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CASE NO.: Appeal (civil)  721 of 2008

PETITIONER: National Textile Corpn. (DR & P) Ltd.

RESPONDENT: Bank of Rajasthan & Ors.

DATE OF JUDGMENT: 28/01/2008

BENCH: Dr. ARIJIT PASAYAT & P. SATHASIVAM

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No. 20337 of 2005) With

CIVIL APPEAL NO. 720 OF 2008 (Arising out of SLP (C) No.7681 of 2006)

Dr. ARIJIT PASAYAT, J.

SLP ( C) No. 20337 of 2006

1.      Leave granted.       2.      Challenge in this appeal is to the judgment of Learned  Single Judge of the Rajasthan High Court at Jaipur Bench  dismissing this Civil Writ Petition filed by the appellant.   

3.      Background facts in a nutshell are as follows:      The Sick Textile Undertaking Nationalisation Act, 1974  (in short the \021Act\022) became operative with effect from 1.4.1974.   One Textile Undertaking i.e. Mahalaxmi Mills Ltd. Bewar  vested in the Central Government under the Act.  The same  was transferred to the National Textile Corporation (in short  the \021Corporation\022) and thereafter to the present appellant  which is a Subsidiary of the Corporation i.e. National Textile  Corporation (Delhi, Punjab, Rajasthan) Ltd.  Appellant\022s stand  was that in terms of Section 3 of the Act, with effect from the  appointed date i.e. 1.4.1974, every sick textile undertaking  and the right title and interest of the owner in relation to such  textile undertaking stood vested absolutely in the Central  Government and in turn to the Corporation.  Section 4 of the  Act sets out the general effects of vesting.  Under Section 5 of  the Act, deals with the liability of the owner of the sick textile  undertaking and clearly provides that every liability other than  the liability specified in sub-section (2) of Section 5 of the  owner of a sick textile undertaking in respect of any period  prior to the appointed date was a liability of the owner and  shall be enforceable against him and not against the Central  Government or the Corporation.  On 25.5.1978, respondent- Bank filed claim before the Commissioner for Payment (in  short the \021Commissioner\022) raising demand of about Rs.34.72  lakhs. After examining the claim the Commissioner allowed  the claim to the extent of about Rs.21.22 lakhs i.e. the amount  outstanding against the owner on 31.3.1974 i.e. a day prior to  the appointed date.  The claim towards interest was rejected  by the Commissioner.  An appeal was also preferred by the  respondent-bank before the District Judge under Section 23 of

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the Act.  By order dated 20.8.1987 the District Judge held that  for a period subsequent to the appointed date liability would  be of the owner and held that respondent was entitled to  interest at the contractual rate for a period subsequent to  31.3.1974.  The matter was remanded to the Commissioner to  work out the details.

4.      The order was challenged before the Rajasthan High  Court.  The controversy was restricted to the question of  payment subsequent to 31.3.1974. The order was  unsuccessfully challenged before the High Court and this  Court.  The Commissioner passed an award for an amount of  about Rs.16.70 lakhs.  Again an appeal was preferred before  the District Judge wherein their stand was that the  Commissioner had not calculated the amount of interest as  per the earlier directions of the District Judge and the interest  was to be calculated on the basis of six monthly rest. The  District Judge allowed the appeal and again sent the matter  back to the Commissioner.  A revision was filed before the  High Court on the ground that the District Judge had erred in  awarding interest after 1.4.1974 on the liability of the  erstwhile owner overlooking the position of law as contained in  Sections 3, 4, 5 & 11.  A transfer petition was filed before this  Court with a request to stay further proceedings in different  High Courts as common points were urged.         5.      This Court by order dated 15.3.2004 directed the High  Court to follow the decision of this Court in Civil Appeal  No.2314 of 2000 and connected matters.  An application was  filed by one of the respondents in TP Nos.155-58 of 2004.   This court clarified that the matters pending in the High Court  would await the decision in which the issues arising for  decision are the same or similar to those involved in Civil  Appeal No. 2314 of 2000 on 21.7.2005.  The High Court  dismissed the writ petition as noted above. It was of the view  that the matters agitated before the High Court have already  been concluded by the High Court.       6.      In support of the appeal, Mr. G.E. Vahanvati, learned  Solicitor General, submitted that unfortunately there was no  appearance before the High Court because of some mis- understanding.  In any event the decisions of this Court in  State Bank of Indore v. Commissioner of Payment &  Ors.[2004(11) SCC 516] and in National Textile Coprn. (Guj.)  Ltd. v. State Bank of India & Ors. [2006(7)SCC 542] have not  been taken note of.       7.      Learned counsel for the respondent No.1-Bank on the  other hand submitted that the issue had attained finality and  therefore the High Court was justified in dismissing the writ  petition.       8.      In State Bank of Indore v. Commissioner of Payment &  Ors.[2004(11)SCC 516] the Bank had filed the appeal before  this Court. It was inter alia observed in the said case as  follows: \023A glance at the provisions of the Act,  extracted hereinabove, shows that by virtue of  Section 3 the right, title and interest of the  owner in sick textile undertakings stands  transferred to and vests in the Central  Government. Section 4 provides for the effect  of such vesting. It shows that the liability,  which vests in the Central Government, is only  liability specified under sub-section (2) of

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Section 5. This position is further clarified by  Section 5(1) which states that except for  liabilities mentioned in sub-section (2) of  Section 5 all other liabilities would continue to  be the liabilities of the owner of the sick textile  undertakings and shall be enforceable against  the owner and not against the Central  Government or the National Textile  Corporation. Thus by virtue of Section 5(1) the  remedy for recovery of any liability is against  the owner. Undoubtedly, the word \023liability\024  would include not just the loan amounts but  also the amounts due by way of interest of  such loan amounts.  Sub-section (2) of Section 5 specifies which  liabilities are taken over by the Central  Government. Sub-section (2)( a ) talks of loans  advanced by the Central Government or the  State Government. Thus, the legislature is now  making a distinction between the terms  \023liability\024 and \023loan\024. When the term \023loan\024 is  used it is specified that the loans would be  \023together with interest due thereon\024. The same  clarification can be found even in Section 5(2)(  b ). This indicates the intention of the  legislature. Thus even though the term  \023liability\024 includes liability for the interest  amounts also, the term \023loan\024 does not include  the interest amount unless specified otherwise  in the Act. This position is fortified by Section  9 wherein on the amounts paid to the owner  interest at the rate of 4% is also payable. Thus,  where the legislature wanted to specify that  certain amounts would carry interest, it has  done so specifically.    Section 21 provides that the amounts set out  in the Second Schedule are to be paid in  priority. The relevant portion of the Second  Schedule reads as follows:  \023THE SECOND SCHEDULE   (See Sections 21, 22, 23 and 27)

Order of priorities for the discharge of liabilities  in respect of a sick textile undertaking PART A   Post-Takeover Management Period Category I\027  (a) Loans advanced by a bank.   (b) Loans advanced by an institution other  than a bank.   (c) Any other loan.   (d) Any credit availed of for purpose of trade or  manufacturing operations.  Category II\027  (a) Revenue, taxes, cesses, rates or any other  dues to the Central Government or a State  Government.   (b) Any other dues.\024  Thus, the heading of the Second Schedule  provides \023priorities for the discharge of  liabilities\024. The term \023liability\024 as stated above  would include interest. It would include a loan.  It would also include credits availed of. It  would include revenue, taxes, cesses, rates

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and other dues. However, the payment in  priority is for a loan. The distinction in  language makes it very clear that what was to  be paid in priority was only the amount of the  loan i.e. the principal amount and not the  interest amount due thereon. Of course,  payments towards interest would remain  liabilities. But for recovery of that the remedy  would be to proceed against the owner/surety.  It is thus clear that the interest amounts are  not to be paid in priority under the provisions  of this Act. In this view, strictly speaking, even  interest up to 31-3-1974 was not payable in  priority. However, as the respondents have not  come up in appeal we see no reason to  interfere with that portion of the impugned  judgment which directs payments of interest  up to 31-3-1974. \023       9.      Again in National Textile Coprn. (Guj.) Ltd. v. State Bank  of India & Ors. (2006(7) SCC 542) after referring to State Bank  of Indore\022s case (supra) this Court observed as follows:   \024There exists a difference between a loan and  liability; whereas the principal amount would  come within the purview of priority claim,  claim of interest would not.    The High Court in its impugned judgment  relied upon State Bank of India v. Edward  Textile Mills Ltd. The said decision was  reversed by this Court in State Bank of Indore  v. Commr. of Payments, holding: (SCC p.   522,  paras 9-11)  \023Thus, the heading of the Second Schedule  provides \021priorities for the discharge of  liabilities\022. The term \021liability\022 as stated above  would include interest. It would include a loan.  It would also include credits availed of. It  would include revenue, taxes, cesses, rates  and other dues. However, the payment in  priority is for a loan. The distinction in  language makes it very clear that what was to  be paid in priority was only the amount of the  loan i.e. the principal amount and not the  interest amount due thereon. Of course,  payments towards interest would remain  liabilities. But for recovery of that the remedy  would be to proceed against the owner/surety.   This Court has in Industrial Finance Corpn. of  India Ltd. v. Cannanore Spg. and Wvg. Mills  Ltd. held that by virtue of the provisions of the  Act the liability of the principal debtor and that  of the surety does not come to an end. It is  held that if the compensation to be paid by  virtue of Section 21 and the Second Schedule  does not satisfy the full claim then the creditor  is not barred from filing a civil suit for the  balance. Further, in Punjab National Bank v.  State of U.P. it has been held that even though  mode of recovery, against a surety, may be  affected the liability of the principal debtor and  the guarantor does not get affected by the  provision of this Act. Not only are these  authorities binding us but we are in complete

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agreement with what is laid down therein.   It is thus clear that the interest amounts are  not to be paid in priority under the provisions  of this Act. In this view, strictly speaking, even  interest up to 31-3-1974 was not payable in  priority.\024        10.     We find that there was no appearance before the High  Court and, therefore, the relevance and applicability of the two  decisions presently relied upon had not been considered.         11.     We, therefore, set aside the impugned order and remit  the matter to the High Court to hear the matter afresh and  decide the matter in the light of what has been stated in State  Bank of Indore\022s case (supra) and State Bank of India\022s case  (supra).  It is made clear that the parties shall be permitted to  place materials in support of their respective stand.    SLP(C) No.7681 of 2006 12.     Leave granted.       So far as this appeal is concerned, the matter has been  remanded to the Commissioner by the impugned order of the  Bombay High Court at Nagpur Bench. It is needless to  highlight that the Commissioner while deciding the issues  afresh shall keep in view the decisions in State Bank of  Indore\022s case (supra) and State Bank of India\022s case (supra).       13.     Both the appeals are accordingly disposed of. No costs.