HIGH COURT OF HIMACHAL PRADESH AT SHIMLA FAO No.: 356 of 2003 FAO No.: 362 of 2003 Reserved on: 20.5.2010 Decided on: 21.6.2010 FAO No.356 of 2003: Himachal Pradesh Financial Corporation ………Appellant. Versus M/s Chauhan & Singh Industries and others ………Respondents. For the appellant: Mr.Ashwani K.Sharma, Advocate. For respondents No.2(a) to 2(c) and 3: Mr.P.C. Sharma, Advocate. FAO No.362 of 2003: Rameshwari Singh and others ….Appellants Versus Himachal Pradesh Financial Corporation and others ….Respondents. For the appellants: Mr.P.C. Sharma, Advocate. For respondent No.1: Mr.Ashwani K.Sharma, Advocate. Coram: The Hon’ble Mr.Justice V.K. Ahuja, Judge. Whether approved for reporting? Yes. 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 judgment, dated 7.1.2002, of the learned District Judge, Shimla in a petition filed by the appellant (hereinafter ______________________________________ 1.Whether reporters of Local papers may be allowed to see the judgment? Yes. - 2 - also referred to as the petitioner) under Section 31 of the Act. This judgment shall also dispose of the cross appeal filed by the original respondent No.2 (now dead) against the aforesaid findings of the learned trial court, with a prayer that the said findings be quashed and set aside. 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.7,34,160/- including interest upto 30.11.1996. The petitioner alleged that the respondent applied to the petitioner Corporation for grant of loan of a sum of Rs.1,90,000/- for construction of a factory building and purchase of plant and machinery for setting up an industrial unit. The petitioner Corporation sanctioned a loan of Rs.1.90 lacs to the respondents for the said purpose. A loan agreement was also executed by the respondents apart from hypothecation deed, deed of guarantee in favour of the petitioner Corporation. The respondent also mortgaged the land detailed in the petition in favour of the petitioner Corporation and also deposited the title deeds with the petitioner. The respondents failed to comply with the terms and conditions of the loan agreement/hypothecation deed and did not adhere to the subsequent repayment schedule. The petitioner Corporation recalled the entire loan, issued a recall notice under Section 30 of the Act asking the respondents to clear the outstanding amount alongwith interest and respondents were liable to pay the interest at the agreed rate of 16.5%, - 3 - which was not paid, hence the petition filed by the petitioner Corporation. 3. Respondents No.1 and 2 filed reply and took up preliminary objections in regard to the limitation. On merits, they denied that they are liable to pay the amount. They pleaded that the amount has been wrongly calculated and that the plot cannot be attached and sold as this plot is on lease for 15 years and the term of the same will expire after 2000. Respondent No.3 was proceeded against ex parte. 4. On the pleadings of the parties, the following issues were settled by the learned trial Court: 1. Whether the petitioner is entitled for the sale of the mortgaged property of the concerned respondent No.1 and to utilize the sale consideration towards the outstanding loan amount of Rs.7,34,160/- as on 30.11.96, as alleged? OPP 2. Whether the claim of the petitioner, as sought in the petition is time barred ?OPRs. 3. Whether the petition is hit by Section 11 of the Code of Civil Procedure, as alleged? OPRs. 4. Whether the petitioner is guilty of suppressing the material facts and not approached to the Court with clean hands? OPRs. 5. Relief. 5. Parties led their evidence and the learned trial Court, vide its impugned judgment, decided issues No.1, 2, 3 and 4 in favour of the petitioner and as against the respondents and allowed the petition for sale of the mortgaged property. However, the interest was granted upto - 4 - 30.11.1996 i.e. the date upto which the amount has been claimed in the petition filed on 17.3.1997. However, future interest was granted at the rate of 12% per annum after passing of the decree. 6. I have heard the learned counsel for the parties and have gone through the record of the case. 7. The submissions made by the learned counsel for the appellant were that the petitioner Corporation had proved on record, on the basis of the loan documents and evidence, that the agreed rate of interest inter se the parties was 16.5% per annum with half yearly rests. It has been proved that the respondents availed the loan facility and were liable to pay the amount alongwith interest at the rate of 16.5% per annum but the learned trial Court, without recording any reason for awarding lesser rate of interest and for not awarding the pendente lite interest, granted interest at the rate of 12% per annum after 30.11.1996 till realization of the amount. Thus, no interest was granted at the agreed rate from the date as claimed in the petition till recovery of the amount and as such the said order deserves to be modified and the petitioner Corporation is entitled to the interest at the rate of 16.5% per annum from the date of filing of the petition till realization. 8. On the other hand, the submissions made by the learned counsel for the respondents were that the petition is not a plaint and no decree can be passed under Section 31 of the Act. It was also submitted that the - 5 - penal interest cannot be charged by the Corporation and as such, the findings recorded by the learned trial Court granting simple interest at the rate of 12% per annum does not call for an interference by this Court and as such there is no merit in the appeal filed by the appellant, which is liable to be dismissed. 9. The learned counsel for the appellant Corporation, in support of his submissions, has relied upon 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. 10. 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.” 11. To substantiate his submissions that the petition filed under Section 31 of the Act is not a plaint - 6 - and no decree can be passed, the learned counsel for the respondents had relied upon the decision in M/s Bharat Chemical Works and others versus Gujarat State Financial Corporation Ahmedabad, AIR 1983 Gujarat 104. The observations made in para 6 are relevant and are being reproduced below: “……………………………. Since an application under Section 31(1) is held to be neither a plaint nor an application in the nature of a plaint and since it has been specifically held : (i) that such an application is not a suit by a mortgagee for the recovery of mortgage money by the sale of mortgaged property; (ii) that the investigation therein of the claim of the Corporation, which is not a monetary claim, does not involve all the contentions that can be raised in a suit and (iii) that the substantive relief in such an application 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, it is not too late in the day to contend that the proceeding commenced upon such an application is a suit for the recovery of the dues of the Corporation within the meaning of sub section (4) of Section 3 of the Recovery Act and that it would abate under Section 7 upon the commencement of the Recovery Act.” 12. Another decision relied upon by the learned counsel for the respondents was in Rajasthan Financial Corporation versus Banwari Lal and others, AIR 1997 Rajasthan 273, wherein it was observed as under: “Where an application is filed by State Financial Corporation under S.31(1) for enforcing the liabilities of the sureties which are co-extensive with the principal debtor who did not make the repayment of loan, the substantive relief sought in the application is like the relief sought in an execution proceedings. Hence it cannot be treated as a plaint and it would not be - 7 - barred by limitation provided under Art.137 of Limitation Act.” 13. Another decision relied upon by the learned counsel for the respondents was in M/s Kiril Fine Art, Chandrapur others versus The Maharashta State Financial Corporation, AIR 1998 Bombay 207, wherein it was observed in para 5 as under: Even a cursory glance at Section 31 would be enough to suggest that the application under Section 31 could result into the releifs enumerated thereunder in clauses(a), (aa), (b) and (c). In deed, there is nothing from the language of Section 31 to indicate that the Court had any power to pass an order in the nature of the decree for the payment of any amount. Sub-section (1) of S.31 is clear enough to exclude the power on the part of the District Judge to order any payment to be made to the Corporation by way of an independent relief. All that can be done by the District Judge is passing an order for the sale of the property pledged, mortgaged or hypothecated or for enforcement any liability of a surety and under the wider clause (c), District Judge could grant ad-interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipments from the premises.” 14. 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: - 8 - (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 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.” 15. 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 being 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. Therefore, there is no merit in the submission made by the learned counsel for the respondents that the petition was not a plaint or no decree could have been passed under the - 9 - provisions of Section 31 of the Act when the order that has been passed by the court below is as under: “………….The petitioner shall be entitled to put to the sale the mortgaged property, as mentioned in para-5 of the petition and sale proceed thereof be adjusted towards the decreetal referred herein above.” 16. 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 as under: “………….the petitioner is entitle to Rs.7,34,160 including interest up to 30.11.96. The petitioner shall also entitle for the interest on the said amount at the rate of 12% per annum after passing of the decree of this court.” Therefore, there is no substance in the submissions raised on technical grounds by the learned counsel for the respondent and they are repelled being devoid of any force. 17. 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 is justified in granting interest at the rate of 12% per annum 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 - 10 - 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 interest at the agreed rate are liable to be set aside and as such the appeal filed by the appellant is liable to be accepted. 18. In view of the above discussion, 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. The appeal filed by the appellant HPFC is - 11 - allowed alongwith costs and the cross appeal filed by original respondent No.2 is accordingly dismissed. A certified copy of the judgment be also placed on the record of the cross appeal. June 21, 2010. (V.K. Ahuja), (TILAK) Judge.