Madras High Court
State Industries Promotion vs M/S.Casino Rexines on 24 March, 2022
O.P.No.402 of 1998
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 24.03.2022
CORAM
THE HONOURABLE MR. JUSTICE P.VELMURUGAN
O.P.No.402 of 1998
State Industries Promotion
Corporation of Tamil Nadu Ltd.,
represented by the Managing Director ... Petitioner
vs.
1.M/s.Casino Rexines
2.H.Abbas
3.A.M.K.Abdul Hameed ... Respondents
Original Petition filed under Section 31(1)(aa) of the State Financial
Corporation Act, 1951, praying to
a) determine and enforce the liability of the respondents two and three
by directing the respondents two and three to pay jointly and severally the
sum of Rs.1,11,64,145/- together with interest at 20.5% p.a. on
Rs.1,11,64,145/- from 1.6.98 till date of payment and in default to proceed
against their assets;
b) pay the costs of the petition;
c) pass such further orders as this Hon'ble Court may deem fit under
the circumstances.
1/13
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O.P.No.402 of 1998
For Petitioner : M/s.Sudharsana Sundar
For Respondents : Mrs.Kalpa Reddy
for R2 & R3 – No Appearance
ORDER
This petition filed under Section 31(1)(aa) of the State Financial
Corporation Act, 1951, directing the respondents 2 and 3 to pay the
petitioner a sum of Rs.1,11,64,145/- together with interest at 20.5% per
annum from the date of filing till the date of realisation.
2. The case in brief is as follows :
The petitioner is the deemed Financial Corporation within the meaning
of the terms as contemplated in Section 46(1) of the State Financial
Corporation Act, 1951. The first respondent is the borrower and the
respondents 2 and 3 are the guarantors of the said loan transaction. The first
respondent approached the petitioner for financial assistance and the
petitioner Corporation sanctioned term loan for a sum of Rs.10 lakhs to the
first respondent on 16.5.1981. Apart from the above term loan, the petitioner-
Corporation sanctioned Central Investment Subsidy for a sum of Rs.5 lakhs
on 16.6.1981, for which, the 1st respondent created a mortgage over fixed
assets of the Company and the respondents 2 and 3 have executed personal
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O.P.No.402 of 1998
guarantee. Further, there was a paripassu agreement between the
petitioner/Corporation and 'Tamil Nadu Industrial Investment Corporation
Limited' [ hereinafter referred to as 'TIIC' for sake of convenience] on that
basis the petitioner has sanctioned loan to the first respondent. However, the
respondents failed to repay the loan amounts and hence, the petitioner
Corporation sent a foreclosure notice dated 29.03.1989 to the respondents. In
order to protect the interest of the TIIC as well as the petitioner-Corporation,
on 17.8.1989 TIIC took possession of the mortgaged assets of the first
respondent firm by exercising the powers under Section 29 of 'the State
Financial Corporation Act, 1951' [ hereinafter referred to as 'SFC Act' for
brevity and convenience] and sold the plant and machinery on 24.03.1992
for a sum of Rs.5.75 lakhs in favour of the M/s.Eastern Star Pvt. Ltd.,
Bangalore and also the land and building on 25.8.1994 for a sum of
Rs.13,12,990/-. As per the paripassu agreement, the petitioner-Corporation
received a sum of Rs.1,80,700/- from TIIC towards the sale of plant and
machineries and Rs.5,96,295.40/- towards the sale of land and building. The
total amount received by the petitioner by way of sale of assets of the 1st
respondent firm is Rs.7,76,995.40/- and the said sale consideration was
credited to the loan account. Hence, the petitioner-Corporation is entitled to
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O.P.No.402 of 1998
recover the balance dues from the personal guarantors/respondents 2 and 3
herein. On 18.1.1996, the petitioner Corporation issued a notice invoking
personal guarantee and the respondents 2 and 3 sent a reply notice, for
which, the petitioner Corporation also sent a rejoinder and the same was
acknowledged by the respondents 2 and 3. As per the Statement of
Accounts/Ex.P11 as on 31.5.1998, the amount due from the first respondent
partnership firm is Rs.1,11,64,145/-. Further, as per the personal
guarantee/Ex.P4, the respondents 2 and 3 are liable to pay the due amount to
the petitioner-Corporation.
3. The 2nd respondent alone filed a counter affidavit and denied the
various averments. The loan availed by the first respondent as well as the
deed of guarantee executed are admitted. The petitioner took possession of
the hypothecated assets of the first respondent firm in the year 1984 and the
sale was completed in the year 1989 itself and after sale of the assets, there is
no liability fasten on the respondents. There is no personal guarantee
executed by the partners, the respondents 2 and 3 and hence, the liability
cannot be fastened on them. Further, with regard to the claim of
Rs.1,09,11,057.50/- as term loan interest against the outstanding principal of
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O.P.No.402 of 1998
Rs.2,23,514/- and other claims made by the petitioner are illegal and
arbitrary. Further he has contended that when the loan was foreclosed in
1984, the petition was filed in the year 1998 and as such, it is clearly barred
by limitation and the liability cannot be enforced against the respondents 2
and 3. Hence, the petition is liable to be dismissed.
4.After completing the pleadings, in order to prove the case of the
petitioner, the Assistant Manager of the petitioner's Corporation who was
examined as P.W.1, reiterated the averments made in the petition and marked
the following documents viz., Ex.P1 to Ex.P11.
Exhibits Dated Nature of the documents
P1 24.06.1981 Terms and Conditions of the term loan
P2 05.11.1981 Deed of Hypothecation
P3 05.11.1981 Deed of undertaking given by the respondents
P4 05.11.1981 Personal Guarantee for term loan given by the
respondents
P5 29.03.1989 Foreclosure Notice
P6 20.07.1995 Letter received form the TIIC
P7 18.01.1996 Notice invoking personal guarantee
P8 30.01.1996 Reply sent by the respondents through their
lawyer
P9 09.02.1996 Rejoinder
P10 - Acknowledgement for the rejoinder
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O.P.No.402 of 1998
Exhibits Dated Nature of the documents
P11 31.05.1998 Statement of Accounts
5. On the side of the respondents, no oral and documentary evidence
was produced.
6.When the matter was posted before the learned Master for recording
evidence on the side of the respondents, the learned counsel for the
respondents reported 'No instructions'. Since the matter is pending from 1998
and the evidence was completed in the year 2001 itself, this Court is inclined
to dispose of the matter based on the records available and the submissions
made by the learned counsel for the petitioner.
7.The learned counsel for the petitioner by placing reliance on the
decision of this Court in the case of Tamil Nadu Industrial Investment
Corporation Ltd., rep.by its Branch Manager, Chennai – 14 Vs. Tvl.Trinity
Music Recorders, a Partnership Firm rep.by its partner S.Vaidyanathan,
Chennai – 18 and 2 others reported in (2000 (III) CTC 525) submitted that
for enforcing the liabilities of the sureties which are co-extensive with the
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O.P.No.402 of 1998
principal debtor who did not make the repayment of loan, cannot be treated
as a plaint and it would not be barred by limitation. The relevant paragraphs
are extracted here under :
''11. Learned counsel for the petitioner also relied on
M/s.Easwari Industries, Shencottai and others v. Tamil
Nadu Indl. Investment Corporation Ltd. by its Branch
Manager, Tirunelveli, 1998(1) MLJ I wherein it is
observed that the order passed under Section 31 of the State
Financial Corporation Act is not a decree under the Code
and procedure of making, the calculation held, was a
process of execution of a decree already passed under the
Act. Learned counsel for the petitioner also relied upon
Maganlal v. M/s.Jaiswal Industries, Neemach, AIR 1989
SC 2113, and also Rajasthan Financial Corpn. V. Banwari
Lal, AIR 1997 Raj.273. It is stated that where an
application is filed by State Financial Corporation under
Section 31(1) for enforcing the liabilities of the sureties
which are co-extensive with the principal debtor who did
not make the repayment of loan, the substantive relief
sought in the application is like the relief sought in an
execution proceedings. Hence, it cannot be treated as a
plaint and it would not be barred by limitation provided
under Article 137 of Limitation Act. These decisions are
applicable to the case on hand.
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O.P.No.402 of 1998
13.Learned counsel for the 3rd respondent next
contended that the payments made under Exs.D1 to D3
were not given credit to. The statement of account was filed
under Ex.P8. On a perusal of Exs.D1 to D3 it is evidently
clear that all these payments have been given credit to in
the statement of account. I am of the view that there is
absolutely no defence on the part of the respondents 2 and
3. The petitioner Corporation is entitled to enforce the
guarantee and as the guarantee is a continuing one and the
petition, is filed within-three years after the public auction,
it is well within the time. One other contention raised by the
3rd respondent is that there was no proper publication and
the sale has been made for a lesser price. Except the bald
suggestion made in the course of the cross examination, no
legal evidence has been adduced on the side of the
respondent relating to this aspect. Under the circumstance,
I am of the view that the petitioner Corporation is entitled
to claim the amount and the claim is also not barred by
time''
8. The learned counsel for the petitioner by placing reliance on the
decision of the Hon'ble Apex Court in the case of Hotel Seaking and
others v. Kerala Financial Corporation reported in 2000(1) CTC 101
submitted that for awarding interest Section 34 CPC was not attracted to the
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O.P.No.402 of 1998
proceedings instituted under Section 31 SFC Act and the Court cannot
reduce the rate of interest. The relevant paragraph Nos.15 and 16 are
extracted here under :
''15. After analysing the rulings referred to by both the
sides and perusing the records we are of the opinion that the
judgment of the High Court is correct. The view taken that
Section 34 CPC cannot be invoked in proceedings instituted
under Section 31 of the Act and interest will be payable in
accordance with the terms of the agreement is right. The
question has been squarely answered in Everest Industrial
Corpn. which was in turn based on the principle laid down in
Natson Manufacturing Co.(P) Ltd., 1979 (1) SCC 193. The
rulings cited by learned counsel for the appellants have no
relevance in this case as pointed out earlier.
16. The District Court having found on the facts that the
appellants had not made out a case for reduction of interest was
in error in reducing the rate of interest for the period from the
date of the petition to the date of the order under Section 34
CPC. The same is contrary to the law laid down by this Court.
Hence, we agree with the high Court that the interest should be
paid at the rate of 15% till the debt is discharged''.
9. The learned counsel appearing for the petitioner in support of his
contentions, relied on the decisions of the Hon'ble Supreme Court reported
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O.P.No.402 of 1998
in (2015) 5 SCC 518 in the case of Deepak Bhandari vs. Himachal
Pradesh State Industrial Development Corporation Limited)
27. We thus, hold that when the Corporation takes
steps for recovery of the amount by resorting to the
provisions of Section 29 of the Act, the limitation
period for recovery of the balance amount would
start only after adjusting the proceeds from the
sale of assets of the industrial concern. As the
Corporation would be in a position to know as to
whether there is a shortfall or there is excess
amount realised, only after the sale of the
mortgaged/hypothecated assets. This is clear from
the language of sub-section (1) of Section 29
which makes the position abundantly clear and is
quoted below:
“29. Rights of Financial Corporation
in case of default – (1) Where any industrial
concern, which is under a liability to the Financial
Corporation under an agreement, makes any
default in repayment of any loan and advance or
any instalment thereof or in meeting its obligations
in relation to any guarantee given by the
Corporation or otherwise fails to comply with the
terms of its agreement with the Financial
Corporation, the Financial Corporation shall have
the right to take over the management or
possession or both of the industrial concern, as
well as the right to transfer by way of lease or sale
and realise the property pledged, mortgaged,
hypothecated or assigned to the Financial
Corporation.”
10. Quoting the above judgments, the learned counsel appearing for
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O.P.No.402 of 1998
the petitioner stated that the petition is not barred by limitation and the
respondents are liable to pay the outstanding dues to the petitioner.
11. The defence taken by the respondents is that after completing sale
proceedings, they cannot proceed with recovery of the balance money and
the guarantors has no liabilities. Further the respondents took a defence that
the petition is barred by limitation. But, a perusal of Ex.P4 Personal
Guarantee, reveal that after realizing the amount by the principal debtor, if
the principal debtor did not pay the outstanding dues, the petitioner is
entitled to recover the same from the personal guarantors. In this case, since
the principal debtor has committed default in repaying the loan, the TIIC had
taken possession of the first respondent's properties and reliazed the sale
proceeds to the petitioner in two instalments viz. Rs.1,80,700/- on
21.01.1993 and Rs.5,96,295.40 on 20.07.1995. During the cross examination
of P.W.1, he has clearly revealed the above fact. As per the decisions of the
Hon'ble Supreme Court cited supra, the three years period of limitation for
effecting personal guarantee would start from the date of realization of the
last sale proceeds.
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O.P.No.402 of 1998
12. In this case, a perusal of the petition and the evidence of P.W.1
clearly shows that the petitioner received the last sale proceeds on
20.07.1995 and this petition was filed on 29.06.1998, which is well within
the limitation of three years and therefore, the defence taken by the
respondents is not acceptable.
13. A perusal of the records shows that the petitioner has proved its
claim and the respondents 2 and 3 as a personal guarantors, are liable to pay
the amount due to the petitioner Corporation. The petitioner is at liberty to
recover the outstanding dues in the manner known to law.
14. With the above observations, the original petition is allowed.
24.03.2022
Speaking/Non-speaking order
Index : Yes / No
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P.VELMURUGAN, J.
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O.P.No.402 of 1998
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