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PETITIONER: K.B. DADDARAJJIAPPA & ORS.

       Vs.

RESPONDENT: STATE OF KARNATAKA & ORS.

DATE OF JUDGMENT16/01/1989

BENCH: OZA, G.L. (J) BENCH: OZA, G.L. (J) PANDIAN, S.R. (J)

CITATION:  1989 AIR  751            1989 SCR  (1) 108  1989 SCC  (2) 390        JT 1989 (1)    73  1989 SCALE  (1)70

ACT:     Mysore  State Aid to Industries Act 1951 Sections 7  and 19---Loan secured by Industries--Recovery of--State  Govern- ment standing as surety and guarantor to  repayment--Default in repayment of loan-State Government entitled to recover as arrears  of  land revenue--’All moneys  payable  under  this Act’--Interpretation of.

HEADNOTE:     The  appellants owned an industrial concern  and  sought aid from the State Government under the Mysore State Aid  to Industries Act, 1951 with a view to improve the industry and develop  it further. An application for aid was made to  the concerned  authorities and the competent  authority  granted the  financial  assistance by way of  loan.  This  financial assistance was secured from the Bank of Mysore and the State Government  agreed to stand as surety and also to  guarantee the  repayment  of the loan with interest to the  Bank.  The appellants  who received the aid executed a deed  of  simple mortgage in favour of the State Government of their  proper- ties  in  consideration of their promise  to  guarantee  the repayment of the loan. The State Government in turn executed a deed of guarantee in favour of the Bank. The appellants in addition  also  executed  a promote in favour  of  the  Bank agreeing to repay the said sum with interest.     The  appellants were not in a position to pay  the  loan within  the  stipulated  period as the  concern  had  become financially unsound. The State Government started compelling the appellants to pay off the loan to the Bank and as it was not  paid  the State Government got the  properties  of  the appellant  sold under the proceedings for recovery  of  land revenue and got the money recovered.     The appellants filed a civil suit and contended that the sale of the properties was without the authority of law, and that the money could only be recovered from the appellant if the State Government had paid the loan of the Bank first and even thereafter the only course open to the State Government was  to  file a suit for reimbursement on the basis  of  the mortgage. 109     The suit was dismissed by the trial court and the  order

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was confirmed by the High Court in appeal.     The  Trial Court and the High Court came to the  conclu- sion that the Government of Karnataka was entitled to recov- er  the amount which they secured as an aid to the  respond- ents  under the scheme of the Act and for that purpose  law- fully  resorted to the sale of the properties  by  following the  procedure  of recovery of arrears of  land  revenue  as provided for in Section 19 of the Act.     In the appeal to this Court, it was contended on  behalf of the appellants that the view taken by the High Court that if  any sum was payable under the Act, the State  Government could take steps under Section 19 of the Act was not  justi- fied. Dismissing the Appeal,     HELD:  1. The scheme of the Mysore State Aid  to  Indus- tries  Act,  1951  indicate that whether the  aid  has  been provided  for by the State or has been secured by the  State from other financial agencies, it was contemplated that  the State would secure the repayment of the loan or recovery  of whatever  aid  was given, and with a view  to  secure  those repayments Section 19 was specifically enacted. [113D-E]     2.  Legislature in its wisdom therefore did not use  the words  ’payable to the State’ but used ’all  moneys  payable under  this  Act’ in the Section, it appears  with  a  clear intention  that  whenever money becomes  payable  which  was secured to the industry under the scheme of the Act, it will be open to the State Government to follow the procedure  for recovery  as has been provided for in clause (1) of  Section 19. [113E-F]     3. It is only in respect of the moneys payable under the scheme  of this Act that section 19(1) comes into  operation and it appears that it was in accordance with the scheme  of the Act that the Legislature in its wisdom chose not to  use the  further phrase payable to the Government under  Section 19(1). [114B]     S. Peer Mohammed v. B. Mohan Lal Sowcer, [1988] 2 S.C.C. 513, referred to.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil appeal No. 239240 of 1975. 110     From  the  Judgment and Decree dated  13.3.1974  of  the Karnataka  High  Court in R.F. Appeal No. 103, 111,  120  of 1970  and 11 & 12 of 1971 and 142 of 1972 with  Cross-objec- tions in R.F.A. No. 111 of 1970.     K.N.  Bhatt,  G. Vishvanatha lyer,  T.S.  Krishnamurthy, M.K.  Pandit, P.H. Parekh, K.R. Nagaraja, M. Veerappa,  P.R. Ramasesh,  Vineet Kumar, S.S. Javalai, R.B. Datar, and  R.S. Hegde, for the appearing parties. The Judgment of the Court was delivered by     OZA,  J:  These two appeals have been filed by  the  two appellants against the judgment of the High Court of  Karna- taka, Bangalore dated 30.3.1974. This appeal has been  filed in  this  Court after getting a certificate  from  the  High Court  of Karnataka under Article 133(1)(a) and (b)  of  the Constitution.     The  brief facts giving rise to the present  appeal  are that the appellants owned an Industrial concern by the  name of Bangalore Fancy Fire Works and with a view to improve the industry  and  develop it further they sought aid  from  the GoVernment  of  Mysore, one of the  respondents,  under  the Mysore  State Aid to Industries Act, 1951  (hereinafter  re-

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ferred to as the Act) and application for this aid was  made to  the  concerned  authorities of the  State  on  23.1.1953 wherein an aid in the nature of financial assistance to  the tune of Rs. one lac was sought. By the orders of the  compe- tent  authority dated 3.9.1953 the financial  assistance  of Rs.60,000  by  way of loan was  sanctioned.  This  financial assistance  by  way  of loan was secured from  the  Bank  of Mysore  Ltd.  and the State Government agreed  to  stand  as surety  and  also to guarantee the repayment  of  loan  with interest to the Bank of Mysore Ltd. It was also agreed  that the  appellants who receive the aid will execute a  deed  of mortgage  in  favour of the Government of  Mysore  of  their properties  in consideration of their promise  to  guarantee the repayment of sums to be advanced to them by the Bank  of Mysore. Pursuant to these arrangements the appellant execut- ed a deed of simple mortgage in favour of the Government  of Mysore  dated 14.11.1953. The Government of Mysore in  their turn executed a deed of guarantee dated 20.2.1954 in  favour of  the Bank of Mysore Ltd. The appellants in addition  also executed  a  pronote in favour of the Bank of  Mysore  dated 8.12..  1953  for a sum of Rs.60,000 agreeing to  repay  the said  sum together with interest @ 2 1/2 per cent per  annum over  and  above the rate of Reserve Bank of  India  with  a minimum 6 per cent per annum. 111 This amount of Rs.60,000 was given to the appellants as loan by Bank of Mysore according to the directions issued by  the Government of Mysore.     It is not disputed that at that time the banks ordinari- ly  would  not have advanced the loan for industry  for  its further  development and would not have advanced on  conces- sional  rate of interest as was done in the present case  as admittedly  this  was an aid arranged by the  Government  of Mysore  under  the  Act and it was in  accordance  with  the scheme  of  the Act that the Government of  Mysore  arranged this  loan  at a concessional rate from the Bank as  an  aid under the Act. This loan was to be repaid in two instalments and it is not in dispute that the appellants did not pay the loan  on the due dates of the instalments. According to  the appellants  as alleged by them before the Trial  Court  they were not in a position to pay the loan within the stipulated period  as the concern became financially unsound  and  that the  respondent, the State Government of  Karnataka  started compelling  the appellants to pay off the loan to  the  bank and  as  it was not paid the Government  of  Karnataka,  the respondent got the plaint schedule properties sold under the proceedings  for recovery of land revenue and got the  money recovered.  It  was  contended by the  appellants  that  the respondent defendant State could not got the properties sold by public auction in accordance with the procedure of recov- ery for arrears of land revenue. As they had only a mortgage deed  of  the property in their favour and  that  the  money could only be recovered from the appellants if the  respond- ent  State  had  paid the loan of the Bank  first  and  even thereafter the only course open to the respondent State  was to  file a suit for reimbursement on the basis of the  mort- gage  and  it was therefore contended that the sale  of  the properties  was  without the authority of law.  The  learned trial  court and also the High Court came to the  conclusion that the Government of Karnataka was entitled to recover the amount which they secured as an aid to the respondents under the scheme of the Act and for that purpose lawfully resorted to the sale of the properties by following the procedure  of the recovery of arrears of land revenue as was provided  for in Section 19 of the State Act and dismissed the suit  filed

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by the plaintiff respondent.     Learned  counsel  appearing for  the  appellant  frankly conceded that the facts in the case are not in dispute.  The High  Court of Karnataka has taken a view that as this  loan was  given to the appellant by the State Bank of Mysore  but it  was  secured as an aid under the Act referred  to  above therefore  proceedings under Sec. 19 could be taken  but  it was contended by learned counsel that the State was only a 112 guarantor and the creditor was the State Bank of Mysore  and so long as the loan was not recovered from the guarantor  it could  not  be said that there was anything payable  to  the State  Govt. and in view of the language of Sec. 19  it  was contended  that so long as there was nothing payable to  the State  Govt.  the action under Sec. 19 could not  have  been taken.  Learned counsel frankly conceded that  although  the language  in Sec. 19 do not refer to the moneys  payable  to the State but it only refers to moneys payable under the Act but  it was contended that in the scheme of the Act and  the transactions  between  the parties, State Govt.  could  take action to recover the money only if the State Government has paid  the loan in favour of the State Bank of Mysore on  the terms of the guarantee which was executed by the State  Gov- ernment.  Learned counsel therefore contended that the  view taken  by the High Court that if any sum was  payable  under the  Act State Government could take steps under Section  19 is not justified.     The  learned  counsel for the respondent State  and  the other  respondents  who are purchasers of  the  property  in auction contended that the scheme of the Act indicates  that in  order  to industrialise the State this Act  was  enacted wherein  the  State took upon itself the  responsibility  of providing  aids in various kinds to the industries and  such aids were provided for under the Statutes. One of the  modes of providing this aid was to secure a loan from the bank  in favour  of the industry which ordinarily was  not  available and  it  has  been brought to our notice that  even  in  the application  which the respondent made for this aid  to  the State  Government  clearly admitted that no loan  from  bank could  be available unless the State secured aid under  this Act.  It was therefore contended that the aid may have  been secured  from the bank but it was an aid which  was  secured under the provisions of this Act and in this view Section 19 clearly  comes  into  operation and hence  the  moneys  were payable under this Act and if it was so the State Government was entitled to realise the amount as arrears of land  reve- nue as contemplated in Section 19. The scheme of the Act was to  provide  aid to industries. Preamble of the  Act  itself states: Preamble--Whereas it is expedient to regulate the giving  of aid by the Government to industries in the State of Mysore.     Under  Section  7 of this Act it was provided  that  the Government could give aid to the industries in the following ways  and sub-clause (b) provided for cash credit  facility, overdraft or fix advance with the bank. 113 Section 7.--Subject to the provisions of this Act and of the rules framed thereunder, the Government shall have power  to give  aid to an industrial business or enterprise in one  or more of the following ways: (a) by granting loan;       (b) by guaranteeing a cash credit, overdraft or  fixed advance with a bank;     It is not in dispute that this loan which was secured to the  appellants from the bank was an aid falling under  Sub-

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clause (b) of Section 7. The provisions of the Act  indicate the  manner in which the loans could be secured, the  manner in  which it was to be paid and in view of all this  it  was not  disputed  that  although this loan  became  payable  in favour  of the State Bank of Mysore but it may  fall  within the  ambit  of the definition of moneys payable  under  this Act.  The only controversy raised before us that Section  19 could be so interpreted that the Govt. could use the author- ity  under Section 19 for recovery only if moneys were  pay- able to the Government.     As discussed earlier the scheme of the Act indicate that whether  the aid has been provided for by the State  or  has been secured by the State from other financial agencies.  It was  contemplated that the State would secure the  repayment of the loan or recovery of whatever aid was given and with a view to secure those repayments Section 19 was  specifically enacted. Legislature in its wisdom therefore did not use the words  payable  to the State but used  ’all  moneys  payable under  the  Act’  in the Section, it appears  with  a  clear intention that whenever any money becomes payable which  was secured  to  the industry under the scheme of this  Act.  It will be open to the State Govt. to follow the procedure  for recovery as has been provided for in clause (1) Section 19.     Section  19  sub-clause (1).--All moneys  payable  under this  Act,  including any interest  chargeable  thereon  and costs, if any, incurred, if not paid when due, may be recov- ered from the person aided and his surety if any, under  the law for the time being in force, as if they were arrears  of land revenue.     It  was contended that ordinarily if the State  was  the guarantor and the creditor was the Bank of Mysore  guarantor State  could only recover from the appellants if the  amount had been paid to the credi- 114 tors so far as the normal legal procedures is concerned.  It may depend upon the terms and the conditions of the  guaran- tee.  But in the present case we are dealing with aids  pro- vided  for  under the scheme of this Act and it is  only  in respect  of the moneys payable under the scheme of this  Act that Section 19(1) comes into operation and it appears  that it was in accordance with the scheme of the Act that  Legis- lature  in  its wisdom chose not to use the  further  phrase payable to the Government under Section 19(1).     Learned  counsel  placed reliance on a decision  in  the case  of S. Peer Mohammed v. B. Mohan Lal Sowcar,  [1988]  2 S.C.C.  513.  This  decision in our opinion is  not  at  all relevant  as  in the present case we are  dealing  with  the enactment  where a special procedure has been  provided  for recovery  of moneys payable under this Act. In this view  of the matter therefore in our opinion the High Court was fight in  not accepting the contention of the appellant and  main- taining  the  dismissal  of the suit.  Appeal  is  therefore dismissed.  In the circumstances of the case no order as  to costs. N.V.K.                                 Appeal dismissed. 115