IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA Civil Suit No.165 of 1992. Judgment reserved on : 4.9.2006. Date of decision: 12.9.2006. H.P. State Industrial Development Corporation ….Plaintiff -Versus- M/s.Divyang Associates (P) Ltd. and others ….Defendants Coram: The Hon’ble Mr.Justice Deepak Gupta, Judge. Whether approved for reporting? No For the Plaintiff: Mr.Ajay Kumar Sood, Advocate For the Defendants: Mr.Kuldip Singh, Senior Advocate With Mr.Bimal Gupta, Advocate. Deepak Gupta, J. The plaintiff Himachal Pradesh State Industrial Development Corporation Limited (HPSIDC) was earlier known as Himachal Pradesh Minerals and Industrial Development Corporation (HPMISC). It had advanced a loan in favour of M/s.Durga Steel Alloys of which defendants 2&3 were Managing Director and Director respectively. This Company was later on re-named as M/s.Divyang Associates Pvt.Ltd. in the year 1983. Two loans advanced to the defendant No.1 were for Rs.26.00 lacs and Rs.2.34 lacs respectively. At the time of execution of the agreement defendant No.1 had executed hypothecation agreement and created equitable mortgage by deposit of title deeds in favour of 2 the plaintiff. Defendants 2&3 had executed personal deeds of guarantee for repayment of the loan amount and interest. The loan facility was availed of by the defendant No.1 but the defendants did not repay the amount and finally the plaintiff exercising the powers purportedly vested in it under Section 29 of the State Financial Corporation Act took over the assets of the defendant No.1 and sold the same for Rs.45.50 lakhs. The plaintiff also paid a sum of Rs.7,79,856.55 to the H.P. Housing Board as un-earned profit claimed by the Housing Board in respect of the property which had been taken on lease from it by defendant No.1. After adjusting the amount according to the plaintiff a sum of Rs.33,57,528.65 was due to it on the date of the filing of the suit and it also claimed the costs of the suit and future interest at the contractual rate of 13.5% p.a. from 1.9.1992 till realisation. Written statement was filed by the defendants and the suit was contested on various grounds. One of the grounds raised is that the suit was barred by limitation. On the pleadings of the parties the following issues were framed on 30.9.1993: “1.Whether the suit of the plaintiff is within the period of limitation? …OPP 2.To what amount the plaintiff is entitled to recover and from which of the defendants?....OPP 3.Whether the plaintiff is entitled to recover interest? If so, from which date?....OPP 4.Whether the proceedings for take over under Section 29 of the State Financial Corporation Act, 1951 were illegal, void and without jurisdiction, as alleged in preliminary objections No.3 and 4?....OPD. 3 5.Whether the plaintiff acted negligently in not realising full price of the unit in question? If so, its effect. …OPD 6.Relief.” It would be pertinent to mention that the suit was previously dismissed by this Court as being barred by limitation. The plaintiff filed a SLP before the Apex Court which held that the suit was within limitation and the matter was remanded for decision in accordance with law. After the remand of the case the parties after permission of the Court have led further evidence. Before me as far as issue No.2 is concerned the only contest raised by the defendants is with regard to the amount of Rs.7,79,856.55 paid by the plaintiff to the H.P. Housing Board as un-earned profit. The other calculations filed by the plaintiff have not been disputed. The other argument raised on behalf of the defendants is that the proceedings taken under Section 29 of the State Financial Corporation Act were illegal and without jurisdiction and therefore the entire taking over process and consequent sale being bad the plaintiff is not entitled to claim any further amount. Now I shall take up the case issue-wise: ISSUE No.1: Issue No.1 is decided in favour of the plaintiff in view of the judgment of the apex Court wherein suit has been held to be within limitation. ISSUE No.2: As mentioned above the only dispute is with regard to the amount of Rs.7,79,856.55 paid as un-earned profit by the plaintiff to 4 the H.P. Housing Board. It would be pertinent to mention that the Housing Board had leased out the land in question to M/s.Durga Steel and Alloys Pvt. Ltd. the predecessor in interest of defendant No.1 vide lease deed dated 25th August, 1981 Ext.PW-5/A. Condition No.2(v)(a) of the lease deed reads as follows: “v)(a) The Lessee shall not sail, transfer, assigns or otherwise part with the possession of the possession of the whole or any part of the industrial plot except with the previous consent in writing of the Lessor which he shall be entitled to refuse in his absolute discretion. PROVIDED that such consent shall not be given for a period of ten years from the commencement of this Lease unless, in the opinion of the Lessor, exceptional circumstances exist for the grant of such consent. PROVIDED FURTHER that, in the event of the consent being given the Lessor may impose such terms and conditions as he thinks fit and the Lessor shall be entitled to claim and recover a portion of the unearned increase in the value ( i.e. the difference between the premium paid and the market value) of the industrial plot at the time of sale, transfer, assignment, or parting with the possession, the amount to be recovered being fifty percent of the unearned increase and the decision of the Lessor in respect of the market value shall be final and binding. PROVIDED FURTHER that the Lessor shall have the pre- emptive right to purchase the property after deducting fifty percent of the unearned increase as aforesaid.” A perusal of this clause shows that the lessee could only transfer his rights in the property with the consent of the lessor and the lessor was entitled to claim and recover 50% of the unearned increase in the value i.e. the difference between the premium charged 5 by the lessor from the lessee and the market value on which the plot is sold. The Housing Board had given the plots to the Industrialists at subsidised rates and this condition appears to have been imposed with the intention that if the lessee sells off the property then 50% of the increased value realised by the lessee should be paid to the lessor. Vide supplementary lease deed dated 28th December, 1983 the property was deemed to have been leased in favour of defendant No.1 on the same terms and conditions as mentioned in lease deed Ext.PW-5/A. The lease rights were mortgaged in favour of the plaintiff by the defendant No.1 after taking permission of the Housing Board vide Ext.PW-4/B. It would be pertinent to mention that when the equitable mortgage was created the defendant No.2 as Managing Director of defendant No.1 sent a letter Ext.PW-4/A to the plaintiff in which he undertook to pay the unearned increase to the Housing Board. The relevant portion of the document Ext.PW-4/A reads as follows: “We request you to create mortgage/charge on the plot and we bound ourselves to pay the dues of the HP Housing Board i.e. premium, rent, un-earned increase, annual instalments of lease rent and interest etc. as and when demanded by the H.P. Housing Board including additional premium for additional rent as may be fixed by the HP Housing Board from time to time in accordance with their Rules, terms & stipulations of the Lease Deed.” When the sale of the property was made the Housing Board wrote to the plaintiff that it was entitled to 50% of the un-earned increase. The letters in this regard are Exts.PW-4/D & E. It is clear 6 that there was a stipulation in the lease deed that the Housing Board could demand 50% of the un-earned profit earned on account of the transfer of the leased property. It is contended on behalf of the defendants that this condition as well as the undertaking of the defendant No.2 were only applicable in case of voluntary sale made by the defendant and were not applicable in the case of an in- voluntary sale made after the property was taken over under Section 29 of the State Financial Corporation Act. I am unable to accept this submission. The Housing Board was entitled to 50% of the un-earned profit whether the sale was voluntary or in-voluntary. This was a charge of the Housing Board on the property and not an individual claim against the lessee or the subsequent transferee. The property had to be auctioned in terms of the original lease deed and a larger interest in the property could not be transferred. The Housing Board had a charge on the property and was entitled to get 50% of the unearned increase and therefore it cannot be said that the plaintiff erred in paying the amount of un- earned increase and other dues to the Housing Board to it. It is next contended by Kr.Kuldip Singh that this amount if payable was to be paid by the subsequent auction purchaser and not by the defendant. This argument is also without any force. The lease deed provides that the lessor shall have pre-emptory rights to deduct 50% of the un-earned increase in profit. Obviously this amount had to be deducted from the amount of sale proceeds and it is not in addition to the amount paid. It has been argued that in the auction notice it was mentioned that the registration and other 7 charges will be borne by the auction purchaser and therefore it is not the defendants but the auction purchase who is liable to pay the unearned increase and profit. This is an argument of desperation. The auction purchaser was only supposed to pay the registration and other charges such as stamp duty and those charges relating to the finalisation of the sale. The auction purchaser could not have been directed to pay the unearned increase in profit which in fact the defendants had always undertaken to pay. This issue is accordingly decided in favour of the plaintiff and it is held that the plaintiff is entitled to a sum of Rs.33,57,528.65. ISSUE NO.3: In the present case the minimum rate of interest agreed to be paid is @ 13.5% p.a. with half yearly rests. Rebate of 1% could be availed of on account of prompt payment. In this case there has been no prompt payment and therefore plaintiff is entitled to interest @ 13.5% p.a. with half yearly rests. ISSUE NO.4: The contention raised on behalf of the defendants is that at the time when loan was taken no notification had been issued empowering the plaintiff to take action under the various provisions of the State Financial Corporation Act. This notification was issued only on 6th April, 1988 whereby the Union of India in exercise of the powers conferred under Section 46(1) of the State Financial Corporation Act directed that the provisions of Sections 29, 30, 31, 32, 32-A to 32-G of the State Financial Corporation Act shall apply to the plaintiff. It is contended that under Section 29 it is only when 8 the industrial concern which is under liability to the Financial Corporation makes default in terms of its agreement with the Financial Corporation that the Financial Corporation shall have the right to take over the property in terms of Section 29. It is contended that the agreement was not entered with the Financial Corporation since at the time when the loan was sanctioned and the agreement was entered into between the parties the plaintiff had not been empowered to take action under Section 29. This contention in my considered opinion is totally baseless. Once the Central Government exercising its powers under Section 46 declared that the plaintiff (which is an institution established by the State Government) would exercise powers under certain provisions of the State Financial Corporation Act, it was empowered to take action under the Act. The material date is the date on which the action was taken by the said institution regardless of the fact whether the institution had been empowered on the date of agreement or not. Under Section 29 the Financial Corporation or any other State institution specifically empowered in this behalf under Section 46 can take over the properties. The date of original agreement has no relevance and it is the date of taking over which is relevant and on the said date of taking over the plaintiff admittedly had been empowered under Section 46 and it cannot be said that the take over proceedings under Section 29 were illegal and void. This issue is decided against the defendants. ISSUE NO.5: 9 No arguments have been addressed on this issue nor any material brought on record to show that the plaintiff acted negligently and therefore this issue is decided against the defendants. In view of the above discussion, the suit of the plaintiff is decreed and the plaintiff is held entitled to recover a sum of Rs.33,57,528.65 from the defendants alongwith costs of the suit and future interest @ 13.5% p.a. with half yearly rests from the date of filing of the suit. Decree sheet be drawn up in the aforesaid terms. Sept. 12, 2006. ( Deepak Gupta ), PV Judge