SYNDICATE BANK Vs. NEW LOOK RUBBERS P LTD

JUDGEMENT

(1.) This appeal by special leave arises out of the following facts.

(2.) The Syndicate Bank, the appellant herein, sanctioned various credit limits to the respondent No.1 company including an overdraft limit of Rs.1,00,000/- and working capital term loan of Rs.1,00,000/- on certain prescribed conditions. These loans were granted after cancellation of the earlier limits with a view to nurse respondent No.1 which was a sick unit. In order to secure the advance, the Managing Director of respondent No.1, that is respondent No.2 and the other Directors executed several documents as securities and respondent No.2 also mortgaged his property to the Bank as a collateral security. As the respondent No.1 defaulted in the repayment of the loan, the Bank filed a suit for recovery (O.S.No.732/1987) in the Trichur Civil Court seeking a decree for Rs.1,19,832.63 with interest @ 12.5% per annum in the Term Loan Account and Rs.2,09,120.75 in the Overdraft Account with interest @ 16% per annum compounded quarterly. The following issues were framed in the suit:

(3.) The trial court observed that the Bank had not been harsh or arbitrary in dealing with the defendants and that it appeared that the defendants were not prepared to repay the loan despite the agreements that had been executed. It was also observed that the defendants were not entitled to the benefit of any scheme framed for the rehabilitation of sick units which had been formulated by the Reserve Bank of India. The suit was accordingly decreed on 9th April 1990 and the defendants were given a year's time for payment. No appeal was filed against this judgment with the result that it attained finality. An application for execution of the decree (EP No. 819/1991) was filed by the Bank on 20th December 1991 and while the matter was still pending, the judgment- debtors (the defendants in the above suit) filed civil suit (No.1340/1993) for injunction seeking an order prohibiting the execution of the decree rendered in O.S. No.732/1987 alleging that it was a nullity. The Bank contested the suit which was ultimately dismissed by Judgment & Order dated 1st March 1996 and as no appeal was filed thereagainst, this decision too attained finality. In April 1993, the judgment-debtors also filed a Pauper Petition (No. 19/1993) in the Sub-Court, Trichur claiming damages of about Rs.30/- lacs from the Bank with 18% and 100% ex-gratia payment on several grounds. This suit was dismissed for non-prosecution on 15th November 1995 and an application for its restoration was also dismissed on 6th June 1997. As no further proceedings were taken by the judgment-debtors, these orders attained finality as well. It appears that while this spate of litigation was continuing, the judgment-debtor filed various objections (during the year 1994-97) in E.P.No.819/1991 alleging that the decree was not executable, and amongst others, two objection petitions being E.A.No. 847/1997 and 1197/1997 were filed claming the protection and benefits available under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called "SICA") and under section 18FH of the Industries Development and Regulation Act, 1951 (hereinafter called the "Regulation Act") praying that the execution proceedings be kept in abeyance till such time the proceedings initiated by the Government of Kerala for the revival of the unit were going on. It appears that while the objections were pending, the mortgaged property of judgment-debtor No.2 was sold in auction by the executing court for a sum of Rs.3.50 lacs which was deposited in Court and later released to the Bank and the sale was also confirmed and possession of the property handed over to Antony the auction purchaser. Vide order dated 21st July 1998 the execution application Nos.847/1997 and 1197/97 were dismissed. This order was challenged by the respondent Nos.1 and 2, the original defendants, by way of CRP No.2315/1998 alleging that the execution proceedings ought to have been stayed pending the decision of the proceedings under section 18 FH of the Regulation Act and section 22 of SICA. The respondent No.1 Company also filed a writ petition on 7th April 2000 under Article 226 of the Constitution of India (No. O.P.11862 of 2000) in the Kerala High Court against the Government of Kerala, the Kerala Financial Corporation, the Syndicate Bank and Antony the auction purchaser alleging that the judgment- debtors' unit had been rendered sick on account of the arbitrary actions of the Bank and the Kerala Financial Corporation and that the proceedings in O.S. 732/1987 were without jurisdiction and, therefore, null and void and consequently the decree in EP 819/1991 too was not enforceable. The Civil Revision and the Civil Writ Petition were heard together and both were allowed vide order dated 11th April, 2001 with the High Court observing that though the benefits of section 18FH of the Regulation Act and section 22 of the SICA were not available to the judgment-debtor but they were entitled to succeed on other issues and concluded that: