Can time-barred debt under Limitation Act be recovered by resorting to Recovery of Dues Act?: Top Court refers matter to 3-Judge Bench 
Justices Surya Kant & K.V. Viswanathan [08-05-2024]

Read Order: K.P. Khemka & Anr v. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors [SC- CIVIL APPEAL NO. 6144 OF 2024]

Tulip Kanth

New Delhi, May 15, 2024: While noting the views expressed in  State of Kerala and Others vs. V.R. Kalliyanikutty & Anr. [LQ/SC/1999/353] and Bombay Dyeing and Manufacturing Company Limited vs. The State of Bombay and Ors. [LQ/SC/1957/141] with regard to the initiation of recovery proceedings, the Supreme Court has referred to three-Judge Bench the issue of whether time-barred debt under the Limitation Act, 1963 can be recovered by resorting to remedies under Recovery of Dues Act.

The appeals before the Top Court arose from the judgment of a Division Bench of the Punjab and Haryana High Court whereby the writ petitions were dismissed and the contention of the appellants that if a debt is time-barred under the Limitation Act, 1963, the same cannot 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 was rejected. In so holding, the Division Bench had applied the well established principle that the Limitation Act, which applies to Courts, merely bars the remedy and does not extinguish the debt.

Respondent No.3 - M/s Khemka Ispat Limited, a Company engaged in the business of manufacture & sale of all types of pipe and tube products, had taken a Term Loan under an Equipment Finance Scheme from Respondent No.1 - Haryana State Industrial and Infrastructure Development Corporation Limited ( HSIDC Ltd.) for a sum of Rs 105.90 lakh. The sanctioned loan amount to the tune of Rs.105 lakhs along with further amount of Rs. 2 lakhs was disbursed to Respondent No.3.

The Loan was to be repaid in five years with a moratorium period of six months. Default Notice was issued to Respondent No.3 by HSIDC Ltd. along with intimation of a right under Section 29 of the State Financial Corporations Act. In the meantime, Respondent No.3 became a Sick Company and reference was made to the Board for Industrial and Financial Reconstruction (BIFR). 

On 02.02.2012, the HSIDC Ltd. sent a notice under the provisions of the Recovery of Dues Act to the Appellants and the Respondent No. 3 indicating the sum determined to be due from them, which was to the tune of Rs.213.19 lakhs. A recovery certificate was also issued under Section 3(1). The appellants filed the petition challenging the recovery notice which was dismissed vide the impugned order.

The facts of another civil appeal was that the Haryana Financial Corporation sanctioned a term loan of Rs.88,74,000 to Respondent No.5 - Cosmo Flex Private Limited which was to be repaid within a period of eight weeks by way of quarterly installments and the agreed rate of interest was 19.5% with half yearly rests. The appellant, who was a Director of the R-5 Company, claims that he resigned from the Directorship and the loan was recalled by the Haryana Financial Corporation. The Corporation sent a notice for taking over possession of the Company’s assets and also sent multiple recovery notices under the Recovery of Dues Act leading up to the determination of the sum due from the Appellants. The appellant challenged the proceedings by filing a Writ Petition which was also dismissed.

The main issues before the Bench were whether the appellants were right in contending that the recovery proceedings initiated against them under the Recovery of Dues Act are barred in view of the principle laid down in V.R.Kalyanikutty (supra). Secondly, if they were right, then whether the decision in V.R. Kalyanikutty (supra) is contrary to the holding in Bombay Dyeing and Manufacturing Company Limited (supra) and if so what is the course open for this two-Judge Bench.

The Bench in Kalyanikutty (supra) held that the Kerala Recovery Act did not create any new right and that it merely provided a process for speedy recovery. The Court held that under the provisions of the Kerala Revenue Recovery Act a debt which is barred by the law of limitation cannot be recovered. The decision in Bombay Dyeing (supra) was a case where the Constitution Bench of this Court reiterated the principle that statutes of limitation only bar the remedy and do not extinguish the right and so holding, it found that the definition of “unpaid accumulations'' in that case did apply to wages of employees that were time-barred. 

The Division Bench of Justice Surya Kant & Justice K.V. Viswanathan opined that the findings of the Division Bench in the impugned order did not directly address the holding in V.R. Kalyanikutty (supra) that the Kerala Revenue Recovery Act did not create any additional right to recover and enforce the outstanding amounts due. The Bench noted that while the Court focused on the implication of a notification under Section 71 of the Kerala Revenue Recovery Act whereunder the Government could declare the Act applicable to any institution, the attention of the Court in V.R. Kalyanikutty (supra) was not drawn to the powers envisaged under the State Financial Corporations Act which were also applicable to the recovery of debts in Kerala

As far as the finding in V.R. Kalyanikutty (supra) regarding Section 70(3) of the Kerala Revenue Recovery Act, which provides for a suit by the debtor for refund after payment under protest, was concerned, The Bench noticed that the defence for the State Financial Corporations that the State Financial Corporations Act conferred an additional right to recover amounts due would still be applicable. Therefore, the existence of the right to the debtor under Section 70(3) of the Kerala Revenue Recovery Act couldn’t be said to be determinative of the issue.

The Top Court also pointed out that the applicability of V.R. Kalyanikutty (supra) to Section 56(2) of the Electricity Act, 2003 recently fell for consideration before a three-judge Bench in K.C. Ninan v. Kerala State Electricity Board [LQ/SC/2023/666 ].

The Court in K.C. Ninan (supra), after a comprehensive analysis of the scheme of the Electricity Act, held that the power to initiate proceedings to recover the electricity dues was independent of the power to disconnect electrical supply. Thereafter, the Court noticed the decision in V.R. Kalliyanikutty (supra) and concluded that statute of limitation only barred a remedy, while the right to recover the loan through ‘any other suitable manner provided’ remains untouched. The Court had also rejected the argument of the auction purchasers and concluded that the bar of limitation under Section 56(2) of the Electricity Act would only restrict the remedy of disconnection under Section 56 of the Electricity Act and that the Electric Utilities were entitled to recover electricity arrears through civil remedies or in exercise of its statutory power.

Thus, in light of such legal implications, the Bench held, “In view of what has been pointed out hereinabove, we are of the opinion that, for a comprehensive consideration and an authoritative pronouncement after taking into account all aspects, including those dealt with hereinabove, the matter needs to be placed before the Hon’ble Chief Justice of India to constitute an appropriate three-judge bench.”

The Bench ordered that the papers along with this order be placed before the Chief Justice of India for seeking his appropriate directions in this regard.