CANARA BANK Vs STATE OF TAMIL NADU & ANR. C

08 March 2000
Supreme Court
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CANARA BANK Vs STATE OF TAMIL NADU & ANR. C

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PETITIONER: CANARA BANK

       Vs.

RESPONDENT: STATE OF TAMIL NADU & ANR.  C

DATE OF JUDGMENT:       08/03/2000

BENCH: S.N.Phukan, S.R.Babu

JUDGMENT:

     RAJENDRA BABU, J.  :

     The  appellant filed a writ petition in the High Court seeking  for  a  writ  or direction or order  to  the  first respondent to pay a sum of Rs.  1,24,87,487.47 together with interest  amount  of Rs.  2,24,80,070.88 upto July 29,  1987 with  further  interest at the rate of 19.5% until  date  of discharge.   The  appellant  in the course  of  its  banking business  had  granted different kinds of loans on  security like  mortgage or pledge or hypothecation of floating charge of  all  assets of Madura Sugars  Limited,  Randiarajapuram, Madurai  District,  [for  short ‘the  company’],  a  company registered under the Companies Act.  The Government of Tamil Nadu  took over the undertaking by the Madura Sugars Limited (Acquisition   &   Transfer  of   Undertaking)   Act,   1984 [hereinafter  referred to as ‘the Act’].  The undertaking of the  company is engaged in the manufacture or production  of sugar by means of vacuum pans and with the aid of mechanical power  stood  transferred to and vested in  the  Government. Section  5  of  the Act provides for extinguishment  of  all encumbrances  such  as  mortgage,   charge,  lien  or  other interests  and  it  is  further provided  therein  that  the payment  of  mortgage  money or other dues  who  holds  such charge,  lien or other interest shall be paid in whole or in part  out of the amounts specified in Section 9, but no such mortgage,   charge,   lien  or   other  interest  shall   be enforceable  against  any  property which is vested  in  the Government.   Section  8 provides that the liability of  the company  prior  to  the appointed day shall  be  enforceable against   it  and  not  against   the  Government   or   the undertaking.   Section  9  provides for payment  of  certain amount  in cash in the manner specified therein.  Section 15 makes provision for appointment of Commissioner for payments and  entire Chapter VI deals with the manner in which claims have  to  be made to the Commissioner, Priority  of  Claims, Examination  or admission or rejection of the same.  Section 26  provides that in respect of certain category of  amounts due  to  be  paid mentioned in the Second  Schedule  if  not discharged  by  the Commissioner out of amount paid  to  him under  the  Act,  he shall intimate to  the  Government  the extent  of liability remaining undischarged and which  shall be  assumed  as  liability of the Government.   The  learned single  Judge considered the various aspects of the case and noticed that there was no material to show that the Managing

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Director  or  the  Special Officer of the company  had  been served  with  a notice in respect of the claim made  by  the appellant  and,  on actual examination of the  records  this position  was  conceded  to by the learned counsel  for  the appellant.   A  contention was raised that the  company  had knowledge  of  the award and, therefore, non-service of  the notice  would not be fatal to the award made for payment  by the  Commissioner.  The learned single Judge held that where law  requires notice to be served and if the notice has  not been served and a claim is foisted upon a party without such service  of  notice,  there  is   clear  violation  of   the principles  of natural justice and an order passed in such a proceeding  would  be void.  On that basis he took the  view that  the  relief sought for by the appellant could  not  be granted and dismissed the writ petition.  On appeal filed by the  appellant,  the  Division  Bench   of  the  High  Court considered  the matter and, while agreeing with the  learned single Judge, observed as under :-

     "As  the undertaking of the company had vested in  the Government,  notice ought to have been directed to both  the respondents   therein  in  the   claim  proceeding  and  the Commissioner ought to have heard both of them before passing any order.  The view expressed by the learned Judge that the order  passed by the Commissioner is null and void  inasmuch as  notice was not served on the respondents is correct  and no exception can be taken thereto.

     The  Division Bench again stated as follows :- "It  is contended   that  the  communication   discloses  that   the respondents  had  full knowledge of the  entire  proceedings before  the  Commissioner  and  they  are  not  entitled  to challenge  the  order  of  the Commissioner  made  in  those proceedings  in  this Court.  We are unable to  accept  this contention.   The  learned Judge has found from the  records that  there  was  no  service of notice  on  either  of  the respondents  and consequently, the entire proceedings of the Commissioner are vitiated."

     The Division Bench on examination of the scheme of the Act  particularly with reference to Sections 5(4), 8, 9, 16, 17, 20 and 26 of the Act, had no doubt that the liability of the  Government  under the provisions of the Act is  to  the extent only upto the total amount determined under Section 9 which the Government is bound to pay to the Commissioner for payments  to  the company.  The Division Bench also  noticed that  the liability of the company continues to exist and it is  not enforceable against the Government or the Government company.   On  that basis, the Division Bench dismissed  the appeal.   Shri  V.R.   Reddy, the  learned  senior  Advocate appearing  for the appellant, contended that the view  taken by the Division Bench of the High Court on the scheme of the enactment  is plainly erroneous.  He submitted that  Section 5(4)  of  the  Act while extinguishing  rights  against  the Government  or  the undertaking arising out of the  security made  it  clear  that  a secured  creditor  is  nevertheless entitled  to  claim  in  accordance   with  his  rights  and interests,  payment of the mortgage or other dues, in  whole or in part out of the amounts specified in Section 9 and did not limit it only to the amounts specified in Section 9.  He further  pointed  out  that other provisions  to  which  the learned  Judges adverted to were only provisions which  were made  not to override the other provisions of the Act  which was  made  clear  in  the   expression  "save  as  otherwise expressly  provided in the Act".  He further submitted  that

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Section 26 is an independent provision and is not controlled by  any  other  provisions of the Act.   The  interpretation placed  by the Division Bench on Section 26 would render  it otiose.   The learned counsel appearing for the  respondent, however,  supported  the  view taken by the  learned  single Judge  and the Division Bench of the High Court in the  writ petition  and writ appeal respectively.  It is no doubt true that  Section 5(4) refers to rights of a secured creditor to make  a  claim  in  regard to the dues out  of  the  amounts specified  in Section 9, but the purpose of Section 5(4)  if borne  in mind it becomes clear that while extinguishing the rights  of  the  secured creditor as  against  any  property vested  in  the Government, a claim can be made for  payment out  of  the amounts specified in Section 9.  Section 26  in particular  provides that if the dues arising out of secured loans  obtained  by the company from nationalised banks  and public  financial institutions during any period before  the appointed  day  is not discharged fully by the  Commissioner out of the amount paid to him under the Act, intimation will have  to  be  given  to the Government  the  extent  of  the liability  which  remains  undischarged and  that  liability shall  be  assumed  by the Government.   We  cannot  without closer  examination say that argument of the learned counsel for  the  appellant  is without merit.  However, we  do  not propose  to consider or answer this aspect as we propose  to rest our decision on another ground.  We have set out in the earlier  part of this order that the learned single Judge on full  investigation of the records found that notice to  the company  had  not  been  given, which was  admitted  by  the learned  counsel for the appellant before the learned single Judge.   Under  the scheme of the Act it is clear  that  the company is also liable to make good the amounts which remain outstanding  and,  therefore, principles of natural  justice also  require  that a notice should have been given  to  it. The  view taken by the learned single Judge and accepted  by the Division Bench to which we have adverted to is placed on sound  footing.   Therefore,  we are of the  view  that  the adjudication  made  by the Commissioner is void for want  of notice  to the company and, therefore, unenforceable and  so the High Court was justified in refusing to grant the relief to the appellant.

     In  this view of the matter, we affirm the view  taken by  the  High Court and dismiss the appeal.  However,  there will be no order as to costs.