IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA FAO No. 231 of 2004 Reserved on: 26.11.2009 Date of decision:04.12.2009 Himachal Pradesh Financial Corporation ... Appellant Versus M/S Jaswan Resorts and others … Respondents Coram : The Hon’ble Mr. V.K. Ahuja, Judge. Whether approved for reporting?1 Yes. For the appellant: Mr. Bimal Gupta, Advocate. For the respondents: Mr. K.D. Sood, Advocate. V.K. Ahuja, J.: This judgment shall dispose of an appeal filed by the appellant under Section 32(9) of State Financial Corporations Act, 1951, hereinafter referred to as ‘the Act’, against the judgment and decree dated 7.4.2003 passed by the learned District Judge, Kangra at Dharamshala. Briefly stated, the facts of the case are that a petition under Section 31 of ‘the Act’ was filed by the appellant before the Court of District Judge, Kangra at Dharamshala, for claiming the amount of Rs. 13,83,888/- inclusive of interest upto 31.7.1999 from the respondents. It was alleged that respondent No. 1 through its sole proprietor had approached the appellant for grant of loan for construction of a hotel and purchase of furniture and fixtures. Respondent No. 1 was granted term loan of Rs.6.50 and soft loan of 1Whether reporters of Local Papers may be allowed to see the judgment? 2 Rs. 2.50 Lacs, which was availed by its sole proprietor. It was further alleged that for securing the repayment of the said loan and interest, respondent No. 1 execute hypothecated agreement in favour of the petitioner. Respondent No. 3 stood guarantor for the loan and they agreed to pay the amount alongwith interest at the rate of 20.5% per annum. The respondents also mortgaged the land and building to be constructed in favour of the petitioner and as they failed to comply with the terms and conditions of the loan and to repay the amount as agreed, a notice was issued to them and thereafter, the petition under Section 31 of ‘the Act’ was filed. Respondents No. 1 an 2 contested the petition and on conclusion of the case, the learned trial Court decreed the suit for recovery of Rs.13,83,888/- with costs and interest at the rate of 9% per annum from the date of filing of the petition till the realization of the entire amount. Being aggrieved by the order passed by the Court below granting interest at the rate of 9% only as against the agreed rate of 20.5%, the appellant/Corporation has come up in appeal before this Court. The second relief claimed by the appellant/Corporation is that the petition under Section 31 of ‘the Act’ was filed and accordingly, the relief which could have been granted by the Court was order for the sale of mortgaged/hypothecated property and not for the recovery of the amount only. I have heard the learned counsel for the parties and gave gone through the record of the case. I will firstly take up the point raised by the appellant in the appeal that the suit out not to have been decreed for recovery of the suit amount and no decree sheet was required to be prepared since 3 it was a petition under Section 31 of ‘the Act’. It was also submitted that order of the sale of the mortgaged/hypothecated property should have been passed, for which the petition was filed and the prayer was made to the learned trial Court and, therefore, passing of the order for recovery of the amount cannot be said in accordance with law. On this point, the learned counsel for the petitioner as well as the respondents have relied upon the provisions laid down in Section 31 of ‘the Act’ and it is clear that the relief(s) to which the petitioner/Corporation is entitled are as under:- “31(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or 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 or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 30 and the industrial concern fails to make such repayment, [then, without prejudice to the provisions of section 29 of this Act and of section 69 of the Transfer of Property Act, 1882 (4 of 1882)] any officer of the Financial Corporation, generally or specially authorized by the Board in this behalf, may apply to the district judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely:- (a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the [Financial Corporation] as security for the loan or advance; or 4 [(aa) for enforcing the liability of any surety; or] (b) for transferring the management of the industrial concern to the Financial Corporation; or (c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.” It is, therefore, clear that no suit for recovery of the amount can be filed by the petitioner/Corporation and they were entitled to the relief for sale of property mortgaged in favour of the petitioner/Corporation, for which a prayer had been made and accordingly, the petitioner/Corporation was entitled to the relief in this regard. There is substance in the first plea raised by the appellant and the final order passed by the learned trial Court is liable to be modified accordingly. Coming to the second plea raised by the learned counsel for the appellant that they were entitled to the contractual rate with minimum at the rate of 20.5% and not at the 9% as granted by the learned trial Court arbitrarily without any reasons given therein, the learned counsel for the appellant had relied upon two decisions in support of his submissions:- Reliance was placed upon the decision in Everest Industrial Corporation and others Vs. Gujarat State Financial Corporation, AIR 1987 Supreme Court 1950, The observations 5 made in Para-6 of the judgment are relevant and are being reproduced below:- “Proceeding instituted under S. 31(1) of the Act is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree, no question of passing any order under S. 34 of the Code would therefore arise since S. 34 of the Code would be applicable only at the stage of the passing of the decree and not to any stage posterior to the decree. Moreover even under the Code the question of interest payable in mortgage suits filed in civil courts is governed by O. 34, R. 11 of the Code and not by S. 34 of the Code which may be applicable only to cases of personal decrees passed under O. 34 R. 6 of the Code. Held on facts that interest would be payable on the principal amount due in accordance with the terms of the agreement between the parties till the entire amount due was paid as per the order passed under S. 32 of the Act.” Reliance was placed upon a decision of the Punjab and Haryana High Court in M/s. Beegee Corporation Private Ltd., Patiala Vs. M/s. Punjab Financial Corporation, Chandigarh, AIR 1988 Punjab and Haryana 231, which is based upon the above decision. In this case also applying the decision in the above case, it was held by the Court in Para 8 as under:- “In view of this clear pronouncement made by the Supreme Court, it is not possible to accept the appellant’s submission that the learned single Judge had erred in holding that for purposes of proceedings under Ss. 31 and 32 of the State Financial Corporations Act, the District Judge was concerned with loanee’s up to date liability and not his liability as on the date of 6 application under S. 31 of the Act. The learned Judge, in our opinion correctly held that the amount for which property had to be sold had to be computed by taking into consideration loanee’s up to date liability in accordance with the terms of agreement entered into by him.” It is clear from the above two decisions that the amount had to be calculated and there after the orders have to be issued for sale of the property taking into account the loanee’s upto date liability in accordance with the terms of the agreement entered into by him. It is also clear from a decision of the Apex Court referred to above that the provisions of Section 34 C.P.C. were not attracted and the interest is payable at the agreed rate of interest. The learned trial Court arbitrarily granted interest at the rate of 9% without considering the question as to under what provision the same was being granted. If it was being granted under Section 34 C.P.C., the Court could have given reasons for not awarding the interest at contractual rate. The submissions made by the learned counsel for the respondents were that the interest was rightly granted under Section 34 at the rate of 9%, which calls for no interference. However, I am not inclined to accept the said submissions since it was a commercial transaction and the interest was payable at the agreed rate and the provisions of Section 34 C.P.C. were not attracted to the present facts. Under Section 34 C.P.C., in case of commercial transaction, the agreed rate of interest is payable and, therefore, the findings of the learned trial Court to the contrary are liable to be set aside. 7 In view of the above discussion, the appeal filed by the appellant is accepted and the order shall be issued for the sale of mortgaged/hypothecated property for the recovery of the principal amount and the interest upto the date for which orders for sale are required to be issued and the interest shall be calculated at the agreed rate and not at the rate awarded by the learned trial Court. The appeal filed by the appellant is allowed to this extent alongwith costs accordingly. ( V.K. Ahuja ), December 04, 2009 Judge (BSS)