Supreme Court Clarifies Recovery of Time-Barred Debts under Haryana Public Moneys Act: K.P. Khemka & Anr. vs. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors. (2024) INSC 396 (08 May 2024)

Date of the Judgment: 08 May 2024
Citation: 2024 INSC 396
Judges: Justice Surya Kant and Justice K.V. Viswanathan
Can a financial corporation recover a debt even if it is time-barred under the Limitation Act? The Supreme Court of India recently examined this important question in the context of the Haryana Public Moneys (Recovery of Dues) Act, 1979. The Court considered whether the Act provides an alternative mechanism for recovery, independent of the limitations imposed by the Limitation Act, 1963. This judgment is crucial for understanding the powers of financial corporations in recovering dues. The two-judge bench of Justices Surya Kant and K.V. Viswanathan delivered the order.

Case Background

The case involves two appeals concerning the recovery of loans by the Haryana State Industrial and Infrastructure Development Corporation Limited (HSIDC) and the Haryana Financial Corporation (HFC). The appellants argued that the debts were time-barred under the Limitation Act and could not be recovered under the Haryana Public Moneys (Recovery of Dues) Act, 1979.

In the first case, K.P. Khemka & Anr. vs. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors., M/s Khemka Ispat Limited took a term loan of Rs. 105.90 lakhs from HSIDC on 07.03.2003, with the appellants providing personal guarantees. The loan was disbursed on 31.03.2003 and 15.07.2003. The company defaulted, and HSIDC initiated recovery proceedings under the Recovery of Dues Act on 08.08.2007. A final recovery notice was issued to the appellants on 15.11.2012, demanding Rs. 213.19 lakhs. The appellants challenged this notice, arguing that the debt was time-barred.

In the second case, Charanjeet Gaba vs. State of Haryana & Ors., the Haryana Financial Corporation sanctioned a term loan of Rs. 88,74,000/- to Cosmo Flex Private Limited on 31.01.1996. The appellant, a director of the company, claimed to have resigned on 06.04.1998. The loan was recalled on 29.07.1998 and the mortgaged properties were taken over on 31.08.1999. Multiple recovery notices were issued, and finally, a recovery certificate for Rs. 14,55,11,275/- was issued on 08.10.2014. The appellant challenged these proceedings, contending that the recovery was time-barred.

Timeline:

Course of Proceedings

The High Court of Punjab and Haryana dismissed the writ petitions filed by the appellants, holding that the Limitation Act only bars the remedy and does not extinguish the debt. The High Court relied on the Constitution Bench judgment in Bombay Dyeing and Manufacturing Company Limited vs. The State of Bombay and Ors., 1958 SCR 1122, and distinguished the judgment in State of Kerala and Others vs. V.R. Kalliyanikutty & Anr. (1999) 3 SCC 657, stating that the latter did not consider the holding in Bombay Dyeing. The High Court also noted that the proceedings under the Recovery of Dues Act do not have the trappings of a court, and therefore, the Limitation Act does not apply.

Legal Framework

The core legal issue revolves around the interpretation of the Haryana Public Moneys (Recovery of Dues) Act, 1979, and the State Financial Corporations Act, 1951, in relation to the Limitation Act, 1963.

✓ Section 32-G of the State Financial Corporations Act, 1951: This section allows financial corporations to recover amounts due as arrears of land revenue, without prejudice to any other mode of recovery. It states:

“32G. Recovery of amounts due to the Financial Corporation as an arrear of land revenue.— Where any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorised by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it, and if the State Government or such authority, as that Government may specify in this behalf, is satisfied, after following such procedure as may be prescribed, that any amount is so due, it may issue a certificate for that amount to the Collector, and the Collector shall proceed to recover that amount in the same manner as an arrear of land revenue.”

✓ Section 2(c) of the Haryana Public Moneys (Recovery of Dues) Act, 1979: Defines a “defaulter” as a person who defaults in repaying a loan or complying with the terms of an agreement with the State Government or a corporation. It states:

“2. Definitions
In this Act, unless the context otherwise requires, –
(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;”

✓ Section 3 of the Haryana Public Moneys (Recovery of Dues) Act, 1979: Outlines the procedure for recovering dues as arrears of land revenue. It states:

“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;
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.”

Arguments

Appellants’ Arguments:

• The appellants contended that the judgment in V.R. Kalliyanikutty directly applies to their case. They argued that there is no substantial difference between the Kerala Revenue Recovery Act (considered in V.R. Kalliyanikutty) and the Haryana Public Moneys (Recovery of Dues) Act.
• They submitted that the Recovery of Dues Act is intended for speedy recovery and does not create any new rights for the creditor. Therefore, the term “due” in the Act should not include debts that are time-barred under the Limitation Act.
• The appellants argued that since the Limitation Act bars the remedy, the financial corporations cannot recover time-barred debts using the Recovery of Dues Act.

Respondents’ Arguments:

• The respondent-Corporations argued that the High Court was correct in holding that the decision in V.R. Kalliyanikutty did not consider the principles laid down in Bombay Dyeing and Tilokchand Motichand.
• They contended that the Limitation Act only bars the remedy and does not extinguish the debt. Therefore, the financial corporations have the right to recover the debt, even if it is time-barred for a civil suit.
• The respondent-Corporations argued that the Recovery of Dues Act provides an alternative mechanism for recovery, independent of the Limitation Act.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Are the appellants correct 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?
2. If the appellants are correct, is the decision in V.R. Kalliyanikutty contrary to the holding in Bombay Dyeing and Manufacturing Company Limited, and if so, what is the course open for this two-Judge Bench?

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

✓ State of Kerala and Others vs. V.R. Kalliyanikutty & Anr., (1999) 3 SCC 657*: The Court acknowledged the ruling that a time-barred debt cannot be recovered under the Kerala Revenue Recovery Act because it doesn’t create new rights. However, it noted that this case did not consider the special powers granted to State Financial Corporations.

✓ Bombay Dyeing and Manufacturing Company Limited vs. The State of Bombay and Ors., 1958 SCR 1122*: The Court recognized this case’s principle that the Limitation Act only bars the remedy, not the debt itself.

✓ Tilokchand Motichand and Others vs. H.B. Munshi and Another, (1969) 1 SCC 110*: The Court found this case irrelevant to the current issue, as it dealt with laches and res judicata in writ proceedings.

✓ Hansraj Gupta vs. Dehra Dun-Mussorie Electric Tramway Co. Ltd., AIR 1933 PC 63*: The Court discussed this case, where the Privy Council held that a time-barred debt could not be enforced by a summary order under Section 186 of the Indian Companies Act, as the section did not create new liability or confer new rights. The Court distinguished this case because the authority under the Recovery of Dues Act is not a court.

✓ Khadi Gram Udyog Trust v. Ram Chandraji Virajman Mandir, Sarasiya Ghat, Kanpur, (1978) 1 SCC 44*: The Court noted that V.R. Kalliyanikutty distinguished this case as having no applicability to the interpretation of the Kerala Revenue Recovery Act.

✓ Director of Industries, U.P. vs. Deep Chand Agarwal, (1980) 2 SCC 332*: The Court noted that V.R. Kalliyanikutty relied on this case to reinforce its holding on the interpretation of the word ‘due’ under the Kerala Revenue Recovery Act.

✓ New Delhi Municipal Committee vs. Kalu Ram, (1976) 3 SCC 407*: The Court discussed this case, where the Court interpreted the words “arrears of rent payable” under Section 7 of the Public Premises (Eviction of Unauthorised Occupants) Act, 1958, holding that it only covers arrears not otherwise time-barred. The Court distinguished this case by noting that the provisions herein use the words ‘amounts due’ and are provisions which create a right to recover through a separate mechanism, notwithstanding the right to file a civil suit.

✓ K.C. Ninan v. Kerala State Electricity Board, 2023 INSC 560*: The Court noted that this three-judge Bench case held that the statute of limitation only barred a remedy, while the right to recover the loan through ‘any other suitable manner provided’ remains untouched.

What weighed in the mind of the Court?

The Court’s reasoning was primarily driven by the need to reconcile the principle that the Limitation Act bars the remedy but not the debt with the special powers granted to State Financial Corporations under the State Financial Corporations Act, 1951, and the Haryana Public Moneys (Recovery of Dues) Act, 1979. The Court acknowledged the ruling in V.R. Kalliyanikutty but found that it did not consider the specific provisions of the State Financial Corporations Act, which provide special privileges for enforcement of claims against borrowers. The Court also noted that the Recovery of Dues Act provides an alternative mechanism for recovery, independent of the limitations imposed by the Limitation Act. The Court also considered the fact that the authority under the Recovery of Dues Act is not a court, and the provisions of the Limitation Act cannot proprio vigore apply. The Court also noted that the decision in K.C. Ninan held that the statute of limitation only barred a remedy, while the right to recover the loan through ‘any other suitable manner provided’ remains untouched.

Logical Reasoning:

The Court did not provide a final decision on whether time-barred debts can be recovered under the Haryana Public Moneys (Recovery of Dues) Act. Instead, it determined that the matter needs to be placed before a larger bench for a comprehensive consideration and an authoritative pronouncement. The Court highlighted the need to reconcile the principle that the Limitation Act bars the remedy but not the debt with the special powers granted to State Financial Corporations under the State Financial Corporations Act, 1951, and the Haryana Public Moneys (Recovery of Dues) Act, 1979.

The Court did not accept the argument that the Recovery of Dues Act is merely a procedural mechanism and does not create new rights. It observed that the State Financial Corporations Act provides special privileges for enforcement of claims against borrowers, and the Recovery of Dues Act provides an alternative mechanism for recovery, independent of the limitations imposed by the Limitation Act.

The Court did not accept the argument that the decision in V.R. Kalliyanikutty directly applies to the present case. It noted that the decision in V.R. Kalliyanikutty did not consider the powers under the State Financial Corporations Act, which were also applicable to the recovery of debts in Kerala.

TheCourt’s decision to refer the matter to a larger bench indicates the complexity and importance of the legal issues involved. The Supreme Court has acknowledged the conflict between the principles established in previous judgments and the need to interpret the powers of financial corporations in recovering dues. The decision of the larger bench will have significant implications for financial corporations and borrowers alike.

Conclusion

The Supreme Court’s decision to refer the matter to a larger bench underscores the complex interplay between the Limitation Act and special recovery laws. While the High Court held that the Limitation Act only bars the remedy and not the debt, the Supreme Court has recognized the need for a more comprehensive examination of the issue. The larger bench will need to consider whether the Haryana Public Moneys (Recovery of Dues) Act and the State Financial Corporations Act provide an independent mechanism for recovery, irrespective of the Limitation Act. This judgment highlights the importance of understanding the powers of financial corporations in recovering dues and the rights of borrowers in such proceedings.