HIGH COURT OF HIMACHAL PRADESH AT SHIMLA FAO No.: 333 of 2003 Reserved on: 20.5.2010 Decided on: 21.6.2010 Himachal Pradesh Financial Corporation ………Appellant. Versus M/s Ashoka Spun Pipes and others ………Respondents. Coram: The Hon’ble Mr.Justice V.K. Ahuja, Judge. Whether approved for reporting? No. For the appellant: Mr.Ashwani K.Sharma, Advocate. For respondents No.1&2: Mr.Vikas Rahore, Advocate. V.K. Ahuja, J.: This is an appeal filed by the appellant under Section 32(9) of the State Financial Corporation Act, 1951 (hereinafter referred to as the Act) against the order, dated 25.9.2002, of the learned District Judge, Kangra at Dharamshala, in a petition filed by the appellant (hereinafter also referred to as the petitioner) under Section 31 of the Act. 2. Briefly stated the facts of the case are that a petition under Section 31 of the Act was filed by the petitioner HPFC against the respondents for the recovery of Rs.19,09,923/- including interest, which amount has been claimed to have arisen to Rs.67,35,514.43. The petitioner alleged that respondent No.1 is a sole ______________________________________ 1.Whether reporters of Local papers may be allowed to see the judgment? Yes. - 2 - proprietary concern of respondent No.2 and respondent No.1 through its sole proprietor applied to the petitioner for grant of loan for construction of factory building and for the purchase of land, plant and machinery for setting up an industrial unit for the manufacture of spun pipes at Village Balkhore, Tehsil Indora, District Kangra, H.P. The petitioner further alleged that a sum of Rs.10.00 lacs was initially sanctioned in favour of the respondent, who executed agreement of hypothecation dated 28.8.1989, besides creating equitable mortgage by depositing the title deeds of the properties of industrial concern in favour of the petitioner corporation. Subsequently, respondent No.1 was also sanctioned additional term loan of Rs.4.00 lacs by the petitioner Corporation and the necessary documents were executed by the respondents. Respondent No.1 was also sanctioned second additional term loan of Rs.1.65 lacs and the necessary documents, such as, agreement, hypothecation, creating of equitable mortgage etc. were executed in favour of the petitioner Corporation. The petitioner Corporation further alleged that the amounts of loan, as per the repayment schedule, were not paid by the respondents and accordingly the petitioner issued a recall notice asking the respondents to clear the outstanding amount of Rs.19,09,923/0 including interest and it is claimed that the amount has arisen to Rs.67,35,514.43 including interest at the agreed rate. 3. The petitioner filed a petition under Section 31 of the Act praying for an order of sale of the - 3 - mortgaged/hypothecated property to recover the amount alongwith interest thereon. The respondents were proceeded against ex parte before the learned trial Court, therefore, the petition was decided by the learned trial Court ex parte and orders were passed for the sale of the property pledged and hypothecated by the respondents with the petitioner corporation for the recovery of the amount in question alongwith interest. 4. An appeal has been filed by the petitioner Corporation against the order passed by the learned trial Court vide which no relief of interest at the agreed rate was granted after the filing of the petition till the decision and till realization. 5. I have heard the learned counsel for the parties and have gone through the record of the case. 6. In support of his plea that the petitioner Corporation was entitled to interest at the agreed rate of 16.5% per annum with half yearly rests, it was submitted that it was a commercial transaction and the interest was payable at the agreed rate from the date of filing of the petition till realization of the amount, which was not granted by the learned trial Court. It has also been submitted that no reasons were also given by the learned trial Court for not granting future interest and as such the appellant has prayed for grant of interest at the agreed rate. 7. The learned counsel for the appellant Corporation, in support of his submissions, has relied upon - 4 - the decision in Central Bank of India versus Ravindra and others, (2002) 1 Supreme Court Cases 367, in which it was held that principal sum actually advanced plus interest so capitalized can be adjudged under Section 34(1) of the Code of Civil Procedure as the principal sum on the date of suit is such principal sum within the meaning of Section 34 on which pendente lite and future interest may be awarded at such rate and for such period which the court may think fit. 8. Another decision relied upon was in Ormi Textiles and another versus State of Uttar Pradesh and others, (2008) 5 Supreme Court Cases 194, in which the following observations were made in para 17: “For proper construction of the provisions of the Act, we may notice the provisions of Section 31 thereof. It provides for an additional remedy. Whereas Section 29 confers a power to sell the property unilaterally, Section 31 provides inter alia for the same power only through the intervention of the court.” 9. From a discussion of the case law cited by the learned counsel for the parties, it is clear that a petition under Section 31 of the Act by the petitioner Corporation is not a plaint and no decree can be passed on such petition. It is also clear that Section 31 of the Act lays down the reliefs to which the petitioner Corporation can be said to be entitled, which reads as under: (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 (aa) for enforcing the liability of any - 5 - 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.” 10. It is, therefore, clear that the petition under Section 31 of the Act has to be filed which is not for the recovery of the amount i.e. the principal sum so adjudged alongwith interest up-to-date, but it is for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as a security for the loan or advance. However, in passing an order for sale of the property so mortgaged or pledged, the court has to assess the amount due alongwith interest up-to-date for which the orders for the sale of the mortgaged property are to be issued by the Court. Thus, the order that can be passed under the provisions of Section 31 of the Act is not a decree for the amount in question including the interest, but it is for the sale of the mortgaged property for realization of the amount so adjudged up-to-date. 11. It is, therefore, clear that neither the petition was treated as a plaint by the court nor the relief for recovery of the amount was granted but the order passed was for sale of the mortgaged property and the amount payable has also to be adjudged, which was adjudged for recovery of Rs.67,35,514.43. - 6 - 12. The only question left for consideration is as to whether the petitioner Corporation was entitled to interest at the agreed rate of 16.5% till the filing of the petition and till the date of realization of the amount and as to whether the court was justified in not granting interest after the filing of the petition upto the date of decree or thereafter. My attention has been drawn to a decision of this Court by the learned counsel for the appellant in Himachal Pradesh Financial Corporation versus M/s Jaswan Resorts and others, Latest HLJ 2010(HP) 237, wherein this question was considered by the Court as to whether in a commercial transaction, the interest can be granted at a lesser rate by the Court under Section 31 of the Act or it has to be at the agreed rate. After referring to the two decisions in Everest Industrial Corporation and others Vs. Gujarat State Financial Corporation, AIR 1987 Supreme Court 1950 and M/s Beegee Corporation Private Ltd. Patiala Vs. M/s Punjab Financial Corporation, Chandigarh, AIR 1988 Punjab and Haryana 231, it was held by this Court that the amount had to be calculated and thereafter orders have to be issued for sale of the property taking into account the loanee’s up-to-date liability in accordance with the terms of the agreement entered into by him. It was further held that the provisions of Section 34 of the CPC were not attracted and the interest is payable at the agreed rate of interest. Therefore, the findings recorded by the learned trial Court declining the actual interest at - 7 - the agreed rate are liable to be set aside and as such the appeal filed by the appellant is liable to be accepted. 13. In view of the above discussion, the appeal filed by the appellant HPFC is allowed alongwith costs and it is held that the appellant HPFC shall be entitled for sale of the mortgaged property for the realization of the amount so determined by the court including interest upto the filing of the petition and thereafter till the realization at the agreed rate. June 21, 2010. (V.K. Ahuja), (TILAK) Judge.