{"id":32234,"date":"2006-08-08T00:00:00","date_gmt":"2006-08-07T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/national-textile-corporation-vs-state-bank-of-india-ors-on-8-august-2006"},"modified":"2018-05-21T09:38:19","modified_gmt":"2018-05-21T04:08:19","slug":"national-textile-corporation-vs-state-bank-of-india-ors-on-8-august-2006","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/national-textile-corporation-vs-state-bank-of-india-ors-on-8-august-2006","title":{"rendered":"National Textile Corporation … vs State Bank Of India & Ors on 8 August, 2006"},"content":{"rendered":"
Supreme Court of India<\/div>\n
National Textile Corporation … vs State Bank Of India & Ors on 8 August, 2006<\/div>\n
Author: S.B. Sinha<\/div>\n
Bench: S.B. Sinha, P.P. Naolekar<\/div>\n
           CASE NO.:\nAppeal (civil)  2314 of 2000\n\nPETITIONER:\nNational Textile Corporation (Guj.) Ltd.\n\nRESPONDENT:\nState Bank of India & Ors.\n\nDATE OF JUDGMENT: 08\/08\/2006\n\nBENCH:\nS.B. Sinha & P.P. Naolekar\n\nJUDGMENT:\n<\/pre>\n
J U D G M E N T
\nW I T H
\nCIVIL APPEAL NOS.2315 TO 2321 OF 2000<\/p>\n
S.B. SINHA, J :\n<\/p>\n
These appeals involving identical questions of law and fact were taken
\nup for hearing together and are being disposed of by this common judgment.\n<\/p>\n
The factual matrix of the matter, however, would be noticed from
\nCivil Appeal No.2316 of 2000.\n<\/p>\n
The management of the New Manekchowk Spinning and Weaving
\nMills Company Limited was taken over in terms of Section 18(1) of the
\nIndustries (Development & Regulation) Act, 1951.  The Gujarat State
\nTextile Corporation Limited was appointed as its Authorized Controller.
\nThe period of takeover was extended upto 31.03.1974.\n<\/p>\n
The Parliament thereafter enacted the Sick Textile Undertakings
\n(Nationalization) Act, 1974, (for short, ‘the Act) which came into force with
\neffect from 01.04.1974 in terms whereof the right, title and interest of the
\nsaid textile mills vested absolutely in the Central Government.  The Central
\nGovernment, however, issued an appropriate notification whereby and
\nwhereunder the said mills instead of continuing to vest in the Central
\nGovernment were directed to vest in the National Textile Corporation
\n(Gujarat).\n<\/p>\n
Statutory provisions :\n<\/p>\n
\tBefore we advert to the rival contentions of the parties, we may notice
\nsome of the relevant provisions of the Act.\n<\/p>\n
“Appointed day” had been defined in Section 2(1) of the the Act to
\nmean the “1st day of April, 1974”.\n<\/p>\n
\tThe term “owner” has been defined in Section 2(h) of the Act as
\nunder :\n<\/p>\n
“(h)  “owner”, when used in relation to a sick textile
\nundertaking, means any person or firm who or which is,
\nimmediately before the appointed day, the immediate
\nproprietor or lessee or occupier of the sick textile
\nundertaking or any part thereof, and in the case of a
\ntextile company  which is being wound up or the
\nbusiness whereof is being carried on by a liquidator or
\nreceiver, includes such liquidator or receiver, and also
\nincludes any agent or manager or such owner but does
\nnot include any person or body of persons authorized
\nunder the Industries (Development and Regulation) Act,
\n1951, or the Sick Textile Undertakings (Taking Over of
\nManagement) Act, 1972, to take over the management of
\nthe whole or any part of the sick textile undertaking”\n<\/p>\n
\tBefore the Commissioner of Payments, the creditors became entitled
\nto file their respective claims for the purpose of disbursement thereof out of
\nthe amount of compensation towards nationalization of the mills deposited
\nwith it by the Central Government.\n<\/p>\n
The claims under the Act are divided into two distinct categories (i)
\npost-takeover management period; and (ii) pre-takeover management period.\n<\/p>\n
The post-takeover management period was 14.02.1969 to 31.03.1974.\n<\/p>\n
The Second Schedule appended to the 1974 Act provided :\n<\/p>\n
“Order of priorities for the discharge of liabilities in respect of a sick
\ntextile undertaking
\nPART A
\nPost-Takeover Management Period
\nCategory I\n<\/p>\n
(a) Loans advanced by a bank.\n<\/p>\n
(b) Loans advanced by an institution other than a bank.\n<\/p>\n
(c) Any other loan.\n<\/p>\n
(d) Any credit availed of for purpose of trade or manufacturing
\noperations.\n<\/p>\n
Category II\n<\/p>\n
(a) Revenue, taxes, cesses, rates or any other dues to the
\nCentral Government or a State Government.\n<\/p>\n
(b) Any other dues.”\n<\/p>\n
In terms of Section 3 of the Act, the right title and interest of the
\nowner in relation to every sick textile undertaking vested absolutely in the
\nCentral Government.  Section 5 provides that every liability, other than the
\nliability specified in sub-section (2) thereof in respect of any period prior to
\nthe appointed day, shall be that of such owner and shall be enforceable
\nagainst him and not against the Central Government or the National Textile
\nCorporation.  Sub-section (3) of Section 5 reads as under :\n<\/p>\n
\t“5.(3) For the removal of doubts, it is hereby declared that\n<\/p>\n
(a)\tsave as otherwise expressly provided in this
\nsection or in any other section of this Act, no
\nliability, other than the liability specified in sub-
\nsection (2), in relation to a sick textile undertaking
\nin respect of any period prior to the appointed day,
\nshall be enforceable against the Central
\nGovernment or the National Textile Corporation;\n<\/p>\n
(b)\tno award, decree or order of any court,
\ntribunal or other authority in relation to any sick
\ntextile undertaking passed after the appointed day
\nin respect of any matter, claim or dispute, in
\nrelation to any  matter not referred to in sub-
\nsection (2), which arose before that day, shall be
\nenforceable against the Central Government or the
\nNational Textile Corporation.\n<\/p>\n
(c)\tno liability of any sick textile undertaking or
\nany owner thereof for the contravention, before the
\nappointed day, of any provision of law for the time
\nbeing in force, shall be enforceable against the
\nCentral Government or the National Textile
\nCorporation.”\n<\/p>\n
Section 8 provides for deposit of the amount of compensation in cash
\nby the Central Government.  Section 17 provides for appointment of
\nCommissioners of Payments, whereas priority and examination of claims
\nfiled before it are contained in Section 21 and 22 of the Act, which read as
\nunder :\n<\/p>\n
“21.   The claims arising out of the matters specified in
\nthe Second Schedule shall have priorities in accordance
\nwith the following principles, namely :-\n<\/p>\n
(a)\tcategory I will have precedence over all
\nother categories and category II will have
\nprecedence over category III and so on;\n<\/p>\n
(b)\tthe claims specified in each of the
\ncategories, except category IV, shall rank equally
\nand be paid in full, but if the amount is insufficient
\nto meet such claims in full, they shall abate in
\nequal proportions and be paid accordingly;\n<\/p>\n
(c)\tthe liabilities specified in category IV shall
\nbe discharged, subject to the priorities specified in
\nthis section, in accordance with the terms of the
\nsecured loans and the priority, inter se, of such
\nloans; and<\/p>\n
(d)\tthe question of payment of a liability with
\nregard to a matter specified in a lower category
\nshall arise only if a surplus is left after meeting all
\nthe liabilities specified in the immediately higher
\ncategory.”\n<\/p>\n
“22.  (1) On receipt of the claims under section 20, the
\nCommissioner shall arrange the claims in the order of
\npriority specified in the Second Schedule and examine the
\nsame in accordance with the said order;\n<\/p>\n
(2)\tIf on examination of the claims, the Commissioner
\nis of the opinion that the amount paid to him under this
\nAct is not sufficient to meet the liabilities specified in
\nany lower category, he shall not be required to examine
\nthe liabilities in respect of such lower category.”\n<\/p>\n
Section 27 which occurs in Chapter VII of the Act provides as under :\n<\/p>\n
“27.  (1) Where any liability of the owner of a sick textile
\nundertaking arising out of any item specified in category
\nI of the Second Schedule is not discharged fully by the
\nCommissioner out of the amount paid to him under this
\nAct, the Commissioner shall intimate in writing to the
\nCentral Government the extent of the liability which
\nremains undischarged, and that liability shall be assumed
\nby the Central Government.\n<\/p>\n
(2)\tThe Central Government may, by order, direct the
\nNational Textile Corporation to take over any liability
\nassumed by that Government under sub-section (1), and
\non receipt of such direction, it shall be the duty of the
\nNational Textile Corporation to discharge such liability.”\n<\/p>\n
Proceedings :\n<\/p>\n
\tThe company took some loan from the State Bank of India.  During
\nthe period of takeover also, the State Bank of India continued to extend
\nvarious credit facilities to the management.  The Respondent Bank in its
\nclaim stated :\n<\/p>\n
“3.\tThe appellant has given various credit facilities
\nbefore and after the authorized controller took over the
\nmanagement.  The appellant had given the facility of
\nhypothecation account with the limit of
\nRs.13,50,000.00p.  the amount in that account
\noutstanding as on March 31, 1974 was Rs.1,34,148.39p.
\nand the amount outstanding as on March 31, 1974 was
\nRs.7,22,343.02p.  In the Mortgaged account the limit was
\nRs.20,00,000\/- and the amount outstanding as on March
\n31, 1974 was Rs.19,74,399.85p. and the amount
\noutstanding as on March 31, 1977 was Rs.24,86,190.93p.
\nIn the Pledge account the limit was Rs.30,00,000.00p.
\nand the amount outstanding as on March 31, 1974 was
\nRs.20,65,989.90p. and the one outstanding on March 31,
\n1977 was Rs.28,65,735.15p.   In the deferred payment
\nguarantee account, the appellant had paid installments of
\nRs.6,43,709.20p. and the installments to be paid by the
\nappellant were to the extent of Rs.6,35,218.42p. the
\nappellant paid over due interest of the amount of
\nRs.16,800.49p.  Thus, in this account the total amount
\nclaimed was Rs.12,95,828.20p.  The appellant had issued
\ncheques on or before March 31, 1974 but paid on or
\nbefore Sept. 21, 1974, bills cheques of the value of
\nRs.6,16,291.58p. The appellant had debited
\nRs.21,911.65p. in the account of the National Textile
\nCorporation as the bills or cheques of this value
\npurchased on or before March 31, 1974 but returned or
\npaid on or before Sept. 21, 1974.  The appellant also
\nclaimed bank charges, and other amounts relating to the
\nperiod upto March 31, 1974 but debited before
\nSeptember 21, 1974.   The appellant also claimed Bank
\ncharges Rs.,17,39,648.00p. being the amount of
\nbills\/cheques purchased by the appellant on or before
\nMarch 31, 1974 but realized on or after April 1, 1974.
\nThus the appellant in all claimed Rs.99,97,944.32p.
\nunder four head as per the statement of the account
\nannexed with the application of claim.”\n<\/p>\n
\tBy an order dated 30.09.1978, the Commissioner of Payments held as
\nunder :\n<\/p>\n
\t“That out of total claims, an amount of
\nRs.51,55,524.81p. could be admitted in Category I, an
\namount of Rs.24,86,109.93ps. could be admitted in
\nCategory IV and the rest of the amount of
\nRs.23,55,939.58ps. could not be considered for the
\npurposes of categorization.”\n<\/p>\n
\tAn appeal was preferred thereagainst before the City Civil Court.  The
\nsaid appeal was dismissed by an order dated 18.08.1980, holding :\n<\/p>\n
\t“As discussed in the earlier part of the judgment,
\nonly those liabilities falling under the aforesaid two
\nperiods are required to be discharged out of the
\ncompensation amount fixed from the undertaking except
\nas mentioned in sub-section (1) of Section 27 of the Act.
\nThe appellant had made payments to the supplier after
\n1.4.1974 i.e. after the appointed day.  The Act restricted
\ndischarge of certain liabilities enumerated in the Second
\nSchedule only falling due upto 31.3.1974.  The
\nappellant’s claim cannot be covered in any of the
\ncategories in the Second Schedule..Since the liability
\nof the respondent No.1 does not exist on account of the
\ncontract having ceased  to have effect on 1.4.1974, the
\nappellant’s claim for the same reasons become non-
\nexistent.It appears from the award of the Assistant
\nCommissioner of Payments that the adjustments with the
\nrespondent No.2 for the bills purchased or the cheques
\nrealized was made.  That has been done as the bills
\ndiscounted or purchased on or before March 31, 1974,
\nremained with the erstwhile owners and such ownership
\non rights vested in the nationalized textile corporation by
\nvirtue of Section 4 of the Act.”\n<\/p>\n
A writ petition was thereafter filed before the High Court.  By reason
\nof the impugned judgment, a learned Judge of the High Court while allowing
\nthe said writ petition held as under :\n<\/p>\n
“6. I have given anxious thought to the
\nsubmissions made on behalf of the parties.  The main
\nquestion for determination by this Court is whether
\noutstanding dues in different accounts for the pre-take-
\nover as on 14.2.1969 were the liabilities of the
\nAuthorized Controller, or that liabilities which were
\nthereafter can be considered under Section 5 of the Act
\nfor the purpose of awarding the compensation amount.
\nFor this purpose, we have to see the actual meaning of
\nloan and advances.  Loans and advance loans have been
\nexplained by the Apex Court in the case of Jiwanlal
\nAcharya vs. Rameshwar Agarwalla,<\/a> reported in AIR
\n1967 SC 1118, wherein it has been held that the loan
\nmeans an advance, whether of money or in kind on
\ninterest, made by a money-lender and shall include a
\ntransaction on a bond bearing interest in respect of post
\nliability and in transaction, which in substance is a loan.
\nWhen a loan is renewed by the execution of a fresh
\ndocument of removal, there is no difficulty in holding
\nthat the former loan was repaid by borrowing a fresh
\nloan on the document of renewal.  So, the transaction
\nitself can be treated as a fresh loan.  The word
\n“advance” appears to have been used there for
\nconvenience of the language, particularly to indicate
\nthat the loan must have been made after commencement
\nof the Act.  It does not imply that there should have
\nbeen an actual advance, whether of money or any kind.
\nThus, in view of the proposition of law laid down by
\nthe Apex Court, the loans advanced by the petitioner
\nbank prior to 14.2.1969, guaranteed by the Authorized
\nController and by the State Government and by the
\nState Government and guarantee for the post-take-over
\nperiod would fall under the category no.1(a) of the
\nSecond Schedule and it would not fall in category no.4
\nof part “B”.  The Bombay High Court has completely
\nanswered the question regarding the liability of the
\nAuthorised Controller for the amount due prior to
\n1.4.1974 and thereafter.”\n<\/p>\n
Submissions :\n<\/p>\n
Mr. L. Nageshwara Rao, the learned Senior Counsel appearing on
\nbehalf of the appellant, would submit that the High Court committed a
\nserious error in holding :\n<\/p>\n
 (i) loan was advanced during post-takeover period during which the
\nmanagement was with the corporation; (ii) the facility was given by the bank
\nto continue to avail the credit facilities to pay the amount of loan on renewal
\nthereof;  (iii) the undertaking given by the Controller for continuing to
\nobtain the said facilities would not make the outstanding dues on account of
\npriority claim of the company; (iv)  There exists a difference between a loan
\nand liability; whereas the principal amount would come within the purview
\nof priority claim,  claim of  interest would not.\n<\/p>\n
Mr. R. Sundaravardan, the learned Senior Counsel appearing on
\nbehalf of the State Bank of India, on the other hand, submitted that: (i) the
\nbank acted to its detriment at the instance of the Controller and relying on
\nthe guarantee furnished by it as also by the State of Gujarat continued to
\nextend the facilities which would amount to a new loan.  (ii) Such credit
\nfacility had been given so that the mills may survive and, thus, the Appellant
\ncannot now be permitted to contend that the loan advanced by the Bank
\nwould not be disbursed on a priority basis.  (iii) In any event, as part of the
\namount to be paid had been apportioned for past dues in terms of Section 60
\nof the Indian Contract Act, this Court should not interfere with the impugned
\njudgment.\n<\/p>\n
Mr. T.L. Vishwanatha Iyer, the learned Senior Counsel appearing for
\nthe Bank of Baroda, supplemented Mr. Sundaravardan contending that the
\ndeferred payment guarantee should be treated as an advance given during
\npost management period and, thus, would come within the purview of
\nCategory I of the Second Schedule of the Act.  It was submitted that for all
\nintent and purport, the liability is akin to the concept of loan and in that view
\nof the matter any amount which was payable as on 31.3.1974 including the
\namount of interest would come within the purview of the expression ‘loan’.\n<\/p>\n
Priority claims :\n<\/p>\n
The basic fact of the matter is not in dispute.  Although the
\nmanagements of the textile mills were taken over in terms of the provisions
\nof the 1951 Act, the Authorized Controller managed the affairs of the mills
\nfor or on behalf of the owners.  The liabilities incurred or profits made
\nduring the said period were to be credited to the account of the owners.  The
\nowners in terms of the provisions of the Act were not entitled to receive the
\namount of compensation but also the interest provided for in the said Act as
\nalso the amount of compensation payable for taking over of the management
\nof the mills under the 1956 Act.\n<\/p>\n
The claim of every claimant was required to be determined by the
\nCommissioner of Payments strictly in terms of the provisions of the Act.
\nFor the purpose of enabling it to disburse his claim from the amount
\ndeposited with it by the Central Government, priorities were to be accorded
\nto the specified category of claim in terms of the Second Schedule of the
\nAct.\n<\/p>\n
The Commissioner of Payments as a statutory authority was to act
\nwithin the four-corners of the Act.\n<\/p>\n
In terms of the provisions of the Act, the liability of the owner has not
\nceased to run.  The entire claim of the bank, if not capable of being
\ndisbursed from the amount deposited by the Central Government, the same
\nwould abate.  The claimants, therefore, are entitled to realize their remaining
\nclaims from the owners.\n<\/p>\n
The Authorized Controller and the State of Gujarat furnished
\nguarantees.  Guarantees furnished by the State of Gujarat were de’hors the
\nprovisions of the   Act.  In terms of the provisions of the Act, the State of
\nGujarat had no role to pay.  It might have encouraged the Authorized
\nController to revive the functioning of the mills upon continuing to obtain
\nthe facilities of the erstwhile owners from the banks and other industrial
\ninstitutions for revival of the mill as a part of social welfare measure.  Under
\nthe Act, however, it could not have intermeddled with the affairs of the
\nfunctioning of the mills by the Authorized Controller.  Any action taken
\npursuant to or in furtherance of any representation made by the State of
\nGujarat would, thus, be of its own liability.  Such liabilities can be enforced
\nby the claimants.  For the self same reasons any guarantee furnished by the
\nGujarat Financial Corporation would also be an act on its own behalf.  It,
\nwhile carrying out the management of the mill, could have incurred loan on
\nbehalf of the owner but if it had furnished any guarantee, the same would
\nconstitute an independent act, although furnished for obtaining loan or
\ncontinue to obtain the facilities for running the mills.  It could not act both as
\na loaner and a guarantor.  The liability of the owner and guarantor would
\ndepend upon the terms of the documents executed in favour of the Bank
\nand\/or the provisions of the Indian Contract Act.  Similarly if a claim comes
\nwithin the purview of Section 27 of the Act, the Central Government would
\ncontinue to be liable therefor.  A similar guarantee furnished by the Gujarat
\nState Financial Corporation on its own behalf subject to the terms of the
\nguarantee may become enforceable against it.\n<\/p>\n
We are in these appeals, however, only concerned with the
\ninterpretation of the relevant provisions of the Second Schedule of the Act.
\nContinuing the credit facilities given by the banks to the owner, in our
\nopinion, would not amount to a fresh agreement.\n<\/p>\n
For the purpose of attracting the provisions of the Second Schedule,
\nthe amount mentioned in Category I must be confined to loans advanced by
\nthe banks or other financial institutions, or any other loan or any credit
\navailed of for the purpose of trade or manufacturing operations.  A
\ndistinction, therefore, exists between a loan given to the Controller and
\navailing of the credit facilities which were available to the owner of the
\ntextile mills so as to enable it to carry on the manufacture operation thereof
\nafter its take over.  The textile undertakings were sick ones.  The
\nmanagements of such mills were taken over for the purpose of revival
\nthereof.  If in that process the Authorized Controller was required to raise
\nloan either from a bank or from a financial institution other than a bank or
\nfrom any other person or availed any other credit, indisputably, the same
\nwould come within the purview of Category-I liability being a post-takeover
\nmanagement period.\n<\/p>\n
Such loan, however, it will bear repetition to state, would not be
\nrenewal of pre-takeover loan. In Jiwanlal Achariya v. Rameshwar Lal
\nAgarwalla<\/a> [AIR 1967 SC 1118], this Court was concerned with
\ninterpretation of the expression ‘loan’ contained in Section 2(f) of the Bihar
\nMoney Lending (Regulation of Transactions) Act, 1939, which was in the
\nfollowing terms :\n<\/p>\n
“Loan” means “an advance, whether of money or
\nin kind, on interest made by a money-lender, and shall
\ninclude a transaction on a bond bearing interest executed
\nin respect of past liability and any transaction which in
\nsubstance is a loan, but shall not include”\n<\/p>\n
This Court in the context of the said definition of ‘loan’ opined that
\nwhen a loan is renewed by execution of a fresh document, there is no
\ndifficulty in holding that the former loan was repaid by borrowing a fresh
\nloan on the document of renewal.\n<\/p>\n
In that case, the appellant therein claimed that no money was in fact
\nadvanced on February 4, 1954 and that the promissory note executed on that
\ndate was to pay by renewal of a loan for Rs.4,000\/- which had been taken as
\nfar back as October 1946.  The sum of Rs.10,000\/- included the principal
\namount of Rs.4,000 and the remainder was towards interest.\n<\/p>\n
In the aforementioned factual matrix, it was held that all that S.2(f)
\nrequires is that there should be an instrument  in writing by which the
\nobligor obliges himself to pay the past liability and the instrument should
\nbear interest  <\/p>\n
In this case, no such document admitting and acknowledging the past
\nloan and a fresh document was executed. Jiwanlal Achariya (supra),
\ntherefore, was decided in the fact situation obtaining therein.\n<\/p>\n
The High Court in its impugned judgment relied upon State Bank of
\nIndia v. Edward Textile Mills Ltd. & Ors. [AIR 1988 Bombay 313].  The
\nsaid decision was reversed by this Court in State Bank of Indore v.
\nCommissioner of Payments and Others [(2004) 11 SCC 516], holding :\n<\/p>\n
“Thus, the heading of the Second Schedule provides
\n“priorities for the discharge of liabilities”. The term
\n“liability” as stated above would include interest. It
\nwould include a loan. It would also include credits
\navailed of. It would include revenue, taxes, cesses, rates
\nand other dues. However, the payment in priority is for a
\nloan. The distinction in language makes it very clear that
\nwhat was to be paid in priority was only the amount of
\nthe loan i.e. the principal amount and not the interest
\namount due thereon. Of course, payments towards
\ninterest would remain liabilities. But for recovery of that
\nthe remedy would be to proceed against the owner\/surety.
\nThis Court has in the case of Industrial Finance
\nCorpn. of India Ltd. v. Cannanore Spg. and Wvg. Mills
\nLtd  held that by virtue of the provisions of the Act the
\nliability of the principal debtor and that of the surety does
\nnot come to an end. It is held that if the compensation to
\nbe paid by virtue of Section 21 and the Second Schedule
\ndoes not satisfy the full claim then the creditor is not
\nbarred from filing a civil suit for the balance. Further, in
\nthe case of Punjab National Bank v. State of U.P.<\/a> it has
\nbeen held that even though mode of recovery, against a
\nsurety, may be affected the liability of the principal
\ndebtor and the guarantor does not get affected by the
\nprovision of this Act. Not only are these authorities
\nbinding us but we are in complete agreement with what is
\nlaid down therein.\n<\/p>\n
It is thus clear that the interest amounts are not to be
\npaid in priority under the provisions of this Act. In this
\nview, strictly speaking, even interest up to 31-3-1974 was
\nnot payable in priority”\n<\/p>\n
\tMr. Iyer placed strong reliance upon a decision of this Court in
\nCommissioner of Income-tax, Lucknow v. The Bazpur Co-operative Sugar
\nFactory Ltd.<\/a> [AIR 1989 SC 1866].  In that case, this Court was dealing with
\nthe provisions of Income Tax Act, 1961 vis-`-vis the bye-laws framed by a
\ncooperative society.  The question, which arose for consideration therein,
\ndoes not arise before us.   It was held therein that the deposits made by the
\nmembers could not be regarded as loans advanced by the members to the
\nassessee.  The moneys deposited represented contribution by the members
\nfor converting the partly paid up shares into fully paid up shares and
\nthereafter for defraying the loan taken from the Industrial Finance
\nCorporation.  Any balance remaining was to be refunded to the members.
\nSuch a question does not arise in the instant case.\n<\/p>\n
\tIn Industrial Finance Corporation of India Ltd. v. Cannanore Spinning
\nand Weaving Mills Ltd. and Others<\/a> [(2002) 5 SCC 54], a Division Bench of
\nthis Court interpreting the provisions of the 1974 Act, held :\n<\/p>\n
“Turning attention to the effect of the Sick Textile
\nUndertakings (Nationalisation) Act, 1974, a bare perusal
\nof some of the provisions will indicate that there is no
\ndischarge of the liability of principal debtor, leave alone
\nthat of the surety. Sections 3, 4, 5 and 20 of the Act of
\n1974, if read together, would depict that the liability of
\nthe owner of the undertaking\/the debtor continues and it
\nis only the claim against the security which stands
\ndischarged by reason of the statutory shift of the charge
\non to the compensation. The liability of the principal
\ndebtor does not in any way come to an end, neither that
\nof the guarantor”\n<\/p>\n
\tWhile doing so, it relied upon a decision of this Court in Punjab
\nNational Bank v. State of U.P. and Others<\/a> [(2002) 5 SCC 80], wherein it had
\nbeen held that the loan of a guarantor does not come to end with the coming
\ninto force of the 1974 Act, stating :\n<\/p>\n
“We have gone through the provisions of the said Act
\nand in our opinion the decision of the courts below is not
\ncorrect. Section 5 of the said Act provides for the owner
\nto be liable for certain prior liabilities and Section 29
\nstates that the said Act will have an overriding effect over
\nall other enactments. This Act only deals with the
\nliabilities of a company which is nationalised and there is
\nno provision therein which in any way affects the liability
\nof a guarantor who is bound by the deed of guarantee
\nexecuted by it. The High Court has referred to a decision
\nof this Court in Maharashtra SEB v. Official Liquidator,
\nHigh Court, Ernakulam<\/a> where the liability of the
\nguarantor in a case where liability of the principal debtor
\nwas discharged under the insolvency law or the company
\nlaw, was considered. It was held in this case that in view
\nof the unequivocal guarantee, such liability of the
\nguarantor continues and the creditor can realise the same
\nfrom the guarantor in view of the language of Section
\n128 of the Contract Act as there is no discharge under
\nSection 134 of that Act.\n<\/p>\n
In our opinion, the principle of the aforesaid decision
\nof this Court is equally applicable in the present case.
\nThe right of the appellant to recover money from
\nRespondents 1, 2 and 3 who stood guarantors arises out
\nof the terms of the deeds of guarantee which are not in
\nany way superseded or brought to a naught merely
\nbecause the appellant may not have been able to recover
\nmoney from the principal borrower. It may here be added
\nthat even as a result of the Nationalisation Act the
\nliability of the principal borrower does not come to an
\nend. It is only the mode of recovery which is referred to
\nin the said Act.”\n<\/p>\n
In Rashtriya Mill Mazdoor Sangh v. National Textile Corporation
\n(South Maharashtra) Ltd. and Others<\/a>  [(1996) 1 SCC 313], this Court  held
\nthat gratuity payable by erstwhile owner cannot be recovered from the
\nCentral Government or the Corporation, stating :\n<\/p>\n
“The submission is that since the Act has been enacted to
\nprotect the interests of the workmen employed in the
\ntextile undertakings whose management has been taken
\nover, sub-section (7) of Section 3 should be construed in
\na manner that the interests of the workmen are protected
\nand are not jeopardised and therefore, sub-section (7) of
\nSection 3 should be confined in its application to
\nliabilities other than the liabilities relating to the dues of
\nthe workmen in respect of the gratuity payable under the
\nPayment of Gratuity Act. We find it difficult to accept
\nthis contention. It is one of the cardinal principles of the
\nstatutory construction that where the language of an Act
\nis clear, the preamble cannot be invoked to curtail or
\nrestrict the scope of the enactment and only where the
\nobject or meaning of an enactment is not clear the
\npreamble may be resorted to explain it. [See: Burrakur
\nCoal Co. Ltd. v. Union of India SCR<\/a> at p. 49 and
\nMotipur Zamindary Co. (P) Ltd. v. State of Bihar SCR<\/a> at
\np. \t504.] Here we find that the language of sub-section
\n(7) of Section 3 is clear and unambiguous inasmuch as in
\nthe said provision it has been declared that any liability
\nincurred by the textile company in relation to the textile
\nundertaking before the appointed day shall be
\nenforceable against the textile company concerned and
\nnot against the Central Government or the Custodian.
\nThe words “any liability” in sub-section (7) of the said
\nSection 3 are of wide amplitude to cover every liability
\nthat was incurred by the textile company in relation to the
\ntextile undertaking before the appointed day. Moreover,
\nthe statement in the preamble on which reliance has been
\nplaced by the learned counsel for the appellant, regarding
\ngiving protection to the interests of the workmen
\nemployed therein, also indicates that what was intended
\nwas to reorganise and rehabilitate the textile undertakings
\nwhose management was being taken over with a view to
\nprevent the closure of such undertakings and consequent
\nunemployment of workmen and thereby protect the
\ninterests of the workmen who were employed in the
\ntextile undertaking at the time of the taking over of the
\nmanagement of the said undertaking. The said statement
\nin the preamble does not refer to persons who had ceased
\nto be in employment of the textile undertaking on the
\ndate of such taking over of the management. We are,
\ntherefore, unable to hold that sub-section (7) of Section 3,
\nmust be so construed as to exclude its applicability in
\nrespect of liability for payment of gratuity under the
\nPayment of Gratuity Act.”\n<\/p>\n
The liability of the owner continues even during the take-over period.
\nIndisputably, however, that would not mean that any act done by the
\nstatutory authority or the State would be binding on the owner.  The Gujarat
\nFinancial Corporation or the State of Gujarat having furnished guarantee on
\ntheir own behalf, the same indisputably would continue to remain binding on
\nthem.  Such guarantees which were furnished by the Gujarat Financial
\nCorporation or the State of Gujarat would, thus, be enforceable against them.
\nWe, however, may clarify that we, at present advised, have not gone into the
\nquestion of effect of abatement of claims against the owner.\n<\/p>\n
1958 Act :\n<\/p>\n
The question now arises for consideration is as to whether the
\nprovisions of the Bombay Relief Undertaking (Special Provision) Act, 1958
\nwould be applicable in the instant case.  The 1958 Act was a temporary Act.
\nClause (iv) Sub-section (1) of Section 4 of the said Act provided :\n<\/p>\n
“4(iv) any right, privilege, obligation or liability accrued
\nor incurred before the undertaking was declared a relief
\nundertaking and any remedy for the enforcement thereof
\nshall be suspended and all proceedings relative thereto
\npending before any court, tribunal, officer or authority
\nshall be stayed;”\n<\/p>\n
The provisions of the said Act, however, do not bar adjustment of any
\naccount; but what was suspended was a declaration of relief undertaking and
\nsuspension of any remedy for the enforcement thereof.  What was stayed
\nwas the proceedings pending before any court, tribunal, officer or authority,
\nbut the  same had nothing to do with the adjustment of accounts in terms of
\nthe provisions of the Indian Contract Act, 1872.  Section 59 of the Indian
\nContract Act provides for application of payment where debt to be
\ndischarged is indicated.  Section 60 thereof provides for application of
\npayment where debt to be discharged is not indicated.  Section 61, however,
\nprovides that in absence of any party making appropriation, the payment
\nshall be applied in discharge of the debts in order of time, whether they are
\nor are not barred by the law in force for the time being as to the limitations
\nof suits.\n<\/p>\n
If the High Court was not correct in holding that the Authorized
\nController had renewed the loan taken by the owner, the facilities continued
\nand in that view of the matter Sections 60 and 61 of the Indian Contract Act
\nwould become applicable.\n<\/p>\n
In The Union of India v. Kishorilal Gupta and Bros.<\/a> [AIR 1960 SCR
\n493], upon which Mr. Sundaravardan placed strong reliance, wherein the
\nquestion  which arose for consideration was as to where the parties to an
\noriginal contract could by mutual agreement enter into a new contract in
\nsubstitution of an old one, which does not contain an arbitration clause,
\nwherein the dispute resolution mechanism occurring in an earlier contract
\ncould be taken recourse to.\n<\/p>\n
Subba Rao, J., speaking for the majority, in the fact situation
\nobtaining therein, stated the principle thus :\n<\/p>\n
“The following principles relevant to the present case
\nemerge from the aforesaid discussion: (1) An arbitration
\nclause is a collateral term of a contract as distinguished
\nfrom its substantive terms; but nonetheless it is an
\nintegral part of it; (2) however comprehensive the terms
\nof an arbitration clause may be, the existence of the
\ncontract is a necessary condition for its operation; it
\nperishes with the contract; (3) the contract may be non
\nest in the sense that it never came legally into existence
\nor it was void ab initio; (4) though the contract was
\nvalidly executed, the parties may put an end to it as if it
\nhad never existed and substitute a new contract for it
\nsolely governing their rights and liabilities thereunder;
\n(5) in the former case, if the original contract has no legal
\nexistence, the arbitration clause also cannot operate, for
\nalong with the original contract, it is also void; in the
\nlatter case, as the original contract is extinguished by the
\nsubstituted one, the arbitration clause of the original
\ncontract perishes with it; and (6) between the two falls
\nmany categories of disputes in connection with a
\ncontract, such as the question of repudiation, frustration,
\nbreach etc. In those cases it is the performance of the
\ncontract that has come to an end, but the contract is still
\nin existence for certain purposes in respect of disputes
\narising under it or in connection with it. As the contract
\nsubsists for certain purposes, the arbitration clause
\noperates in respect of these purposes.”\n<\/p>\n
The said decision would apply in the instant case.\n<\/p>\n
In Lalit Mohan Pandey v. Pooran Singh and Others<\/a> [(2004) 6 SCC
\n626], whereupon also the learned counsel placed reliance, this Court
\nemphasized the need to construe the statute having in mind the object
\nunderlying the same by stating the principle of purposive construction.
\nThus, the remedies available to the Bank under the Indian Contract Act
\nwould continue to remain available to the respondent-Bank even if the 1958
\nAct applies.\n<\/p>\n
For the reasons aforementioned, we are of the opinion that the High
\nCourt was not correct in taking the views, it did.  The judgments and orders
\npassed by the High Court are, therefore, set aside with liberty to the parties
\nto file appropriate suits or proceedings before appropriate forum(s) for
\nrecovery of the remaining amount, provided any cause of action therefor
\nsurvives.\n<\/p>\n
Subject to the observations made herein, the appeals are allowed.  No
\ncosts.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India National Textile Corporation … vs State Bank Of India & Ors on 8 August, 2006 Author: S.B. Sinha Bench: S.B. Sinha, P.P. Naolekar CASE NO.: Appeal (civil) 2314 of 2000 PETITIONER: National Textile Corporation (Guj.) Ltd. RESPONDENT: State Bank of India & Ors. DATE OF JUDGMENT: 08\/08\/2006 BENCH: S.B. Sinha & […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-32234","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nNational Textile Corporation ... vs State Bank Of India & Ors on 8 August, 2006 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/national-textile-corporation-vs-state-bank-of-india-ors-on-8-august-2006\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"National Textile Corporation ... vs State Bank Of India & Ors on 8 August, 2006 - 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