State Bank of Patiala vs The Debts Recovery Appellate Tribunal and Others

Sanjay Kishan Kaul, C.J.—M/s. Navkiran Cold Storage (Pvt.) Ltd.-respondent No. 3 is a private limited company duly incorporated and registered under the Companies Act, 1956 and engaged in the business of running a cold storage. Respondent No. 4 is stated to be Managing Director while respondent No. 5 and 6 are the Directors of respondent No. 3-Company. Respondent Nos. 4 to 6 are the guarantors of the loan. The loan is stated to be secured by mortgage of immovable property of respondent No. 4. The loan in question is a term loan of Rs. 75.00 lacs sanctioned on 24.9.1996, qua which loan documents were executed. It appears that there was non-adherence to the terms and conditions of repayment of the loan resulting in the amount being defaulted and the petitioner preferring an application before the Debts Recovery Tribunal, Chandigarh u/s 19 of the Recovery of Debts Due to the Banks & Financial Institutions Act, 1993. The claim for recovery was made to the tune of Rs. 93,07,884.79 inclusive of interest as on 5.12.2001, pendent lite and future interest with costs. Interest was claimed at 18% with quarterly rests stating that though the agreed rate of interest was 18.5% with quarterly rests, a lower rate of interest was claimed as per the prevalent rate of interest.

The claim was resisted by the respondents and the claim was adjudicated vide judgment and order dated 1.5.2007 of the Presiding Officer, Debts Recovery Tribunal-II, Chandigarh (D.R.T.) decreeing the amount as claimed along with pendente lite and future interest at 12% per annum at quarterly rests from date of filing the O.A. till realisation along with costs.

The judgment was accepted by the Appellant Bank, but respondent Nos. 1 and 2 preferred an appeal before the Debts Recovery Appellate Tribunal, Delhi (D.R.A.T.). This appeal was partly allowed to the extent that the rate of interest was reduced to 8% simple interest from the date of filing of the suit till recovery on reducing balance basis.

A reading of the impugned order of the D.R.A.T., which is now being assailed by way of present writ petition under Article 226 of the Constitution of India shows that what has weighed in reducing the rate of interest is the plea raised by the appellants therein (i.e. respondent Nos. 1 and 2 herein) that the loan partakes a character of an agricultural loan under the Punjab Agricultural Credit Operations and Miscellaneous Provisions (Banks) Act, 1978 (hereinafter referred to as the "Agricultural Act") in terms of Section 2(a) of the Agricultural Act, which defines agriculture and agricultural purposes. The storage of such agricultural produce has been defined within the parameters of agriculture and agricultural purposes. The Agricultural Act was enacted with the object of making provisions to facilitate adequate flow of agriculture production and development through bank and other institutional credit agencies and applies to the State of Punjab. The word "cold storage" has not been specifically defined under the Agricultural Act, but as per interpretation of the D.R.A.T., the wider expression "storage" would include cold storage. It is what persuaded the D.R.A.T. to reduce the interest.

We have heard the learned counsel for the parties.

There really cannot be a dispute about the legal principle that in a commercial transaction, especially bank loans governed by the Banking Regulations Act, 1949, the agreed rate of interest between the parties is to be adhered to ( State Bank of India Vs. Yasangi Venkateswara Rao, ). However, the question, which really arises for consideration, is whether there is a special act to govern the rights and obligations of the parties which entitles respondents to a lower rate of interest being the Agricultural Act.

The issue whether the activity of running a cold storage can be termed as agricultural activity arose before the Allahabad High Court in Devendra Singh Vs. State of U.P. and Others, and the factual matrix in the issue was whether the exemption could be granted from payment of stamp duty in respect of instruments employed for obtaining loan or other financial assistance for agricultural activity u/s 9(1)(a) of the Stamp Act, 1899. The financial assistance was taken for establishing a cold storage. It was held that the activity of running a cold storage cannot be termed as agricultural activity. We may, however, note that though in another judgment of the same Court, it was held that cold storages serve a useful purpose in advancing interest of agriculturist while considering the expression ''agriculturist'' and agricultural purpose'' used in context of the U.P. Agricultural Credit Act, 1973. However, those definitions were held not capable of being incorporated in the context of notification under the Stamp Act, wherein the word "agriculturist" has been used and has been defined differently having a plain, simple and clear meaning.

A Division Bench of the same Court in Nafees Ahmad and Others Vs. Tehsildar/Magistrate and Others, in the context of loan under the State Financial Corporation Act, 1951 dealt once again with the plea raised that cold storage activity was agricultural. u/s 2(c) of the U.P. Agricultural Credit Act, 1973, the word "Industrial Concern" has been defined which included any concern engaged in preservation of goods. Cold storage was, thus, held to be an industrial concern and not the loan to a farmer. Interest was,, thus, held to be payable as per terms of the agreement.

The learned Single Judge of this Court in Regular Second Appeal No. 2205 of 2009 (Harmit Singh and another v. State Bank of Patiala and others ), decided on 9.2.2012 was seized of a dispute relating to a loan advanced for construction of go-downs for storage of food grains, which was contended to be an agricultural medium term loan. The plea of agricultural loan was negated. The loan was taken for construction of godowns to be let out to Food Corporation of India and later on to P.U.N.S.U.P. It was not to be used for storage of the own agricultural produce, but which would have earned rental income. It was held not to be an agricultural loan apart from the aspect analysed on the entitlement of a plaintiff to get pendente lite and future interest at agreed rate in case of a mortgaged property under Order 34 Rule 11 CPC.

We are unable to agree with the reasoning of the learned Presiding Officer of the D.R.A.T. in the conspectus of the provisions of the Agricultural Act. The relief to be provided qua interest is for credit, for agricultural production and extended activity. A wider definition has been given to agriculture and agricultural purpose as under:--

Definitions;- In this Act, unless the context otherwise requires:

(a) "agriculture" and "agricultural purpose" shall include making land fit for cultivation, cultivation of land, improvement of land including development of sources of irrigation, raising, protecting and harvesting of crops, horticulture, forestry, planting and farming, cattle breeding, animal husbandry, dairy farming, seed farming, pisciculture, apiculture, sericulture, piggery, poultry farming and such other activities as are generally carried on by agriculturists, dairy farmers, cattle breeders, poultry farmers and other categories of persons engaged in similar activities including marketing of agricultural products, their storage and transport and the acquisition of implements and machinery in connection with any such activity.

However, even the wider definition would show that it has a direct link to tilling and harvesting of a crop. In fact, the definition while referring to various such activities states "as are generally carried on by agriculturists". Similarly dairy farming and breeding and similar activities are also included as also "their storage and transport and acquisition of implements and machinery in connection with any such activity".

The borrower in the present case is not an agriculturist as the expression "agriculturist" has been defined under Clause 2(b) to mean a person who is engaged in agriculture. If a person engaged in the activity of agriculture seeks to store his produce, then possibly, the wider definition would include such activity. The borrower-respondent No. 3 is a private limited company engaged in the commercial activity of a cold storage. Such facility can be utilised on payment of charges either by agriculturists, retailers, traders etc. It is, in fact, a process of hiring of the cold storage space with the facility of maintaining particular temperature for a particular produce. This is clearly a commercial enterprise, which in our view, does not fall even within the expanded definition of Section 2(a) of the Agricultural Act.

Respondent No. 3 company well knew of this fact when it executed the documents qua the rates of interest. It is true that the documents contained certain blanks as pointed out by learned counsel for the respondents, but then the other parts of the agreement inter se parties clearly stipulate that there has to be a minimum rate of interest, i.e., 18.5%. It is also clearly provided that there has to be quarterly rests. Interest has not been charged at a higher amount than 18.5% for the respondents to raise the plea of absence of agreement in that behalf. In fact, it has been charged at a lower rate of 18% with quarterly rests and disputed pendente lite and future interest has been awarded only at 12% with quarterly rests by the D.R.T. Such interest having been granted, there was really no occasion for the D.R.A.T. to interfere with the same.

We are, thus, of the view that the only aspect of challenge by the respondents qua rate of interest interfered with by the D.R.A.T. was not called for and, thus, the impugned order of the D.R.A.T. dated 18.5.2011 is set-aside while maintaining the order of the D.R.T. dated 1.5.2007. The writ petition is accordingly allowed, leaving the parties to bear their own costs.