K.P. Khemka & Anr. v. Haryana State Industrial and Infrastructure

Debt; Time-barred debt; Remedy; Time-barred debt under Limitation Act, 1963; Recovery of dues under Haryana Public Moneys (Recovery of Dues) Act, 1979; Limitation Act bars remedy; Limitation Act does not extinguish debt; Recovery of loan; Right to recover; Recovery proceedings; Alternative mechanism of enforcement to recover the amount due; Additional rights to enforce claims. Case Arising From CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6144 of 2024 From the Judgment and Order dated 24.04.2015 of the High Court of Punjab & Haryana at Chandigarh in CWP No. 15983 of 2013 With Civil Appeal No. 6145 of 2024 Appearances for Parties Rakesh Kumar, Saurabh Mishra, Ms. Preeti Kashyap, Varun Pandit, Shrimay Mishra, Abhimanyu Tewari, Ms. Eliza Bar, Siddhant Saroha, Sidhant Awasthy, Manav Bhalla, Praveer Singh, Advs. for the Appellants. Lokesh Sinhal, Sr. A.A.G. Akshay Amritanshu, Nikunj Gupta, Ms. Himanshi Shakya, Samyak Jain, Karunakar Mahalik, Manish K. Bishnoi, Rajat Navet, Kushagra Pandit, D. S. Mahra, Advs. for the Respondents. Judgment / Order of the Supreme Court Order K.V. Viswanathan, J.

Leave granted.

The present appeals arise from the judgment of a Division Bench of the High Court of Punjab and Haryana at Chandigarh dated 24.04.2015 in CWP No. 15983 of 2013 and CWP No. 26452 of 2014. By the said Digital Supreme Court Reports [2024] 6 S.C.R. 237 judgment, the High Court dismissed the writ petitions and rejected the contention of the appellants herein that if a debt is time-barred under the Limitation Act, 1963, the same cannot be recovered by resorting to the Haryana Public Moneys (Recovery of Dues) Act, 1979 (for short “the Recovery of Dues Act”) read with the State Financial Corporation Act, 1951. In so holding, the Division Bench applied the well established principle that the Limitation Act, which applies to Courts, merely bars the remedy and does not extinguish the debt.

The appellants herein had relied upon the judgment of a three- Judge Bench of this Court in State of Kerala and Others vs. V.R. Kalliyanikutty & Anr. (1999) 3 SCC 657 to contend that a time- barred debt under the Limitation Act cannot be recovered under the Recovery of Dues Act. While dealing with this contention, the High Court relied upon the judgment of a Constitution Bench of this Court in Bombay Dyeing and Manufacturing Company Limited vs. The State of Bombay and Ors., 1958 SCR 1122 to reiterate the principle that the Limitation Act merely bars the remedy and does not extinguish the debt. The High Court also distinguished the judgment in V.R. Kalliyanikutty (supra) by holding that the judgments of this Court in Bombay Dyeing and Manufacturing Company Limited (supra) and Tilokchand and Motichand and Others vs. H.B. Munshi and Another, (1969) 1 SCC 110 were not brought to the notice of the Bench deciding V.R. Kalliyanikutty (supra).

Facts in Civil Appeal arising out of SLP (C) No. 14213 of 2015 are as follows: i. Respondent No.3 - M/s Khemka Ispat Limited was a Company engaged in the business of manufacture, production, import, export, sale and distribution of all types of Cold Rolled Strips, steel sockets, pipe and tube products, and other allied goods. ii. On 07.03.2003, Respondent No.3 had taken a Term Loan under an Equipment Finance Scheme from Respondent No.1 - Haryana State Industrial and Infrastructure Development Corporation Limited (hereinafter referred to as “the HSIDC Ltd.”) for a sum of Rs.105.90 lakhs. In view of the said Term Loan, Respondent No.3 had entered into a Loan Agreement with HSIDC Ltd. along with the personal guarantees of the appellants herein. K.P. Khemka & Anr. v. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors. 238 [2024] 6 S.C.R. iii. On 31.03.2003, the sanctioned loan amount to the tune of Rs.105 lakhs was disbursed to Respondent No.3.

The facts in Civil Appeal arising out of Special Leave Petition (C) No. 23041 of 2015 are as under: i. The Haryana Financial Corporation sanctioned a term loan of Rs.88,74,000/- to Respondent No.5 - Cosmo Flex Private Limited on 31.01.1996. The loan was to be repaid within a period of eight weeks by way of quarterly instalments and the agreed rate of interest was 19.5% with half yearly rests. On 17.03.1997, the loan agreement was executed. ii. The appellant, who was a Director of the R-5 Company, claims that he resigned from the Directorship of the Respondent No. 5 Company on 06.04.1998. iii. On 29.07.1998, the loan was recalled by the Haryana Financial Corporation. iv. In the meantime, the appellant claims that on account of his resignation from Directorship of the Respondent No. 5 company, he was paid a full and final settlement from the Company on 23.10.1998. Thereafter, he claims that the Registrar of Companies was also intimated about the fact of his resignation, on 12.10.1998. v.

Accordingly, personal hearings were given to defaulting borrowers/guarantors for sum determination under Section 32-G of the State Financial Corporations Act, 1951 on 11.12.2013, 19.03.2014 and 06.08.2014, objection raised by Sh. Charanjeet Gaba, borrower/ guarantor verbally during the personal hearing as well as through various representations were dealt in detail in the proceeding of personal hearing held on 06.08.2014. However, as no constructive proposal for repayment/settlement under the new Settlement Policies of HFC-2011 was recived from Sh. Charanjeet Gaba or other borrowers/guarantors, Recovery Certificate was issued to Collectors, Srinagar, Solan (HP), Gurgaon & Delhi on 08.10.2014 for the recovery of Rs. 14,55,11,275/- with further interest @24% from 01.03.2014, the same stand challenged by the petitioner before the Hon’ble High Court as stated above.” (emphasis supplied) vii. The appellant challenged the proceedings dated 06.08.2014 by filing CWP No. 26452 of 2014. By the Impugned Order, the Writ Petition was dismissed. viii. In the Special Leave Petition filed before this Court, the case of the Appellant as regards the debt being time-barred is as follows:

A. Because the order/proceedings dated 06.08.2014 passed by Respondent No. 3 under Section 32 (G) of the State Financial Corporation Act for recovery of Rs. 14,55,11,275/- along with pendente lite and future interest could not have been issued as the recovery had already become time barred against the petitioner. Since the recovery on the basis of mortgaged property had already been effected by way of sale dated 16.12.1999 the remaining amount could not be recovered beyond the limited time of three years

Contentions of the Parties

Before us, learned counsel for the appellants contend that the judgment in V.R. Kalliyanikutty (supra) directly covers the issue Digital Supreme Court Reports [2024] 6 S.C.R. 243 as according to them, in substance, there is no difference between the provisions of the Kerala Revenue Recovery Act, with which V.R. Kalliyanikutty (supra) was concerned, and the Recovery of Dues Act of the State of Haryana. According to the learned counsel, V.R. Kalliyanikutty (supra) has clearly held that Acts, like the Recovery of Dues Act, are intended for speedy recovery of loans and do not create a new right in the creditor. It is their contention that on that reasoning the word “due” in the Recovery of Dues Act cannot be interpreted to include time-barred debts.

7. Learned counsel for the respondent-Corporations strongly refuted these contentions and contended that the impugned order was perfectly justified in holding that the decision of this Court in V.R. Kalliyanikutty (supra) has not considered the holding in Bombay Dyeing (supra) and Tilokchand Motichand (supra). Questions that arise for this Court’s consideration

The questions that fall for consideration are, firstly, are the appellants right in contending that the recovery proceedings initiated against them under the Recovery of Dues Act are barred in view of the principle laid down in V.R.Kalliyanikutty (supra). Secondly, if they are right, then is the decision in V.R. Kalliyainkutty (supra) contrary to the holding in Bombay Dyeing and Manufacturing Company Limited (supra) and if so what is the course open for this two-Judge Bench. Reasoning in V.R. Kalliyanikutty (supra)

To appreciate these contentions, we need to first understand the law laid down in V.R. Kalliyanikutty (supra). The primary question of law involved in V.R. Kalliyanikutty (supra) was, whether a debt which is barred by the law of limitation can be recovered by resorting to recovery proceedings under the Kerala Revenue Recovery Act, 1968. This apart, the Bench, after setting out the scheme of the Kerala Revenue Recovery Act, examined the further question as to whether the object of the Kerala Revenue Recovery Act was only for speedy recovery or if the said Act also enlarged the right to recover. Additionaly, the Bench addressed the question as to whether the words “amount due” would refer to the amounts repayable under the terms of the Loan Agreement executed between the debtor and the creditor irrespective of whether the claim was time-barred or whether the words refer to only those claims which are legally recoverable. K.P. Khemka & Anr. v. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors. 244 [2024] 6 S.C.R.

Relying upon Hansraj Gupta vs. Dehra Dun-Mussorie Electric Tramway Co. Ltd., AIR 1933 PC 63, the Bench in Kalliyanikutty (supra) held that the Kerala Recovery Act did not create any new right and that it merely provided a process for speedy recovery. In view of the same, it held that since the Act did not create any right, the person claiming recovery cannot claim recovery of amounts which are not legally recoverable. The Bench thereafter distinguished the judgment in Khadi Gram Udyog Trust v. Ram Chandraji Virajman Mandir, Sarasiya Ghat, Kanpur, (1978) 1 SCC 44 as having no applicability to the interpretation of the Kerala Revenue Recovery Act. It further relied on the judgment of this Court in Director of Industries, U.P. vs. Deep Chand Agarwal (1980) 2 SCC 332 to reinforce its holding on the interpretation of the word ‘due’ under the Kerala Revenue Recovery Act. The plea that the statute of limitation merely bars the remedy and does not touch upon the right was not accepted by the Court by holding that the rights of the parties are not enlarged by the Kerala Revenue Recovery Act and that unless the Act expressly provided for enlargement of claims extending to the recovery of barred debts, that principle will not apply. Ultimately, the Court held that under the provisions of the Kerala Revenue Recovery Act a debt which is barred by the law of limitation cannot be recovered.

The Division Bench, in the impugned order, has relied on Bombay Dyeing (supra) to reinforce the point that the statute of limitation only bars the remedy and does not extinguish the debt. The decision in Bombay Dyeing (supra) was a case where the Constitution Bench of this Court reiterarted the principle that statutes of limitation only bar the remedy and do not extinguish the right and so holding, it found that the definition of “unpaid accumulations” in that case did apply to wages of employees that were time-barred. The Court went on to hold that while time-barred wages did vest in the State, since the Act did not, in that case, provide for disbursement of the wages to the workers whose claims could be established and since there was no provision for the workers making the claim, the Act was held to be contrary to Article 31(2) of the Constitution, which then existed.

It is well settled that the laws of limitation only bar the remedy and do not extinguish the right, except in cases where title is acquired by prescription. We may note here that V.R. Kalliyanikutty (supra) did not dispute the principle that the statute of limitation only bars Digital Supreme Court Reports [2024] 6 S.C.R. 245 the remedy and does not extinguish the debt. After considering this principle it went onto hold that there was no enlargement of right in the Kerala Revenue Recovery Act. The impugned order, in the present case, further holds that Bombay Dyeing (supra) and Tilokchand and Motichand (supra) were not brought to the notice in V.R. Kalliyanikutty (supra). The decision in Tilokchand and Motichand (supra) was a case which inter alia dealt with extension of the principles of laches and res judicata to writ proceedings and have no direct relevance to the present controversy. The impugned order, in the present case, thereafter goes on to hold that the machinery for recovery under the Recovery of Dues Act or the State Financial Corporations Act do not have the trappings of a Court to hold that the provisions of the Limitation Act have no application for the same. Discussion and Reasoning:-

In our view, the findings of the Division Bench in the impugned order do not directly address the holding in V.R. Kalliyanikutty (supra) that the Kerala Revenue Recovery Act did not create any additional right to recover and enforce the outstanding amounts due.

The real question that arises is do the State Financial Corporations Act, 1951 and the Recovery of Dues Act create a distinct right and provided an alternative mechanism of enforcement to reover the amount due, even if the amounts due were time barred? To answer this question, we need to examine the relevant statutory provisions.

The objects and reasons of the State Financial Corporations Act are relevant for the purposes of the present case. They read as under: “The intention is that the State Corporations will confine their activities to financing medium and small scale industrial and will, as far as possible, consider only such cases as are outside the scope of the Industrial Finance Corporation. The State Governments also consider that the State Corporations should be established under a special Statute in order to make it possible to incorporate in the Constitution necessary provisions in regard to majority control by Government, guaranteed by the State Government in regard to the repayment of principal, and payment of a minimum rate of dividend on the shares, restriction on distribution of profits and special powers for the enforcement of its claims and recovery of dues. K.P. Khemka & Anr. v. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors.

This apart, for the purposes of the present case, the relevant provisions of the Recovery of Dues Act, being Section 2(c) and Section 3 of the Recovery of Dues Act, are for the sake of convenience set out hereinbelow: “2. Definitions In this Act, unless the context otherwise requires, - Digital Supreme Court Reports [2024] 6 S.C.R. 247 (c) “defaulter” means a person who either as principal or as surety, is a party – (i) to any agreement relating to a loan, advance or grant given under that agreement or relating to credit in respect of, or relating to hire-purchase of, goods sold by the State Government or the Corporation, by way of financial assistance; and such person makes any default in repayment of the loan or advance or any instalment thereof or, having become liable under the conditions of the grant to refund the grant or any portion thereof, makes any default in the refund of such grant or portion or any instalment thereof or otherwise fails to comply with the terms of the agreement;

3. Recovery of certain dues as arrears of land revenue (1) Where any sum is recoverable from a defaulter – (a) by the State Governemnt, such officer as it may, by notificaitaon, appoint in this behalf; (b) by a Corporation or a Government company, the Managing Director thereof, shall determine the sum due from the defaulter. (2) The Officer or the Managing Director, as the case may be, referred to in sub-section (1), shall send a certificate to the Collector mentioning the sum due from the defaulter and requesting that such sum together with the cost of proceedings be recovered as if it were an arrear of land revenue. (3) A certificate sent under sub-section (2) shall be conclusive proof of the matters stated therein and the Collector, on receipt of such certificate, shall proceed to recover the amount stated therein as an arrear of land revenue. (4) No civil court shall have jurisdiction – (a) to entertain or adjudicate upon any case; or (b) to adjudicate upon or proceed with any pending case; K.P. Khemka & Anr. v. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors. 248 [2024] 6 S.C.R. relating to the recovery of any sum due as aforesaid from the defaulter. The proceedings relating to the recoery of the sums due from the defaulters, pending at the commencement of this Act in any civil court, shall abate.” (emphasis supplied)

It will be clear from Section 32-G of the State Financial Corporations Act that the Section confers a right of recovery on the financial corporation, without prejudice to any other mode of recovery which includes the right to file a suit. The conferment of such a right to recover an ‘amount due’ as arrears of land revenue, notwithstanding any other remedy, is for a public purpose and in public interest.

At this point, we deem it appropriate to refer to a passage from Salmond on Jurisprudence, 12th Edition, on the concepts of “Right” and “Power” [Page 224, 229 & 230]: “42. Legal rights in a wider sense of the term We must now consider the wider use of the term, according to which rights, do not necessarily correspond with duties. In this generic sense, a legal right may be defined as any advantage or benefit conferred upon a person by a rule of law. Of rights in this sense there are four distinct kinds. These are (1) Rights (in the strict sense), (2) Liberties, (3) Powers, and (4) Immunities. Each of these has its correlative, namely (1) Duties, (2) No-Rights, (3) Liabilities, and (4) Disabilities. A debt is not the same thing as a right of action for its recovery. A former is the right in the strict and proper sense, corresponding to the duty of the debtor to pay; the latter is a legal power, corresponding to the liability of the debtor to be sued.

No doubt, even where the statute of limitation does not apply, the power has to be exercised within a reasonable time. In that scenario the further question would be: Whether the time available would analogously be the time available for execution of decrees? Since no specific arguments have been advanced and since the Division Bench in the Impugned Order was not engaged with that issue, we refrain from dealing with the same.

In the context of the Kerala Revenue Recovery Act, the decision in V.R. Kalliyanikutty (supra) needs to be discussed. The relevant portions of the judgment is extracted hereinbelow: K.P. Khemka & Anr. v. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors. 250 [2024] 6 S.C.R. “3. ...Under Section 71, however, there is a provision for extending the Act to recovery of certain other dues if the Government is satisfied that it is necessary to do so in public interest. Under Section 71 it is provided as follows:

71. Power of Government to declare the Act applicable to any institution.—The Government may, by notification in the Gazette, declare, if they are satisfied that it is necessary to do so in public interest, that the provisions of this Act shall be applicable to the recovery of amounts due from any person or class of persons to any specified institution or any class or classes of institutions, and thereupon all the provisions of this Act shall be applicable to such recovery.

4. In exercise of its powers under Section 71, the State Government has issued a notification bearing SRO No. 797 of 1979 by which the provisions of the said Act have been made applicable to the recovery of the amounts due from any person to any bank on account of any loan advanced to such person by that bank for agriculture or agricultural purposes. Under another notification SRO No. 851 of 1979 issued under Section 71 by the State Government the provisions of the said Act are also made applicable to the recovery of amounts due from any person or class of persons to the Kerala Financial Corporation. Thus in public interest the State Government has made the said Act applicable for speedy recovery of loans given by a bank for agricultural purposes as well as for speedy recovery of loans given by the Kerala Financial Corporation. The overall scheme of the Act, therefore, is to provide for speedy recovery, not merely of public revenue but also of certain other kinds of loans which are required to be recovered speedily in public interest.