Case: State Bank of Indore Vs. Commissioner of Payments &amp; Others

appellants filed claim before the Commissioner. The claims were not just for the loans amount but also for interest on such loans. The Commissioner disallowed claims for loans given prior to the date Management was taken over. The Commissioner allowed claims only for loans given during the period the Management was taken over and upto the appointed day.4. The appellants filed appeals before the District Court. The District Court held that all amounts payable upto the appointed day fell in the Category I. The District Court however disallowed interest after 1st of April, 1974. The High Court has by the impugned judgment upheld the order of the District Court.5. The respondents have not come in appeal. Therefore, we are not concerned with the question as to whether or not amounts advanced prior to the taking over of the Management are to be paid in the priority. The only question for consideration is whether interest after 1st of April, 1974 upto the date the claim was made is payable in priority. 6. Strong reliance is placed upon the judgment of the Bombay High Court in the case of State Bank of India v. Edward Textile Mills Ltd. & Anr., reported in AIR (1988) Bom. 313 . In this case it has been held, after consideration of the various provisions of the Sick Textile Undertakings (Nationalisation) Act that the term liability includes liability for interest also. It is held that the amounts which have to be paid in priority, under the Second Schedule, include not just the loan amounts but also the interest thereon upto the date of payment. The impugned judgment runs contrary to this view. 7. A glance at the provisions of the Act, extracted hereinabove, shows that by virtue of Section 3 the right, title and interest of the owner in sick textile undertakings stands transferred to and vests in the Central Government. Section 4 provides for the effect of such vesting. It shows that the liability, which vests in the Central Government, is only liability specified under Sub-section (2) of Section 5. This position is further clarified by Section 5(1) which states that except for liabilities mentioned in Sub-section (2) of Section 5 all other liabilities would continue to be the liabilities of the owner of the sick textile undertakings and shall be enforceable against the owner and not against the Central Government or the National Textile Corporation. Thus by virtue of Section 5(1) the remedy for recovery of any liability is against the owner. Undoubtedly, the word liability would include not just the loan amounts but also the amounts due by way of interest of such loan amounts.8. Sub-section (2) of Section 5 specifies which the liabilities are taken over by the Central Government. Sub-section (2)(a) talks of loans advanced by Central Government or State Government. Thus, the Legislature is now making a distinction between the terms “liability” and “loan”. When the term “loan” is used it is specified that the loans would be “together with interest due thereon”. The same clarification can be found even in Sub-section 5(2)(b). This indicates the intention of the Legislature. Thus even though the term “liability” includes liability for the interest amounts also, the term “loan” does not include the interest amount unless specified otherwise in the Act. This position is fortified by Section 9 wherein on the amounts paid to the owner interest at the rate of 4% is also payable. Thus, where the Legislature wanted to specify that certain amounts would carry interest it has done so specifically. 9. Section 21 provides that the amounts set out in the Second Schedule are to be paid in priority. The relevant portion of Second Schedule reads as follows: “The Second Schedule[See Sections 21, 22, 23 and 27]Order of priorties for the discharge of liabilities in respect of a sick textile undertakingPART APost-takeover management period Category I—(a) Loans advanced by a bank.(b) Loans advanced by an institution other than a bank.(c) Any other loan.(d) Any credit availed of for purpose of trade or manufacturing operations.Category II—(a) Revenue, taxes, cesses, rates or any other dues to the Central Government or a State Govern-ment.(b) Any other dues.” Thus, the heading of the Second Schedule provides “priorities for discharge of liabilities”. The term liability as stated would include interest. It would include a loan. It would also include credits availed of. It would include revenue, taxes, cesses, rates and other dues. However, the payment in priority is for a loan. The distinction in language makes it very clear that what was to be paid in a priority was only the amount of the loan i.e. the principal amount and not the interest amount due thereon. Of course, payments towards interest would remain liabilities. But for recovery of that the remedy would be to proceed against the owner/surety. 10. This Court has in the case of Industrial Finance Corporation of India Ltd. v. Cannanore Spinning and Weaving Mills and Ors., reported in III (2002) SLT 185=2002 (5) SCC 54 , held that by virtue of the provisions of the Act the liability of the principal debtor and that of the surety does not come to an end. It is held that if the compensation to be paid by virtue of Section 21 and the Second Schedule does not satisfy the full claim then the creditor is not barred from filing a civil suit for the balance. Further, in the case of Punjab National Bank v. State of U.P. & Ors., reported in II (2001) SLT 642=2002 (5) SCC 80 , it has been held that even though mode of recovery, against a surety, may be affected the liability of the principal debtor and the guarantor does not get affected by the provision of this Act. Not only are these authorities binding us but we are in complete agreement with what is laid down therein. 11. It is thus clear that the interest amounts are not to be paid in priority under the provisions of this Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]7. A glance at the provisions of the Act, extracted hereinabove, shows that by virtue of Section 3 the right, title and interest of the owner in sick textile undertakings stands transferred to and vests in the Central Government. Section 4 provides for the effect of such vesting. It shows that the liability, which vests in the Central Government, is only liability specified under(2) of Section 5. This position is further clarified by Section 5(1) which states that except for liabilities mentioned in(2) of Section 5 all other liabilities would continue to be the liabilities of the owner of the sick textile undertakings and shall be enforceable against the owner and not against the Central Government or the National Textile Corporation. Thus by virtue of Section 5(1) the remedy for recovery of any liability is against the owner. Undoubtedly, the word liability would include not just the loan amounts but also the amounts due by way of interest of such loan amounts.8.(2) of Section 5 specifies which the liabilities are taken over by the Central Government.(2)(a) talks of loans advanced by Central Government or State Government. Thus, the Legislature is now making a distinction between the termsWhen the termis used it is specified that the loans would bewith interest dueThe same clarification can be found even in5(2)(b). This indicates the intention of the Legislature. Thus even though the termincludes liability for the interest amounts also, the termdoes not include the interest amount unless specified otherwise in the Act. This position is fortified by Section 9 wherein on the amounts paid to the owner interest at the rate of 4% is also payable. Thus, where the Legislature wanted to specify that certain amounts would carry interest it has done so specifically.It is thus clear that the interest amounts are not to be paid in priority under the provisions of this Act.