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PETITIONER: EVEREST INDUSTRIAL CORPORATION & OTHERS.

       Vs.

RESPONDENT: GUJARAT STATE FINANCIAL CORPORATION.

DATE OF JUDGMENT21/07/1987

BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) SINGH, K.N. (J)

CITATION:  1987 AIR 1950            1987 SCR  (3) 607  1987 SCC  (3) 597        JT 1987 (3)   113  1987 SCALE  (2)75  CITATOR INFO :  R          1989 SC2113  (17,20,29)

ACT:     State  Financial  Corporations  Act,  1951:  ss.  31   & 32--Nature  of  proceedings  under--Loan--Rate  of  interest chargeable  on principal amount--Whether governed by  s.  34 C.P.C. or payable at contractual rate.     Civil  Procedure  Code,  1908: s. 34, O.  34,  rr.  6  & 11--Applicability  of  to orders passed under s.  32,  State Financial Corporations Act, 1951.

HEADNOTE:     The appellants had borrowed from the respondent Corpora- tion a certain sum for the acquisition of fixed assets under a  deed  of hypothecation. They also  created  an  equitable mortgage, mortgaging the land and factory building by depos- iting  the original title deeds of the properties  with  the Corporation. The loan had to be repaid within a period of  8 years by half yearly instalments. The appellants were liable to pay interest at 8.5 per cent per annum and that was to be calculated and charged at the end of every half year.     The  appellants committed default in payment of  instal- ments  and interest due to the Corporation. The  Corporation filed  an  application under s. 31 of  the  State  Financial Corporations  Act, 1951 before the District  Judge  claiming the   entire  outstanding  loan,  interest  and   commitment charges.  The  appellants having admitted the claim  of  the Corporation, an order of compromise was passed by the  Court under  which  the  appellants  undertook to  pay  a  sum  of Rs.15,000 every month towards the claim of the  Corporation. The  appellants failed to pay the amount as ordered  by  the Court.     The  respondent thereupon filed an application under  s. 32(8)  of the Act requesting that the property  hypothecated in  favour of the Corporation be directed to be sold by  the Commissioner  appointed by the Court and the amount so  rea- lised be appropriated towards the dues. The appellants raised an objection that since the Court  had not in 608 its order expressly directed payment of any interest on  the

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amount,  the  Corporation was not entitled  to  recover  any amount  by way Of interest due on the principal  amount  for the  period subsequent to the date of the order,  and  since payment  of interest subsequent to the date of the  decision of  the  Court was governed by s. 34 of the  Code  of  Civil Procedure, the appellants were not liable to pay any  inter- est. The first appeal and the Letters Patent Appeal filed by the appellants were dismissed by the High Court.     In  this appeal by special leave, it was  contended  for the  appellants that a proceeding under s. 31 of the Act  is in  the nature of a suit, an order made thereon under s.  32 thereof is a decree, and since by subs. (6) of s. 32 of  the Act,  the  District Judge was required  to  investigate  the claim  of the Corporation in accordance with the  provisions of  the  Code, s. 34 of the Code would be attracted  to  the proceeding instituted under s. 31 of the Act also, and  that since the decree passed in this case is silent on the  ques- tion  of payment of any interest on principal sum  from  the date of the decree to the date of payment, the Court  should be deemed to have refused such interest by virtue of  sub-s. 2 of s. 34 of the code. Disposing of the appeal,     HELD: 1. The High Court was right in holding that inter- est would be payable on the principal amount due in  accord- ance  With  the terms of the agreement between  the  parties till the entire amount due was paid as per the order  passed under  s. 32 of the State Financial Corporations Act,  1951. [613GH]     2.  Section 34 of the Code of Civil Procedure,  1908  is not  applicable to this case. A proceeding instituted  under s. 31(1) of the Act is something akin to an application  for attachment  of property in execution of a decree at a  stage posterior  to the .passing of the decree. That being so,  no question of passing any order under s. 34 of the Code  would arise  since that provision would be applicable only at  the stage  of  the passing of the decree and not  to  any  stage posterior  to the decree. Even under the Code, the  question of interest payable in mortgage suits filed in civil  courts is governed by Order 34 rule 11 of the Code and not by s. 34 of the Code which may be applicable only to cases of person- al decrees passed under Order 34 rule 6 of the Code.  [614C, 613F]     3.  In the instant case, the Joint Judge is to  redeter- mine the actual amount due and payable to the Corporation as per the contract between the parties before directing  sale. [614D]  609     Karnataka   State Financial  Corporation,  Bangalore  v. Sri Nithyananda Bhavan & Anr., A.I.R. 1982 Karnataka 179 and Gujarat  State Financial Corporation v. M/s Natson  Manufac- turing  Co. (P) Ltd. & Ors., [1979] 1 S.C.R.  372,  referred to.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1446  of 1987.     From the Judgment and Order dated 2.1.1985 of the  Guja- rat High Court in L.P.A. No. 94 of 1984. K.N. Bhatt, P.H. Parekh and M.K.S. Menon for the Appellants. S.C. Patel for the Respondent. The Judgment of the Court was delivered by     VENKATARAMIAH,  J. The short question which  arises  for consideration in this case is whether the rate of,  interest

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chargeable on the amount payable under an order passed under section  32 of the State Financial Corporations Act,  195  1 (63  of 195 1) (hereinafter referred to as ’the  Act’)  from the date of the said order is governed by section 34 of  the Code  of Civil Procedure, 1908 (hereinafter referred  to  as ’the  Code’)  or whether it is payable  at  the  contractual rate.     The Appellant No.1 --M/s. Everest Industrial Corporation Private Limited, Baroda and its Directors had borrowed  from the  Gujarat  State Financial Corporation  (hereinafter  re- ferred to as ’the Corporation’) a sum of Rs.6 lakhs for  the acquisition  of fixed assets, namely, land bearing  original Survey  No.  163 and now bearing Survey No.  949  of  Baroda measuring  1 acre and 3 gunthas and the factory building  to be constructed thereupon and for purchasing plant and  addi- tional  machinery under a deed of hypothecation dated  April 24, 1970 hypothecating all machinery and equipment  situated at  the  factory premises situated on Survey no.  949.  They also created an equitable mortgage mortgaging the said  land and factory building by depositing the original title  deeds of the properties with the Corporation by signing the letter evidencing  the said deposit of title deeds. Under the  said transaction the loan of Rs. 6 lakhs had to be repaid  within a  period of 8 years by half yearly instalments, such  first half  yearly instalment of 1/13th of the loan being  payable at  the  end of 24 months of the disbursement of  the  first instalment  of the loan and subsequent half  yearly  instal- ments of 1/13th of the loan to be paid. each half year and 610 the last half yearly instalment of 1/13th of the loan to  be paid on 24.4.1978. According to the said agreement the first instalment  of  Rs.46,153 was to be paid  on  27.4.1972  and second instalment of Rs.46,153 was to be paid on 27.10.1972. The  appellants were liable to pay interest at 8.5 per  cent per  annum and that was to be calculated and charged at  the end of every half year and was payable on the 31st of  March and  30th September in each year. The  appellants  committed default  in payment of instalments and interest due  to  the Corporation.  Hence the Corporation filed an application  on 9th  August,  1973 under section 31 of the  Act  before  the District  Judge, Baroda in Civil  Miscellaneous  Application No.  123 of 1973 claiming that in view of the  default,  the entire  outstanding  loan, interest and  commitment  charges amounting  to Rs.6,73,390.42 paise had become due  and  pay- able. In the said proceedings the appellants having admitted the  claim  of the Corporation a compromise was  arrived  at under  which  the  1st  Appellant--M/s.  Everest  Industrial Corporation undertook to pay a sum of Rs.15,000 every  month towards the claim of the Corporation and further agreed that if there was a default in payment of any two instalments  at a  time, then the Corporation could recover the entire  out- standing  amount  then due forthwith. On the  basis  of  the above  compromise  an order was passed on 29.4.1977  by  the learned Joint Judge, Baroda before whom the case was pending at  that  time. The operative portion of the order  read  as follows: "ORDER                         Claim  of the applicant is  decreed.               Opponent No. 1-to pay the amount of  Rs.15,000               (fifteen thousand) per month through the  Bank               of  Maharashtra to the applicant  towards  his               claim. If two instalments of Rs.15,000 each at               a  time are not paid by Opponent No.  1,  then               the applicant shall be entitled to recover the               remaining  amount then due, at a time.  Decree

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             to  be drawn on payment of Court fees  by  the               applicant.  2/3  of the Court  fee  amount  be               refunded  to the applicant advocate. Costs  to               be  borne  by  Opponent No.  1.  Costs  to  be               assessed  after deducting the amount of  court               fees refundable to the applicant."     Because  the 1st Appellant failed to pay the  amount  as ordered by the Court an application was filed by the  Corpo- ration  under section 32(8) of the Act before  the  District Judge,  Baroda requesting that the property hypothecated  in favour  of  the Corporation be directed to be  sold  by  the Commissioner appointed by the Court and the amount so     611 realised  might  be  appropriated towards the  dues  of  the Corporation. Accordingly an order directing the sale of  the properties was passed on 8.2.1980. Before the property could be  sold  the appellants raised an objection  regarding  the actual amount which could be realised by the Corporation  by the  sale  of the properties mortgaged in  its  favour.  The objection which related to the amount of interest payable by the  appellants was formulated thus. Since under  the  order dated 29.4.1977, which was described as a decree, the  Court had  not expressly directed payment of any interest  on  the decretal amount, the Corporation was not entitled to recover any  amount by way of interest due on the  principal  amount for  the period subsequent to the date of the order. It  was further  submitted  that since the question  of  payment  of interest on the amount due for the period subsequent to  the date of the decision of the Court is governed by section  34 of the Code the appellants were not liable to pay any inter- est because the Court had not ordered payment of any  amount by  way of interest to be paid as required by that  section. In  other  words the contention of the appellants  was  that when  the "decree" was silent about the payment of  interest for the period between the date of the "decree" and the date of  payment the Corporation was not entitled to recover  it. It may be mentioned that the Corporation had claimed  inter- est at the rate agreed upon under the transaction, i.e., 8.5 per  cent  per annum and that had not been disputed  by  the borrowers.  The  said objection was overruled by  the  Joint Judge  by his Order dated February 25, 1983.  He  determined that Rs.9,35,547.84 paise was due as on February 8, 1983 and that thereafter interest at the rate of Rs.178.60 paise  per day  would be accruing. Aggrieved by the order of the  Joint Judge,  the appellants filed an appeal in First  Appeal  No. 1474  of 1983 before the High Court of Gujarat. That  appeal was  dismissed  by the learned Single Judge on  February  2, 1984.  Under the Letters Patent Appeal No. 94 of 1984  filed by  the appellants, a Division Bench of the High  Court  af- firmed  the  judgment  of the learned Single  Judge  by  its decision dated January 2, 1985. This appeal by special leave is  filed against the judgment of the Division Bench of  the High Court.     The  main contention urged on behalf of  the  appellants before  this Court is that a proceeding under section 31  of the  Act is in the nature of a suit, an order  made  thereon under  section 32 thereof is a decree and since by  sub-sec- tion  (6)  of section 32 of the Act the  District  Judge  is required  to  investigate the claim of  the  Corporation  in accordance  with the provisions of the Code insofar  as  the said  provisions would be applicable thereto, section 34  of the  Code which governs the question of levy of interest  on the amount due from the date of the suit 612 to the date of the decree and from the date of the decree to

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the  date of payment would be attracted to  the  proceedings instituted  under  section 31 of the Act also. It  is  urged that since the "decree" passed in this case is silent on the question  of  payment of any interest on the  principal  sum from  the  date of the decree to the date  of  payment,  the Court  should  be deemed to have refused  such  interest  by virtue  of  subsection  (2) of section 34 of  the  Code.  In support of the above contention of the appellants,  reliance is placed on the decision of the High Court of Karnataka  in Karnataka  State  Financial Corporation,  Bangalore  v.  Sri Nithyananda Bhavan and another, A.I.R. 1982 Karnataka 179 in which the High Court had applied section 34 of the Code to a proceeding  instituted under section 31 of the Act. In  that case the District Judge had awarded future interest at 6 per cent  per  annum on the amount payable under  a  transaction under  the Act from the date of the application to the  date of payment. The Karnataka State Financial Corporation  which was  aggrieved by the order of the District Judge  filed  an appeal against that order before the High Court. In the said appeal  the  Karnataka State Financial  Corporation  claimed interest  on the principal amount due from the date  of  the application at the rate of 18 per cent per annum. In  decid- ing  the said case the High Court did not go into the  ques- tion whether section 34 of the Code would be applicable to a proceeding  under the Act. It was assumed on all hands  that section 34 of the Code was applicable. Ultimately, the  High Court  increased  the rate of interest to 11  per  cent  per annum  which was the contractual rate of  interest  treating that as a reasonable rate of interest that could be  awarded under section 34 of the Code. It may be mentioned here  that an earlier decision of this Court in Gujarat State Financial Corporation’  v.  M/s Natson Manufacturing Co.  (P)  Ltd.  & Ors., [1979] 1 S.C.R. 372 in which the nature of a  proceed- ing instituted under section 31 of the Act and of the  order passed thereon under section 32 thereof had been  considered was not brought to the notice of the High Court.     In   Gujarat   State  Financial  Corporation   v.   M/s. Natson  Manufacturing Co. (P) Ltd. & Ors. (supra)  no  doubt the  question involved was whether court fee was payable  on an  application  made under section 31 of the Act on  an  ad valorem  basis as if the proceeding was a suit or  not.  But this  Court after analysing the provisions of the  Act  held that  an  application  for any of the reliefs  that  can  be granted  under the Act was not certainly a plaint in a  suit for  recovery  of  mortgage loan and that it  was  not  even something akin to a suit by a mortgagee to recover  mortgage money by sale of the mortgage property. The Court held  that the applicant in such a case could not pray        613 for a preliminary decree for sale of the property or a final decree  for  the payment of the money nor it could  seek  to enforce any personal liability even if such a liability  had been  incurred  under the contract of mortgage  as  the  law stood  then. This Court held that the form of the relief  to be granted under the Act did not attract Article 1 or  Arti- cle 7 of Schedule 1 of the Bombay Court Fees Act, 1959 which required  payment  of court fee on ad valorem basis  on  any plaint  or application in the nature of a plaint  instituted for  recovery of mortgage amount. Accordingly it  held  that the  demand for payment of ad valorem court fee  was  unsus- tainable.  In the course of its judgment the Court  rejected the contention based on sub-section (6) of section 32 of the Act  which required a District Judge to apply the  procedure of the Code to applications made under section 31 of the Act and ultimately held that the substantive relief in any claim

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under  section  31(1) of the Act was something akin  to  the relief  that could be granted on an application for  attach- ment of property for execution of a decree at a stage poste- rior  to  the passing of the decree. The Court  further  ob- served  that "we are unable to appreciate the view taken  by the  High Court that the proceeding is not in the nature  of execution of the decree because the question of  enforcement of  the order of attachment or sale would only  arise  after the  same  is  made absolute under  sub-section  (7)."  Even though  in the above decision the question which  arose  for consideration  was whether ad valorem court fee was  payable on an application under section 31 of the Act as if it was a suit,  the Court has decided the said question after  deter- mining  the  true nature of a  proceeding  instituted  under section  31(1)  of  the Act on a detailed  analysis  of  the provisions of the Act.     If as held by this Court the proceeding instituted under section 31(1) of the Act is something akin to an application for  attachment  of property in execution of a decree  at  a stage posterior to the passing of the decree no question  of passing  any order under section 34 of the Code would  arise since section 34 of the Code would be applicable only at the stage  of  the passing of the decree and not  to  any  stage posterior to the decree. It may also be mentioned here  that even  under  the Code the question of  interest  payable  in mortgage suits filed in civil courts is governed by order 34 rule 11 of the Code and not by section 34 of the Code  which may  be applicable only to cases of personal decrees  passed under order 34 rule 6 of the Code. The High Court was  right in  holding that interest would be payable on the  principal amount  due  in accordance with the terms of  the  agreement between  the parties till the entire amount due was paid  as per  the order passed under section 32 of the Act.  We  hold that the decision of the Karnataka High 614 Court,  referred to above, which has applied section  34  of the  Code to a proceeding instituted under section 31(1)  of the Act is not correctly decided.     It was lastly urged on behalf of the appellants that the amount  due  and  payable to the Corporation  has  not  been properly  calculated by the Joint Judge. We do not have  all the material before us to enable us to determine the  actual amount  due. It is also seen that subsequent to the date  of the order passed by the Joint Judge a sufficiently long time has  elapsed.  In the circumstances we feel that  the  Joint Judge before whom the proceeding for recovery of the  amount by  sale  of the properties has been  instituted  should  be directed  to redetermine the amount due and payable  to  the Corporation in this case.     We  accordingly  affirm the judgment of the  High  Court holding that section 34 of the Code of Civil Procedure, 1908 is not applicable to this case but remand the matter to  the Joint Judge to redetermine the actual amount due and payable to the Corporation in these proceedings calculating the same as  per  contract between the parties before  directing  the sale of the properties. We direct the Joint Judge to  deter- mine  the amount payable by the appellants within one  month from the date of the receipt of a copy of the order of  this Court.  Both the parties are directed to file  their  state- ments  of  accounts before the Joint Judge within  one  week from  the date of receipt of the copy of this order  by  the Joint  Judge  to enable him to decide the case  as  directed above.     The  appeal  is accordingly disposed  of.  There  shall, however, be no order as to costs.

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P.S.S.                                      Appeal  disposed of.                                 1 ?615