Gujarat State Financial Corporation v. M/s. Natson Manufacturing Co. (P) Ltd. & Ors.

Judgment

CIVIL APPELLATE JURISDICTION : Civil Appeal No. of n 1977. Appeal by Special Leave from the Judgment and Order dated 5-4-1977 of the Gujarat High Court in Civil Revision Application No. 847 of 1975. · Soli J. Sorabjee, Addi. Sol. General and P. H. Parekh for . the Appellant. D. V. Patel, Badri Das Sharma and M. N. Shroff for Respon~ dent No. 5. The Judgment of the Court was delivered by·· 0 · DESAI, J. This appeal by special leave raises narrow but interesting ··question' on the nature of proceedings under.· section 31 ' and 32 o~ the State Financial Corporations Act, ('Act' for short)· which has a direct impact on the question of court fees to be paid on an appl;cation that may be made under s. 31 of the Act. The question arose in the context of the following facts : The State of Gujarat set up the Gujarat State Financial Corpcra- E . tion ('Corporation' for short), the appellant herein, under s. 3 of the Act.

The Corporation was set up inter alia for granting or guaranteeing the loans to be raised by industrial concerns either from· scheduled . banks or State co-operative banks or those floated in the public market. The Corporation guaranteed numerous such loans, advanced to the industrial concerns· in the State of Gujarat on certain terms and conditions agreed between the parties. When the industrial concern defaults in repayment of foan or fails to comply with the terms of the agreement the Corporation is entitled to make an application to the .District Judge. withiu the limits of whose jurisdiction the · industrial concern carries on· the whole or substantial part of its business for one or more of the reliefs set out in s. 31 (1) of the Act. The Corporation appears to have made· applications purporting to be under s. 31 ( 1) of the Act in various District Courts in the State of · Gujarat against different industrial concerns.

A qnestion was raised in the District Courts about the proper court fee payable on · such applications. The Corporation contended that the application would be governed by Article 1 ( c) of Scl)edule II of the Bombay Court ·.JI Fee Act, 1959, and a fixed court fee in the amount of 65 paise would be payable in· respect of the application. On the other hand, the State contended that application would be governed either by · G. s. F. c. v. NATSON MANU. co. (Desai, I.) 375 - Article I of Schedule I or al any rate by Article 7 'of 'Schedule I a;1d · A the court fee payable would be ad ·'valoreni on the amount of value of the subject matter in dispute or on the amount of the monetary gain or Joss to be prevented aceording to the scale prescribed under Article I of Schedule I. It appears that except for tbe Dist!. Judge, Broach, all other District Judges accepted the contention on behalf of the State. -The Dist!. Judge, Broach was of the opinion that the application unde s.

31 ( 1) . was in the nature of an execution application and it would be governed by Article -1 ( c )' of Schedule II. The Corporationpreferred ieVisioii applications to the High Court questioning tl1e correctness of the_ decisions directing levy of od valorem court fee. The State of Gujarat also preferred a, revision application against the decision of the Distt. Judge, Broach holding that the application under s. 31(1) of the Act was in the nature of an execution application. The High Court by a common ju_dgment held that the application under s. 31 (1) should bear ad valorem court fee. In reaching this conclusion the High Court treated the application under s. 31 ( 1) of the Act on par with a suit by a mortgagee to enforce tbe mortgage debt by sale of the mortgaged property whioh is being treated as a money suit falling within the purview of Article I of Schedule I. Alternatively, it was held that even if the application under s.

31 (I) is not a plaint within the meaning of Article 1 of - Schedule I, it would fall within the purview of Article 7 of Schedule I which provides an ad va/orem court fee on an application made for obtaining substantive relief which is capable of being valued ill terms of monetary gain or prevention of -monetary loss because !o all intents and purposes the application ·is one for -recovery of the outstanding· claim of the Corporation. In accordance with these findings the. revision applications preferred by the Corporation were dismissed and the· one preferred by the State was allowed. . Mr. Sorabjl, learned counsel who appeared for the appellant Corporation contended that the view taken by the learned Judge of , the High Court that on an analogy the application under s.

31 (1) by the Corporation is akin to a suit by a mortgagee to enforce his mortgage debt by sale of mortgaged property and, therefore, inoney suit, falling within th~ purview of Article 1 of Schedule I of the Bombay Court Fee Act, 1959, or the observation that the substantive relief claimed in the application is one .which is capable of being value in terms of monetary gain or prevention of monetary loss and would attract Article _ 7 of Schedule I, is not correct The- State Financial Corporations Act, 1951, was enacied by the Parliament with a view to enabling the State Go,•ermnents to establish a Financial Corporation for enhancing the pace of industrialisa- -· II (1979] J S.C.R. lion by providing credit on easy term5 for setting up industrial concerns and/ or for expanding the activities of the existing industrial concerns.

Section 25 enables the Financial Corporation to carry on and transact any of the business -set out therein which includes guaranteeing on such terms and conditions as may be agreed upon (i) loans raised by industrial concerns which are. repayable within a period not exceeding 20 years and are floated in the public market; or (ii) 'Joans raised by industrial concerns from scheduled banks or State Co-operative Banks. It can also underwrite the issue of stock, _ shares, bonds or debentures by an Industrial concern. The Corporation can either guarantee the loan raised by the industrial concern or may even grant itself a loan on such terms and conditions a• may be agreo..,d upon between the Corporation and the industrial concern.

Section 29 confers upon Financial Corporation, in case of default by industrial concern,. the right to take over. the management or possession or both of the industrial concern as well as the· right to transferby way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation, 'and any transfer of property· made by the Corporation in exerci,5e of the power conferred by s. 29 shall vest in it all rights in or to th~ property transferred as if the transfer had been _made by the owner of the property. The relevant two sections with which we are concerned m this appeal are ss. 31 and 32. Section 31 provides as under:- "31. ( 1)

Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment 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 under section __ 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, 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 the property pledged, . mortgaged, hypothecated or assigned to the - I- .. ·.

I . G. s. F. c. v. NATSON MANU"' co. (Desai, l.) -· Financial Corporation as security for the loan or advance;· or (b) for transferring the management of the industrial concern to'. the · Financial Corporation; . or 'cc) for an ad. interim injunction restraining the· indnstrial ·concern from transferring or removing its machinery or· plant or equipment from the pre-: .. mises of the industrial . concern without the permission of the Board, where such removal is apprehended.----'-- (2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground ·an which it is made and such other particulars as may_ be prescribed.". Section 32(1) provides that when' an application is made seeking reliefs mentioned in clauses (a) and (c) of sub-s. -(i) of"s:

31, it isobligatory upon the District Judge to pass an ad interim order attaching the security or so much of the property of the industrial concern as would on being solu realise an imount equivalent in value to the outstanding liability of the industrial concern to the Financial Corporation together with the costs of the - proceedings with or without an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant - or equipment. If the applicant seeks relief mentioned in clause (b) of sub-section (1) of s.

31, the District_ Judge shall pass an order of ad interim injunction restraining the_ industrial concern from _ transreferring or removing its machinery, pla_nt -or equipment .. -- A- notice accompanied by-copies of the interim order and the application is required to m; _served upon the industrial concern ·calling upon it to show cause why ad interim order of attachment should not be made absolute . or the injunction confirmed or the management transferred to the Corporation. If no cause i3 shown on or before the specified_ date, the order is to be made absolute. Sub-section ( 6) of s. 32 provides that if the industrial concern shows cause, the Distt. Judge is required to investigate the claim of the Financial· Corporation in accordance with the provisions contained in the Code. of Civil Procedure, 1908, in so far as such provisions may be applied thereto.

On completing the investigation the District Judge may either confirm the order or vary the order or release the property from attachment. An order of attachment or sale of property has to be ·carried into effect as far as practicablein the manner provided in the Code of Civil Procedure, 1908, for_ the attachiiient or sale of property iii execution of a decree as if the Financial Corporation were the decree holder . n SUPREME COURT REPOJU'S ... Article 1 of Schedule I of the Court-fees Act provides for ad valorem court fee on plaint or memorandum of appeal (not otherwise provided for in the Act) or of cross-objections presented to any civil or revenue court, to be levied according to the scale set . out in the Schedule on the value of the subject-matter in dispute.

Article 7 provides for court-fees on a plaint or application or petition other than those provided in the earlier Articles to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss including cases where an application or petition is treated either as a plaint or is described as the mode of obtaining the relief as aforesaid, the fee to be calculated on the amount of the monetary gain or monetary loss to be prevented according to the scale prescribed under Article 1. Section 31 ( 1) prescribes a special procedure for enforcement of claims by the Financial Corporation. The Corporation is to make an application for the reliefs set out in s. 31 ( 1). The reliefs that a Court can grant under s. 31 ( 1) are the sale of the property mortgaged,_ etc. to a Financial Corporation as security for the loan or advance; D 'transfer of,tbe management· of the industrial concern to the.

Financial · Corporation or restraining the industrial ·concern from transferring. or. removing its machinery or plant or equipment from the· premises ·of the industrial concern \vithout the permission·· of the Board of the Financial Corporation. An application for such a relief is certainly. not a plaint in a suit for recovery of mortgage money by sale of mortgaged property. On a breach of an agreement by an industrial concern the Corporation ca11 seek one or more of the three reliefs set out in s. 31 (1). If the Corporation seeks the relief of transferring tbe management of the industrial concern to the Financial Corporation it could hardly be said that the application purports to be a plaint for recovering the mortgage money by sale of mortgaged properly. It would be inappropriate to say that on an analogy an application under s. 31(1) is something akin to a· suit by a mortgagee to rccowr mortgage money by sale of mortgaged. property. At any rate, in an application under s.

31 ( 1) the Corporation does not and canrot pray for. a decree for its outstanding dues. It can make an application for one of the three reliefs, none of which, if granted, results in a money decree, or decree for recovery of outstanding loan er · - advance. Section 31 (1) of the Act, in the circumstances therein set out, permits the Corporation to seek one or more of the three reliefs . therein stated. It is difficult to· comprehend that merely the form cf relief would attract one or the other Article of Court.fees Act. If relief of sale of mortgaged property is sought which permits an argument that _the application is nothing but a suit for realising mortgage money by sale of mortgaged property and, therefore, . . G. s. F_. c. v. ~ATSoN MANU. co.'

(Desai, J.) . ad l'lflorem court-fees is payable, then what 'would be the nature of the application when instead of sale of .mortgaged property the relief asked for. is transfer of the management of the industrial concern or an interim injunctioil restraining the industrial concern from transferring or removing its machinery, plaiit or equipment from the premises of the industrial concern without the pernrission of the Board? In the last mentioned two cases the relief is incapable of any monetary evaluation. The High Court got over this difficult question by merely observing that this need not be answered_- in the petitions before the High Court; Frankly speaking, they shed some light on the nature of the proceedings contemplated by s. 31, and s. 32 of the Act clearly points to the conclusion that the proceedings are not in the nature of a money recovery proceedings. Article 1 of Schedule I would, therefore, not be attracted and we must say in fairness to l\1r. D. V. Patel, learned counsel for the respondent State of Gujarat who specifically stated that the application would not fall under Article 1 of Schedule I but it would be governed by Article 7 of Schedule.

I. Developing the contention, l\1r. Patel urged that the· substance· of · the matter is that even if the Corporation applies for an order of sak of mortgaged property, the substanti'le relief is one of sale of mortgaged property so that the Corporation may reimburse itself of the loan advanced to the industrial concern thereby acquiring monetary gain or at any rate preventing monetary loss. The outward form, it was said, may be different but the substance of the matter is that the Corporation seeks to recover its .loan by sale of mortgaged property. It was said that at any rate either the Corporation by the substantive relief seeks to make a monetary gain of reimbursing itself in respect of the loan advanced by it or prevents the loss that it may suffer if the Joan is not repaid, by bringing the mortgaged property to . court auction and appropriate the sale price towards its loan.

Section 31 ( 1) enables the Corporation in the ·event of breach of agreement or default in payment of loan or· advance or an instalment thereof to make an· application not merely for sale of mortgaged pro- ' perty but even for transferring the management of the industrial · concern to the Fmancial Corporation or merely injunct the industrial concern ·from transferring or removing its machinery or plant or equipment from the premises of the concern without the permission of the Board. An application for transfer of management of the industrial concern could by no stretch of imagination, . be said to be an application for repayment of the loan though l\1r. Patel did say that the management can only be retained till such time as the Corporation reimburses itself. Further, if aii application under s. 31 (I) is merely for an injunction· restraining the industrial concern from transferring or removing its machinery or plant or equipment withe 8-S26 SCI/78 II 380 · \ [1979]

1 S,C.R. ~ulthe 'permission of the Board, it could hardly,-or ·even remotely, J>~.sai£: that such a relief substantively provides for repayment of the Joan. or it is a· relief to prevent an anticipatory loss. Let it be recalled .at. this ~!age that if the Court-fees Act is a trucing statute its provisions .haY!':to be constru~ strictly in favour of the subject litigant (vide State of, Maharashtra v. Mishrilal Tarachand. Lodha & Ors.,)(1), In B ' a taxing. statute the strict legal position as disclosed by the form and J) ! _ not the substance of the transaction is determinative of its taxability (vide Joint· Commercial Tax Officer, Harbour -Div. II, Madras v. · :Y.<mng-Men's Indian Association (Regd.)," Madras & Ors.(') . . If it is a fre, the enormity of the exaction will be more difficult to sustain. While we do not pronounce, we indicate the implication of the High Court's untenable view. What then is the nature of proceedings contemplated by s.

31 (1) if it is not a suit by the mortgagee for rerovecy of mortgage money by sale _of. mortgaged property. Secticiii '31 ·would to,, some. extent provide a clue to'this question. On 'an application _under s. 31(1) being made it is, obligatory upon the Co~ to make an interim 'order attaching .the security with -or without interlm injunction restraining the industrial concern ·from transferring or removing its plant, machinery or equipment without the permission of the Board of the Corporation. If the relief claimed in the application is transfer 'of the management of the industrial concern to the Corporation it is obligatory upon the Distt. Judge · to grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment. In either event a notice notifying the industrial concern to show Clluse why the order should not be made absolute is required to be served_ upon the industrial concern.

It was said that if cause is shown by the industrial concern it is obligatory upon the Distt. Judge to investigate the . claim of the Financial Corporation in accordance with the provision contained in the Code of Civil Procedure, 1908, in so far as such _provisions may __ be, applied thereto. The contention is that once an industrial concern · shows cause· and· contests the application of the Corporation there arises a lis between the parties which would include the investigation of the monetary claim of the Corporation and per se it would . be a suit between the mortgagee and the mortgagor in which the ultimate-- relief is sale of mortgaged property for repayment of the mortgage money. Sub-s. ( 6) of s. 32 of the Act has to be read in the context in which it is placed. The claim of the Corporation is not· the monetary claim to be -investigated though it may become necessary to (I) [1964] 5 SCR 230 at 234. (2) [1970] 3 SCR 680 at 688 •.. r ··-~~··7/,,,--:<"';-\\-' ·' · i .. ·• o. s.

F. c .. v. NATSoN MANU. co. (Desai; l.) ~-~·-,.\2 .. · specify' the. figure . for the purpose of determining-howmuch-of" thil security should be' sold. But the investigation of the claim does not involve all the' contentions that can be raised in a suit. Tiie claim of ihe Corporati01i· is· that there is a breach o( agreement or default in making repayment of loan or advance or instalment 'thereof and, . therefore, the mortgaged property should be sold. It is not a money claim. The, contest can be that· the jurisdictional fact which enables the Corporatimi ·to seek the relief of sale of property is not available to it or no case is made out for transfer of management of the industrial concern.- Sub-s. (7) of s. 32 prescribes what reliefs can be given after investigation under sub~s:- ( 6) is made, andit clearly . gives a due to the nature of contest under Sub-s. (6). Sub-s. (8) of s.

32 only prescrires -the mode ·and method for executing the order of · attachment. or sale of property as provided in ·the Code of Civil Procedure. Sub-ss. (6), (7) and (8) of s. 32 read together would give an opportunity to the industrial concern . to appear and satisfy the District Judge what the situation envisaged bys. 31(lfhas not arisen. and the relief should not be granted. In the absence of a provision giving such an opportunity to the industrial concern to whose detriment the order is required to oo made a serious question. may arise about the constitutional validity of the procedure prescribed under s. 31 ( 1) inasmuch as it would be violative of principles of natural justice and that too in a proceeding in a Court of Law. The provision contained in sub-s. ( 6) docs not expand the contest in the application made under s. 31 ( 1) as to render the application to be a suit between a mortgagee and the mortgagor for sale of mortgaged property.

If that were so, the Corporation would not be limited to. speci- · fied reliefs only and if the ccintract permitS it may seek to enforce persoruil liability of mortgage which it cannot enforce in an .application under Sec .. 31(1): It may be,~ contended by Mr. Patel, that in the ultimate analysis the result would be that the property Will be sold for repayment of the loan or advance taken by. the industrial concern from the Corporation but it could not be said that it i$ a.substantive relief claimed by the Corporation which can be valued in terms of - . monetary gain or prevention of monetary loss as envisaged by Article 7 of Schedufo I of Court-fees Act. The substantive relief in an appli• cation under s. 31 ( 1) is something akin to an application for attachment of property in execution of a decree at a stage posterior t!l the passing of the decree.

We are unable to appreciate the view taken by the High Court tliat 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 aft~r the same is made absolute under Sub-s. (7). One has to look at the whole conspectus of provisions ins. 32 coupled with the nature of relief sought under s. 31 (1) 11979] 1 S.C.R. and it becomes clear that special provision is made· for certain types. of reliefs that can be obtained by a Corporation by an ?Pplication under 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-s. 6 of s.

32 and the nature of relief that can be granted and the' manner of execution clearly show that the application under s. 31 (I) ·is _neither a p!ainiascontemplated by Article 1 of Schedule I nor an. · application in a nature of a plaint as· contemplated by ·Article 7 of Schedule I of Court-fees Act. Once Article 7 of Schedule I of the Court-fees Act iS excluded there was (and could be) no dispute ·that'· an application under s. 31 ( 1) of the Act would be covered by the residuary Article 1 ( c) of Schedule II of the Court-fees Act and it· should bear a fixed court fee in the sum of 65 paise .. Therefore, the High Court was clearly in error in holding that the application should bear ad valorem court f~.

When dealing with a question of court fee, the perspective should be informed by the spirit of the magna carta and of equal access t<> justice which suggests that a heavy price tag on ·relief in Court should be regarded as unpalatable. r In this view of the matter this appeal is allowed and the order made by the High Court as well as the orders made by the various. District Judges except the District Judge, Broach, are set aside. On the question of costs, we looked at the specimen applications filed by the Corporation disclosing a clear lack of wisdom ori the part of the Corporation in askirig for a decree for certain amount which could not be granted under s. 31 ( 1). Therefore, there was a misconception on either side and the proper order shonld, be that the partie~ shall bear their own costs. S.R. Appeal allowed.