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Judgment
G.M. Akbar Ali, J.—Civil Miscellaneous Appeal filed against the order and decree dated 27.7.2010 passed by the learned Additional
District Judge, Krishnagiri in SFCOP No. 27 of 2004. State Industries Promotion Corporation of Tamil Nadu limited, hereinafter referred to as
SIPCOT is the appellant. The first respondent was sanctioned a term loan in the year 1982 and an interest free sales tax loan in the year 1987. The
first respondent executed the loan documents and the respondents 4 and 5 guaranteed the repayment of the loan.
However, the loan was not repaid and on 25.1.1991, the SIPCOT issued foreclosure notice. On 30.4.1996, the SIPCOT invoked the powers
under Sec. 29 of the State Financial corporation Act (hereinafter called SFC Act) and took possession of the factory and mortgaged property.
The property was sold and the sale amount was appropriated.
Still there was a balance of a sum of Rs. 4,89,14,379/- payable by the borrower. Therefore, SIPCOT filed a petition under Sec. 31(1)(aa) of
SFC Act before the District Court, Krishnagiri. It was numbered as SFC O.P. No. 27 of 2004.
The respondent/borrowers contested the claim and the main contention was that the claim made under Sec. 31(1)(aa) of the SFC Act is barred
by limitation. The District Court considered the point whether the petition is barred by limitation. SIPCOT relied on various judgments of High
Courts and the Hon''ble Supreme courts stating that the petition filed under Sec. 31(1)(aa) is neither a claim nor a suit but only an execution
petition and therefore, not barred by limitation.
The respondent also relied on various case laws and ultimately, the learned District Court, Krishnagiri found that the claim made by the SIPCOT
is barred by limitation and dismissed the original petition. Aggrieved by which the present appeal.
The main point for consideration in this appeal is whether the claim of the SIPCOT is barred by limitation and also whether the petition filed
under Sec. 31(aa) is a suit or plaint or the petition filed for execution and sale of guarantor''s properties towards the realisation loan. Since the
borrowing, execution of documents, guaranteeing the repayment and foreclosure in the year 1987 are admitted, they are not discussed.
Before proceeding to the question on hand, the brief facts of the case are as follows:
The respondents had availed term loan from the appellant and created an equitable mortgage on 4.9.1985. The respondents 2 to 5 have executed
a deed of personal guarantee on 4.9.1985. On 28.1.1986, an interest free sales tax loan was granted and the respondents 2 to 5 have executed a
deed of personal guarantee on the same day. As there was default in repayment and breach of agreement, the appellant foreclosed the loan on
18.11.1991. On 30.4.1996, exercising the power conferred under Sec. 29 of SFC Act, possession of the mortgaged assets of the Industry were
taken and the mortgaged assets were sold and a sum of Rs. 41,00,000/- was realised.
Even after crediting the sale proceeds, a sum of Rs. 4,89,14,379/- was due and payable as on 28.2.2003. To realise the same, an application
under Sec. 31(1)(aa) of the Act was filed against the guarantors on 30.3.2002.
According to the respondents, the application ought to have been filed within three years from 30.4.1996 when the appellant had taken
possession of the mortgaged assets and realised the sale proceeds and filing an application after 6 years is barred by limitation.
According to the appellants, a relief under Sec. 31(1)(aa) of SFC Act is in the nature of execution and therefore, Art. 136 of the Limitation Act
applies.
Mr. A.L. Somayaji, learned Advocate General, appeared for Mrs. Narmada Sampath, counsel for the appellant. The learned Advocate
General traversed through the Secs. 29,31 and 32 of the SFC Act. The learned Advocate General pointed out that SFC Act is a special
enactment which authorises a State Financial Corporation to realise the loan advanced by enforcement of special privileges against the borrowers.
The learned Advocate General pointed out that under Sec. 29 of the Act, the Financial Corporation can take over the management of the
industry or effect sale of the mortgaged property to recover the advance amount. According to him, under Sec. 31, special provisions are made to
approach the District Court for various reliefs including enforcing the liability on any surety and under Sec. 32 the District Court, apart from
prevailing interim orders, can pass final orders of attachment and sale, which includes the property of the surety or guarantor.
Main thrust was given for sub clause 8 of Sec. 32 of SFC Act which would provide that attachment or sale of property is in the manner
provided in the CPC code as that of execution of a decree.
The learned Advocate General relied on the following case laws:
(i) Rajasthan Financial Corporation Vs. Banwari Lal and Others,
(ii) Tamil Nadu Industrial Investment Corporation Ltd. Vs. Tvl. Trinity Music Recorders and 2 others,
(iii) Maganlal Vs. Jaiswal Industries, Neemach and Others,
(iv) Karnataka State Industrial Investment and Development Corporation Ltd. Vs. Cavalet India Ltd. and Others,
v) Gujarat State Financial Corporation Vs. Natson Manufacturing Co. Pvt. Ltd. and Others,
vi) Order in OP No. 869 of 2010 dated 13.2.2013
On the other hand, Mr. E. Om Prakash, the learned counsel who appeared for M/s. Ramalingam Associates, the counsel for the second
respondent would submit that the relief claimed under Sec. 31(1) is deemed to be a plaint and a decree to be passed under Sec. 32 is an
enforceable decree and therefore, Art. 137 of the Limitation Act is attracted, wherein, the period of limitation is only three years.
The learned counsel relied on the following case laws:
Maharashtra State Financial Corporation Vs. Ashok K. Agarwal and Others,
State Industries Promotion Corporation Vs. Hannic Aromatics Ltd., .
Heard and perused the materials available on record.
As stated earlier, the object of SFC Act is very clear and under the Act, the financial corporations have special privileges in the matter of
enforcement of its claims against borrowers.
The relevant provisions of the State Financial Corporations Act are,
The object of the Act is to provide for the establishment of State Financial Corporations which in turn could provide medium and long term credit
facilities to the industrial undertakings with a special privileges in the matter of enforcement of its claim against the borrowers. Therefore, SFC Act
is a self contained Act which governs the state financial corporations like SIPCOT.
Under Sec. 25 of SFC Act, the financial corporations may grant loan or advances with the other activities of the business.
Sec. 29 deals with the Rights of Financial Corporation in case of default. Among other rights, the financial corporation shall have the right to take
over the management or possession of the industry, as well as the right to transfer by way of lease or sale and realise the property pledged,
mortgaged, hypothecated or assigned to financial corporation.
Sec. 31 deals with special provision for enforcement of claim by financial corporation. Under this provision, if there is any default in repayment of
loan, the financial corporation may apply to the District Judge under whose jurisdiction the industry carries on its business for one or more of the
following reliefs viz.,
(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any installment thereof (or
in meeting its obligations in relation to any guarantee given by the Corporation) or otherwise fails to comply with the terms of its agreement with the
Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance u/s
30 and the industrial concern fails to make such repayment, (then, without prejudice to the provisions of section 29 of this Act and of section 69 of
the Transfer of Property Act, 1882 (4 of 1882), any officer of the Financial Corporation, generally or specially authorised by the Board in this
behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its
business for one or more of the following reliefs, namely:-
(a) for an order for the sale of property pledged, mortgaged, hypothecated or assigned to the (Financial Corporation) as security for the loan or
advance; or
(aa) for enforcing the liability of any surety; or
(b) for transferring the management of the industrial concern to the Financial Corporation;
Sec. 32 deals with the Procedure by the District Judge. This section provides both for passing of interim orders as well as final orders.
Nowhere in this Act, the limitation is provided either for relief under Sec. 29 or under Sec. 31. However, sub. clause 9 to Sec. 31 would state
that any aggrieved party by an order under sub section 4(A), 5 or sub section 7 may within 30 days from the date of order, appeal to the High
Court.
While enforcing such privileges, the Act provides the right under Sec. 29 for the financial corporations to take over the management or
possession of the industrial concern. This right has already been exhausted by the appellant corporation.
It is well settled that power conferred under Sec. 29 of SFC Act is intended to achieve the object of the Act. Similarly, the power under Sec.
29 is available irrespective of the mechanism provided under Sec. 31 of the Act.
Sec. 31 provides special provision for enforcement of claims by financial corporation. The difference between proceedings under Sec. 29 and
31 of the SFC Act is that under the former, the corporation can directly take action either for possession or sale of the property mortgaged by the
borrower and there is no specific provision to proceed against the property of the surety or guarantor. On the other hand under Sec. 31(1) the
financial corporation has to approach the District Judge for the same relief as provided under Sec. 29 but by filing an application.
Under sub clause 2 to Sec. 31 such application shall state the nature and extent of the liability of the industries concerned and the ground on
which an application is made.
Initially, the relief against the surety or guarantor was not provided but the Act was amended by Act 43 of 1985 with effect from 21.8.1985.
31(1)(aa) provided a relief for enforcing the liability on any surety which includes a personal guarantee.
Filing an application under Sec. 31(1) of the Act was under the consideration before the Hon''ble Supreme Court in the case of Gujarat State
Financial Corporation Vs. Natson Manufacturing Co. Pvt. Ltd. and Others, . The question before the three Judges Bench in the Hon''ble Supreme
Court was whether an application filed under the said provision is a suit or plaint and whether ad valorem court fee is attracted.
The Hon''ble Supreme Court analysed Sec. 31(1) of the Act and in paragraph-13 has held
13...The substantive relief in an application u/s 31(1) 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. We are unable to appreciate the view taken by the High Court that the proceeding is not in the nature
of execution of a 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). One has to look at the whole conspectus of provisions in Section 32 coupled with the nature of relief sought u/s 31(1) and it
becomes clear that special provision is made for certain types of reliefs that can be obtained by a Corporation by an application u/s 31(1) which
could not be styled as substantive relief for repayment of mortgage money by sale of mortgaged property. Nor can it be said to be a proceeding to
obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss. The form of the application, the nature
of the relief, the compulsion to make interim order, the limited enquiry contemplated by sub-section (6) of Section 32 and the nature of relief that
can be granted and the manner of execution clearly show that the application u/s 31(1) is neither a plaint as contemplated by Article 1 of Schedule
I nor an application in the nature of a plaint as contemplated by Article 7 of Schedule I of Court-Fees Act.
Sec. 31(1) and Sec. 32 of the Act were again considered by the Apex Court in the case of Maganlal Vs. Jaiswal Industries, Neemach and
Others, . The decision rendered in Gujarat State Financial Corporation, Everest Industrial Corporation were considered. In Paragraph-28 the
Apex Court considered sub Section 8 of Sec. 32 and held as follows:
We shall first deal with the scope and import of the expression as far as practicable and in execution of a decree as if the Financial Corporation
were the decree holder used in sub-section (8) of Section 32 of the Act. Without anything more the expression as far as practicable will mean that
the manner provided in the Code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision
therein which may not be practicable to be applied. It will be for the person asserting that a particular provision with regard to execution of a
decree for a sale of an immovable property contained in the CPC will not apply to execution of an order u/s 32 of the Act on the ground that it
was not practicable to show as to how and why it was not practicable. As regards the second expression namely in execution of a decree as if the
Financial Corporation were the decree holder it may be pointed out that even though an order u/s 32 as seen above is not a decree stricto sensu as
defined in Section 2(2) of the Code and the Section 32(8) of the Act imports a legal fiction whereby the order u/s 32 of the Act for the purposes
of execution would be a decree and the Financial Corporation a decree holder. Apparently, the person against whom such decree has been
executed namely the debtor of the Financial Corporation would be the judgment debtor.
In paragraph -30, it is further held
As is apparent from the plain language of Section 32(8) of the Act the legal fiction was created for the purpose of executing an order u/s 32 of
the Act for the sale of attached property as if such order was a decree in a suit for sale and the Financial Corporation was the decree holder
whereas the debtor was the judgment debtor. Consequently, the provisions of the CPC with regard to execution of a decree for sale of mortgaged
property contained in Order XXI of the Code including the right to file an appeal against such orders passed during the course of execution which
are appealable, shall apply mutatis mutandis to execution of an order u/s 32 of the Act unless some provision is not practicable to be applied.
The question of limitation was raised before a learned single Judge of this court reported in Tamil Nadu Industrial Investment Corporation Ltd.
Vs. Tvl. Trinity Music Recorders and 2 others, . This court referred the case of Maganlal vs. M/s. Jaiswal Industries, Neemach and others
reported in Maganlal Vs. Jaiswal Industries, Neemach and Others, and observed thus:
11...It is stated that where an application is filed by State Financial Corporation u/s 31(1) for enforcing the liabilities of the sureties which are co-
extensive with the principal debtor who did not make the repayment of loan, the substantive relief sought in the application is like the relief sought in
an execution proceedings. Hence, it cannot be treated as a plaint and it would not be barred by limitation provided under Article 137 of Limitation
Act. These decisions are applicable to the case on hand.
and ultimately held, Petitioner Corporation is entitled to claim the amount and the claim is also not barred by time
The same view was taken by a learned Single Judge of this Court in OP No. 869 of 2010 by order dated 13.2.2013. The learned Single
Judge after referring the cases of Tamil Nadu Industrial Investment Corporation Ltd. Vs. Tvl. Trinity Music Recorders and 2 others, and Maganlal
Vs. Jaiswal Industries, Neemach and Others, and Rajasthan Financial Corporation Vs. Banwari Lal and Others, and held that the application
under Sec. 31(1) is an execution proceedings and therefore Art. 136 is applicable where it is 12 years for execution of a decree and held that the
claim is not barred by limitation.
On the other hand, in Maharashtra State Financial Corporation Vs. Ashok K. Agarwal and Others, , the Hon''ble Supreme Court again
considered the case of Gujarat State Financial Corporation reported in Gujarat State Financial Corporation Vs. Natson Manufacturing Co. Pvt.
Ltd. and Others, reported in Everest Industrial Corporation and Others Vs. Gujarat State Financial Corporation, and Maganlal Vs. Jaiswal
Industries, Neemach and Others, and observed that Art. 137 is applicable whereby the limitation is only three years. The court held as follows:
Sections 31 of the Act contains special provisions for enforcement of claims by State Financial Corporations. It is by way of a legal fiction that
the procedure akin to execution of decrees under the CPC has been permitted to be invoked. But one cannot lose sight of the fact that there is no
decree or order of a civil court when we are dealing with applications u/s 31 of the Act. The legal fiction at best refers to a procedure to be
followed. It does not mean that a decree or order of a civil court is being executed, which is a sine qua non for invoking Article 136 . The
proposition set out in the case of Everest Industrial Corporation and Others Vs. Gujarat State Financial Corporation, . Again in Maganlal Vs.
Jaiswal Industries, Neemach and Others, this court noticed that an order u/s 32 is not a decree stricto sensu as defined in Section 2(2) of the Code
of Civil Procedure, the financial Corporation could not be said to be a decree holder. This makes it clear that while dealing with an application
under Sections 31 and 32 of the Act there is no decree or order of a civil court being executed. It was only on the basis of a legal fiction that the
proceedings u/s 31 are treated as akin to execution proceedings. In fact this Court has observed that there is no decree to be executed nor there is
any decree holder or judgment debtor and therefore in a strict sense it cannot be said to be a case of execution of a decree. Article 136 of the
Limitation Act has no application in the facts of the present case. Article 136 specifically uses the words decree or order of any civil court
Article 137 of the Limitation Act applies in the facts of the present case. When Article 137 is applied, the application moved by the appellant-
Corporation on 2nd January, 1992 for proceeding against the sureties i.e., the respondents herein, was clearly barred by time and the courts below
were correct in holding so. To recall the facts of the present case, the notice demanding repayment of the amount of loan was issued against the
borrower, that is, M/s. Crystal Marketing Private Limited on 8th March, 1983 and the application under Sections 31 and 32 of the State Financial
Corporation was filed against the said borrower on 25th October, 1983. The liability of sureties had crystalised then.
Following the said judgment, a learned Single Judge of this Court, where the appellant corporation is a party, reported in State Industries
Promotion Corporation Vs. Hannic Aromatics Ltd., , held as follows:
In view of the authoritative pronouncement by the Hon''ble Supreme Court, the law laid down by this Court in Tamil Nadu Industrial
Investment Corporation Ltd. Vs. Tvl. Trinity Music Recorders and 2 others, and law laid down by the Hon''ble Rajasthan High Court in Rajasthan
Financial Corporation Vs. Banwari Lal and Others, , cannot be said to be good law.
The decision reported in Gujarat State Financial Corporation Vs. Natson Manufacturing Co. Pvt. Ltd. and Others, cited by the learned
Advocate General is not directly answering the question whether Article 136 or Art. 137 of the Limitation Act is attracted. It only clarifies the
position that an application filed under Sec. 31(1) is neither a plaint nor an application the application u/s 31(1) is neither a plaint as contemplated
by Article 1 of Schedule I nor an application in the nature of a plaint as contemplated by Article 7 of Schedule I of Court-fees Act.
In Maganlal Vs. Jaiswal Industries, Neemach and Others, , is directly on the point whether sec. 31(1) is an execution proceedings. However,
the Court would point out that an order under Sec. 32 is not a decree stricto sensu, but sec. 32 sub clause 8 imports a legal fiction that an order
would be a decree and the Financial Corporation is a decree holder.
This was followed by the learned Single Judge in the case of Tamil Nadu Industrial Investment Corporation Ltd. Vs. Tvl. Trinity Music
Recorders and 2 others, and followed Maganlal'' case reported in Maganlal Vs. Jaiswal Industries, Neemach and Others, and another unreported
judgment of a learned Single Judge in OP No. 869 of 2010 dated 13.2.2013.
However, Maharashtra State Financial Corporation''s case, cited supra, categorically holds, that too, after referring Maganlal''s case, that while
dealing with an application under Sec. 31 and 32 of the Act, there is no decree or order of the civil court being executed. When that being the
authoritative pronouncement of the Hon''ble Supreme Court, as followed by the learned Single Judge of this Court reported in State Industries
Promotion Corporation Vs. Hannic Aromatics Ltd., , where the appellant corporation itself is a party, this Court has to follow the ratio laid down
in the cases of Maharashtra State Financial Corporation Vs. Ashok K. Agarwal and Others, and State Industries Promotion Corporation Vs.
Hannic Aromatics Ltd., to hold that Art. 137 of the Limitation Act applies and the proceedings against the sureties in the year 2003 was clearly
barred by limitation and the court below is correct in holding so. In the result, Civil Miscellaneous Appeal is dismissed. No costs.