HIMACHAL PRADESH STATE FINANCIAL CORPORATION,SHIMLA versus PREM NATH NANDA AND ORS.

Citation: [2000] SUPP. 4 S.C.R. 301 · Decided: 31-10-2000 · Supreme Court of India · Bench: K.T. THOMAS · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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HIMACHAL PRADESH ST A TE FINANCIAL 
CORPORATION. SHIMLA 
v. 
PREM NATH NANDA AND ORS. 
OCTOBER 31, 2000 
[K.T. THOMAS AND R.P. SETHI, JJ.] 
A 
B 
State Financial Corporation Act, 1951-Section 29-Default in 
repayment of loan-Sale of mortgaged property of /oanee by Corporation-
Excess amount realised on sale-Refund of excess amount to loanee delayed C 
on account of proceedings in Court-Interest on excess amount-Entitlement 
of-Held, on facts, interest cannot be granted to loanee. 
Appellant-Corporation granted a loan of Rs. 20.50 lacs to respondents 
for construction of a hotel. The respondents defaulted in repayment of the 
loan. The Corporation took possession of the mortgaged hotel under Section D 
29 of the State Financial Corporation Act, 1951. Notices for sale of the hotel 
were advertised in the newspapers. Out of four bidders, the Corporation 
accepted and entered into an agreement with one of the bidders P for sale 
of the hotel. Before the excess amount received from P could be paid by the 
appellant, the respondents filed a Writ Petition before High Court challenging E 
the sale. The excess amount was put in a separate Current Account of the 
Corporation. During the pendency of the petition, one R offered Rs. 60 lacs 
to the Corporation for vacant possession of the hotel. The offer was reported 
to the High Court by the Corporation which was recorded in the proceedings. 
The High Court disposed of the case allowing the Corporation to sell the F 
hotel to R. The High Court directed the Corporation to refund the excess 
amount with interest at the rate of 13% per annum to the respondents. 
Hence, the appeal by the Corporation questioning the legality of payment of 
interest. 
The appellant contended that there was no fault on their part to refund G 
the excess amount to the respondents; that the delay was occasioned on 
account of the pendency of the writ petition filed by the respondents; and that 
since the excess amount was put in a separate Current Account of the 
Corporation, it did not earn any interest on the amount. 
301 
H 
302 
SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R. 
A 
Allowing the appeal, the Court 
HELD: 1.1. The Corporation deals with public money for public benefits. .·· 
Defaults in payments of the loans and advances thus, ultimately affects the 
public at large. An obligation is cast upon the loanee to pay back the amount 
of the loan on advance received under the State Financial Corporation Act, 
B 1951. In case of failure to make the payment, the Corporation is expected 
to adopt an approach which has to be public oriented rendering a helping 
hand to the loanee to come out of the financial losses and constraints, if any, 
but without causing any loss to the Corporation. To protect the public interest, 
>~ 
the Act provides a mechanism for recovery of loan. Section 29 of the Act 
c authorises the Corporation to take over the management or possession or 
both of the industrial unit and transfer the same by way of lease or sale 
where it finds that any industrial concern, who had taken loan, had made 
default in repayment of any loan advanced or any instalment thereof or in 
meeting of its obligation in relation to any guarantee given by the Corporation 
or otherwise fails to comply with the terms of its agreement with the 
I 
D Corporation. f304-G-H; 305-AI 
1.2. Powets conferred under Section 29 of the Act are intended to 
achieve the object of the Act The amount realised in consequence of the sale 
or lease of the property of the defaulter can be adjusted in the liability of the 
defaulter and the excess amount thus realised, if any, to be paid to the person 
E whose unit was proceeded against under Section 29 of the Act. The activities 
of the Corporation are visualised not as profit earning concern but an 
extended arm of the State to harness the business potential of the country 
to benefit the common man. There is no statutory obligation on the part of 
the Corporation to pay the interest on the excess amount realised. However, 
F in appropriate cases interest may be awarded in lieu of compen_sation or 
damages for allegedly wrongfully retaining the amount payable to a party. 
1305-B-CI 
Satinder Singh v. Umrao Singh, (19611 3 SCR 676; laxmichand v. 
Indore Improvement Trust, 11975) 1 SCC 565 and Sovintorg (India) ltd. v. 
G State Bank of India, New Delhi, ( 19991 6 SCC 406, relied on. 
1.3. The High Court has not assigned any cogent reason for payment 
of interest. In the abse
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