SUPREME COURT REFERS THE ISSUE WHETHER TIME BARRED DEBTS ARE RECOVERABLE UNDER SPECIAL STATUTES, TO A LARGER BENCH

A two Judge Bench of the Supreme Court comprising of Justice Surya Kant and Justice K.V Viswanathan passed a judgement dated 08.05.2024 in KP Khemka and Anr v. Haryana State Industrial and Infrastructure Corporation Limited and Ors. Civil Appeal no. 6144 of 2024 wherein the Apex Court was of the view that under the statute of Limitation there is only a bar against the remedy in case of time barred debts, but the right to recover the debt still remained with the creditor. However, the two Judge Bench sought directions from a larger bench regarding the said issue.

Facts

M/s Khemka Ispat Limited (Respondent No. 3) took a term loan from Haryana State Industrial and Infrastructure Development Corporation Limited (HSIDC Ltd) (Respondent No.1) for a sum of Rs. 105.90 Lakhs. The Loan was to be repaid in five years with a moratorium period of six months w.e.f. 01.10.2003.

Later, in 2004, the Respondent no. 3 became a sick company and thus defaulted in repayment of loan. HSIDC Ltd. issued the first Default Notice dated 19.08.2004 to the Respondent no. 3 asking for repayment.

Subsequently, the condition of the Respondent No. 3 worsened, and a Winding up Petition bearing C.P. No. 171 of 2007 was filed against the Company by one of the creditors in Delhi High Court.

A Recovery Notice dated 10.01.2012 was issued by the Additional General Manager of HSIDC Ltd. (Respondent No.2) to the Appellant, Mr. K.P Khemka, Director of Respondent No. 3, under the provisions of Haryana Public Moneys (Recovery of Dues) Act, 1979. However, the Appellants contended that the recovery as per the notices sent by the Respondent No.1 have been initially sent on 10.01.2012 and the period of limitation was 3 years from 31.07.2004, when the amount stood and payable by Respondent No. 3 Company. The Appellants also provided that the said limitation period expired in 2007.

The Appellants thus challenged the Recovery Notice by filing a Writ Petition bearing no. CWP No. 15983 of 2013 and CWP No. 26452 of 2014 in the Hon’ble Punjab and Haryana High Court and contended that the period of limitation exhausted way before the Recovery Notice was issued as per the Limitation Act 1963.

The High Court, vide Order dated 24.04.2015, ruled that if a debt is time-barred under the Limitation Act, 1963, the same debt can be recovered by resorting to the Haryana Public Moneys (Recovery of Dues) Act, 1979 (Recovery of Dues Act) read with the State Financial Corporation Act, 1951 and thereby dismissed the said Writ Petitions.

The Appellants argued before the High Court that a time-barred debt under the Limitation Act cannot be recovered under the Recovery of Dues Act, citing the decision of a 3 Judge Bench of the Supreme Court in State of Kerala and Others vs. V.R. Kalliyanikutty & Anr. (1999) 3 SCC 657. However, the High Court separated this decision by stating that the earlier Supreme Court judgements Bombay Dyeing and Manufacturing Company Limited vs. The State of Bombay and Ors. 1958 SCR 1122 and Tilokchand and Motichand and Others vs. H.B. Munshi and Another, (1969) 1 SCC 110 were not brought into the notice of the Hon’ble Court while deciding the Kalliyanikutty (supra) judgement which declared that the law of limitation merely barred the remedy and did not extinguish the debt.

Hence, the Hon’ble High Court allowed the recovery of a time-barred debt under the Haryana Public Moneys (Recovery of Dues) Act, 1979, coupled with the State Financial Corporation Act, 1951. Therefore, aggrieved by the Order dated 24.04.2015, the Appellants approached the Hon’ble Supreme Court in Civil Appeal No. 6144 of 2024.

Issues

A) Whether Time Barred Debts under the Limitation Act 1963, can be recovered by invoking other remedies under special statutes for debt recovery?

B) Whether the Punjab and Haryana High Court erred in passing a judgement by relying on the fact that law of limitation merely barred the remedy for a party but did not extinguish a debt that is due?

Decision by Supreme Court

The Apex Court held that a debt is not same as the right of action for its recovery. A debt is shown as an outstanding due on a party, while recovery of debt is the right of the creditor as a legal power.

Moreover, the Hon’ble Court stated that although the legal right to recover the money under the Limitation Act may be barred, but the power to recover the debt as per Section 32-G of the State Financial Corporations Act 1951 (Recovery of amounts due to the Financial Corporation as an arrear of land revenue) read with Sections 2(c) (Defaulter) and 3 (Recovery of certain dues as arrears of land revenue) of the Recovery of Dues Act 1979 is a distinct power which continues to prevail with the creditor.

The Bench also relied on the judgement of KC Ninan v. Kerala State Electricity Board 2023 INSC 560, wherein it was held that the statute of limitation simply prevented a remedy, while the right to collect the loan, in ‘any other adequate way given’, remained unaffected.

However, the Apex Court stated that the matter be placed before a 3 Judge Bench for an authoritative pronouncement and thus, be placed before the Hon’ble Chief Justice of India for appropriate directions.

 

 

ARJAV JAIN

ASSOCIATE

THE INDIAN LAWYER & ALLIED SERVICES