B.B. Bahl    

By Shri S.K. Sharma, Deputy General Manager, Delhi Financial Corporation.   

State Financial Corporations Act, 1951 - order of recovery U/s 31 becomes final. Failure to reschedule the loan by the Corporation dose not entail the penal consequence of losing the right to recover interest granted by the Court U/s 31 of the Act. Loan recovery of Court not empowered to compel a creditor to forgo part of its claim of interest on ground of hardship to a debtor in financial institutions such adjustment should be left to parties to settle the matter in the best interst or exigencies of business.    

Facts of the case    

The Delhi Financial Corporation advanced a loan of Rs. 14.75 lakhs to the respondent for construction of hotel on plot No. 22, sector 26, Chandigarh. The loan amount together with interest @6% P.A. over the bank rate subject to a minimum of 15% which was to be scaled down by way of rebate of 1.5 per cent in case of prompt payment of principal amount and interest and was to be increased by 1.5 per cent per annum in case of default, was payable in twenty one half yearly instalments commencing from July 15, 1982. The repayment of loan and interest thereon was secured by mortgage of properties under registered mortgage deed executed by the respondent on September 20,1980. On the ground that the respondent committed breach of terms of the agreement, the DFC recalled the loan and demanded Rs. 17,66,038.46 p. along-with interest by issuing a registered notice on Feb. 21, 1983.    

The DFC followed the notice by filing an application u/s 31 of the State Financial Corporations Act. 1951 before the Additional District Judge, Chandigarh. On April 2, 1985, the learned Additional District Judge passed the order of recovery directing the respondent to pay Rs. 17,07,466.28 p. together with future interest at the rate of 17.5% p. a. from the date of the application till realization. Not satisfied with obtaining the said order of recovery of the amount under Section 31 of the SFCs Act, the DFC issued notice U/s 29 of the SFCs Act.   

The respondent was also indebted to the United Bank of India. On October 18, 1986 the civil court which was trying the suit filed by the Bank against the respondent on considering the statements made by the Counsel for the parties before it, restrained the DFC from selling the mortgaged properties except with the permission of the Court and directed the respondent to continue to pay Rs. 45.000/- per month till the rescheduling of the loan and thereafter as per the arrangement, under the re-scheduling of the loan.   

DFC initiated proceedings U/s 29 of SFCs Act to take possession of the mortgaged properties on May 3, 1990. The action of the Corporation was challenged by Sh. B. B. Bahl in the High Court of Punjab and Haryana by filing a writ petition. On September 28, 1992, the High Court disposed of the writ petition holding that the Corporation could not invoke sec. 29 of SFCs Act till the rights u/s31 were exhausted and directed it to re-schedule the loan. Sh. B. B. Bahl was also directed to deposit a sum of Rs. three lakhs. The order of the High Court was unsuccessfully challenged in the special leave peition before this Court. While dismissing the special leave petition No. 3DD/93 on 15.02.1993 this Court left it open to the Corporation to approach the civil court for modification of the decree to re-schedule the loan.   

The Corporation re-scheduled the loan in March, 1993. The Corporation, then filed an application in the court of Additional District Judge for executing the order of recovery of the decretal amount. On May 10, 1993, the Executing Court ordered the sale of mortgaged properties and issued a notice to the United Bank of India on the execution petition. But on the application of the respondent, Sh. Bahl, the Executing Court stayed auction of the mortgaged properties by an order dated June 3, 1993. Having failed in the Executing Court to have the stay of the sale vacated, the Corporation filed revision petition before the High Court which was disposed of by the judgment and order dated November 21, 1995. Aggreived by this decision, the Corporation preferred an appeal in the Apex court.   

Issue I   

Whether in revision arising out of execution proceedings, the High Court ought to have modified the decree by changing rate of interest for some period and waiving interest for the period when the loan was not rescheduled?   


    Held - No   

The relationship between the appellant and the respondent is one of the creditor and the debtor and that the transaction of advancing loan is governed by the terms of the Agreement. But we need not refer to the terms of the agreement to work out rights and obligation of the parties because in the proceedings initiated under section 31 of the SFCs Act, the learned Additional District judge, Chandigarh, passed the order of recovery. That order of recovery has become final. The revision petition which was filed before the High Court by the respondent arose not out of the said order of recovery but out of the order staying sale of the mortgaged properties passed in the execution proceedings of the said order. Therefore, it was not open to the High Court to work out the amount of loan due and payable by the respondent as Rs. 15,75,000/- as against the figure mentioned in the order of  recovery. So also the High Court was not justified in reducing the rate of interest to 10-½ per cent from 17-½ per cent mentioned in the order of recovery for the period (a) from July 16, 1982 to March 20, 1986, (b) from March 22, 1993 to June 30, 1994 and July 1, 1994 to November 30, 1995, and (c) to waive the interest for the period from March 21, 1986 to March 22, 1993, the date of re-scheduling of the interest. The Corporation is also not entitled to claim compound interest on the decretal amount due because it is evident from the order of recovery that the learned Additional District Judge, Chandigarh awarded interest at 17-½ per cent per annum which can only mean simple interest and not compound interest.   

Issue II   

Whether failure to reschedule the loan would result in losing the interest by the appellant Corporation.   

     Held - No   

The failure to re-schedule the loan by the Corporation does not entail the penal consequence of losing the right to recover the interest granted by the Court for that period in the order of recovery passed under Section 31 of the SFCs Act. There can be no doubt that the Corporation was bound to re-schedule that loan for repayment of  the amount mentioned in the order of recovery in view of the order of  the High Court in the writ petition and of this Court in the special leave petition. But the said order of recovery u/s 31 of SFCs Act, 1951 was not subject to re-scheduling of loan and there was no direction in the order of the High Court in the writ petition that the delay or default in re-scheduling would result in losing the interest by the Corporation. Further there was also no such direction in the order of this court passed in the special leave petition. Therefore the only relief that the respondent could justifiably claim is that during the period the re-scheduling of the loan was not attended to by the Corporation, the recovery proceedings should be suspended and sale of mortgaged property should not be proceeded with.   

The Supreme Court has made certain observations which are in the form of OBITER DICTUM to the contentions raised by the counsel for the respondent.   

The courts are not empowered to compel a creditor to forgo a part of its claim of interest on the ground of hardship to a debtor. In financial transactions such adjustments should be left to the parties to settle the matter in the best interest or exigencies of the business. The appellant is a statutory financial institution which carries on its activities by borrowing amounts so a direction of such a nature will upset its financial equilibrium and land it in a financial crisis making it non viable.