IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
F.A.O. No. 125 of 1990
Date of Decision : December 04, 2008
Punjab Financial Corporation
....Appellant
Versus
M/s Sepal Hotels (Pvt) Ltd.
.....Respondent
CORAM : HON'BLE MR. JUSTICE T.P.S. MANN
Present : Mr. G.S. Gill, Advocate
for the appellant.
Mr. Sarjit Singh, Senior Advocate with
Mr. Pankaj Gupta, Advocate
for the respondent.
T.P.S. MANN, J.
Application filed by the appellant-Corporation under Section
31 of the State Financial Corporation Act, 1951 (for short ‘the Act’)
against the respondent for the recovery of Rs.3,34,717.76p. along with
compound interest at the rate of 15½% per annum from 15.6.1987,
besides miscellaneous expenses and incidental charges was disposed of
by learned Additional District Judge, Bathinda vide order dated
22.11.1989 as it could not be ascertained as to how much amount was
payable by the respondent to the Corporation. However, the Corporation
was directed to calculate the amount payable by the respondent after
giving rebate of 2% per annum in interest on the loan advanced for
setting up industry in centrally declared backward area of Punjab. The
Corporation was further directed to give rebate of 1% per annum in
F.A.O. No. 125 of 1990 -2-
interest on the loan refinanced by the Industrial Development Bank of
India (I.D.B.I.) from the date on which it was refinanced till it remained
refinanced. The Corporation was also directed to calculate the penal
interest payable by the respondent on the defaulted installment plus
interest only till the default continued and to submit the same in the Court
so that further recovery may be effected from the respondent. The
respondent was, however, restrained from transferring or removing the
machinery, plant and equipment from the premises till the loan amount
was paid to the appellant-Corporation. Aggrieved of the same, the
appellant-Corporation filed the present appeal.
In its application under Section 31 of the Act, it was stated
by the appellant-Corporation that a loan of Rs.12,00,000/- was
sanctioned to the respondent, who executed a mortgage deed dated
18.1.1977. Out of the sanctioned loan, a sum of Rs.11,41,000/- was lent,
advanced and paid to the respondent while the balance unavailed loan of
Rs.59,000/- was cancelled as the respondent committed irregularities. On
the application of the respondent, the Corporation also sanctioned a loan
of Rs.1,98,000/- to the respondent on the terms and conditions and on the
securities mentioned in the mortgage deed dated 8.5.1979. The
respondent committed the default in payment of installment of interest
due from 15.12.1984 onwards and installments of principal from 1.1.1984
onwards. Therefore, the Corporation was entitled to recover a sum of
Rs.3,34,717.76p. from the respondent, besides entitled to recover further
interest at the rate of 15½% per annum w.e.f. 15.6.1987 along with
F.A.O. No. 125 of 1990 -3-
miscellaneous expenses and incidental charges as per the mortgage deeds.
While contesting the application, the respondent pleaded that
it was the appellant-Corporation, which was guilty of committing breach
of the contract by not extending fiscal incentives due to the respondent
under the declared policy of the Union of India, State of Punjab and the
I.D.B.I., therefore, the Corporation was estopped from filing the
application. The demands of the Corporation were beyond the mortgage
deeds and the provisions of the Act. The Corporation had arbitrarily
charged the compound and the penal rate of interest, although it was not
entitled to do the same. A civil suit for rendition of accounts was filed by
the respondent against the Corporation, which was pending. The
respondent wanted to set up a three star Hotel at Bathinda and in this
connection it had approached the Corporation for grant of a loan of
Rs.18,00,000/- for the construction of the hotel building and purchase of
machinery. However, the Corporation advanced a loan of Rs.12,00,000/-.
The respondent was prompted by the various fiscal incentives and rebates
in interest offered by the Union of India, State of Punjab, I.D.B.I. etc. for
setting up the hotel. Out of the loan of Rs.12,00,000/-, which was
sanctioned, only Rs.11,41,000/- was disbursed by the Corporation to the
respondent. The respondent was not liable to pay any commitment
interest as the loan in question stood adjusted. Despite the same, the
Corporation did not return the mortgage deeds duly discharged although
repeated requests in that regard were made. The entire loan amount
advanced by the Corporation to the respondent was refinanced by the
F.A.O. No. 125 of 1990 -4-
I.D.B.I. w.e.f. 27.10.1997 on simple interest at the rate of 6% per annum
from the date of refinance. The Corporation could, at the most, claim
interest at the rate of 3½% from the respondent in excess of 6% per
annum, i.e. 9½% per annum. Even the said rate of 9½% per annum was
liable to further decrease after considering the rebate in interest and fiscal
incentives offered by the Union of India in centrally declared backward
districts of Punjab. The Corporation was bound to comply with the
industrial policy of the Centre and the State as per which a reduction of
2% interest should have been allowed by the Corporation, besides a
rebate of 1% in interest in the event of the project being refinanced by the
I.D.B.I. No statement of account had been prepared by the competent
authority and the rate of interest charged was excessive. The Corporation
also illegally charged interest amounting to Rs.2,76,584.50p. from the
respondent at the rate of 12½% and 15½% per annum on the defaulted
loan amount as well as on the installments which had yet not become due.
Accordingly, the respondent prayed that the Corporation be directed to
revise the loan amount by deleting the entries which were not recoverable
from the respondent by giving credit to the respondent of the excess
payment received by the Corporation for the period from 15.6.1979 to
14.6.1981 after calculating interest at the rate of 6% per annum and
allowing 2% incentive for setting up the industrial concern in the
centrally declared backward district of Bathinda and rebate of 1% in
interest as the loan was refinanced by the I.D.B.I. as per the policy of the
Punjab government.
F.A.O. No. 125 of 1990 -5-
After going through the pleadings of the parties, learned
lower Court framed the following issues :-
1. Whether the application has been filed
through a competent person ? If not, its
effect ? OPA.
2. Whether sum of Rs.3,34,717.76p. is due
against the respondent as pleaded in the
application ? OPA.
3. Whether respondents are liable to pay future
compound interest at the rate of 15% per
annum on the amount mentioned in No. 2
from 15.6.1987? OPA.
4. Whether respondents are liable to Misc.
expenses, incidental charges, as pleaded ? If
so, to what amount ? OPA.
5. Whether respondents are not liable to pay any
commitment interest as pleaded in para No. 5
(b) of the written statement on facts ? OPR.
6. Whether respondents are entitled to rebate in
interest by 1% as pleaded in para No. 8 of the
written statement on facts ? OPR.
7. Whether respondents are entitled to reduction
of 2% in interest rate again pleaded in para
No. 8 of the written statement on facts ? OPR.
8. Whether respondents have made excess
payment to the tune of Rs.60,000/- which now
swells to more than Rs.1,25,000/- after adding
F.A.O. No. 125 of 1990 -6-compound interest as pleaded in para 9(b) of
the written statement on facts and if so, they
are entitled to adjust the same from the
outstanding amount due to them ? OPR.
9. Relief.
On the basis of evidence, learned lower Court held that the
respondent had set up the hotel in a centrally declared backward district
of Punjab and so it was entitled to receive 2% reduction in interest on the
loan received from the Corporation. The respondent was also entitled to
1% rebate in interest from the date when the loan of Corporation was
refinanced by the I.D.B.I. As the Corporation did not produce the record
as to on which date the respondent committed default in payment of the
installment of the interest, it could not be held as to how much amount
the Corporation was entitled to recover from the respondent. The
Corporation was, accordingly, directed to calculate the amount by giving
rebate of 2% per annum on account of setting up the hotel in a centrally
declared backward district of Punjab and 1% rebate in interest on account
of refinancing of the loan by the I.D.B.I.. However, the respondent was
held liable to pay miscellaneous expenses/incidental charges as agreed in
the mortgage deed Ex. A5, besides payment of commitment interest. At
the same time, the Corporation was held entitled to charge interest at the
rate exceeding the stipulated rate by 3% on the amount regarding which
default had been committed plus the interest which was due as on that
date. As the Corporation had not given notice under Section 30 of the
F.A.O. No. 125 of 1990 -7-
Act to the respondent to pay the entire amount, the remaining amount had
not become payable immediately. The Corporation had charged higher
rate of interest not on the defaulted amount but on the entire balance loan
which had not become due as per account statement Ex.A7 which it could
not do. The Corporation could only charge higher interest as agreed on
the defaulted amount plus interest on that amount. Accordingly,
directions were issued to the Corporation to calculate the amount payable
by the respondent after giving rebate of 2% per annum in interest and
another rebate of 1% per annum as mentioned above, besides calculating
the penal interest payable by the respondent on the defaulted installment
plus interest till the default was committed and submit the same in the
Court for effecting its recovery from the respondent.
The main grouse of the appellant in the present appeal is that
it could insist upon the rate of interest on the amount strictly as per terms
of the mortgage deed executed between the parties. The respondent
could not be given any rebate of 2% and 1% as claimed by the
respondent.
It is not in dispute that Bathinda district had already been a
centrally declared backward district of Punjab. In such a situation, the
entrepreneur setting up an industrial unit in Bathinda district was entitled
to rebate of 2% in interest on the loan sanctioned by the Corporation.
Besides, as the loan had been refinanced by the I.D.B.I, in such a
situation, the entrepreneur was also entitled to subsidy of 1% of the
interest amount as per the policy of the State of Punjab. 1% subsidy in
F.A.O. No. 125 of 1990 -8-
interest was receivable by the Corporation from the government in the
loan account of the respondent. Accordingly, the Corporation was
required to give both the aforementioned rebates to the respondent and
could not insist upon the repayment of the loan as per the terms of the
mortgage deed.
As regards the claim of the Corporation to charge interest at
the rate exceeding stipulated rate by 3%, learned lower Court held that
the Corporation was entitled to the same as the default had been
committed by the respondent in repayment of the loan amount. However,
as the Corporation did not give any notice under Section 30 of the Act, it
was not entitled to insist for immediate payment of the remaining amount
of loan and, that too, by charging higher rate of interest on the entire
balance loan amount, which had not become due. Higher rate of interest
could only be permitted on the defaulted amount and the same has
already been granted to the Corporation by the learned lower Court.
Another claim of the Corporation was regarding the payment
of miscellaneous expenses and incidental charges by the respondent to
the Corporation which had been incurred by the latter in the course of
disbursement of loan and so also the commitment interest. While relying
upon the mortgage deed Ex. A5 and the admission of the respondent in
para 5(b) of its written statement, learned lower Court held the
Corporation entitled to charge all the three items from the respondent.
Learned counsel for the appellant submitted that Section 31
of the Act enabled the Corporation to enforce its claims and in such a
F.A.O. No. 125 of 1990 -9-
situation relief claimed by the Corporation had to be granted as such.
Learned lower Court was not competent to investigate the claim of the
Corporation by resorting to the provisions contained in Section 34 of the
Code of Civil Procedure.
Section 29 of the Act deals with the rights of the financial
Corporation set up under Section 3 of the Act in the event of default in
payment of loans or advances or installments thereof by any industrial
concern. Section 30 then empowers the Corporation to require any
industrial concern to discharge forthwith, in full, its liability to the
Corporation. Section 31 contains special provisions for enforcement of
claims by the Corporation. Section 32 of the Act deals with procedure
and powers of District Judge while dealing with the applications made
under Section 31 of the Act. Section 32 provides as follows :-
“32. Procedure of District Judge in respect of
applications under S.31 –
(1) When the application is for the reliefs
mentioned in clauses (a) and (c) of sub-Section (1)
of Section 31, the District Judge 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 his estimate an amount
equivalent in value of the outstanding liability of
the industrial concern to the Financial Corporation,
together with the costs of the proceedings taken
under Section 31 with or without an ad interim
injunction restraining the industrial concern from
transferring or removing its machinery, plant or
F.A.O. No. 125 of 1990 -10-equipment.
(1-A) When the application is for the relief
mentioned in clause (aa) of sub-Section (1) of
Section 31, the District Judge shall issue a notice
calling upon the surety to show cause on a date to
be specified in the notice why his liability should
not be enforced.
(2) When the application is for the relief
mentioned in clause (b) of sub-Section(1) of
Section 31, the District Judge shall grant an ad
interim injunction restraining the industrial
concern from transferring or removing its
machinery, plant or equipment and issue a notice
calling upon the industrial concern to show cause,
on a date to be specified in the notice, why the
management of the industrial concern should not
be transferred to the Financial Corporation.
(3) Before passing any order under sub-Section
(1) or sub-Section(2) or issuing a notice under sub-
Section (1-A), the District Judge may, if he thinks
fit, examine the officer making the application.
(4) At the same time as he passes an order under
sub-Section(1), the District Judge shall issue to the
industrial concern or to the owner of the security
attached a notice accompanied by copies of the
order, the application and the evidence, if any,
recorded by him calling upon it or him 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.
F.A.O. No. 125 of 1990 -11-
(4-A) If no cause is shown on or before the date
specified in the notice under sub-Section (1-A), the
District Judge shall forthwith order the
enforcement of the liability of the surety.
(5) If no cause is shown on or before the date
specified in the notice under sub-Sections (2) and
(4), the District Judge shall forthwith make the ad
interim order absolute and direct the sale of the
attached property or transfer the management of
the industrial concern to the Financial Corporation
or confirm the injunction.
(6) If cause is shown, the District Judge shall
proceed to investigate the claim of the Financial
Corporation in accordance with the provisions
contained in the Code of Civil Procedure, 1908 (5
of 1908), in so far as such provisions may be
applied thereto.
xx xx xx xx”
A perusal of Section 32 of the Act would reveal that while
dealing with the application of the Corporation for the reliefs mentioned
in clauses (a) and (c) of Section 31(1), the District Judge is required to
issue notice to the owner of the industrial concern to show cause as to
why the proceedings be not conducted. If, no cause is shown, the District
Judge is required to forthwith order the enforcement of the liability or
make ad interim order absolute and direct the sale of attached property or
transfer the management of the industrial concern to the Corporation.
However, under sub-Section (6), in the event of cause being shown, the
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District Judge is required to investigate the claim of the Corporation in
accordance with the provisions contained in the Code of Civil Procedure
in so far as such provisions may be applied thereto. It is, thus, clear that
the District Judge is competent to investigate the claim of the Corporation
and not just required to pass an order in favour of the Corporation to order
enforcement of the liability or making the ad interim order absolute.
Same thing had been done in the present case by learned lower Court in
proceeding to investigate the claim of the Corporation as to whether the
respondent was entitled to rebate of 2% in interest on account of setting
up of the industrial concern in centrally declared backward district of
Punjab and another rebate of 1% in interest on account of refinancing of
the loan, besides the entitlement of the Corporation to charge penal rate of
interest on the installments which had not become due as yet.
Resultantly, there is no force in the appeal, which is,
therefore, dismissed. No costs.
( T.P.S. MANN )
December 04, 2008 JUDGE
satish