Judgment:
1. This appeal has been filed by the West Bengal Industrial Development Corporation Limited against the judgment and order of the learned single Judge dated 22nd January, 2008, whereby the learned single Judge allowed a recalling application, being G.A. No. 1939 of 2006, taken out by five of the six guarantors sued by the West Bengal Industrial Development Corporation Limited. While allowing the guarantors' application, the learned single Judge also dismissed the petition filed by the West Bengal Industrial Development Corporation Limited under Section 31(1)(aa) of the State Financial Corporations Act, 1951, by ASFC No. 3 of 2005.
2. Briefly stated, case of the appellants is that the appellant No. 1 had given financial assistance to the respondent No. 1, a private limited company. West Bengal Industrial Development Corporation Limited (hereinafter referred to as WBIDC) sanctioned and disbursed a term of loan of Rs. 55,00,000/-(Rupees fifty five lakhs) to the respondent No. 1, which was subject to the interest @ 14% per annum, for setting up of a gramophone record manufacturing plant.
3. The term loan agreement contained, inter alia, the terms and conditions of sanction, disbursement, interest, repayment, security and guarantee for the term loan which were executed by respondent Nos. 2 and 6, who were the Chairman and Managing Director of the respondent No. 1, respectively). The term loan was executed on 24th November. 1983.
4. The respondent Nos. 2 to 7 executed a deed of their personal guarantee on 24th November, 1983, in respect of the term loan availed by respondent No 1 By the said deed of guarantee, the aforementioned guarantors guaranteed to WBIDC that in case of any default on the part of the respondent No. 1 in repayment of the principal term loan or in payment of interest thereon and any other monies accrued thereon and covered under the terms of the loan agreement, the said respondents would, on demand, pay the said amount to WBIDC and would indemnify WBIDC.
5. On the failure on part of respondent No. 1 to pay dues of WBDIC, a notice under Section 29(1) read with Section 30 of the State Financial Corporations Act, 1951 (for short, 'the Act') was issued on 29th September, 1995, asking the respondent No. 1 to liquidate the dues within a stipulated period, but as the respondent No. 1 filed to liquidate its dues in accordance with the said notice, WBIDC took over all secured assets of the respondent No. 1 on 14th February, 1996.
6. After taking possession of the fixed assets of the respondent No. 1, WBIDC issued advertisement for sale of the assets in various newspapers on various occasions and ultimately the assets were sold to the highest bidder for Rs. 12,00,000/- (Rupees twelve lakhs). The assets were handed over to the highest bidder on 15th March, 2004.
7. After adjusting the sale proceeds of the fixed assets of respondent No. 1 amounting to Rs. 12,00,000/- (Rupees twelve lakhs) in the loan account of respondent No. 1, the WBIDC fixed liability upon the respondents as per the following particulars:
Principal : Rs. 36,03,000.00Interest and other charges : Rs. 7,01,48,411,00Total Rs. 7,37,51,411.00
8. Consequently, the WBIDC sent demand notices dated 7th June, 2005, invoking guarantee of respondent Nos. 2 to 7. By the said notices, WBIDC called upon the said respondents to pay the sum of Rs. 7,37,51,411,00/-, which sum of money was due and payable to WBIDC as on 31st March, 2005, within a fortnight from date of the notices.
9. Subsequently, WBIDC also filed an application before the learned single Judge under Section 31(1)(aa) read with Section 32(1A). Section 32(4A), Section 32(6) and Section 32(7)(da) of the Act. The following principal reliefs were claimed by WBIDC in their application filed before the learned single Judge, being ASFC No. 3 of 2005:
a) The liability of the respondent Nos. 2 to 7 as surety for the loan granted by the appellant No. 1 to respondent No. 1 be enforced, by selling the assets and properties of respondent Nos. 2 to 7 including those mentioned and described in schedule 'A' hereto;
b) A show cause notice be issued to the respondent Nos. 2 to 7 directing them to show cause as to why:
i) Their liability as surety for the Loan advanced by the appellant No. 1 to the respondent No. 1 be not enforced.
ii) Why their assets and properties including those mentioned in schedule 'A' hereto below be not sold and the sale proceeds thereof be not applied for protanto satisfaction of the claim of the appellant No. 1 against the said respondents.
c) After hearing the cause shown, if any, by the respondents the liabilities of the respondent No. 2 to 7 as surety in respect of the loan granted by the appellant No. 1 to the respondent No. 1 be enforced and their assets and properties including those mentioned and described in schedule 'A' hereto, be sold and the sale proceeds be applied for protanto satisfaction of the claim of the appellant No. 1 against the said respondents.
d) An order on the respondent Nos. 2 to 7 be passed directing them to disclose their assets and properties by an affidavit.
10. By an order dated 22nd March, 2006, a learned single Judge appointed Joint Receivers to sell the properties and assets mentioned in schedule 'A' to the said application. A subsequent order was passed on 19th April, 2006 modifying the earlier order of 22nd March, 2006.
11. Thereafter, the respondent Nos. 1, 2, 4, 5, 6 and 7 filed an application before the learned single Judge for recalling of the orders dated 19th April, 2006 and 22nd March, 2006. After hearing the parties, learned single Judge passed the order impugned, which is now under challenge before us.
12. Mr. Anindya Mitra, the learned senior counsel appearing on behalf of the WBIDC submitted that the notice issued by his client on 29th September, 1995, was a notice under Section 29(1) read with Section 30 of the Act, for recovery of loan. He submitted that although the guarantors were also addressees in the said notice dated 29th September, 1995, from a plain reading of the said notice it would be clear that it was only meant for the defaulter company, i.e. respondent No. 1 herein. In this regard, he drew our attention to the subject and following part of the notice dated 29th September, 1995:
Sub : Notice under Section 29(1) read with Section 30 of State Financial Corporations Act 1951 for recovery of loan.
As you have failed to comply with the terms of the contract with WBIDC Ltd. in the matter of the loan or advance made to you under the Agreements and Security Deeds since executed, the Corporation hereby exercise the rights given in the said deeds to call in the entire amount due and notice is hereby given under Section 30 of the State Financial Corporations Act 1951 requiring you to discharge your liabilities in full of Rs. 48,03,000/- (Rupees forty eight lakh three thousand) only towards principal, Rs. 1,41,98,383/- (Rupees one crore forty one lakh ninety eight thousand three hundred eighty three) only towards interest, calculated upto 31-8-1995 and Rs. 2,47,901/- (Rupees two lakh forty seven thousand nine hundred one) only towards other dues' making the total of Rs. 1,92,49,284/- (Rupees one crore ninety two lakh forty nine thousand two hundred eighty four) only to the Corporation and pay the said sum of Rs. 1,92,49,284/- (Rupees one crore ninety two lakh forty nine thousand two hundred eighty four) only with further interests, compound interest, all costs, charges, expenses and other monies in terms of the agreements and security deeds within 15 (fifteen) days from the date of this notice. In case of default, the provisions of the agreement and security deeds and those of the State Financial Corporations Act 1951 shall be enforced against you and further that in exercise of the right under Section 29(1) of State Financial Corporation Act 1951, a representative of this Corporation will attend your factory at 43/1 Asoke Shastri Road, Harinavi, Subhasgram, P.O. Sonarpur, Dist. 24 Parganas (South) West Bengal on or after 27th October, 1995 in between 11.30 a.m. and 3.00 p.m. to take possession of your factory without management and this Corporation will proceed to transfer the same by way of lease and/or sell the assets mortgaged/charged/hypothecated/with it by public auction or private treaty without any further reference to you.
13. He further submitted that notice of invocation of guarantee was issued on 7th June, 2005 against the respondent Nos. 2 to 7 and that so far as invocation of guarantee was concerned, the limitation started running from that date and not from 29th September, 1995, as has been held by the learned single Judge. He submitted that learned single Judge had failed to appreciate the distinction between Section 29 and Section 31 of the Act.
14. Mr. Mitra also submitted that the right of the Financial Corporation in terms of Section 29 of the Act must be exercised only on a defaulting party. According to him there cannot be any default, as is envisaged in Section 29, by a surety or a guarantor. He submitted that the liabilities of a surety or a guarantor to repay the loan of the principal debtor arises only when a default is made by the latter. In this regard, Mr. Mitra relied on a recent judgment of the Hon'ble Supreme Court in the case of Karnataka State Financial Corporation v. N. Narasimhaiah reported in : (2008) 5 SCC 176 : AIR 2008 SC 1797.
15. In the facts and circumstances of the instant case, he submitted that the notice issued on 29th September, 1995 could not be said to be a notice upon the guarantors since the Act itself provides for separate provision which could be invoked against a surety or a guarantor for repayment of loan of the principal debtor, but only when there was default on the part of the principal-debtor and not otherwise.
16. Mr. Pratap Chatterjee, learned senior counsel, appearing on behalf of the respondents, submitted that WBIDC could not press its claim against the guarantors since there was no live claim to be pursued. He submitted that the liability of a guarantor is co-extensive with that of the principal debtor. The debtor-company was called upon to discharge its debt by the notice dated 29th September, 1995, issued under Sections 29 and 30 of the Act. He further submitted that WBIDC's right to pursue the claim against the guarantors did not remain suspended following the issuance of the notice dated 29th September, 1995, under Section 29 of the Act, for a special notice to be issued on a subsequent date as the WBIDC chose, calling upon the guarantors to make good the claim or pay the amount not realized out of the sale of the principal-debtor's assets.
17. According to Mr. Chatterjee, WBIDC woke up in June, 2005 to raise demands on the guarantors, whereas cause of action arose on 29th September, 1995 or on the date the assets of the principal-debtor were taken possession of, upon its failing to pay and did not remain suspended till June, 2005, while WBIDC busied itself in selling the assets and adjusting the proceeds against its claim.
18. Mr. Chatterjee submitted that the notice dated 29th September, 1995 was addressed to the guarantors as well and therefore, it could not be argued by the appellants that the notice was not meant for the guarantors. Mr. Chatterjee has relied on the second paragraph of the notice dated 29th September, 1995 and submitted that the same could be read to imply that the demand was made on the guarantors along with the demand made on the principal-debtor. He further submitted that the letter dated 29th September, 1995 was not confined merely to WBIDC giving notice to the borrower that it would take over the hypothecated assets upon its demand not being met by the borrower within the time indicated. Relying on the notice dated 29th September, 1995, he submitted that the words therein indicate that it was also in exercise of powers other than those available to the Corporation under Section 29 of the Act, which powers included the creditor's general power to call upon the guarantor to repay the debt owing from the principal-debtor, as has been rightly held by the learned single Judge. He also submitted that the learned single Judge has rightly held that it was not as if the notice dated 29th September, 1995 was addressed to the borrower and the guarantors were marked copies thereof for their information. It was a demand made on the principal-debtor and the guarantors, which a creditor is entitled to make as the liability is co-extensive.
19. He has relied on a judgment of the Hon'ble Supreme Court in the case of Maharashtra State Financial Corporation v. Ashok K. Agarwal reported in : 2006 (9) SCC 617 : AIR 2006 SC 1584 and submitted that the Hon'ble Supreme Court in that case found that Article 137 of the Limitation Act was the applicable provision and dismissed the appeal on the ground that even though proceedings under Section 31 of the Act were akin to execution proceedings, by dint of a legal fiction, those were not execution proceedings stricto sensu.
20. We may point out at this stage that the judgment of the learned single Judge in this case was delivered on 21st January, 2008, whereas the judgment of the Hon'ble Supreme Court was delivered on 13th March, 2008 (reported in : AIR 2009 SC 1797). Therefore, Mr. Mitra had very fairly stated that the same could not have been brought to the notice of the learned single Judge. We are of the considered opinion that no useful purpose would be served by remanding the matter back to the learned single Judge for consideration of the latest judgment of the Supreme Court, as the issues raised in this case are squarely covered by the ratio of the aforesaid judgment.
21. In paragraphs 15 to 20 of the said judgment it has been held as follows (AIR 2008 SC 1797, paras 8 to 14):
15. A lender of money under the common law has the remedy to file a suit for realisation of the amount lent if the borrower does not repay the same. The Act, however, provides for a special remedy in favour of the financial corporation constituted thereunder enabling it to exercise a statutory power of either selling the property or take over the management or possession or both belonging to the industrial concern. Section 29, therefore, confers an extraordinary power upon the 'corporation'. It, being 'State' within the meaning of Article 12 of the Constitution of India, is expected to exercise its statutory powers reasonably and bona fide.
16. Apart from the said constitutional restrictions, the statute does not put any embargo upon the Corporation to exercise its power under Section 29 of the Act. Indisputably, the said provision was enacted by Parliament with a view to see that the dues of the corporation are realised expeditiously. When a statutory power is conferred, it is a trite law that the same must be exercised within the four corners of the statute. Power of a lender to realise the amount lent either by enforcing the charged and/or hypothecated or encumbrance created on certain property and/or proceeding simultaneously and/or independently against the surety/guarantor is a statutory right. Different statutes provides for different remedies. We may by way of example refer to Pawan Kumar Jain v. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. where a statutory mandate has been given to realise the dues from sale of the mortgaged properties and then to sell other properties of the borrower. We are, however, not concerned with such a situation.
17. Such a right can also indisputably be conferred by way of contract as has been provided for under Section 69 of the Transfer of Property Act in terms whereof a mortgagee is entitled to effect sale without the intervention of the Court, subject, of course, to the limitations prescribed therein.
18. If special provisions are made in derogation to the general right of a citizen, the statute, in our opinion, should receive strict construction. 'Industrial concern' has been defined under the Act. For the purpose of enforcing a liability of an industrial concern, recourse can be taken both under Sections 29 and 31 of the Act. Right of the corporation to file a suit or take recourse to the provisions contained in Section 32-G of the Act also exists.
19. The heading of Section 29 of the Act states 'Rights of financial corporation in case of default'. The default contemplated thereby is of the industrial concern. Such default would create a liability on the industrial concern. Such a liability would arise when the industrial concern makes any default in repayment of any loan or advance or any instalment thereof under the agreement. It may also arise when it fails to meet, its obligation(s) in relation to any guarantee given by the corporation. If it otherwise fails to comply with the terms of the agreement with the financial corporation, also the same provisions would apply. In the eventualities contemplated under Section 29 of the Act, the corporation shall have the right to take over the management or possession or both of the industrial concern. The provision does not stop there It confers an additional right as the words 'as well as' are used which confer a right on the corporation to transfer by way of lease on sale and realise the property pledged' mortgaged, hypothecated or assigned to the corporation.
20. Section 29 of the Act nowhere states that the corporation can proceed against the surety even if some properties are mortgaged or hypothecated by it. The right of the financial corporation in terms of Section 29 of the Act must be exercised only on a defaulting party. There cannot be any default as is envisaged in Section 29 by a surety or a guarantor. The liabilities of a surety or the guarantor to repay the loan of the principal debtor arises only when a default is made by the latter.
22. On consideration of the above observations, of the Hon'ble Supreme Court, there cannot remain any manner of doubt whatsoever that the liability of a surety or a guarantor to repay loan of the principal-debtor arises only when a default is made by the latter. From the relevant portion of the notice dated 29th September, 1995, quoted hereinbefore, it is clear that the subject-matter of the notice was for recovery of loan by invoking Section 29(1) read with Section 30 of State Financial Corporations Act, 1951, upon making a demand for payment of a sum of Rs. 1,92,49,284/- (Rupees one crore ninety two lakh forty nine thousand two hundred eighty four) with further interests, compound interest, all costs, charges, expenses and other monies in terms of the agreements and security deeds within 15 (fifteen) days from the date of notice. The demand was, therefore, specifically made and default had admittedly not occurred on the part of the 'industrial concern', as on date of the said notice, so as to enable WBIDC to invoke the provision of Section 31 of the Act for enforcing the liability of any surety.
23. In the circumstances, computation of limitation from 29th September, 1995, so far as the guarantors are concerned, cannot be sustained, in the light of the observations made by the Hon'ble Supreme Court in the later case of Karnataka State Financial Corporation : AIR 2008 SC 1797 (supra). We are, therefore, of the opinion that the judgment and order dated 22nd January, 2008 passed by the learned single Judge cannot be sustained in law is liable to be set aside and is hereby set aside.
24. Urgent xerox certified copy of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.