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PETITIONER: DELHI FINANCIAL CORPORATION

       Vs.

RESPONDENT: B. B. BEHEL

DATE OF JUDGMENT:       19/03/1999

BENCH: S.B.Majmudar, Syed Shah Mdhammed Quadri

JUDGMENT:

J  U  D  G  M  E  N  T

QUADRI,J.

     Leave is granted.  This appeal is directed against the order  of a learned Single Judge of the High Court of Punjab and  Haryana  passed in C.R.No.1990 of 1993 on November  21, 1995.   By the impugned order, the learned Judge  determined that  Rs.9,02,300/-  were payable by the respondent  to  the appellant,  directed that the same be paid within one  month from  the  date of the order and held that the  order  under revision  staying the auction of the mortgaged properties by the  execution court was justified and thus disposed of  the revision.   This  case  has  had a  chequered  history.   To appreciate  the question involved in this case, it would  be necessary  to refer briefly to the facts giving rise to this appeal.   The  appellant advanced loan of Rs.14.75 lakhs  to the  respondent for the construction of a hotel building  on plot No.22, Sector 26, Chandigarh.  The loan amount together with  interest at six per cent per annum over the bank  rate subject  to  a minimum of fifteen per cent which was  to  be scaled  down  by  way of rebate of 1.5 per cent in  case  of prompt  payment of principal amount and interest and was  to be  increased  by 1.5 per cent per annum in case of  default was payable in twenty one half yearly instalments commencing from  July  15,  1982.  The repayment of loan  and  interest thereon   was  secured  by   mortgage  of  properties  under registered  mortgage  deed  executed by  the  respondent  on September  20,  1980.   On the ground  that  the  respondent committed  breach  of terms of the agreement, the  appellant recalled the loan and demanded Rs.17,66,038.46p.  along with interest  by  issuing  a registered notice on  February  21, 1983.   The  appellant  followed  the notice  by  filing  an application  under Section 31 of the Financial  Corporations Act  [for  short, ‘the S.F.C.  Act’] before  the  Additional District  Judge, Chandigarh.  On April 2, 1985, the  learned Additional  District  Judge  passed the  order  of  recovery directing  the  respondent to pay Rs.17,07,466.28p  together with  future interest at the rate of 17.5 per cent per annum from  the  date  of the application till  realisation.   Not satisfied  with obtaining the said order of recovery of  the amount  under  Section 31 of the S.F.C.  Act, the  appellant issued  notice  under  section 29 of the  S.F.C.   Act.   It appears  that the respondent was also indebted to the United Bank  of  India.  On October 18, 1986 the civil court  which

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was   trying  the  suit  filed  by  the  Bank  against   the respondent,  on  considering  the  statements  made  by  the counsel  for the parties before it, restrained the appellant from  selling  the  mortgaged  properties  except  with  the permission  of  the  court and directed  the  respondent  to continue to pay Rs.45,000/- per month till the re-scheduling of  the loan and thereafter as per the arrangement under the re-scheduling   of  the  loan.    The  appellant   initiated proceedings  under  Section  29 of the S.F.C.  Act  to  take possession of the mortgaged properties on May 3, 1990.  That action  of the appellant was challenged by the respondent in the  High  Court  of  Punjab and Haryana by  filing  a  writ petition.  On September 28, 1992, the High Court disposed of the  writ  petition  holding that the  appellant  could  not invoke  section 29 of the S.F.C.  Act till the rights  under section 31 were exhausted and directed it to re-schedule the loan;   the respondent was also directed to deposit a sum of Rupees  three  lakhs.   That  order of the  High  Court  was unsuccessfully  challenged  in  the special  leave  petition before  this  Court.   While dismissing  the  special  leave petition  No.3DD/93 on 15.2.1993, this Court left it open to the  appellant to approach the civil court for  modification of  the  decree  to  re-schedule the  loan.   The  appellant re-scheduled  the  loan in March 1993.  The  appellant  then filed  an  application in the court of  Additional  District Judge  for  executing the order of recovery of the  decretal amount.   On  May 10, 1993, the Executing Court ordered  the sale  of mortgaged properties and notice to the United  Bank of  India on the execution petition.  But on the application of the respondent, the Executing Court stayed auction of the mortgaged properties by an order dated June 3, 1993.  Having failed  in the Executing Court to have the stay of the  sale vacated,  the  appellant filed revision petition before  the High  Court which was disposed of by the judgment and  order dated  November  21, 1995 which is assailed in this  appeal. Mr.    A.K.Chopra,  learned  counsel   appearing   for   the appellant, contended that in the revision arising out of the execution  proceedings,  the  High Court ought not  to  have modified the decree and deprived the appellant of the fruits of  the  decree  by changing the rate of  interest  for  the period  from July 16, 1982 to March 21, 1986 and waiving the interest  for  the period from March 21, 1986 to  March  22, 1993,  the date when the loan was re-scheduled.  Dr.Abhishek M.Singhvi,   learned  senior  counsel   appearing  for   the respondent, vehemently pleaded for granting interest holiday for  the period commencing from March 21, 1986 to March  22, 1993 to the respondent as due to terrorist activities in the State  of  Punjab, he suffered set back in the business  and during  this period the appellant failed to re-schedule  the loan.   He argued that subsequent events as reflected in the correspondence  between  the  parties  would  show  that  an understanding  and  arrangement was reached which  precluded the  appellant from pursuing its remedies under the order of recovery  of the civil court.  He has also pointed out  that in the case of industries which suffered at the hands of the terrorists,  the  appellant granted substantial  relief  and prayed  for  such  relief  in the case  of  the  respondent. Before  we  examine  the merits of the  contentions  of  the learned  counsel, we would like to record that to workout an amicable  settlement  between  the  parties,  the  case  was adjourned  from  time  to  time.  On  February  9,  1999  we directed  the  parties to submit the statement duly  working out the figures of principal amount and the interest due and payable  for the following period without prejudice to their rights  and contentions :  "(i) from 15.1.1983 to  30.6.1986

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on  the amount of Rs.17,07,466.28p.  simple interest at  the rate of 17.5 per cent per annum;

     (ii) from 1.7.1986 to 30.6.1993 simple interest at the rate of 13.5 per cent per annum;  and

     (iii)  from 31.7.1993 to 31.12.1998 simple interest at the rate of 17.5 per cent per annum."

     Accordingly,  the parties have filed their statements. On  a  perusal of the statements, we find that there is  not much  of  difference  between  the two.   According  to  the statement  filed by the appellant showing adjustment of  the amounts  paid  by the respondent first against the  interest and then against the principal, the amount outstanding as on 31.12.1998 is given as Rs.33,79,550.48p.  On the same basis, the  amount  shown as outstanding in the statement filed  by the respondent is Rs.33,80,601.94p.  Various suggestions and counter-suggestions  were  made  but the parties  could  not arrive  at  any  settlement with regard to  the  quantum  of instalments and their mode of adjustment against the amounts due.  Be that as it may, now adverting to the contentions of the  learned  counsel, it cannot be lost sight of  that  the relationship between the appellant and the respondent is one of  the creditor and the debtor and that the transaction  of advancing  loan  is governed by the terms of the  Agreement. But  we need not refer to the terms of the agreement to work out  rights  and obligations of the parties because  in  the proceedings  initiated under Section 31 of the S.F.C.   Act, the  learned  Additional District Judge, Chandigarh,  passed the  following order of recovery on April 2, 1985:  "For the reasons  recorded  above  I pass order for the  recovery  of Rs.17,07,466.28  with future interest at the rate of 17-1/2% per  annum  from  15.1.83 until  realisation  together  with incidental  and miscellaneous expenses may be debited to the loan  account  of  the  respondent by way  of  sale  of  the property  mentioned  in  the   annexure  attached  with  the petition.   The  respondent shall also pay the costs of  the proceedings to the petitioner counsel fee Rs.500/-."

     That order of recovery has become final.  The revision petition  which  was  filed  before the High  Court  by  the respondent  arose not out of the said order of recovery  but out of the order staying sale of mortgaged properties passed in  the execution proceedings of the said order.  Therefore, it  was not open to the High Court to work out the amount of loan  due  and payable by the respondent as Rs.15,75,000  as against  the figure mentioned in the order of recovery.   So also  the High Court was not justified in reducing the  rate of  interest  to  13-1/2  per  cent  from  17-1/2  per  cent mentioned  in the order of recovery for the period [a]  from July  16, 1982 to March 20, 1986, [b] from March 22, 1993 to June 30, 1994 and July 1, 1994 to November 30, 1995, and [c] to  waive the interest for the period from March 21, 1986 to March  22, 1993, the date of re-scheduling of the  interest. The  appellant  is  also  not  entitled  to  claim  compound interest  on  the decretal amount due because it is  evident from  the  order  of recovery that  the  learned  Additional District  Judge,  Chandigarh awarded interest at 17-1/2  per cent  per annum which can only mean simple interest and  not compound  interest.  The contention of Dr.  Singhvi that  no interest  could have been charged for the period from  March 21,  1986  to March 22, 1993 as the appellant failed to  re- schedule  the  loan for all those years, we are of the  view that  failure to re-schedule the loan by the appellant  does

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not  entail  the  penal consequence of losing the  right  to recover the interest granted by the court for that period in the  order of recovery passed under Section 31 of the S.F.C. Act.   There can be no doubt that the appellant was bound to re-schedule  the loan for repayment of the amount  mentioned in  the  order of recovery in view of the order of the  High Court  in the writ petition and of this Court in the special leave  petition,  referred to above.  But the said order  of recovery  was not subject to re-scheduling of loan and there was  no direction in the order of the High Court in the writ petition  that  the delay or default in re-scheduling  would result  in  losing the interest by the appellant.   Further, there  was also no such direction in the order of this Court passed  in the said special leave petition.  Therefore,  the only  relief that the respondent could justifiably claim  is that during the period the re-scheduling of the loan was not attended  to  by  the appellant,  the  recovery  proceedings should  be suspended and sale of mortgaged properties should not be proceeded with.  For these reasons, the contention of Dr.   Singhvi  that the respondent should be given  interest holiday  during the period from March 21, 1986 to March  22, 1993 cannot be acceded to.  We are also unable to accept the contention of the learned counsel for the respondent that in view of the subsequent correspondence between the parties to which  our attention was invited the order of recovery  gets modified.  The arrangement and understanding as reflected in the   correspondence  between  the   parties  can  only   be understood  to  prescribe  the mode of  recovery  of  amount payable  under  the order of recovery but not to modify  the order  of  recovery.   Even  if  it  is  accepted  that  the appellant  had, in some cases, granted substantial relief to the  debtors  affected by terrorists activities, it  is  far beyond  the  powers  of the Court to compel  a  creditor  to forego  part  of  its  claim of interest on  the  ground  of hardship  to  a  debtor.   In  financial  transactions  such adjustments  should  be  left to the parties to  settle  the matter  in the best interest or exigencies of the business . The  appellant  is a statutory financial  institution  which carries  on  its  activities  by   borrowing  amounts  so  a direction  of  such  a  nature   will  upset  its  financial equilibrium  and  land  it in a financial crisis  making  it non-viable.   However,  on the peculiar facts of this  case, the  only  relief  which  we deem it fit  to  grant  to  the respondent  during the period from 1.7.1986 to 30.6.1993  is to  condone  the  default in repaying the  amount  for  dual reasons  stated hereinbefore.  Consequently, interest at the reduced  rate  of 13.5 per cent per annum would  be  payable during  the  said period.  Now reverting to  the  statements furnished  by the parties, it is seen that according to  the appellant  a  sum  of  Rs.33,79,550.48  is  payable  by  the respondent   (Rs.17,07,466.28   as   principal  amount   and Rs.16,72,084.20  as interest).  The appellant is entitled to recover  the same in execution of the said order of recovery by  sale of mortgaged properties.  Without prejudice to that right  of  the appellant, in the facts and circumstances  of this  case,  we consider it just and appropriate to give  an option  to  the  respondent  to   pay  the  said  amount  in instalments  of  Rupees  one lakh per month till  the  whole amount  due is cleared by depositing the instalments in  the Executing Court regularly;  the amount so deposited shall be appropriated first against the interest due and then against the  principal.   If  the respondent  files  an  undertaking opting  to pay the amount due in instalments at the rate  of Rupees  one lakh per month on or before 10th of each  month, the  first  instalment being payable before 15th  of  April,

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1999  along  with  the first instalment of Rupees  one  lakh before the said date in the Executing Court, the Court shall not  proceed with the sale of the mortgaged properties.   In the  event of not filing the undertaking aforementioned  and not  depositing  Rupees one lakh before 15th April, 1999  in the Executing Court or in the event of default in depositing of  two  consecutive instalments on or before 10th  of  each month  in  the  Executing  Court, the  Executing  Court  may proceed  to recover the whole amount due in accordance  with law  by  sale of the mortgaged properties and/or  any  other mode  permissible under the law.  For the above reasons,  we are  unable  to  uphold the order of the  High  Court  under appeal and we set aside the same.  The appeal is accordingly allowed.  We direct the parties to bear their own costs.