Holding

Section 34 of the CPC does not apply to proceedings under the State Financial Corporations Act; interest is payable at the contractual rate agreed between the parties.

Summary

Everest Industrial Corporation borrowed Rs 6 lakhs from Gujarat State Financial Corporation under a hypothecation agreement that stipulated repayment in half‑yearly instalments and interest at 8.5% per annum. After defaulting, the corporation invoked section 31 of the State Financial Corporations Act, 1951, and a compromise decree under section 32 ordered the borrower to pay Rs 15,000 per month. The borrower again defaulted, leading to an application for sale of the hypothecated property. The borrower contended that, because the decree was silent on post‑decree interest, interest could only be awarded under Section 34 of the CPC, which they argued was not applicable. The Supreme Court held that proceedings under section 31 are akin to an application for attachment of property post‑decree, so Section 34 of the CPC does not apply; interest is payable at the contractual rate agreed between the parties. The Court affirmed the High Court’s decision and remanded the matter to the Joint Judge to recalculate the amount due as per the contract before ordering the sale.

Issues considered

Whether interest payable on the amount due under an order passed under section 32 of the State Financial Corporations Act, 1951 is governed by Section 34 of the Civil Procedure Code, 1908 or by the contractual rate.
Whether a proceeding under section 31 of the State Financial Corporations Act is in the nature of a suit such that Section 34 of the CPC applies.
Whether the decree issued under section 32 is a decree for the purposes of Section 34 of the CPC.

Legislation cited

Code of Civil Procedure, 1908s. 34, s. Order 34 Rule 11
State Financial Corporations Act, 1951s. 31, s. 32

Subjects

interestState Financial Corporations ActCivil Procedure Codemortgagehypothecationdecreecontractual interestsale of propertyattachment

Judgment

""'- EVEREST INDUSTRIAL CORPORATION & OTHERS.
v.
A
GUJARAT STATE FINANCIAL CORPORATION.

JULY 21, 1987

-f_ [E.S. VENKATARAMIAH AND K.N. SINGH, JJ.] B

¥,· State Financial Corporations Act, 1951: ss. 31 & 32-NatUre of
proceedings under-Loan-Rate of interest chargeable on principal
amount-Whether governed bys. 34 C.P.C. or payable at contractual

-.._
.
rate.

Civil Procedure Code, 1908: s. 34, 0. 34, rr. 6 & 11-Applica-
c
bility of to orders passed under s. 32, State Financial Corporations Act,
1951.

The appellants had borrowed from the respondent Corporation a
certain sum for the acquisition of fixed assets under a deed of hypothe- D
cation. They also created an equitable mortgage, mortgaging the land
and factory building by depositing the original title deeds of the proper-
ties with the Corporation. The loan had to be repaid within a period of
8 years by half yearly instalments. The appellants were liable to pay
interest at 8.S per cent per annum and that was to be calculated and
charged at the end of every half year. E

The appellants committed default in payment of instalments and

- interest due to the Corporation. The Corporation filed an application
under s. 31 of the State Financial Corporations Act, 1951 before the
District Judge claiming the entire outstanding loan, interest and com-
mitment charges. The appellants having admitted the claim of the F
Corporation, an order of compromise was passed by the Court under
which the appellants undertook to pay a sum of Rs.15,000 every month
towards the claim of the Corporation. The appellants failed to pay the
amount as ordered by the Court.

A The respondent thereupon filed an application under s. 32(8) of G
the Act requesting that the property hypothecated in favour of the
Corporation be directed to be sold by the Commissioner appointed by
the Court and the amount so realised be appropriated towards the
dues.

The appellants raised an objection that since the Court had not in H
607
608 SUPREME COURT REPORTS [1987] 3 S.C.R.

its order expressly directed payment of any interest on the amount, the
A Corporation was not entitled to recover any amount by way of interest
due on the principal amount for the period subsequent to the date of the
order, and since payment of interest subsequent to the date of the
decision of the Court was governed by s. 34 of the Code of Civil Proce-
dure, the appellants were not liable to pay any interest. The first appeal
and the Letters Patent Appeal filed by the appellants were dismissed by ~ -
B
the High Court.

In this appeal by special leave, it was contended for the appellants
that a proceeding under s. 31 of the Act is in the nature of a suit, an
order made thereon under s. 32 thereof is a decree, and since by sub- -
s. (6) of s. 32 of the Act, the District Judge was required to Investigate
C the claim of the Corporation In accordance with the provisions of the ....
Code, s. 34 of the Code would be attracted to the proceeding instituted
under s. 31 of the Act also, and that since the decree passed in this case
is silent on the question of payment of any interest on principal sum
from the date of the decree to the date of payment, the Court should be
D deemed to have refused such interest by virtue of sub-s. 2 of s. 34 of the y i.,

Code.

Disposing of the appeal,

HELD: 1. The High Court was right in holding that Interest
would be payable on the pri11cipal amount due in accordance-With-the
E
terms of the agreement between the parties till the entire amount due
was paid as per the order passed under s. 32 of the State Financial
Corporations Act, 1951. [613GH]

2. Section 34 of the Code of Civil Procedure, 1908 is not appli-
cable to this case. A proceeding instituted under s. 31(1) of the Act is
F
something akin to an application for attachment of property in execu-
tion of a decree at a stage posterior to the passing of the decree. That
being so, no question of passing any order under s. 34 of the Code would
arise since that provision would be applicable only at the stage of the
passing of the decree and not to any stage posterior to the decree. Even .
G under the Code, the question of interest payable in mortgage suits liled"-
in civil courts is governed by Order 34 rule 11 of the Code and not by
s. 34 of the Code which may be applicable only to cases of personal
decrees passed under Order 34 rule 6 of the Code. [614C, 613F]

3. In the instant case, the Joint Judge is to redetermine the actual
H amount due and payable to the Corporation as per the contract between
the parties before directing sale. [614D]
EVEREST CORPN. v. G.S.F.C. (VENKATARAMIAH, J.I 609

Karnataka State Financial Corporation, Bangalore v. Sri A
Nithyananda Bhavan & Anr., A.I.R. 1982 Karnataka 179 and Gujarat
State Financial Corporation v. Mis Natson Manufacturing Co. (P) Ltd.
& Ors., (1979] 1 S.C.R. 372, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1446 B
- i.. of 1987.
From the Judgment and Order dated 2.1.1985 of the Gujarat
High Court in L.P .A. No. 94 of 1984.

K.N. Bhatt, P.H. Parekh and M.K.S. Menon for the Appellants.
c
S.C. Patel for the Respondent.

The Judgment of the Court was delivered by

VENKATARAMIAH, J. The short question which arises for
consideration in this case is whether the rate of interest chargeable on D
the amount payable under an order passed under section 32 of the
State Financial Corporations Act, 1951 (63 of 1951) (hereinafter refer-
red to as 'the Act') from the date of the said order is governed by
section 34 of the Code of Civil Procedure, 1908 (hereinafter referred
to as 'the Code') or whether it is payable at the contractual r3\e.
E
The Appellant No. 1-M/s. Everest Industrial Corporation Pri-
vate Limited, Baroda and its Directors had borrowed from the Gujarat
State Financial Corporation (hereinafter referred to as 'the Corpora-
tion') a sum of Rs.6 lakhs for the acquisition of fixed assets, namely,
land bearing original Survey No. 163 and now bearing Survey No. 949
of Baroda measuring 1 acre and 3 gunthas and the factory building to Ji
be constructed thereupon and for purchasing plant and additional
machinery under a deed of hypothecation dated April 24, 1970
hypothecating all machinery and equipment situated at the factory
premises situated on Survey no. 949. They also created an equitable
mortgage mortgaging the said land and factory building by depositing
;Jhe original title deeds of the properties with the Corporation by sign- G
ing the letter evidencing the said deposit of title deeds. Under the said
transaction the loan of Rs. 6 lakhs had to be repaid within a period of 8
years by half yearly instalments, such first half yearly instalment of
1/ 13th of the loan being payable at the end of 24 months of the dis-
bursement of the first instalment of the loan and subsequent half
H
yearly instalments of 1/ 13th of the loan to be paid each half year and
610 SUPREME COURT REPORTS [1987] 3 S.C.R.
~ ....
A the last half yearly instalment of I/13th of the loan to be paid on
24.4.1978. According to the said agreement the first instalment of
Rs.46, 153 was to be paid on 27.4.1972 and second instalment of
Rs.46, 153 was to be paid on 27.10.1972. The appellants were liable to
pay interest at 8.5 per cent per annum and that was to be calculated
and charged at the end of every half year and was payable on the 31st
B of March and 30th September in each year. The appellants committed ...J-
default in payment of instalments and interest due to the Corporation.
Hence the Corporation filed an application on 9th August, 1973 under '""¥
section 31 of the Act before the District Judge, Baroda in Civil Miscel-
laneous Application No. 123 of 1973 claiming that in view of the
default, the entire outstanding Joan, interest and commitment charges
C amounting to Rs.6,73,390.42 paise had become due and payable. In
-
the said proceedings the appellants having admitted the claim of the ""'
Corporation a compromise was arrived at under which the 1st
Appellant-Mis. Everest Industrial Corporation undertook to pay a
sum of Rs.15,000 every month towards the claim of the Corporation
and further agreed that if there was a default in payment of any two
D instalments at a time, then the Corporation could recover the entire y ,
outstanding amount then due forthwith. On the basis of the above
compromise an order was passed on 29.4.1977 by the learned Joint
Judge, Baroda before whom the case was pending at that time. The
operative portion of the order read as follows:

E "ORDER

Claim of the applicant is decreed. Opponent No. 1 to
pay the amount of Rs.15,000 (fifteen thousand) per month
through the Bank of Maharashtra to the applicant towards
his claim. If two instalments of Rs.15,000 each at a time are
F not paid by Opponent No. 1, then the applicant shall be
entitled to recover the remaining amount then due, at a
time. Decree to be drawn on payment of Court fees by the
applicant. 2/3 of the Court fee amount be refunded to the
applicant advocate. Costs to be borne by Opponent No. I.
Costs to be assessed after deducting the amount of court
G fees refundable to the applicant.", ,.I.

Because the 1st Appellant failed to pay the amount as ordered by
the Court an application was filed by the Corporation under section
32(8) of the Act before the District Judge, Baroda requesting that the
property hypothecated in favour of the Corporation be directed to be
H sold by the Commissioner appointed by the Court and the amount so
EVEREST CORPN. v. G.S.F.C. (VENKATARAMIAH, J.) 611

~• realised might be appropriated towards the dues of the Corporation. A
Accordingly an order directing the sale of the properties was passed on
8.2.1980. Before the property could be sold the appellants raised an
objection regarding the actual amount which could be realised by the
Corporation by the sale of the properties mortgaged in its favour. The
objection which related to the amount of interest payable by the appel-
~. i. !ants was formulated thus. Since under the order dated 29.4.1977, B
which was described as a decree, the Court had not expressly directed
~ payment of any interest on the decretal amount, the Corporation was
not entitled to recover any amount by way of interest due on the
principal amount for the period subsequent to the date of the order. It
was further submitted that since the question of payment of interest on
the amount due for the period subsequent to the date of the decision of C
~ the Court is governed by section 34 of the Code the appellants were
not liable to pay any interest because the Court had not ordered pay-
ment of any amount by way of interest to be paid as required by that
section. In other words the contention of the appellants was that when
the "decree" was silent about the payment of interest for the period
_. ~ between the date of the "decree" and the date of payment the Cor- D
poration was not entitled to recover it. It may be mentioned that the
Corporation had claimed interest at the rate agreed upon under the
transaction, i.e., 8.5 per cent per annum and that had not been dis-
puted by the borrowers. The said objection was overruled by the Joint
Judge by his Order dated February 25, 1983. He determined that

k . Rs.9,35,547.84 paise was due as on February 8, 1983 and that there-
. after interest at the rate of Rs.178.60 paise per day would be accruing.
Aggrieved by the order of the Joint Judge, the appellants filed an
E

appeal in First Appeal No. 1474 of 1983 before the High Court of
~ Gujarat. That appeal was dismissed by the learned Single Judge on
February 2, 1984. Under the Letters Patent Appeal No. 94 of 1984
filed by the appellants, a Division Bench of the High Court affirmed F
the judgment of the learned Single Judge by its decision dated January
2, 1985. This appeal by special leave is filed against the judgment of
the Division Bench of the High Court.

The main contention urged on behalf of the appellants before
~his Court is that a proceeding under section 31 of the Act is in the G
A

nature of a suit, an order made thereon under section 32 thereof is a
decree and since by sub-section (6) of section 32 of the Act the District
Judge is required to investigate the claim of the Corporation in accor-
dance with the provisions of the Code insofar as the said provisions
would be applicable thereto, section 34 of the Code which governs the
question of levy of interest on the amount due from the date of the suit H
612 SUPREME COURT REPORTS [1987] 3 S.C.R.

A to the date of the decree and from the date of the decree to the date of ~--
payment would be attracted to the proceedings instituted under sec-
tion 31 of the Act also. It is urged that since the "decree" passed in this
case is silent on the queston of payment of any interest on the principal
sum from the date of the decree to the date of payment, the Court
should be deemed to have refused such interest by virtue of sub-
B section (2) of section 34 of the Code. In support of the above conten- ~ ~
tion of the appellants, reliance is placed on the decision of the High '
Court of Karnataka in Karnataka State Financial Corporation, Banga- ~
lore v. Sri Nithyananda Bhavan and another, A.LR. 1982 Karnataka
179 in which the High Court had applied section 34 of the Code to a
proceeding instituted under section 31 of the Act. In that case the
District Judge had awarded future interest at 6 per cent per annum on
c the amount payable under a transaction under the Act from the date of ""'
the application to the date of payment. The Kamataka State Financial
Corporation which was aggrieved by the order of the District Judge
filed an appeal against that order before the High Court. In the said
appeal the Karnataka State Financial Corporation claimed interest on
D the principal amount due from the date of the application at the rate of V •
18 per cent per annum. In deciding the said case the High Court did
not go into the question whether section 34 of the Code would be
applicable to a proceeding under the Act. It was assumed on all hands
that section 34 of the Code was applicable. Ultimately, the High Court
increased the rate of interest to 11 per cent per annum which was the
E contractual rate of interest treating that as a reasonable rate of interest
that could be awarded under section 34 of the Code. It may be i---'
mentioned here that an earlier decision of this Court in Gujarat State
Financial Corporation v. Mis Natson Manufacturing Co. (P) Ltd. &
Ors., [1979] 1 S.C.R. 372 in which the nature of a proceeding ~
instituted under section 31 of the Act and of the order j>assed thereon
F under section 32 thereof had been considered was not brought to the
notice of the High Court.

In Gujarat State Financial Corporation v. Mis. Natson
Manufacturing Co. (P) Ltd. & Ors. (supra) no doubt the question
involved was whether court fee was payable on an application made
G under section 31 of the Act on an ad valorem basis as if the proceedint-
was a suit or not. But this Court after analysing the provisions of the
Act held that an application for any of the reliefs that can be granted
under the Act was not certainly a plaint in a suit for recovery of
mortgage loan and that it was not even something akin to a suit by a
mortgagee to recover mortgage money by sale of the mortgage pro-
H perty. The Court held that the applicant in such a case could not pray
~
EVEREST CORPN. v. G.S.F.C. [VENKATARAMIAH, J.) 613

for a preliminary decree for sale of the property or a final decree for A
the payment of the money nor it could seek to enforce any personal
liability even if such a liability had been incurred under the contract of
mortgage as the law stood then. This Court held that the form of the
relief to be granted under the Act did not attract Article 1 or Article 7
of Schedule 1 of the Bombay Court Fees Act, 1959 which required
payment of court fee on ad valorem basis on any plaint or application B
in the nature of a plaint instituted for recovery of mortgage amount.
Accordingly it held that the demand for payment of ad valorem court
fee was unsustainable. In the course of its judgment the Court rejected
the contention based on sub-section (6) of section 32 of the Act which
required a District Judge to apply the procedure of the Code to appli-
cations made under section 31 of the Act and ultimately held that the C
substantive relief in any claim under section 31( 1) of the Act was some-
thing akin to the relief th~t could-be granted on an application for
attachment of property for execution of a decree at a stage posterior to
the passing of the decree. The Court further observed that "we are
unable to appreciate the view taken by the High Court that the pro-
ceeding is not in the nature of. execution of the decree because the D
question of enforcement of the order of attachment or sale would only
arise after the same is made absolute under sub-section (7)." Even
though in the above decision the question which arose for considera-
tion was whether ad valorem court fee was payable on an application
under section 31 of the Act as if it was _a suit, the Court bas decided the
said question after determining the true nature of a proceeding E
instituted under section 31(1) of the Act on a detailed analysis of the
provisions of the Act.

If as held by this Court the proceeding instituted under section
31(1) of the Act is something akin to an application for attachment of
property in execution of a decree at a stage posterior to the passing of F
the decree no question of passing any order under section 34 of the
Code would arise since section 34 of the Code would be applicable
only at the stage of the passing of the decree and not to any stage
posterior to the decree. It may also be mentioned here that even under
the Code the question of interest payable in mortgage suits filed in civil
,._., courts is governed by order 34 rule 11 of the Code and not by section G
34 of the Code which may be applicable only to cases of personal
decrees passed under order 34 rule 6 of the Code. The High Court was
right in holding that interest would be payable on the principal amount
due in accordance with the terms of the agreement between the parties
till the entire amount due was paid as per the order passed under
section 32 of the Act. We hold that the decision of the Karnataka High H

---:;-·-
614
'
SUPREME COURT REPORTS [ 1987] 3 S.C.R.

A Court, referred to above, which has applied section 34 of the Code to a
proceeding instituted under section 31(1) of the Act is not correctly
decided.

It was lastly urged on behalf of the appellants that the amount
B due and payable to the Corporation has not been properly calculated
by the Joint Judge. We do not have all the material before us to enable
us to determine the actual amount due. It is also seen that subsequent
to the date of the order passed by the Joint Judge a sufficiently long
time has elapsed. In the circumstances we feel that the Joint Judge
before whom the proceeding for recovery of the amount by sale of the
properties has been instituted should be directed to redetermine the
C amount due and payable to the Corporation in this case.

We accordingly affirm the judgment of the High Court holding
that section 34 of the Code of Civil Procedure, 1908 is not applicable to
this case but remand the matter to the Joint Judge· to redetermine the
actual amount due and payable to the Corporation in these proceed-
D ings calculating the same as per contract between the parties before
directing the sale of the properties. We direct the Joint Judge to
determine the amount payable by the appellants within one month
from the date of the receipt of a copy of the order of this Court. Both
the parties are directed to file their statements of accounts before the
Joint Judge within one week from the date of receipt of the copy of this
E order by the Joint Judge to enable him to decide the case as directed
above.

The appeal is accordingly disposed of. There shall, however, be
no order as to costs.

P.S.S. Appeal disposed of.