Case: Gujarat State Financial Corporation Vs. M/S. Natson Manufacturing Co. (P) Ltd. &amp; Ors

The question arose in the context of the followingstate of Gujarat set up the Gujarat state Financial corporation ( Corporation for short), the appellant herein, under s. 3 of the Act. The Corporation was set up inter alia for granting or guaranteeing tile loans to be raised by industrial concerns either from scheduled banks or state co- operative banks or those floated in the public market. The Corporation guaranteed numerous such loans, advanced to the industrial concerns in the state of Gujarat on certain terms and conditions agreed between the parties. When the industrial concern defaults in repayment of loan or fails to comply with the terms of the agreement the Corporation is entitled to make an application to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or substantial part of its business for one or more of the reliefs set out in s. 31(1) of the Act. The Corporation appears to have, made applications purporting to be under s. 31(1) of the Act in various District Courts in the State of Gujarat against different industrial concerns. A question was raised in the District Courts about the proper court fee payable on such applications. The Corporation contended that the application would be governed by Article 1 (of Schedule II o the Bombay Court) Fee A ct, 1959, and a fixed court fee in the amount of 65 paise would be payable in respect of the application. On the other hand, the State contended that application would be governed either by Article I Schedule I or at any rate by Article 7 o f Schedule I and the court fee payable would be ad valorem on the amount of value of the subject matter in dispute or on the amount of the monetary gain or loss to be prevented according to the scale prescribed under Article I of Schedule I . It appears that except for the Distt. Judge, Broach, all other District Judges accepted the contention on behalf of the State. The Distt. Judge, Broach was of the opinion that the application under s. 31(1) was in the nature of an execution application and it would be governed by Article l(c) of Schedule II. The Corporation preferred revision applications to the High Court questioning the correctness of the decisions directing levy of ad valorem court fee. The State of Gujarat also preferred a revision application against the decision of the Distt. Judge, Broach holding that the application under s. 31 (1) of the Act was in the nature of an execution application. The High Court by a common judgment held that the application u nder s. 31 (1) should bear ad valorem court fee. In reaching this conclusion the High Court treated the application under s. 31(1) of the Act on par with a suit by a mortgagee to enforce the mortgage debtor sale of the mortgaged proper ty which is being treated as a money suit falling within the purview or Article I of Schedule I. Alternatively, it was held that even if the application under s. 31 (1) is not a plaint within the meaning of Article 1 of Schedule I, it would fall within the purview of Article 7 of Schedule I which provides an ad valorem court fee on an application made for obtaining substantive relief which is capable of being valued in terms of monetary gain or prevention of monetary loss because to all intents and purposes the application is one for recovery of the outstanding claim of the Corporation. In accordance with these findings the revision applications preferred by the Corporation were dismissed and the one preferred b y the State was

Court's reasoning:
The State Financial Corporations Act, 1951, wa s enacted by the Parliament with a view to enabling the State Governments to establish a Financial Corporation for enhancing the pace of industrialisation by providing credit on easy terms for setting up industrial concerns and/or for expanding the activities of the existing industrial concerns. Section 25 enables the Financial Corporation to carry on and transact any of the business set out therein which includes guaranteeing on such terms and conditions as may be agreed upon (i) loans raised by industrial concerns which are repayable within a period not exceeding 20 years and are floated in the public market or (ii) loans raised by industrial concerns from scheduled banks or State Co-operative Banks. It can also underwrite the issue of stock, shares, bonds or debentures by an industrial concern. The Corporation can either guarantee the loan raised by the industrial concern or may even grant itself a loan on such terms and conditions as may be agreed upon between the Corporation and the industrial concern.(6) of s. 32 of the Act has to be read in the context in which it is placed. The claim of the Corporation is not the monetary claim to be investigated though it may become necessary to specify the figure for the purpose of determining how much of the security should be sold. But the investigation of the claim does not involve all the contentions that can be raised in a suit. The claim of the Corporation is that there is a breach of agreement or default in making repayment of loan or advance or installment thereof and, therefore, the mortgaged property should be sold. It is not a money claim. The contest can be that the jurisdictional fact which enables the Corporation to seek the relief of sale of property is not available to it or no case is made out for transfer of management of the industrial concern. Sub-s. (7) of s. 32 prescribes what reliefs can be given after investigation under sub-s. (6) is made, and it clearly gives a clue to t he nature of contest under Sub-s. (6). Sub-s. (8) of s. 32 only prescribes the mode and method for executing the order of attachment or sale of property as provided in theCode of Civil Procedure. Sub-ss. (6), (7) and (8) of s. 32 read together would give an opportunity to the industrial concern to appear and satisfy the District Judge what the situation envisaged by s. 31(13 has not arisen and the relief should not be granted. In the absence of a provision giving such an opportunity to the industrial concern to whose detriment the order is required to be made, a serious question may arise about the constitutional validity of the procedure prescribed under s. 31(1) inasmuch as it would be violative of principles of natural justice and that too in a proceeding in a Court of Law. The provision contained in sub-s. (6) does not expand the contest in the application made under s. 31(1) as to render the application to be a suit between a mortgagee, and the mortgagor for sale o f mortgaged property. If that were so, the Corporation would not be limited to specified reliefs only and if the contract permits it may seek to enforce personal liability of mortgage which it cannot enforce in an application under Sec. 31 ( 1). Itmay be, as contended by Mr. Patel, that in the ultimate analysis the result would be that the property will be sold for repayment of the loan or advance taken by the, industrial concern from the Corporation but it could not be said that it is a substantive relief claimed by the Corporation which can be valued in terms of monetary gain or prevention of monetary loss as envisaged by Article 7 of Schedule I ofCourt-fees Act. The substantive relief in an application under s. 31(1) i s something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree. We are unable to appreciate the view taken by the High Court that the proceeding is not in the nature of execution of a decree because the question of enforcement of the order of attachment or sale would only arise after the same is made absolute under Sub-s. (7). One has to look at the whole conspectus of provisions in s. 32 coupled with the nature of relief sought under s. 31(1) and it becomes clear that special provision is made for certain types of reliefs that can be obtained by a Corporation by an application under s. 31(1) which could not be styled as substantive relief for repayment of mortgage money by sale of mortgaged property. Nor can it be said to be a proceeding to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss. The form of the application, the nature of the relief, the compulsion to make interim order, the limited enquiry contemplated by Sub-s. 6 of s. 32 and the nature of relief that can be granted and the manner of execution clearly show that the application under s. 31(1) is neither a plaint as contemplated by Article 1 of Schedule I nor an application in a nature of a plaint as contemplated by Article 7 of Schedule I of Court-fees Act.Once Article 7 of Schedule I of the Court-fees Act is excluded there was (and could be) no dispute that an application under s. 31(1) of the Act would be covered by the residuary Article l(c) of Schedule II of the Court-fees Act and it should bear a fixed court fee in the sum of 65 paise. Therefore, the High Court was clearly in error in holding that the application should bear ad valorem courtdealing with a question of court fee, the perspective should be informed by the spirit of the magna carta and of equal access to justice which s uggests that a heavy price tag on relief in Court should be regarded as31(1) prescribes a special procedure for enforcement of claims by the Financial Corporation The Corporation is to make an application for the reliefs set out in s. 31 (1) . The reliefs that a Court can grant under s. 31(1) are the sale of the property mortgaged, etc. to a Financial Corporation as security for the loan or advance; transfer of the management of the industrial concern to the Financial Corporation or 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 of the Financial Corporation. An application for such a relief is certainly not a plaint in a suit for recovery of mortgage money by sale of mortgaged property. On a breach of an agreement by an industrial concern the Corporation can seek one or more of the three reliefs set out in s. 31(1). If the Corporation seeks the relief of transferring the management of the industrial concern to the Financial Corporation it could hardly be said that the application purports to be a plaint for recovering the mortgage money by sale of mortgaged properly. It would be inappropriate to say that on an analogy an application under s. 31(1) is something akin to a suit by a mortgagee to recover mortgage money by sale of mortgaged property. At any rate, in an application under s. 31 (1) the Corporation does not and cannot pray for a decree for its outstanding dues. It can make an applicati on for one of the three reliefs, none of which, if granted, results in a money decree, or decree for recovery of outstanding loan or advance. Section 31(1) of the Act, in the circumstances therein set out, permits the Corporation to seek one or more o f the three reliefs therein stated. It is difficult to comprehend that merely the form of relief would attract one or the other Article ofAct. If relief of sale of mortgaged property is sought which permits an argument that the application is nothing but a suit for realising mortgage money by sale of mortgaged property and, therefore, ad valoremis payable, then what would be the nature of the application when instead of sale of mortgaged property the relief asked for is transfer of the management of the industrial concern or an interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment from the premises of the industrial concern without the permission of the Board? In the last mentioned two cases the relief is incapable of any monetary evaluation. The High Court got over this difficult question by merely observing that this need not be answered in the petitions before the High Court. Frankly speaking, they shed some light on the nature of the proceedings contemplated by s. 31, and s. 32 of the Act clearly points to, the conclusion that the proceedings are not in the nature of a money recovery proceedings. Article 1 of Schedule I would, therefore, not be attracted and we must say in fairness to Mr. D.V. Patel, learned counsel for the respondent State of Gujarat who specifically stated that the application would not fall under Article I of Schedule I but it would be governed by Article of Schedule.31(1) enables the Corporation in the event of breach of agreement or default in payment of loan or advance or an Installment thereof to make an application not merely for sale of mortgaged property but even for transferring the management of the industrial concern to the Financial Corporation or merely injunct the industrial concern from transferring or removing its machinery or plant or equivalent from the premises of the concern without the permission of the Board. Anapplication for transfer of management of the industrial concern could by no stretch of imagination, be said to be an application for repayment of the loan though Mr. Patel did say that the management can only be retained till such time as the Corporation reimbursesif an application under s. 31(1) is merely for an injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment without the permission of the Board, it could hardly, or even remotely. be said that such a relief substantively provides for repayment of the loan or it is a relief to prevent an anticipatory loss. Let it he recalled at this stage that if theAct is a taxing statute its provisions have to be construed strictly in favour of the subject litigant (vide State of Maharashtra v. Mishrilal Tarachand Lodha &ors., ) In a taxing statute the strict legal position as disclosed by the form and not the substance of the transaction is determinative of its taxability (vide Joint Commercial Tax Officer, Harbour Div. II, Madras v. Young Mens Indian Association (Regd.), Madras &ors. If it is a fee, the enormity of the exaction will be more difficult to sustain. While we do not pronounce, we indicate the implication of the High Courts untenable view.What then is the nature of proceedings contemplated by s. 31(1) if it is not a suit by the mortgagee for recovery of mortgage money by sale of mortgaged property. Section 31 would to some extent provide a clue to this question. On an application under s. 31(1) being made it is obligatory upon the Court to make an interim order attaching the security with or without interim injunction restraining the industrial concern from transferrin g or removing its plant. machinery or equipment without the permission of the Board of the Corporation. If the relief claimed in the application is transfer of the management of the industrial concern to the Corporation it is obligatory upon the Dis tt. Judge to grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment. In either event a notice notifying the industrial concern to show cause why the order should not be made absolute is required to be served upon the industrial concern.