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National Textile Corporation vs Bank Of Madura Ltd. And Others on 17 June, 1997

Madras High Court
National Textile Corporation vs Bank Of Madura Ltd. And Others on 17 June, 1997
Equivalent citations: 1998 92 CompCas 659 Mad
Author: Raju
Bench: D Raju, V Kanakaraj


JUDGMENT

Raju, J.

1. The above writ appeal arises out of the judgment of the learned single judge dated March 4, 1992, in W.P. No. 4218 of 1984, whereunder the learned single judge has allowed the writ petition filed by the first respondent herein, Bank of Madura Ltd., Coimbatore, seeking for a writ of certiorari to call for and quash the proceedings of the Commissioner of Payments under the Sick Textile Undertakings (Nationalisation) Act, 1974 (hereinafter referred to as “the Act”), in Claim Case No. CP/1/IV/Sarada/77, dated September 4, 1982, and of the learned District Judge of Coimbatore, who is constituted as the appellate authority under the Act, dated August 23, 1983, in C.M.A. No. 3 of 1983.

2. The relevant facts necessary for appreciating the controversy before us are not in serious doubt or dispute. Sarada Textile Mills is a textile mill public limited company, which has been indisputably taken over under the Act and the same is set out as item 98 in the First Schedule of the said Act. The said mill had borrowed monies from the Bank of Madura at Coimbatore under an equitable mortgage, the liability in respect of which amounted to Rs. 33,29,991.01 as on February 3, 1978. Under 23 usance bills drawn by the mills upon the central office of the Bank of Madura for purchase of textile machinery, the mills owed the bank a further sum of Rs. 4,17,055.79. Under the category of deferred payment guarantee between the period January 29, 1972, to December 31, 1976, the mills owed the bank another sum of Rs. 17,789.95. Likewise, for deferred payment guarantee, under which the bank accepted usance bills and paid on behalf of the mills during the period between September 25, 1973, and December 31, 1974, and as a consequence of the default committed by the mills, it owed a sum of Rs. 11,386.03. Under the same heading, for the period between April 17, 1974, and December 30, 1976, the mills owed the bank a further sum of Rs. 11,007.19. In all, under the above five headings, an aggregate sum of Rs. 37,88,229.97 was due from the textile mill in question to the Bank of Madura. To evidence the above liability and also to secure the payment thereof, the textile mills executed a promissory note on June 26, 1968, for Rs. 15 lakhs in favour of the bank at Coimbatore and on the same day it also executed a hypothecation agreement, besides making deposit of its title deeds on June 28, 1968, with the bank under a memorandum with intent to create an equitable mortgage. The Government of Tamil Nadu also was said to have guaranteed the above debt of the textile mills under a deed of guarantee dated June 21, 1968.

While the matter stood thus, the textile mill was not in a position to repay the said debt in spite of repeated demands and its financial position was found to be unsatisfactory. The mill in such circumstances appears to have, by their letter dated February 20, 1971, addressed to the bank and sought for re-scheduling the mode of repayment as on and from 1973 onwards giving it a respite from repayment for two years. Realising the financial position in which the mills were placed, the bank appears to have pressed the Government of Tamil Nadu to honour its guarantee. Since there was no positive response, the Bank of Madura filed a suit against the Government of Tamil Nadu in O.S. No. 255 of 1976, on the file of the Sub-Court, Coimbatore, for recovery of Rs. 13,20,717.64, being the amount said to be due at that time in respect of three instalments of loan defaulted by the mills. There was a move to compromise and the compromise was also said to have been accepted by the Government of Tamil Nadu in its proceedings in G.O. Ms. No. 850, dated August 14, 1978. By then, the textile mills in question came to be taken over as a sick unit under the Act. By virtue of the provisions contained in section 4 of the said Act, the sick textile undertaking stood vested with the Central Government with all assets, rights, leaseholds, powers, authorities and privileges and all property, movable and immovable, including lands, buildings, workshops, stores, instruments, machinery and equipment, cash balances, cash on hand, reserve funds, investments and all other rights and interests in, or arising out of, such property as were immediately before the appointed day in the ownership, possession, power or control of the sick textile undertaking, whether within or outside India. Section 20 of the Act contemplates that every person having a claim against the owner of a sick textile undertaking shall prefer such claim before the Commissioner within thirty days from the specified date. Section 21 of the Act stipulates priority of claims providing that the claims arising out of the matters specified in the Second Schedule shall have priorities in accordance with the principles set out therein which reads as follows :

“(a) Category I will have precedence over all other categories and Category II will have precedence over Category III and so on.

(b) The claims specified in each of the categories except Category IV shall rank equally and be paid in full, but if the amount is insufficient to meet such claims in full, they shall abate in equal proportions and be paid accordingly.

(c) The liabilities specified in Category IV shall be discharged, subject to the priorities specified in this section, in accordance with the terms of the secured loans and the priority, inter se, of such loans, and

(d) The question of payment of a liability with regard to a matter specified in a lower category shall arise only if a surplus is left after meeting all the liabilities specified in the immediately higher category.”

3. The Bank of Madura consequently preferred a claim within the prescribed time before the Commissioner of Payments under the Act, on April 28, 1977, disclosing the details relating to the liability of the textile mill in question for the aggregate sum of Rs. 37,88,229.97. Producing all the necessary documents in proof therefor, though the said claim was entertained and numbered, the Commissioner of Payments appears to have rejected the same on the ground that the claim of the bank stood excluded from consideration under section 22(2) of the Act for the reason that the amount remaining at its disposal for discharging the liabilities had been exhausted. Thereupon, an appeal appears to have been filed in C.M.A. No. 28 of 1981, before the District Court. By judgment dated September 25, 1981, the appeal came to be allowed and the matter was remanded to the Commissioner of Payments for fresh disposal. In doing so the learned District Judge observed in paragraph 5 of his judgment as hereunder :

“The claim made by the appellant falls under Category I to the Second Schedule to the Act. Hence, under section 21 of the Act, the claims under Category I will have precedence over all other categories and all the claims specified in Category I shall run equally and be paid in full. If the amount is insufficient, they shall abate in equal proportions.”

4. In paragraph 6, it was observed as follows :

“In the above circumstances, I find that the learned Assistant Commissioner has failed to take into consideration that under section 21(a) of the Act the claims preferred by the appellant will have precedence over all other categories and that if the amount is insufficient to meet the claims preferred by the appellant in full, the same should abate only in equal proportion and should be paid accordingly. I am, therefore, constrained to hold that the order passed by the lower court without abating in equal proportion and making payment as contemplated under section 21(a) and (b) of the Act is wrong and hence the entire matter has to be remanded to the lower court for fresh disposal according to law as contemplated under section 21(a) and (b) of the Act.”

5. On the matter being taken pursuant to the said order of remittance, the Commissioner of Payments rejected the claims on the ground that the bank has failed to prove its claim under Category I and inasmuch as the compensation amount was found insufficient to warrant consideration of the claim made under Category III, the said claim cannot be considered any further. Aggrieved, the bank has pursued the matter once again on appeal in C.M.A. No. 3 of 1983, before the District Court, Coimbatore. The learned District Judge, by his judgment dated August 23, 1983, also was of the view that the claim of the bank will fall under Category IV and not under Category I and consequently the appellate authority confirmed the orders of the Commissioner of Payments and rejected the appeal. Aggrieved, the bank approached this court with the writ petition, as noticed earlier under article 226 of the Constitution of India.

6. The learned single judge who heard the writ petition by his order dated March 4, 1992, held that when in the appeal C.M.A. No. 28 of 1981, the Commissioner of Payments was directed by the learned District Judge, as the duly constituted appellate authority to consider the claim of the bank under Category I of the Second Schedule to the Act, and decide the matter on the merits, it was not open to the Commissioner of Payments, to come to the conclusion that the claim has not been proved under Category I. The learned single judge was of the view that the Commissioner of Payments had no jurisdiction or authority to disturb the finding of the appellate authority in the earlier order dated September 25, 1981, that the claim of the bank would fall under Category I of the Second Schedule to the Act, and that being the position, the appellate authority also committed an error in confirming the order of the Commissioner of Payments and consequently quashed the order. A consequential direction was issued to the Commissioner of Payments in the following terms :

“In the meantime, it is represented by the petitioner that the claim of Rs. 33,29,991.01 has been made by the State Government. Learned counsel represents that the petitioner is not pressing about the claim. While so, the original authority, namely, the second respondent herein is directed to consider the claim of the petitioner with reference to other claims, after giving opportunity to the petitioner as well as to the other respondents under Category I of the Second Schedule to the Act and accordingly decide the matter on merit.”

7. It may be pointed out at this stage that, during the pendency of the writ petition, the cause title relating to the first respondent was so amended as to make the National Textile Corporation, a Government of India undertaking as representing Sri Sarada Mills Ltd., by an order of court dated August 1, 1986, in W.M.P. No. 19456 of 1985. Aggrieved, the National Textile Corporation has filed the above appeal.

8. Mr. S. S. Sundar, learned counsel appearing for the appellant-corporation contended that the learned single judge was not right in his views and conclusions on the binding nature of the directions contained in the order of remand passed in C.M.A. No. 28 of 1981, in spite of the specific statutory provision to the contra. It was also contended that the directions contained in the order passed in the proceeding to which the appellant-corporation was not a party is not binding upon the same and at any rate cannot be enforced at all. Learned counsel submitted that there is no estoppel or the bar of res judicata also and for that matter the plea of the bank cannot be and ought not to have been countenanced. Finally, it was contended that the direction, if any, in the order of remand will not have a binding effect on a higher court while dealing with the legality and propriety of such a direction.

9. Per contra, Mr. AR. L. Sundaresan, with great perseverance and force argued that unless and until the direction contained in the order of remand passed in C.M.A. No. 28 of 1981, by the learned District Judge under the Act is set aside in any appropriate or competent court, the same would be very much binding on all parties, including the appellant-corporation. Learned counsel contended that all necessary parties, as contemplated under the statute have been impleaded in the appeal and the National Textile Corporation was not a proper or necessary party to the appellate proceedings in C.M.A. No. 28 of 1981, and, therefore, the textile corporation cannot plead its absence before the appellate forum at that point of time as a ground for wriggling out of the order when the mill, the erstwhile owner and the debtor, which stood vested with the Central Government and stood transferred to the appellant-corporation, was a party. It was further contended by learned counsel for the bank that the Commissioner of Payments is bound by the statutory directions contained in the order passed on statutory appeal by the District Court as the appellate authority and he has to obey and carry out the directions of the appellate forum and consequently is estopped from claiming any right to reassess or reappraise the correctness or the propriety of the finding recorded by the appellate forum or go behind such a direction. Finally, it was contended that the learned District Judge functioning as the appellate authority under the Act, committed an error in rejecting the appeal, C.M.A. No. 3 of 1983, and thereby confirming the order of the Commissioner of Payments, which was directly contrary to the order passed on the earlier appeal and that, therefore, the learned single judge was well within his jurisdiction and authority in quashing the order of the learned District Judge passed in C.M.A. No. 3 of 1983, and directing the Commissioner of Payments to carry out the directions contained in the earlier order passed in C.M.A. No. 28 of 1981, dated September 25, 1981.

10. The sum and substance of the stand taken by the bank was on the basis that the principle of res judicata also would apply to disentitle the corporation or for that matter anyone concerned to re-agitate the very same question about the class or category under which the claim of the bank would fall for preferential consideration, in the light of the earlier order in C.M.A. No. 28 of 1981.

11. Learned counsel appearing on either side invited our attention to some of the decisions of the apex court as well as this court to which a reference may be made before dealing with the various issues raised in deciding the same.

12. In Mohan Ram v. T. L. Sundararamier, AIR 1960 Mad 377, a Full Bench of this court has taken the view that when the sale ability of a particular property, which was the subject-matter of a mortgage decree is brought for sale before the executing court is in direction a challenge to the same on the inalienability of the item of property in law can be sustained and the principles of res judicata will not stand or operate to debar the executing court from doing so. It was held that if the executing court was satisfied that the lands were service inam lands and, therefore, not saleable it was well open to the executing court to stay its hands without directing it to be sold, despite the directions contained in the mortgage decree.

13. In Mathura Prasad v. Dossibai, , the apex court held that so far as the question relating to jurisdiction of a court is concerned, the same cannot be said to have been finally determined by an erroneous decision of that court and if the court assumes jurisdiction which it does not possess under the statute, the question cannot operate as res judicata between the same parties, whether the cause of action in the subsequent litigation is the same or otherwise, in view of the reason that if those decisions are considered as conclusive, it will assume the status of a special rule of law applicable to the parties relating to the jurisdiction of the court in derogation of the rule declared by the Legislature.

14. In U. P. Electric Supply Co. v. T. N. Chatterjee, , it was held that a party is not bound to appeal against every interlocutory order, which is a step in the procedure that leads up to a final decision or award and any decision on any particular point given therein cannot operate as res judicata in an appeal by special leave filed against the impugned proceedings. We do not see any relevance of this decision to the facts of the case on hand.

15. In Jasraj Indersingh v. Hemraj Multanchand, , the apex court held that in an appeal against the High Court’s finding, the Supreme Court is not bound by what the High Court might have held in its remand order, though a subordinate court is bound by the direction of the High Court and even the same High Court hearing the matter on a second occasion or any other court of co-ordinate authority hearing the matter cannot discard the earlier holding. It was further observed that a finding in a remand order cannot bind a higher court when it comes up in appeal before it.

16. In P. G. Eshwarappa v. M. Rudrappa , the Supreme Court observed as follows :

“The High Court was right in its conclusion that since the respondents succeeded to the tenancy rights held by the father they took the tenancy rights by inheritance. They are entitled to the tenancy right held by their father as intestate successor. Consequently, their eviction in execution of the decree passed by the civil court was clearly in violation of section 22(1) of the Act. The principles of estoppel or res judicata do not apply where to give effect to them would be to counter some statutory direction or prohibition. A statutory direction or prohibition cannot be overridden or defeated by a previous judgment between the parties.”

17. In Allahabad Development Authority v. Nasiruzzaman , the apex court once again observed that the principle of estoppel or res judicata does not apply where to give effect to them would be to counter some statutory direction or prohibition since statutory direction or prohibition cannot be overridden or defeated by a previous judgment between the same parties.

18. Learned counsel for the first respondent bank placed strong reliance upon three decisions in support of his claim. In Nainsingh v. Koonwarjee, , the court was concerned with a case wherein there was an order of remand by the appellate court and though the said order of remand was appealable there was actually no appeal against the same. In such circumstances it was held that the correctness of the remand order was no more open to examination and there is no scope for the order being reviewed or such a remand order against which no appeal was filed and challenged, being interested even in the purported exercise of inherent powers of the Court. It may be noticed at this stage that the said view was taken by the Supreme Court on account of the peculiar and also the specific provisions contained in section 105(2) of the Code of Civil Procedure, 1908, that notwithstanding anything contained in sub-section (1) where any party aggrieved by an order of remand from which an appeal lies does not appeal therefrom, he shall thereafter be precluded from disputing its correctness.

19. In Sita Ram Goel v. Sukhnandi Dayal, , also a similar view was taken, specifically adverting to and relying upon section 105(2) of the Code of Civil Procedure.

20. In Krishnaswamy v. Muthu Reddiar, , also a similar view was taken by a Division Bench of this court relying upon the specific stipulation contained in section 105(2) of the Code of Civil Procedure. As a matter of fact, their Lordships of the Division Bench specifically, when their attention was drawn to the decisions in Jasraj Indersingh v. Hemraj Multanchand, , and Lolankutty v. Thomman, , distinguished those decisions on the ground that the cases considered by the apex court are those where no automatic right of appeal was available and consequently section 105(2) of the Code of Civil Procedure was not applicable.

21. We have carefully considered the submissions of learned counsel on either side. In our view, the latest two decisions of the apex court would clearly and directly answer the grievance of learned counsel for the first respondent-bank with reference to any of the objections raised by the appellant-corporation or for that matter the challenge projected to the order of the learned District Judge in C.M.A. No. 3 of 1983, and also of the enforceability of the direction contained in the order of remand made in C.M.A. No. 28 of 1981, which indisputably runs directly contrary to the provisions of the Act.

22. Sri Sarada Mill has been taken over under the Sick Textile Undertakings (Nationalisation) Act, 1974, and it is indisputably in Sl. No. 98 of the First Schedule to the Act. Section 21 of the Act, which has been extracted above, provides the manner in which the priority of claims have to be dealt with under the Act, as per which Category I will have precedence over all other categories and Category II will have precedence over Category III and so far as the claims specified in each of the categories, except Category IV, are concerned, they shall rank equally and be paid in full. As far as the liabilities specified in Category IV are concerned, they shall be discharged subject to the priorities specified in the section and the Second Schedule enumerates the method of working out priorities and the classification of the class of loans or liabilities which will fall under each of the categories. The terms of the Second Schedule are as follows :

“THE SECOND SCHEDULE
(See sections 21, 22, 23 and 27)
Order of priorities for the discharge of liabilities in
respect of a sick textile undertaking.

PART A
Post-take-over management period. Category I –

(a) Loans advanced by a bank

(b) Loans advanced by an institution other than a bank.

(c) Any other loan.

(d) Any credit availed of for purposes of trade or manufacturing operations.

Category II –

(a) Revenue, taxes, cesses, rates or any other dues to the Central Government or a State Government.

(b) Any other dues.

PART B
Pre-take-over management period. Category III –

Arrears in relation to provident fund, salaries and wages, and other amounts due to an employee.

Category IV –

Secured loans.

Category V –

Revenue, taxes, cesses, rates or any other dues to the Central Government, a State Government, a local authority or a State Electricity Board.

Category VI –

(a) Any credit availed of for purpose of trade or manufacturing operations.

(b) Any other dues.”

23. It is obviously clear and admits of no controversy that the liabilities of the nature relating to the sick mill in question and due to the bank in question falls only under Category IV. If that be the mandate and the clear cut policy of the Legislature expressed in the enactment the appellate authority, while dealing with C.M.A. No. 28 of 1981, could not have mechanically made an observation or direction that the claim of the bank in question falls under Category I, and, therefore, entitled to precedence over all other categories. The observations or conclusions, however they may be called, contained in C.M.A. No. 28 of 1981 are directly opposed to the mandatory provisions contained in the Act, noticed supra and, therefore, cannot be accorded any sanctity or finality or given any binding force so as to constitute either estoppel or constructive res judicata. Such an illegal direction directly opposed to the statute will be void ab initio and non est in the eye of law. Therefore, we are of the view that no exception could be taken to the learned District Judge, while dealing with the appeal in C.M.A. No. 3 of 1983, confirming the order of the Commissioner of Payments or the Commissioner of Payments rejecting the claim, as not falling or provable under Category I of the Schedule. In our view, the conclusion arrived at by the Commissioner of Payments in his order passed pursuant to the order of remand in C.M.A. No. 28 of 1981, holding that the bank has not proved that the liabilities due to the bank fall under Category I cannot be said to be illegal or unsustainable in law and the learned single judge was not right, in our view, in either quashing the orders of the Commissioner of Payments and the learned District Judge on further appeal containing any direction of the nature directly opposed to the specific mandate of law contained in the 1974 Act. Similarly, it does not also preclude this court exercising jurisdiction under article 226 of the Constitution from declaring that the direction contained in the order of remand in C.M.A. No. 28 of 1981 is unenforceable and opposed to law. Consequently, the writ appeal is allowed and the order of the learned single judge is set aside and the order of the Commissioner of Payments dated September 4, 1982, as confirmed by the learned District Judge in C.M.A. No. 3 of 1983 are restored. No costs.

24. It is always open to the bank to work out its remedies against the appropriate person or authority in accordance with law.

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