitted to withdraw the monies from this court on condition that the amounts will be kept by it under suspense and will not be appropriated against their debts against the company. In view of this order no further orders are necessary on the present application moved by the plaintiff. At least no separate restraint order is necessary till the disposal of CM(M) 85/74. Since the plaintiff is a party to the CM(M) it will be open to it to renew this application and seek further restraint order, if considered necessary, thereafter. This order disposes of this application. "

(17) Only Ifci filed its written statement and on pleadings of the parties, the following issues were framed:-

1. Whether dies, die-blocks, tool, sand implements, stores and spares had been separately hypothecated with the plaintiff bank by defendant No. 1 ? If so, to what effect ?

2.To what amount is the plaintiff entitled ?

3.Relief.

(18) In support of its case the plaintiff Ubi examined three witnesses and brought on record various documents. The witnesses primarily proved the documents. They are the bank officials. Shama Forge through Official Liquidator stopped appearing and produced no evidence. Ifci said that it was not to produce any evidence and that evidence already recordedinCivilMisc.(Main)85/74 and in Suit No. 59/73 be read as part of its evidence in this suit as well. This statement was recorded on 14 September 1987. The claim of the plaintiff for recovery of Rs.77,02,333.48 consists of the following:-

1.Amount paid to Us Aid under Guarantee inclusive of interest. 43,33,468.48

2.INTERESTon above from 26.4.1978 till date of [email protected] 12 -l/2%compoundasagreed. 26,19,394.48

3.Expenditure incurred on salary of watchman, their conveyance and for purchase of Misc. items. 1,23,991.45

4.Premium paid for insurance of mortgaged property of defendant No. 1.68,875.96

5.Professional fees and out of pocket expenses incurred in respect of declaratory suit filed by plaintiff against defendantNo.1 in Bhopal. 6,512.00

6.Professional fees paid to Advocates including out of pocket expenses. 79,728.85

7.Professional fees and other out of pocket expenses incurred in defending High Court C.M.(Main) 85 of 1974 filed by defendant No.2 against defendant No. 1 and plaintiff in Delhi High Court. 22,361.26

8.Bank Commission on guarantee issued in favor of U.S. AID.

Total

(19) Since reference has been made to Suit No. 59/73, let us see what it is about. On 6 February 1973 Ifci instituted this suit for recovery ofRs.49,87,163.12 against Khanna & Company, Mrs. Shama Khanna, Mrs. Kamla Rathour, Mr. B.K. Khanna and Mr. K.N. Khanna. It may be noted that B.K.Khanna and K.N.Khanna are brothers, Kamla Rathour is their sister and Shama Khanna is their mother. The suit was filed on the basis of the guarantee given by all these five defendants. During the pendency of this suit it was noted that Shama Khanna became a person of unsound mind and her guardian at litem was appointed. Then she died and her fourth child Dr. (Mrs) Jalota was also imp leaded as a defendant. She appeared but said that she was not interested in the litigation. The plaintiff was, however, directed to file an amended plaint incorporating additional para regarding substitution of legal heirs of the deceased Shama Khanna. In this Suit No. 59/73 there are as many as 31 issues which basically concern the maintainability of the suit, cessation of any claim under the guarantee and the guarantors having been discharged on account of various acts of omission and commission by the IFCI. Evidence in great detail has also been recorded in that suit. Suit No. 430/81 is in fact a case of no evidence. As noted above, no issues have been framed. Points raised therein could well be considered in Civil Misc. (Main) 85/74 filed by Ifci and Suit No. 1179/82 filed by UBI. The fact, however, remains that the plaintiffs in Suit No. 59/73 are not parties to any of these two proceedings.

(20) After considering the whole aspect of the matter I think it will be more appropriate to decide Civil Misc. (Main) 85/74 and Suit No. 1179/82 in the first instance when claim made in Suit No. 430/81 will also get answered. Suit No. 59/73 is to be decided separately which is based on an independent contract of guarantee with the defendants therein pleading that they stood discharged as guarantors. Moreover, the extent of liability of the guarantors, if any, will arise only if any amount remains outstanding to Ifci after appropriating the sale proceeds of mortgaged assets of Shama Forge in Civil Misc. (Main) 85/74.

(21) As to the amounts which had been advanced by Ifci to Shama Forge, no dispute has been raised. Again, there is no dispute, and in fact there could not be any dispute, that in terms of the guarantee the Ubi paid Rs.32 lakhs as guaranteed by it along with interest amount of Rs. 10,33,468.48 totalling Rs.42,33,468.48 to the Us Aid on or about 25 April 1978. The principal dispute, therefore, remains regarding the rate and amount of interest payable. Some small disputes will, however, pertain to other amounts claimed by the Ifci and Ubi if they are covered by the deed of guarantee, and the mortgage deed, and further whether Ubi can claim pari passu charge in respect of those amounts which are not subject- matter of the mortgage deed or any other agreements. Reference in this connection will have to be made to various relevant provisions on the point. Section 30 of the Act of 1948, in so far as it is relevant, is as under :-

"30.Special provisions for enforcement of claims by the Corporation ( 1 ) When 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 the guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Corporation or where the Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 29 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of section 28 of this Act and of section 69 of the Transfer of Property Act, 1882 (4 of 1882), any officer of the Corporation generally or especially authorised by the Board in this behalf may apply to the court, for one or more of the following reliefs, namely :-

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

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

(C)for an ad interim injunction where there is apprehension of the machinery or the equipment being removed from the premises of the industrial concern without the permission of the Board.

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

(3)When the application is for the reliefs mentioned in sub-clauses (a) and (c) of sub-section (1) the court shall pass an ad interim order attaching the security or so much of the property of the industrial concern as would on being sold realise in its estimation an amount equivalent in value to the outstanding liability of the industrial concern to the Corporation together with the costs of the proceedings taken under this section without or without an and interim injunction restraining the industrial concern from transferring or removing its machinery or equipment.

(4)...........

(5)Before passing any order under sub-sectip1 on (3) or sub-section (4) the court may if thinks fit, examine the officer making the application.

(6)At the same time as it passes an order under sub-section (3), the court shall issue to the industrial concern a notice accompanied by copies of the order, the application and the evidence, if any, recorded by it calling upon the industrial concern 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.

(7)If no issue is shown on or before the date specified in the notice under sub-sections (4) and (6), the court 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 Corporation or confirm the injunction.

(8).......

(9).......

(10).......

(10A).......

(11)Any party aggrieved by an order under sub-section (7) or subsection (9) may, within thirty days from the date of the order, appeal to the Court empowered to hear appeals from the decisions of the Court which passed the order and the appellate Court may after hearing the parties pass such orders as it thinks proper.

 (12)Nothing in this section shall beconstrued, where proceedings for liquidation in respect of the industrial concern have commenced before an application is made under sub-section (1) as giving to the Corporation any preference over the other creditors of the industrial concern not conferred on it by any other law.    XXxx xx   

 (14)For the removal of doubts, it is hereby declared that any court competent to grant an ad interim injunction under this section shall also have the power to appoint a receiver and to exercise all other powers incidental thereto.   

 (15).......  

 (16)......."    

(22) Under the Ifc Rules, framed under section 42 of the Act of 1948, the Central Government is to fix the rates of interest and rebate in interest by notification. This is Rule 6.This Rule, as it originally stood, was as under:- "6. Central Government to fix the rates of interest and rebate in interest by notification- The Corporation shall charge interest on all its loans at the rate of 6-1/2 per cent per annum with a rebate of 1/2 per cent for punctual repayment of principal and payment of interest. Any variation in these rates which shall be made only with the prior approval of the Central Government shall be notified by the Central Government in the official Gazette. "

(23) Two notifications - one dated 9 May 1961 and the other dated 5 March 1965, have been brought on record. Under the first notification, the Central Government has fixed the rate of interest to be charged by the Ifci on the foreign currency sub-loan granted by it out of the dollar loan sanctioned by the Development Loan Fund of the Usa Government, at the rate of 8-1/4% per annum, and in the second notification, the rate of interest to be charged by the Ifci on all the loans and advances granted by it, excluding foreign currency loan or sub-loans, at the rate of 8-1/2% per annum.

(24) Ifci in Civil Misc. (Main) 85/74 prayed for sale of properties of Shama Forge as mentioned in the mortgage deed dated 27May 1969; for appointment of Receiver in respect of those properties with a direction to take possession forthwith thereof; for attachment of those properties and injunction restraining Shama Forge, its Directors, officers, etc..from transferring, encumbering, or in any other way disposing of, or dealing with or removing the said properties or any part thereof. When the petition came up for the first time for admission on 15 March 1974 interim orders were made restraining Shama Forge from alienating the mortgaged property, or any right or interest in any part thereof, or possession or any part thereof, and at the same time a Receiver was also appointed with a direction to make inventory of the mortgaged property, to take possession thereof, and to take all necessary steps for the preservation, protection and maintenance of the property including deployment of such staff as may be considered by the Receiver to be necessary for the purpose.

(25) On 27 March 1978 a detailed order was passed when it was noticed that nobody appeared for Shama Forge though served and as such the order was passed in its absence. The court noticed that Receiver had already taken possession of the property of Shama Forge and that the question was whether an order of attachment should issue. The court noticed that the case set up by the Ifci and observed that it had given financial assistance to Shama Forge which finance was secured by execution of document in the nature of an English mortgage which is dated 27 May 1969. Under this indenture a loan of Rs.3,06,000/ and a sub-loan of U.S. $ 490,280 was advanced and these sums were secured by mortgage of land situated and lying in villages Nishatpura and Chola, District Sheore, Sub-division Tehsil Hazoor in the State of Madhya Pradesh, the factory and machinery, buildings, outhouses and all other goods, movable and immovable, thereon. The court also noticed that all these details had been mentioned in the indenture. The court further noticed that being an English mortgage the document was as postulated by section 58(e) of the Transfer of Property Act (TPA) and was virtually a transfer of these assets to the Ifci with a right to Shama Forge to redeem the mortgage by repayment of the loan in terms of the indenture and making a stipulation for re-transfer. The court then observed that Shama Forge had failed to repay the loans despite demand and a sum of over Rs. 57 lakhs was then recoverable from it. With reference to the affidavit of the Ifci it was also noticed that the assets securing the advance and transferred to the Ifci by way of English mortgage were hardly sufficient to meet the dues of the IFCI. The court also noticed that Shama Forge was not carrying on any production and its machinery, etc., had been lying idel. It observed that no one seemed to be interested on behalf of Shama forge to give true picture to the court. The court then held that as a mortgagee the Ifci could both under the indenture dated 27 May 1969 and section 69 of the Tpa exercise the right of sale but that it appropriately moved the court under section 30 of the Act and the procedure under this section obviated any possible charge against a statutory body which the Ifci was whose primary purpose was to finance that it had taken away properties of the persons or companies financed by it without recourse to law. About Ubi the court observed as under :- "THE Union Bank of India, respondent No.2, has contended in its reply to notice of this application that under an authorisation from the petitioner which released certain moveables like die-blocks, etc., the Union Bank of India had advanced moneys to respondent No. 1 and so, these dies etc. should be out of the ambit of the attachment order. It is not necessary to dilate on this aspect at this stage. I have only noticed the contention."

(26) The court, therefore, directed attachment of the property specified in the indenture which it said generally speaking fell in three categories - (1) immovable properties, (2) properties in the hands of the Receiver, and (3) other movable properties. Properties in possession of Ubi were exempted from any attachment. The court then referred to sub-section (6) of section 30 of the Act as to how the order etc. was to be sent to Shama Forge. This order dated 27 March 1978 was further to the order dated 15 March 1974 and the Receiver was authorised to take into possession all the attached properties.

(27) On 8 September 1978 the court gave further directions. It noticed that no cause had been shown by any one as to why the order of attachment made on 27 March 1978 be not made absolute. The court, however, noticed that Ubi had filed a petition raising a contention that it was entitled to the sale proceeds of the items which were hypothecated with it by Shama Forge. The court, therefore, subject to directions given in the order confirmed the order of attachment and directed sale of the attached properties. It gave directions as to how the sale was to be conducted. The court said that Receiver was to keep two distinct accounts of the receipts of sale proceeds, one with respect to dies and die- blocks, tools and implements, machinery stores and spares, claimed by Ubi to be hypothecated with it, and the other of the remaining assets. The court said that the interest of the Ubi would be determined after the result of the sale was known and a report submitted to it. The court then said that the sale effected by the Receiver after notice to the Ifci and Ubi would be subject to confirmation by the court in accordance with the provisions of the Code of Civil Procedure and that sale proceeds shall not be disbursed without taking specific directions from the court and as to how much amount is to be paid to which party. This direction was given keeping in view the contention raised by UBI.

(28) Then there are proceedings regarding steps for sale and finalisation of tender . notice, negotiations with prospective buyers, etc. By order dated 9 February 1981 the court granted approval for finalising the sale to M/s. Premier Cable Company Ltd. the offer of the Premier Cable Company Ltd. as contained in its letter dated 3 February 1981 and as noticed in the order was accepted. This order was some what modified by subsequent order dated 3 April 1981 and now bank guarantee was sought instead of personal guarantee of Chairman and M.D.ofM/s. Premier Cable Company Ltd. The sale certificate was granted on 10 April 1981 to this company. By order dated 23 April 1981 interest of Ubi (in lot No.2) was left undetermined till after the complete report was submitted by the Receiver. The court directed the Receiver to hand over the properties and assets sold under certificate of sale to M/s. Premier Cable Company Ltd. and to terminate the services of watch and ward staff. The Receiver was to submit his final report including consolidated statement of account of the expenses incurred by him in managing the properties. As regards some raw material and steel items which were in the custody of Ubi and were lying in the premises sold as per the certificate of sale, Ubi was directed either to negotiate the sale thereof with M/s. Premier Cable Company Ltd. or to remove the same from the premises within two months.

(29) There are some other minor claims like say price of furnace oil (claimed by UBI), adjustment of Rs. 1,00,630.64 claimed by M/s. Premier Cable Company Ltd. for payment made to Madhya Pradesh Electricity Board and the Government. But these have neither been pressed nor argued. There is also nothing on record to show that certain movables like die-blocks, etc., were hypothecated to the Ubi and that Ubi was exclusively entitled to sale price of these items.

(30) By order dated 6 November 1981 in C.M. 1396/81 the Ifci was allowed to withdraw Rs. 12 lakhs from the court. This amount Ifci was to keep in suspense account and was liable to pay interest thereon at the rate of 12% per annum from the date of the withdrawal. The court noticed that this was the order agreed to by the Ifci and Ubi but it was without prejudice to the contention of the plaintiffs in Suit No. 430/81. By further order dated 12 November 1981 it was recorded that counsel for Ifci and the Receiver agreed that the balance amount of Rs.5 lakhs and interest may be deposited in a Call Deposit for three months. The court then noticed that a sum of Rs. 88,77,644.80 was lying with the Registrar and that this money was lying idle and earning no interest. The court directed that the amount be paid to Ifci who shall pay interest thereon at the rate of 12% per annum from the date of receipt thereof and that the interest accrued on the above amount every year shall be added to the principal amount and thereafter interest at the rate of 12% per annum shall be payable on the consolidated amount. This amount was directed to be kept in suspense account by IFCI. The amount was to be disbursed finally according to the directions of the court in the main petition.

(31) Since Shama Forge had gone into liquidation and had been wound up, leave was granted by the Company Judge to Ifci to continue further proceedings in Civil Misc. (Main) 85/74. Notice had been issued to the Official Liquidator on behalf of Shama Forge and he had been appearing in the matter but at the subsequent stage he defaulted. An application (CM 1248/84) was also filed by the Commissioner of Sales Tax, Indore, Madhya Pradesh, for being imp leaded as a party, but this application was not pursued.

(32) The Receiver appointed in C.M.(M) 85/74 submitted his report. During the course of his tenure Ifci paid him a sum of Rs. 1,99,658.96 towards salaries, maintnance, etc. The Receiver further realised a sumofRs.37,330.00 by the sale of grass for the period from 1975 to 1980 and he further received a sum of Rs.915.00 towards the credit of interest on saving account of the plaintiff. A part from paying the above amount,the Ifci also paid a sum of Rs.1,48,707.20 towards insurance premium. As per the statement of the Receiver, he incurred expenses amounting to Rs-2,33,899.18 on account of salaries, stock maintenance and miscellaneous expenses for security, preservation and maintenance of the factory, etc. In his report, he says that a sum ofRs.4,104.90 was lying as surplus with the resident representative appointed by him and who was directed to repay this amount to IFCI. From this amount Ifci was entitled to deduct Rs. 1,546.00 payable to M/s. Interads Advertising Pvt. Ltd. as directed by the Receiver. It would be thus that Ifci incurred the expenses ofRs.l,99,658.96 plus Rs. 1,48,707.20 less Rs. 2,558.90. This amount of expenses so incurred by Ifci are to be recovered by it in the first instance from the proceeds realised on sale of the assets by the Receiver.

(33) I had called upon the Ifci as to how much amount was deposited with it on account of the sale of assets of Shama Forge by the Receiver and as per the directions of this Court. A report was also called from the registry of this Court. The registry reported that a sum of Rs.l,08,82,296.80 was deposited in this case. Out of this amount an Fdr of Rs.25,00,000.00 was obtained as per orders of this court dated 15 April 1981. Again as per directions of the Court the following payments were made to IFCI:- Rs. 20,00,000.00 On 20.11.1981 out of Fdr for Rs.25,00,000.00 byorders dated6.11.1981 and 12.11.1981. Rs. 83,82,296.00 On 9.7.1985 which was lying in Ccd A/c by order dated 1.6.1985. Rs. 4,95,348.00 On 9.7.1985 out of Fdr for Rs. 5,21,410.86 byorder dated 1.6.1985. Rs. 1.08.77.644.80-Total

(34) In this report it was further submitted that after payment of Rs. 20,00,000.00 out of Fdr of Rs. 25,00,000.00 , as mentioned above, a balance sum of Rs. 5,00,000.00 was left in Fdr which after accrual of interest comes to Rs. 5,21,410.86. OutofRs.5,21,410.86asumof Rs.4,95,348.00 has already been paid as mentioned above byorder dated 1 June 1985 and rest of the amount, i.e., Rs. 26,062.86 plus interest accrued thereon was again kept in Fdr which was obtained for Rs. 39,117.30 by office notice dated I July 1985 under the aforesaid orders.

(35) These amounts have been paid to Ifci under court orders and are to be kept by Ifci in suspense account subject to further orders of this Court and is to carry compound interest @ 12% per annum. Therefore, it has to be calculated as to how much amount is lying with the Ifci including the principal and the interest.

(36) Ifci in its report of the principal amount as well as interest calculated @ 12% per annum as on 15 July 1993 gave the following details :- Date of receipt ` Amount received Interest Total 24.11.1981 20,00,000.00 54,96,721.00 74,96,721.00 10.07.1985 488,77,644.80 1,31,59,373.00 2,20,37,017.80 30.06.1987 81,609.354 80,420.00 1,62,029.35 Total: 1,09,59,254.154 1,87,36.514.00 2,96,95,768.15 This would be apart from the amount still lying in the court and as above mentioned.

(37) A question may arise that the court has saddled Ifci on the amounts given to it by interim orders to pay compound interest at the rate of 12% per annum. Would it be justifiable that while Ifci should charge interest at the rates mentioned in the notifications during all this period, while it has to pay compound interest? Can it be that Ifci may borrow amounts at a higher rate of interest and yet provide assistance to industries at a lesser rate of interest? Or could it be that Ifci may be allowed to have interest during the pendency of these proceedings at the rate of 12% per annum, but that would be offending rule 6 and also could it then be said that section 34 of Civil Procedure Code . would be appliable? If I require the Ifci to pay compound interest at the rate of 12% per annum that will ensure for the benefit of UBI. Could the interest payable to Ubi be frozen at a particular date so that equities are balanced between Ifci and UBI? But then there is a difference that Ubi can certainly charge interest at commercial rate as it is a purely commercial banking institution. At the same time it may be noted that Ifci voluntarily agreed to pay compound interest at the rate of 12% per annum.

(38) In the case of Ifci provision of section 34 of the Code of Civil Procedure is not applicable. This section provides for grant of interest by the court where court passes a decree in a suit. That is not the case here. But nevertheless Ifci would be entitled to interest for all this purpose when the matter is pending in this court and till payment of the amount due as per the mortgage deed is received by the IFCI. In The Gujarat State Financial Corporation v. M/s. Natson Manufacturing Co. Pvt. Ltd. and others, ,whichwasacase under the State Financial Corporation Act, the court said that the substantive relief in an application under section 31(1) of that Act was something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree. The provisions of section 31(1) of the State Financial Corporation Act are in pari materia with that of section 30(1) of the Act of 1948. Also provisions of section 32 of the State Financial Corporation Act, 1951, are same as those contained in clauses (2) to (16) of section 30 of the Act of 1948. The Supreme Court was concerned with the question of payment of court fee on an application filed under section 31(1) of the Act. The court observed as under :- "ONE has to look at the whole conspectus of provisions in S. 32 coupled with the nature of relief sought under S. 31(1) and it becomes clear that special provision is made for certain types of reliefs that can be obtained by a Corporation by an application under S. 31(1) which could not be styled as substantive relief for repayment of mortgage money by sale of mortgaged property. Nor can it be said to be a proceeding to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss. The form of the application, the nature of the relief, the compulsion to make interim order, the limited enquiry contemplated by sub-section (6) of S. 32 and the nature of relief that can be granted and the manner of execution clearly show that the application under S.31(l) is neither a plaint as contemplated by Art. 1 of Sch.I nor an application in the nature of a plaint as contemplated by Art. 7 of Sch. I of Court-Fees Act."

(39) In Everest Industrial Corporation and others v. Gujarat State Financial Corporation, ,thecourt relied on its earlier decision in the case of M/s.Natson Manufacturing Co. Pvt. Ltd. and held that there was no question of passing any order under section 34 of the Code of Civil Procedure on an application filed under sections 31 and 32 of the State Financial Corporation Act. However, the court held 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 was paid as per order passed under section 32 of the State Financial Corporation Act.

(40) As per the terms of the English mortgage dated 27 May 1969 the rupee loan of Rs.3,06,000.00 was to carry interest at the minimum rate of 8-1/2% per annum or at such higher rate as might be fixed by Ifci in its sole discretion from time to time wikth the prior approval of the Industrial Development Bank of India notified by the said Ifci in the official gazette as provided in rule 4 of the Ifci rules, 1965. As regards dollar sub-loan, Ifci was to charge interest at the rate of 8-1/4% per annum together with extra 1/4% per annum for the incidental expenditure to be incurred by IFCI. The interest is to be charged by Ifci under the Act of 1948 and as prescribed by the Ifci Rules. Two notifications, both issued under Rule 6 dated 9 May 1961 and 5 March 1965 respectively pertain to dollar sub-loan and rupee loan have been brought on record, and these notifications are :- "F-2(l 102)-Corp/60 Government of India Ministry of Finance (Department of Economic Affairs) NewDelhi,theMay9,1961. Notification In pursuance of Rule 6 of the Industrial Finance Corporation Rules, 1957, the Central Government hereby notifies that the Corporation has, with the prior approval of the Central Government, fixed the rate of interest to be charged by the Corporation on the foreign currency sub-loans granted by it out of the dollar loan sanctioned by the Development Loan Fund of the U.S.A. Government, at 8-1/4% per annum less a rebate of 1/2% for punctual repayment of principal and payment of interest (net 7.3/4%) plus an extra 1/4% per annum to provide for incidental expenditure. sd/- S.S. Sharma Under Secretary to the Government of India." "MINISTRY Of Finance (Department of Economic Affairs) Notification New Delhi, the 5th March, 1965. S.O. 769.-In pursuance of rule 6 of the Industrial Finance Corporation Rules, 1957, the Centrals Government hereby notifies that the Corporation has, with the prior approval of that Government, fixed, with effect from the 5th day of March, 1965, the rate of interest to be charged by the Corporation on all the loans and advances granted by it, excluding foreign currency loans or sub-loans, at 8-1/2% per annum, subject to the grant of a rebate of interest at the rate of 1/2 per cent per annum for punctual repayment of principal and payment of interest. [No. F.2(19)-Corp/65.] M.R. Yardi, Jt. Secy. "

(41) It would, thus, appear that Ifci cannot charge interest more than what has been mentioned in the above two notifications. Moreover, the loans granted by Ifci are not in the nature of commercial loans but would fall in the category of development loans. Ifci is an industrial financing institution and unlike bank it has provided assistance to Shama Forge, an industrial undertaking, in the form of rupee loan and foreign currency loan for the industrial project. As a matter of fact assistance provided by Ifci in terms of its preamble is a concessional source of finance and it cannot charge interest more than what is prescribed by the Act of 1948 and the rules made there under. As I understand till the time the loans were advanced funding of Ifci has been done by the Central Government. Thus, the rate of interest charged by the Ifci cannot be more than 8-1/4% per annum in the case of dollar sub-loan and 8-1/2% per annum in the case of rupee loan.

(42) The proceedings under section 30 of the Act of 1948 are posterior to passing of the decree in a suit. This court by detailed order dated 27 March 1978 held that it had been proved on the basis of evidence on record that a sum of Rs.57,21,327.55wasdueto Ifci from Shama Forge as on the date of the filing of the petition (Civil Misc. (Main) 85/74). This claim of Ifci had at any stage not been disputed earlier by either of the two respondents Shama Forge and UBI. In earlier stages of the proceedings Shama Forge had been represented through its counsel. By this order the court passed the order of attachment as provided under section 30 of the Act of 1948. This amount of Rs.57,21,327.55comprises rupee loan of Rs.4,81,699.45 and dollar sub-loan amounting to Rs.52,39,628.10. Ifci would be entitled to interest at the rate of 8-1/2% per annum on the amount of rupee loan ofRs.4,81,699.45 and at the rate of 8-l/4%per annum on the amount of dollar sub-loan of Rs.52,39,628.10 from the date of the institution of these proceedings till payment.

(43) Both B.K. Khanna and K.N. Khanna have contended that after satisfying the claims of Ifci from the sale proceeds of the mortgaged assets, the balance amount cannot be distributed or appropriated towards claim of Ubi as under section 30 of the Act of 1948 only Ifci can make aclaim. Prima facie that may appear to be so, but in the present case it has been admitted that charges both of Ifci and Ubi rank pari passu on the mortgaged assets and when those assets are held under proceedings under section 30 Of the Act of 1948 and payment is made to Ifci on the basis of pari passu charge, Ubi cannot be left high and dry. Equities in the case have to be balanced. I do not think there is any bar for the court to direct that Ubi be also paid once having sold the mortgaged assets and having held that there was a pari passu charge and having paid Ifci its dues on that basis. One may deduce this principle from Order 34 Rules 12 and 13 which are as under :-

"SALE of property subject to prior mortgage. 12. Where any property the sale of which is directed under this Order is subject to a prior mortgage, the Court may, with the consent of the prior mortgagee, direct that the property be .sold free from the same, giving to such prior mortgagee the same interest in the proceeds of the sale as he had in the property sold. 2

APPLICATION of proceeds.

13.(1)SUCHproceeds shall be brought into Court and applied as follows:- first, in payment of all expenses incident to the sale or properly incurred in any attempted sale;

Secondly, payment of whatever is due to the prior mortgagee on account of the prior mortgage, and of costs, properly incurred in connection therewith;

Thirdly, payment of all interest due on account of the mort age in consequence whereof the sale was directed, and of the cost. of the suit in which the decree directing the sale was made;

Fourthly, payment of the principal money due on account of that mortgage; and

Lastly, residue (if any) shall be paid to the person proving himself to be interested in the property sold, or if there are more such persons than one, then to such persons according to their respective interests therein or upon their joint receipt.

(2)Nothing in this rule or in rule 12 shall be deemed to affect the powers conferred by section 57of the Transfer of Property Act, 1882(4of 1882)."

(44) Nevertheless this controversy is academic as I find Ubi has also filed a suit (Suit No. 1179/82) for recovery of Rs.77,02,333.48 and interest thereon against Shama Forge also impleading Ifci as a co-defendant. By the time the Ubi filed its suit the mortgaged assets had already been sold in proceedings Civil Misc. (Main) 85/74 where though it was a party no relief had been claimed against it. Ubi had every right to file this suit for recovery of the mortgaged money as it can be said that it was deprived of the mortgaged assets due to default committed by Shama Forge, the mortgagor, on its failure to pay the amount due to IFCI.

(45) Coming again to the suit filed by Ubi (Suit No. 1179/82), on 5 November 1964 Ubi executed a guarantee agreement in favor of US-AID guaranteeing US-AID the full and prompt payment of the principal and interest of any and all disbursements under the loan of Rs.47.50 lakhs granted to Shama Forge to the extent of Rs.32 lakhs and in consideration thereof Shama Forge covenanted with Ubi that Shama Forge would repay to Ubi all the sum of sums of money which Ubi paid or became liable to pay to US-AID under the said guarantee agreement and also to pay all costs, charges and expenses together with interest on the said sums at the rate of 2-l/2% over the prevailing bank rate with a minimum rate of 8-1/2%. To secure this Shama Forge executed the mortgage deed dated 27 May 1969 as mortgagor in favor of Ubi as mortgagee. It is not necessary for me to set out all the terms and conditions of the said mortgage deed except to note that Shama Forge agreed to have tripartite agreement entered into between it, Ubi and Ifci in connection with the pari passu charge to the extent of Rs.32 lakhs and interest and all costs, charges and expenses payable by Shama forge to Ubi under this mortgage deed. Ubi had a pari passu charge to the extent of Rs.32 lakhs and interest and all costs, charges, expenses payable by Shama Forge to the Ubi under the terms of the mortgage deed.

(46) Schedule of properties mortgaged under both the mortgage deeds executed on the same day is same. As noted above, in Civil Misc. (Main) 85/74 there is no evidence if dies, die-blocks, tool, sand implements, stores and spares had been separately hypothecated with Ubi by Shama Forge. Other documents brought on record by the Ubi do not support this stand of UBI.

(47) On the first issue, if we refer to the written submissions of the Ubi in Civil Misc. (Main) 85/74 it is stated that Annexure 'B' to the objections filed t herein is the deed of hypothecation. In fact Annexure 'B' are two letters dated 5 August 1969 and 16 August 1971 of Ifci to Shama Forge wherein Ifci had said that it agreed "as a special case to your raising bank borrowings against die and die-blocks, as also tools and implements, for a period of two years subject to, however, your furnishing a undertaking that the hypothecation of spare parts, tools and dies will not in any way interfere with the normal working of the plant." In the second letter it is stated by Ifci that "we agree to release the machinery, stores, spares, tools, implements, dies and die-blocks from the charge in favor of Ifci for a further period of one year w.e.f. 5 August 1971 to enable you to raise cash credit facilities from your bankers." It is not clear how these two documents will advance the case of the Ubi on the first issue. This issue is, therefore, held against UBI.

(48) Second issue is too general in nature. Since there is no specific issue on interest, this issue would appear to take into account that as well. As we have seen above in the deed of mortgage, the agreement was that the Ubi would be entitled to charge interest "at the rate of 2-1/2% over the prevailing bank rate with a minimum rate of 8-l/2%" on the basis of compound interest with rests taken or made quarterly on the 30th day of June, 30th day of September, 31 st day of December and 31 st day of March every year. No evidence has been produced as to what was the prevailing bank rate the relevant time. In his statement D.P.Gupta(PW-1), an employee of the Ubi, did state that interest was payable at the rate of 11-1/2% per annum up to Ii July 1981 and thereafter at the rate of 12- 1/2%,i.e.,2-1/2% over the Reserve Bank of India rate of interest. No document has been brought on record in support of this plea. The witness did admit in cross-examination by Ifci that there had been circulars from time to time issued by the Rbi intimating the rate of interest chargeable for units like that of Shama Forge. The witness also said that he was aware of the fact that under the law after the winding up order a company was to pay lesser rate of interest. He said Ubi had not charged the lesser rate of interest but only the universal rate was charged. That is all the evidence on interest claimed. In Civil Misc. Main) 85/74 it has been brought on record with reference to notification issued under Rule 6 of the Industrial Finance Corporation Rules, 1957, as to the rate of interest to be charged by the Ifci which was 8-1/4% on foreign currency loan and 8-1/2% on loans and advances granted by Ifci excluding foreign currency loans, less 1/2% per annum for punctual. repayment of principal and payment of interest. In the absence of relevant circulars of the Reserve Bank of India on record it is not possible for me to accept a mere statement of an officer of the bank as to what was the Rbi prescribed rate of interest. A pertinent question was put in cross-examination to Mr. D.P.Gupta that there had been circulars from time to time issued by R.B .1. intimating the rate of interest chargeable by the bank on units like that of Shama Forge, yet no attempt was made to bring on record such circulars. The mortgage deed stipulates minimum rate of interest at the rate of 8-1/2% per annum to which the plaintiff-UBI would be entitled to on the amount ofRs.43,33,468.48asfrom24 April 1978 till institution of the suit, though calculated on the basis of compound interest as per quarterly rests agreed to between the parties. Claim of the Ubi for compound interest calculated on the basis of quarterly rests is quite legal. According to Stround's Judicial Dictionary, "a rest", in taking an Account, is a pause at which the net balance between receipts and expenses is ascertained, so that interest may be abated or charged according to the finding; e.g. as between mortgagee in possession and his mortgagor, to reduce the principal on which interest is thenceforth to be debited, or (it be shown that the principal has been more than paid) to charge the mortgagee with interest on the excess. S.N.Guptain his treatise "The Banking Law in Theory & Practice" (Second Edition) has referred to a decision of the House of Lord in Yourell V.Hibernian Bank ( 1918 A.C. 372) where Lord Atkinson gave the following meaning of 'rest' (at page 809:- "The bank by taking the account with these half-yearly rests, secured for itself the benefit of compound interest. This is a usual and perfectly legitimate mode of dealing between banker and customer."

(49) But at the same time I am not prepared to grant compound interest on the basis of quarterly rests to Ubi during the pendency of its suit. Here the grant of interest is under section 34 of the Code of Civil Procedure. The transaction between the parties is, no doubt, a commercial transaction and for the purpose of award of interest pendente lite and future I would say that Ubi would be entitled to simple interest at the rate of 8-1/2% per annum on the amount ofRs.43,33,468.48.

(50) Plaintiff Ubi would not been titled to the expenses claimed in items 3,5,6and7in Annexure 'A' to the plaint. For one, it is not spelled out of the mortgage deed and, two, there is no evidence of the expenses so incurred. Mere entry in the ledger is no proof of the expenditure incurred by the UBI. It may also be noted that after the interim order was made in Civil Misc. (Main) 85/74 it was the Receiver who was looking after the property and incurring necessary expenses.

(51) Plaintiff Ubi is also not entitled to any insurance premium, if any, paid by it as mentioned in Item 4 of Annexure 'A' to the plaint which is one of its claims, there is no evidence of any payment of insurance premium. A copy of the suspense account entitled as Miscellaneous Expenses Recoverable from Shama Forge (Ext.P-4) has been brought on record showing a debit entry ofRs.54,388.18.This is not even certified under the Bankers Book Evidence Act. Thus, this claim of insurance premium lacks evidence. I, however, accept the statement of Mr. D.P. Gupta (Public Witness -1 ), a bank official, that one percent commission was payable in respect of guarantee amount of Rs.32 lakhs given by Shama Forge to the UBI. Claim as contained in Item 8 of Annexure 'A' to the plaint is, therefore, upheld. But this amount will not be a charge ranking pari passu with the mortgage claim of IFCI. This is again as per statement of Mr. D.P. Gupta. Thus, the pari passu charge will rank only in respect of the amount paid under the guarantee and the interest accruing thereafter thereon.

(52) In this view of the matter the suit filed by Khanna & Company and others (Suit No. 430/81) becomes irrelevant. It does not merit consideration (being a case of no evidence) and is dismissed.

(53) In view of the above discussion I hold as under -

1.CIVIL MISC. (MAIN) 85/74: Ifci is held entitled from Shama Forge Co. Ltd. (respondent No. 1) to Rs.57,21,327.55 with interest at the rate of 8-1/2% per annum on the amount of Rs.4,81,699.45 and at the rate of 8-1/4% per annum on the amount of Rs. 52,39,628.10 from the date of institution of the petition till payment. Ifci will also be entitled to costs. --- *** ---

2.SUIT NO. 1179/82: The suit is decreed in favor of the plaintiff Ubi and against Shama Forge Co. Ltd. (defendant No. 1) for Rs.43,33,468.48 plus compound interestatthe8-l/2%perannumwith quarterly restsfrom26April 1978 to 11 August 1982. On this amount plaintiff will be entitled simple interest at the rate of 8-l/2%per annum from the date of institution of the suit till payment. The suit is further decreed for Rs.4,48,000.00 in favor of the plaintiff and against Shama Forge Co. Ltd. (defendant No. 1), the plaintiff being again entitled to simple interest at the rate of 8-1/2% per annum on this amount from the date of institution of the suit till payment. Plaintiff will also be entitled to costs against Shama Forge Co. Ltd. (defendant No. 1).

3.SUITNO. 430/81: This suit is dismissed, but there will be no order as to costs. The following directions are further issued for application of the sale proceeds lying with Ifci and in this Court :-

(1)IFCI will be entitled to deduct a sum of Rs.3,45,807.26 being the expenses incurred for the preservation and sale of the secured assets;

(2)The balance of the sale proceeds shall be divided pari passu between Ifci and Ubi in terms of the amount held due to Ifci and the amount of Rs.43,33,468.48 plus compound interest at the rate of 8-1/2% per annum with quarterly rests from 26 April 1978 to 11 August 1982 and simple interest on this amount at the rate of 8-1 /2% per annum from the date of institution of the suit till payment, as decreed in favor of UBI. Costs awarded shall also be recoverable on pari passu basis;

(3)Residue of the amount, if any, shall be payable to Ubi towards balance decretal amount of Rs.4,48,000.00 with interest at the rate of8-l/ 2% per annum on this amount from the date of institution of the suit till payment. If there is no such balance available Ubi will take steps to recover this amount as per procedure prescribed;

(4)If on the basis of distribution of sale proceeds on pari passu basis any amount is still found due to Ifci it will take steps to recover the same in accordance with law; and

(5)If there is still any residue that will be payable to the Official Liquidator in the account of Shama Forge Co. Ltd. inliquidation.