IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6126 OF 2008 [Arising out of SLP(C) No.3146/2006]

STATE OF U.P. .......APPELLANT(S)  

Versus

HINDUSTAN UNILEVERS LTD. & ORS. .....RESPONDENT(S)

WITH

C.A. NO. 6127 OF 2008  (Arising out of SLP(C) No.25725/2008 @ CC.NO.3609/2006)

O R D E R

Leave granted.  Heard the learned counsel.

2. The  U.P.  Cooperative  Spinning  Mills  Federation  Ltd.  (hereinafter

'Federation', for short) invited applications for private placement of debenture bonds in

the  year  1998  representing  that  the  repayment  thereof  was  unconditionally  and

irrevocably  guaranteed  by  the  U.P.  Government.   The  State  Government  issued

Government Order dated 12.8.1998 guaranteeing the repayment of the principal and

interest in respect of debenture bonds issued by the U.P.  Cooperative Spinning Mills

Federation Ltd.   

3. Acting on the invitation for private placement of applications, and in view of

the guarantee by the State Government,  the  first  respondent  invested   Rs.15,00,000/-  

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(Rupees fifteen lakhs only) from the provident fund deposits  of its employees, in the

said bonds.  The Federation issued an allotment letter dated 25.12.1998 confirming that

the amount invested will carry interest @ 14.9% p.a. and the bonds will be redeemed at

the end of 48 months, 54 months and 60 months at the rate of 33%,  33%  and 34%

respectively.

4. The Federation sustained losses and went under liquidation. It did not redeem

the bonds as agreed and undertaken, inspite of demands.  The amounts due were not

paid except part payment of Rs.1,73,980/- and Rs.1,15,118/- in all Rs.2,89,098/- towards

interest.  As the amounts due under the bonds and interest were not paid by the State

Government in terms of  guarantee,  inspite  of  demand for payment,  the  respondent

approached  the  Delhi  High  Court  for  relief.   The  High  Court,  by  order  dated

21.11.2005,  directed  the  State  Government,  as  guarantor,  to  pay  the  sum  of

Rs.15,00,000/- (Rupees fifteen lakhs) with interest at the rate of 14.9% (the rate agreed

under the bonds) less amounts already paid.  The said order is challenged in these two

appeals by the State Government and the Federation.   

5. Though several contentions  were urged by the  State  Government and the

Federation,  when  the  matter  came  up  today,  the  learned  counsel  for  the  State

Government handed over a Pay Order for Rs.15,00,000/- (Rupees fifteen lakhs) to the

learned  

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counsel  for  respondent  towards  the  refund of  the  principal  amount.   In  regard to

interest, the learned counsel for the Federation and the State Government submitted that

as  the  Federation is  under liquidation and  as  the  State  Government  has  paid  the

principal amount,  the  respondent  should  be  relegated to  other remedies  in  law for

recovery of interest.   

6. Such a contention is not tenable.  The amount invested by first respondent

belongs to the workmen of first respondent.  The amount was invested in the bonds of

the Federation in view of the express guarantee by the State Government that the same

will be repaid with interest upto 15.5% p.a.  The very purpose of the State Government

guarantee is to ensure payment in case the Federation  was not able to make payment. In

the circumstances,  the fact that the Federation is in financial difficulties cannot be a

ground for the State Government to say that it will not make payment of interest, even

though it had guaranteed the repayment with interest. If such a contention is accepted,

the very purpose of the guarantee will be defeated.  We are indeed surprised that such a

plea is put forward on behalf of the State of Uttar Pradesh.

7. In the circumstances, we are of the view that the State Government should pay

the interest also.  However, on the facts and circumstances,  we  are  of  the  view that

interest  

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should be paid at the rate of 14.9%  p.a. for a period of five years from the date of

deposit and thereafter at the rate of 9.5%  per annum (which is equal to the minimum

rate of interest that is payable by the first respondent to its workers on the provident

fund dues). The above concession regarding interest is granted on the peculiar facts of

these appeals. Three months' time is granted to the Government of Uttar Pradesh to pay

the balance of interest.

8. Appeals are disposed of accordingly.  Parties to bear their respective costs.

  ...........................J.    ( R.V. RAVEENDRAN )

New Delhi;    ...........................J. October 15, 2008.           ( DR. MUKUNDAKAM SHARMA )