NATIONAL TEXTILE CORPORATION (GUJARAT) versus STATE BANK OF INDIA AND ORS.

Citation: [2006] SUPP. 4 S.C.R. 411 · Decided: 08-08-2006 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

NATIONAL TEXTILE CORPORATION (GUJARAT) • 
V. 
STATE BANK OF INDIA AND ORS. 
AUGUST 8, 2006 
(S.B. SINHA AND P.P. NAOLEKAR, JJ.] 
Sick Textile Undertakings (Nationalisation) Act, 197 4-Sections 5, 21 
and 22; Second Schedule-Bombay Relief Undertaking (Special Provision) 
A 
B 
Act, 1958-Section 4-Jndustries (Development and Regulation) Act, 1951- C 
Section 18(1)-Takeover of management of a sick textile company-Claims by 
Banks before Commissioner of Payments for compensation for the various 
credit facilities extended to the company in pre and post takeover period-
Commissioner admitted only part of the claims under Categories I and IV of 
the Second Schedule and disallowed the remaining claims-Trial Court 
dismissed the claims by the Banks but upheld by High Court-Correctness D 
of-Held, on facts, continuing of credit facilities by the banks would not 
amount to a fresh agreement-Loan taken for revival of business for the 
purpose of trade and manufacturing operations fall under Catego1y 1 of the 
second Scheduled and thus eligible for compensation under the Act-Liability 
of erstwhile owner continues even during the post-takeover period but 
guarantees furnished by State or statutory authority in post-management period E 
would not bind the owner-Liberty to Bank to file appropriate suits or 
proceedings before appropriate forums for recovery of,remaining amount. 
The management of a sick textile company was taken over under 
the provisions of the Industries (Development and Regulation) Act, 1951, F 
in 1969. An Authorised Controller was appointed for the management of 
the company. The period of takeover was extended upto 31.3.1974. The 
Sick Textile Undertakings (Nationalisation) Act, 1974 came into effect from 
1.4.1974, whereby the right, title and interest of the company came to be 
vested absolutely with the Central Government. Respondent-Banks 
granted various credit facilities before and after the Authorised Controller G 
took over the management of the company. The Banks made various 
claims before Commissioner of Payments for awarding compensation 
amount under the Act. The Commissioner admitted only a part of the 
claims under Categories l and IV of the Second Schedule to the Act and 
411 
H 
412 
SUPREME COURT REPORTS (2006) SUPP. 4 S.C.R. 
A disallowed the remaining claims. The Banks filed appeals before trial 
Court. The trial Court dismissed the appeals holding that certain claims 
are not covered in any of the Categories in the Schedule for payment; and 
that the credit given by the Banks after the Appointed day under the Act 
are not eligible for payment as they were non-existent on the Appointed 
B day. Special Civil Application filed by the Banks before High Court were 
allowed. The High Court held that the loans advanced by the Banks in 
pre-takeover period, guaranteed by the Authorised Controller and by the 
State Government and guaranteed for the post-takeover period would fail 
under Category I and not under Category IV of the Schedule. 
C 
Appellant contended that the loan advanced by the Banks during 
post-takeover period are not entitled for priority claim under Category I 
of the Schedule; that the undertaking given by the Controller for 
continuing to obtain the credit facilities would not make the claim fall 
under Category I entitling priority under the Act; that the facility was 
given by the Bank to continue to avail the credit facilities; that there is a 
D difference between a loan and liability and that the principal amount would 
come within the purview of priority claim and the claim of interest would 
not. 
The respondent Banks contended that the extension of credit facilities 
would amount to a new loan as it has been extended on the guarantees 
E issued by the Authorised Controller and the State; that the credit facilities 
were given for the survival of the mills and hence the appellant cannot 
contend that the loan advanced by the Bank would not be disbursed on a 
priority basis; that the deferred payment guarantee should be treated as 
an advance given during post-management period and thus would come 
F within the purview of Category I of the Second Schedule to the Act; and 
that any amount payable as on 31.3.1974 including interest would come 
within the purview of the expression 'loan'. 
Allowing the appeals, the Court 
G 
HELD: 1.1. The claim of every claimant was required to be 
determined by the Commissioner of Payments strictly in terms of the 
provisions of the Sick

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