IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6126 OF 2008
[Arising out of SLP(C) No.3146/2006]
STATE OF U.P. .......APPELLANT(S)
Versus
HINDUSTAN UNILEVERS LTD. & ORS. .....RESPONDENT(S)
WITH
C.A. NO. 6127 OF 2008
(Arising out of SLP(C) No.25725/2008 @ CC.NO.3609/2006)
ORDER
Leave granted. Heard the learned counsel.
2. The U.P. Cooperative Spinning Mills Federation Ltd. (hereinafter
‘Federation’, for short) invited applications for private placement of debenture bonds in
the year 1998 representing that the repayment thereof was unconditionally and
irrevocably guaranteed by the U.P. Government. The State Government issued
Government Order dated 12.8.1998 guaranteeing the repayment of the principal and
interest in respect of debenture bonds issued by the U.P. Cooperative Spinning Mills
Federation Ltd.
3. Acting on the invitation for private placement of applications, and in view of
the guarantee by the State Government, the first respondent invested Rs.15,00,000/-
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(Rupees fifteen lakhs only) from the provident fund deposits of its employees, in the
said bonds. The Federation issued an allotment letter dated 25.12.1998 confirming that
the amount invested will carry interest @ 14.9% p.a. and the bonds will be redeemed at
the end of 48 months, 54 months and 60 months at the rate of 33%, 33% and 34%
respectively.
4. The Federation sustained losses and went under liquidation. It did not redeem
the bonds as agreed and undertaken, inspite of demands. The amounts due were not
paid except part payment of Rs.1,73,980/- and Rs.1,15,118/- in all Rs.2,89,098/- towards
interest. As the amounts due under the bonds and interest were not paid by the State
Government in terms of guarantee, inspite of demand for payment, the respondent
approached the Delhi High Court for relief. The High Court, by order dated
21.11.2005, directed the State Government, as guarantor, to pay the sum of
Rs.15,00,000/- (Rupees fifteen lakhs) with interest at the rate of 14.9% (the rate agreed
under the bonds) less amounts already paid. The said order is challenged in these two
appeals by the State Government and the Federation.
5. Though several contentions were urged by the State Government and the
Federation, when the matter came up today, the learned counsel for the State
Government handed over a Pay Order for Rs.15,00,000/- (Rupees fifteen lakhs) to the
learned
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counsel for respondent towards the refund of the principal amount. In regard to
interest, the learned counsel for the Federation and the State Government submitted that
as the Federation is under liquidation and as the State Government has paid the
principal amount, the respondent should be relegated to other remedies in law for
recovery of interest.
6. Such a contention is not tenable. The amount invested by first respondent
belongs to the workmen of first respondent. The amount was invested in the bonds of
the Federation in view of the express guarantee by the State Government that the same
will be repaid with interest upto 15.5% p.a. The very purpose of the State Government
guarantee is to ensure payment in case the Federation was not able to make payment. In
the circumstances, the fact that the Federation is in financial difficulties cannot be a
ground for the State Government to say that it will not make payment of interest, even
though it had guaranteed the repayment with interest. If such a contention is accepted,
the very purpose of the guarantee will be defeated. We are indeed surprised that such a
plea is put forward on behalf of the State of Uttar Pradesh.
7. In the circumstances, we are of the view that the State Government should pay
the interest also. However, on the facts and circumstances, we are of the view that
interest
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should be paid at the rate of 14.9% p.a. for a period of five years from the date of
deposit and thereafter at the rate of 9.5% per annum (which is equal to the minimum
rate of interest that is payable by the first respondent to its workers on the provident
fund dues). The above concession regarding interest is granted on the peculiar facts of
these appeals. Three months’ time is granted to the Government of Uttar Pradesh to pay
the balance of interest.
8. Appeals are disposed of accordingly. Parties to bear their respective costs.
………………………J.
( R.V. RAVEENDRAN )
New Delhi; ...........................J.
October 15, 2008. ( DR. MUKUNDAKAM SHARMA )