Holding

Interest amounts accruing after the appointed date are not payable in priority under the Sick Textile Undertakings (Nationalisation) Act, 1974.

Summary

The case concerned the interpretation of the Sick Textile Undertakings (Nationalisation) Act, 1974, specifically whether interest accruing after the appointed date of 1 April 1974 on bank loans to a sick textile undertaking must be paid in priority over other liabilities. The appellant argued that the High Court had decided the matter without considering two earlier Supreme Court decisions (State Bank of Indore v. Commissioner of Payment 2004 and National Textile Corp (Guj) Ltd. v. State Bank of India 2006). The Supreme Court examined the provisions of Sections 3, 4, 5, 9 and 21 of the Act and the Second Schedule, concluding that only the principal loan amount enjoys priority, while interest remains a liability of the owner and is not covered by the priority scheme. Consequently, the Court set aside the High Court’s order and remitted the matter to be reheard in light of the cited precedents. Both appeals were disposed of, with no costs awarded.

Issues considered

Whether interest amounts accruing after the appointed date on loans advanced by banks are payable in priority under the Sick Textile Undertakings (Nationalisation) Act, 1974.

Subjects

Sick Textile Undertakings (Nationalisation) Actpriority of paymentinterest liabilityloan principalSecond Schedulevested rightsremandSupreme Court precedent

Judgment

[2008] 2 S.C.R. 123

NATIONAL TEXTILE CORPN. (DR & P) LTD. A
v.
BANK OF RAJASTHAN & ORS.
(Civil Appeal No. 721 of 2008 etc.)
JANUARY 28, 2008
B
[DR. ARIJIT PASAYAT AND P. SATHASIVAM, JJ.]
.,,.
Sick Textile Undertakings (Nationalisation) Act, 1974 -
ss. 3, 4 and 5 - Liability to pay interest amounts occurring
after appointed date - On loans - Question decided by High c
Court without taking into consideration decisions passed by
Supreme Court on the question - Held: Since the decisions
of Supreme Court were not cited before High Court, matter
remitted to High Court for deciding the issue after taking into
consideration the decisions passed by Supreme Court. D
In the present matters, the question for consideration
was whether under the provisions of Sick Textile
Undertakings (Nationalisation) Act, 1974 interest amounts
occurring after the appointed date on loans advanced by
Banks are to be paid in priority. E
Appellant contended that High Court had decided the
matters without taking into consideration the decisions
passed in State Bank of Indore vs. Commissioner of Payment
and Ors. 2004 (11) SCC 516 and in National Textile Corpm.
(Guj) Ltd. vs. State Bank of India and Ors. 2006 (7) SCC 542. F

Disposing of the appeals and remitting the matter to
High Court, the Court
HELD: There was no appearance before the High
Court and, therefore, the relevance and applicability of the G
)·
two decisions passed by Supreme Court presently relied
upon, had not been considered. Therefore, the impugned
order is set aside and matter is remitted to the High Court
to hear the matter afresh and decide the matter in the light
123 H
124 SUPREME COURT REPORTS [2008) 2 S.C.R.
+- t.
,,.._
A of the cited decisions. The matter which has already been
remanded to the Commissioner by the impugned order
of the High Court shall be decided keeping in ·view the
•
decisions cited. [Paras 11 and 12] [130-C, D, F]
State Bank of Indore vs. Commissioner of Payment and
B Ors. 2004 (11) SCC 516; National Textile Corprn. (Guj) Ltd.
vs. State Bank of India and Ors. 2006 (7) SCC 542 - referred
to. •f'

CIVILAPPELLATE JURISDICTION: Civil Appeal No. 721
c of 2008.
From the final Judgment and Order dated 21.07.2005 of
the High Court of Judicature for Rajasthan, Jaipur Bench, Jaipur
in S.B. Civil Writ Petition No. 8908 of 2002
WITH
D
Civil Appeal No. 720 of 2008.
G.E. Vahanvati, S.G., B. Sunita Rao for the Appellant.
Shyam Diwan, Hemant Sharma, Ajay Kumar, Biju and
E Anupam Lal Das for the Respondents.
The Judgment of the Court was delivered by
Dr. ARIJIT PASAYAT, J. 1. Leave granted.
2. Challenge in this appeal is to the judgment of Learned
F Single Judge of the Rajasthan High Court at Jaipur Bench ,.,
dismissing this Civil Writ Petition filed by the appellant. ~

3. Background facts in a nutshell are as follows:
The Sick Textile Undertaking Nationalisation Act, 1974 (in
G short the 'Act') became operative with effect from 1.4.1974. One
Textile Undertaking i.e. Mahalaxmi Mills Ltd. Bewar vested in --(

the Central Government under the Act. The same was
transferred to the National Textile Corporation (in short the
'Corporation') and thereafter to the present appellant which is a
H Subsidiary of the Corporation i.e. N~tional Textile Corporation
---';--- -
NATIONAL TEXTILE CORPN. (DR & P) LTD. v. BANK 125
OF RAJASTHAN & ORS. [PASAYAT, J.]

(Delhi, Punjab, Rajasthan) Ltd. Appellant's stand was that in A
terms of Section 3 of the Act, with effect from the appointed
date i.e. 1.4.1974, every sick textile undertaking and the right
title and interest of the owner in relation to such textile undertaking
stood vested absolutely in the Central Government and in turn
to the Corporation. Section 4 of the Act sets out the general 8
.,,..
effects of vesting. Under Section 5 of the Act, deals with the
liability of the owner of the sick textile undertaking and clearly
provides that every liability other than the liability specified in
sub-section (2) of Section 5 of the owner of a sick textile
undertaking in respect of any period prior to the appointed date c
was a liability of the owner and shall be enforceable against
him and not against the Central Government or the Corporation.
On 25.5.1978, respondent-Bank filed claim before the
Commissioner for Payment (in short the 'Commissioner') raising
demand of about Rs.34. 72 lakhs. After examining the claim the
D
Commissioner allowed the claim to the extent of about Rs.21.22
lakhs i.e. the amount outstanding against the owner on 31.3.1974
i.e. a day prior to the appointed date. The claim towards interest
was rejected by the Commissioner. An appeal was also
preferred by the respondent-bank before the District Judge
•
I under Section 23 of the Act. By order dated 20.8.1987 the District E
• Judge held that for a period subsequent to the appointed date
liability would be of the owner and held that respondent was
entitled to interest at the contractual rate for a period subsequent
to 31.3.1974. The matter was remanded to the Commissioner
to work out the details. F

4. The order was challenged before the Rajasthan High
Court. The controversy was restricted to the question of payment
subsequent to 31.3.1974. The order was unsuccessfully
challenged before the High Court and this Court. The
G
)... Commissioner passed an award for an amount of about
Rs.16. 70 lakhs. Again an appeal was preferred before the
District Judge wherein their stand was that the Commissioner
had not calculated the amount of interest as per the earlier
directions of the District Judge and the interest was to be
H
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126 SUPREME COURT REPORTS [2008] 2 S.C.R.

A calculated on the basis of six monthly rest. The District Judge
allowed the appeal and again sent the matter back to the
Commissioner. A revision was filed before the High Court on
the ground that the District Judge had erred in awarding interest
after 1.4.1974 on the liability of the erstwhile owner overlooking
B the position of law as contained in Sections 3, 4, 5 & 11. A
transfer petition was filed before this Court with a request to '(
stay further proceedings in different High Courts as common
points were urged.
5. This Court by order dated 15.3.2004 directed the High
c Court to follow the decision of this Court in Civil Appeal No.2314
of 2000 and connected matters. An application was filed by one I

of the respondents in TP Nos.155-58 of 2004. This court clarified
that the matters pending in the High Court would await the
decision in which the issues arising for decision are the same
D or similar to those involved in Civil Appeal No. 2314 of 2000 on
21.7.2005. The High Court dismissed the writ petition as noted
above. It was of the view that the matters agitated before the ..,,
High Court have aJready been concluded by the: High Court.
6. In support of the appeal, Mr. G.E. Vahanvati, learned
E Solicitor General, submitted that unfortunately there was no \
~
appearance before the High Court because of some mis-
understanding. In any event the decisions of this Court in State •'
Bank of Indore v. Commissioner of Payment & Ors.[2004(11)
SCC 516] and in National Textile Coprn. (Guj.) Ltd. v. State
F Bank of India & Ors. f2006(7)SCC 542] have not been taken
note of.
7. Learned counsei for the respondent No.1-Bank on the
other hand submitted that the issue had attained finality and
therefore the High Court was justified in dismissing the writ
G ---...
petition.
8. In State Bank of Indore v. Commissioner of Payment
& Ors.[2004(11)SCC 516] the Bank had filed the appeal before
this Court. It was inter alia observed in the said case as follows:
H
-~-
NATIONAL TEXTILE CORPN. (DR & P) LTD. v. BANK 127
OF RAJASTHAN & ORS. [PASAYAT, J.]

"A glance at the provisions of the Act, extracted A
hereinabove, shows that by virtue of Section 3 the right,
title and interest of the owner in sick textile undertakings
stands transferred to and vests in the Central Government.
Section 4 provides for the effect of such vesting. It shows
that the liability, which vests in the Central Government, is B
only liability specified under sub-section (2) of Section 5.
This position is further clarified by Section 5(1) which states
that except for liabilities mentioned in sub-section (2) of
Section 5 all other liabilities would continue to be the
liabilities of the owner of the sick textile undertakings and c ·
shall be enforceable against the owner and not against
the Central Government or the National Textile Corporation.
Thus by virtue of Section 5(1) the remedy for recovery of
any liability is against the owner. Undoubtedly, the word
"liability" would include not just the loan amounts but also D
the amounts due by way of interest of such loan amounts.
Sub-section (2) of Section 5 specifies which liabilities are
taken over by the Central Government. Sub-section (2)( a
) talks of loans advanced by the Central Government or
the State Government. Thus, the legislature is now making E
a distinction between the terms "liability" and "loan". When
the term "loan" is used it is specified that the loans would
be "together with interest due thereon". The same
clarification can be found even in Section 5(2)( b ). This
indicates the intention of the legislature. Thus even though F
the term "liability" includes liability for the interest amounts
also, the term "loan" does not include the interest amount ·
unless specified otherwise in the Act. This position is
fortified by Section 9 wherein on the amounts paid to the
owner interest at the rate of 4% is also payable. Thus, G
where the legislature wanted to specify that certain
amounts would carry interest, it has done so specifically.
Section 21 provides that the amounts set out in the Second
Schedule are to be paid in priority. The relevant portion of
the Second Schedule reads as follows: H
128 SUPREME COURT REPORTS [2008] 2 S.C.R.

A ''THE SECOND SCHEDULE
(See Sections 21, 22, 23 and 27)
Order of priorities for the discharge of liabilities in respect
of a sick textile undertaking

B PART A
Post- Takeover Management Period
Category I~
(a) Loans advanced by a bank.
c (b) Loans advanced by an institution other than a bank.
(c) Any other loan.
(d) Any credit availed of for purpose of trade or
manufacturing operations.
D
Category II-
(a) Revenue, taxes, cesses, rates or any other dues to the
Central Government or a State Government.
(b) Any other dues."
E
Thus, the heading of the Second Schedule provides
"priorities for the discharge of liabilities". The term "liability"
;
as stated above would include interest. It would include a
loan. It would also include credits availed of. It would include
revenue, taxes, cesses, rates and other dues. However,
F the payment in priority is for a loan. The distinction in
language makes it very clear that what was to be paid in
priority was only the amount of the loan i.e. the principal
amount and not the interest amount due thereon. Of course,
payments towards interest would remain liabilities. But for
G recovery of that the remedy would be to proceed against
the owner/surety. """ '
It is thus clear that the interest amounts are not to be paid
in priority under the provisions of this Act. In this view,
strictly speaking, even interest up to 31-3-1974 was not
H
NATIONAL TEXTILE CORPN. (DR & P) LTD. v. BANK 129
OF RAJASTHAN & ORS. [PASAYAT, J.]

payable in priority. However, as the respondents have not A
come up in appeal we see no reason to interfere with that
portion of the impugned judgment which directs payments
of interest up to 31-3-1974."
9. Again in National Textile Coprn. (Guj.) Ltd. v. State Bank
of India & Ors. (2006(7) SCC 542) after referring to State Bank
8
of Indore's case (supra) this Court observed as follows:
"There exists a difference between a loan and liability;
whereas the principal amount would come within the
purview of priority claim, claim of interest would not. c
The High Court in its impugned judgment relied upon State
Bank of India v. Edward Textile Miffs Ltd. The said decision
was reversed by this Court in State Bank of Indore v.
Commr. of Payments, holding: (SCC p. 522, paras 9-
11) D
"Thus, the heading of the Second Schedule provides
'priorities for the discharge of liabilities'. The term 'liability'
as stated above would include interest. It would include a
loan. It would also include credits availed of. It would include
E
revenue, taxes, cesses, rates and other dues. However,
the payment in priority is for a loan. The distinction in
language makes it very clear that what was to be paid in
priority was only the amount of the loan i.e. the principal
amount and not the interest amount due thereon. Of course,
payments towards interest would remain liabilities. But for F
recovery of that the remedy would be to proceed against
the owner/surety. This Court has in Industrial Finance
Corpn. of India Ltd. v. Cannanore Spg. and Wvg. Mills
Ltd. held that by virtue of the provisions of the Act the
liability of the principal debtor and that of the surety does G
not come to an end. It is held that if the compensation to
be paid by virtue of Section 21 and the Second Schedule
does not satisfy the full claim then the creditor is not barred
from filing a civil suit for the balance. Further, in Punjab
National Bank v. State of U. P it has been held that even H
130 SUPREME COURT REPORTS [2008] 2 S.C.R.

A though mode of recovery, against a surety, may be affected
the liability of the principal debtor and the guarantor does
not get affected by the provision of this Act. Not only are
these authorities binding us but we are in complete
agreementwith what is laid down therein. It is thus clear
B that the interest amounts are not to be paid in priority
under the provisions of this Act. In this view, strictly
'<(
speaking, even interest up to 31-3-1974 was not payable
in priority."
10. We find that there was no appearance before the High
c Court and, therefore, the relevance and applicability of the two
decisions presently relied upon had not been considered.
11. We, therefore, set aside the impugned order and remit
the matter to the High Court to hear the matter afresh and decide
D the matter in the light of what has been stated in State Bank of
Indore's case (supra) and State Bank of India's case (supra). It
is made clear that the parties shall be permitted to place
..,,
materials in support of their respective stand.
SLP(C) No.7681 of 2006
E
12. Leave granted.
So far as this appeal is concerned, the matter has been
remanded to the Commissioner by the impugned order of the
Bombay High Court at Nagpur Bench. It is needless to highlight
F that the Commissioner while deciding the issues afresh shall
keep in view the decisions in State Bank of Indore's case (supra)
and State Bank of India's case (supra).
13. Both the appeals are accordingly disposed of. No
costs.
G .......
K.K.T. Appeals disposed of. '