Case Note & Summary
The petitioner, Union Bank of India, a nationalised bank, had advanced money to Poddar Mills (Process House), which was leased by M/s Poddar Mills Ltd. to Shree Laxmi Traders Limited. The management of Poddar Mills was taken over by the Central Government in 1983 under the Textile Undertakings (Takeover of Management) Act, 1983, and Respondent No.3, National Textile Corporation Limited, was appointed as additional custodian. On 14th October 1986, the bank instituted a suit for recovery of Rs 1,46,97,156.95 against Shree Laxmi Traders Limited and guarantors, including the Central Government which had executed a guarantee dated 19th June 1986 for Rs 50 lakhs advanced by way of cash credit facility. The guarantee was renewed from time to time. Subsequently, the Textile Undertakings (Nationalisation) Act, 1995 was enacted, and the textile undertaking was nationalised. The bank filed a claim before the Commissioner of Payments appointed under Section 17 of the Act, seeking payment under the guarantee. The Commissioner rejected the claim on the ground that the guarantee was not covered under Section 5(1)(c) of the Act. The bank then filed a writ petition challenging the rejection. The legal issue was whether the guarantee executed by the Central Government in favour of the bank was a liability covered under Section 5(1)(c) of the Textile Undertakings (Nationalisation) Act, 1995. The bank argued that the guarantee was a liability in respect of loans advanced to the textile undertaking and should be paid by the Commissioner. The respondents contended that the guarantee was not a liability of the textile undertaking but a separate contract between the bank and the Central Government, and that Section 5(1)(c) only covers liabilities in respect of loans advanced to the textile undertaking before the appointed day. The court analysed Section 5(1)(c) and held that it covers only liabilities in respect of loans advanced to the textile undertaking before the appointed day, i.e., the date of nationalisation. The guarantee in question was executed after the management was taken over and was for advances made after the appointed day. Moreover, the guarantee was not a liability of the textile undertaking but a separate obligation of the Central Government. Therefore, the guarantee was not covered under Section 5(1)(c), and the Commissioner of Payments had no jurisdiction to entertain the claim. The court dismissed the writ petition, upholding the Commissioner's order.
Headnote
A) Banking Law - Guarantee - Liability of Central Government - Section 5(1)(c) Textile Undertakings (Nationalisation) Act, 1995 - The petitioner bank sought payment under a guarantee executed by the Central Government for advances made to a textile undertaking. The court held that the guarantee was not covered under Section 5(1)(c) as it was not a liability in respect of loans advanced to the textile undertaking before the appointed day. The guarantee was executed after the management was taken over and was not a liability of the textile undertaking. (Paras 1-10) B) Interpretation of Statutes - Nationalisation Act - Section 5(1)(c) Textile Undertakings (Nationalisation) Act, 1995 - The court interpreted Section 5(1)(c) to mean that only liabilities in respect of loans advanced to the textile undertaking before the appointed day are covered. The guarantee in question was for advances made after the appointed day and was not a liability of the textile undertaking. (Paras 5-10) C) Commissioner of Payments - Jurisdiction - Section 17 Textile Undertakings (Nationalisation) Act, 1995 - The Commissioner of Payments has jurisdiction only over liabilities specified under Section 5 of the Act. Since the guarantee was not covered under Section 5(1)(c), the Commissioner rightly rejected the claim. (Paras 8-10)
Issue of Consideration
Whether the guarantee executed by the Central Government in favour of the petitioner bank is covered under Section 5(1)(c) of the Textile Undertakings (Nationalisation) Act, 1995 and whether the petitioner is entitled to payment from the Commissioner of Payments.
Final Decision
The writ petition is dismissed. The order of the Commissioner of Payments rejecting the claim is upheld. No order as to costs.
Law Points
- Interpretation of guarantee under Section 5(1)(c) of Textile Undertakings (Nationalisation) Act
- 1995
- Liability of Central Government under guarantee
- Scope of Commissioner of Payments' jurisdiction
