1. Loan recovery under Section 31 of the SFC Act — Mortgage of properties — Execution proceedings — Dispute over interest rates and stay of auction. (Para 4 , 6 , 7 )
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1999 Supreme(SC) 353
1999(4) Supreme 124
Supreme Court of India
(From Punjab & Haryana High Court)
S.B. Majmudar & S.S. Mohammed Quadri, JJ.
Delhi Financial Corporation -Appellant
versus
B.B. Behel -Respondent
Civil Appeal No. 1562 of 1999
(Arising out of SLP (C) No. 9231/97)
Decided on 19-3-1999
Counsel for the Parties :
For the Appellant : A.K. Chopra, P.N. Puri, Advocates.
For the Respondent : Dr. A.M. Singhvi, Sr. Advocate, Arvind Minocha and Anil Aggarwal, Advocates.
A final recovery order under Section 31 of the SFC Act cannot be modified during execution proceedings. Debtor hardship does not entitle them to an interest holiday, and failure to re-schedule a loan does not forfeit the creditor's right to recover interest granted by the court.
Headnote:Code of Civil Procedure, 1908 -Section 115 read with Order 21, Rule 21 - Revision - Scope of powers of Court-Execution of money decree-Mortgaged property ordered to be sold-Stay of sale-Revision-Revisional court modifying rate of interest and waiving part of interest-Whether correct-No-It was not open to High court in revision arising out of execution proceedings to work out amount of loan due and payable by judgment debtor as against decree-Judgment debtor allowed to pay amount due in instalments - Failure to comply with terms of instalments would entitle decree holder to sell property and recover amounts due. (Paras 10 to 16)
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2. Whether a revision petition in execution proceedings can modify a final recovery decree's interest rates or grant an interest holiday due to business hardship. (Para 8 , 9 )
3. A final recovery order under the SFC Act cannot be modified in execution revision proceedings; hardship does not entitle a debtor to a court-mandated interest waiver. (Para 12 , 13 , 14 , 15 )
4. A court cannot modify the terms of a final recovery decree, including interest rates, during execution proceedings or compel a creditor to waive interest based on debtor hardship. (Para 12 , 15 )
5. Appeal allowed — High Court order set aside — Recovery amount determined with option for installment payments to avoid sale of mortgaged properties. (Para 16 , 17 )
6. Can a recovery decree be modified during execution proceedings via a revision petition?
No. A final order of recovery passed under Section 31 of the SFC Act cannot be modified, including changes to interest rates or waivers, in a revision petition arising out of execution proceedings. (Para 12 )
7. Does a creditor's failure to re-schedule a loan result in the loss of the right to recover interest?
No. Failure to re-schedule a loan does not entail the penal consequence of losing the right to recover interest granted by the court in a recovery order passed under Section 31 of the SFC Act. (Para 13 )
8. Can a court compel a creditor to waive interest due to the debtor's financial hardship or external crises?
No. It is beyond the power of the court to compel a creditor to forego part of its interest claim on the ground of hardship to a debtor; such adjustments are for the parties to settle. (Para 15 )
Judgment
Quadri, J.-Leave is granted.
2. This appeal is directed against the order of a learned Single Judge of the High Court of Punjab and Haryana passed in C.R. No. 1990 of 1993 on November 21, 1995. By the impugned order, the learned Judge determined that Rs. 9,02,300/- were payable by the respondent to the appellant, directed that the same be paid within one month from the date of the order and held that the order under revision staying the auction of the mortgaged properties by the execution court was justified and thus disposed of the revision.
3. This case has had a chequered history. To appreciate the question involved in this case, it would be necessary to refer briefly to the facts giving rise to this appeal.
4. The appellant advanced loan of Rs. 14.75 lakhs to the respondent for the construction of a hotel building on plot No. 22, Sector 26, Chandigarh. The loan amount together with interest at six per cent per annum per over the bank rate subject to a minimum of fifteen per cent 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 appellant recalled the loan and demanded Rs. 17,66,038.46p. along with interest by issuing a registered notice on February 21, 1983. The appellant followed the notice by filing an application under Section 31 of the Financial Corporations Act (for short, ‘the S.F.C. Act’) 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. 17,07,466.28p together with future interest at the rate of 17.5 per cent per annum from the date of the application till realisation. Not satisfied with obtaining the said order of recovery of the amount under Section 31 of the S.F.C. Act, the appellant issued notice under Section 29 of the S.F.C. Act.
5. It appears that 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 appellant 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 re-scheduling of the loan and thereafter as per the arrangement under the re-scheduling of the loan.
6. The appellant initiated proceedings under Section 29 of the S.F.C. Act to take possession of the mortgaged properties on May 3, 1990. That action of the appellant was challenged by the respondent 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 appellant could not invoke Section 29 of the S.F.C. Act till the rights under Section 31 were exhausted and directed it to re-schedule the loan; the respondent was also directed to deposit a sum of Rupees three lakhs. That order of the High Court was unsuccessfully challenged in the special leave petition before this Court. While dismissing the special leave petition No. 3DD/93 on 15.2.1993, this Court left it open to the appellant to approach the civil court for modification of the decree to re-schedule the loan.
7. The appellant re-scheduled the loan in March 1993. The appellant 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 notice to the United Bank of India on the
