In the landmark case decided by the Division Bench of the Supreme Court of India, the principle that the Limitation Act bars the remedy but does not extinguish the debt was reinforced. This judgment addresses the contention surrounding time-barred debts and their recoverability under specific recovery acts, examining the interplay between the Limitation Act, 1963, and other statutory mechanisms for debt recovery.
Case Background
The appellants, K.P. Khemka and another, had provided personal guarantees for a loan taken by M/s Khemka Ispat Limited from the Haryana State Industrial and Infrastructure Development Corporation Limited (HSIIDC). M/s Khemka Ispat Limited also entered into a Loan Agreement with HSIIDC Ltd. along with the personal guarantees of the appellants. When the company defaulted, HSIIDC sought to recover the debt under the Haryana Public Moneys (Recovery of Dues) Act, 1979, read with the State Financial Corporation Act, 1951.
HSIIDC issued a demand notice to the appellants, and ultimately, a recovery certificate under Section 3(1) of the Recovery of Dues Act was issued. The appellants filed a writ Petition before the High Court challenging the demand notice on the grounds that the debt is barred under the Limitation Act. The High Court dismissed the writ Petition and held that since the Limitation Act merely bars remedy and does not extinguish the debt, the debt is legally recoverable under the special Act.
Legal Contention
The appellants argued that the debt, being time-barred under the Limitation Act, could not be recovered using the Recovery of Dues Act. They relied on the precedent set by the Supreme Court in the case of State of Kerala v. V.R. Kalliyanikutty, which held that a time-barred debt cannot be recovered under the Kerala Revenue Recovery Act. The appellants contended that Acts like the Recovery of Dues Act are intended for the speedy recovery of loans and do not create a new right in favour of the creditor. In the said judgment, the Supreme Court held that the Kerela Revenue Recovery Act did not create any new right and that it merely provided a process for speedy recovery. In this view, it was held therein that the person claiming recovery cannot claim recovery of amounts that are not legally recoverable.
On this reasoning, the appellants contended that the word “due” in the Recovery of Dues Act cannot be interpreted to include time-barred debts. On the contrary, the Respondents argued that the judgment of V.R. Kalliyanikutty did not consider the holding in the judgment of the constitution bench in Bombay Dyeing and Manufacturing Co. Ltd. v. The State of Bombay and others and Tilokchand and Motichand and others v. H.B. Munshi and another which reiterated the principle that the Limitation Act merely bars the remedy and does not extinguish the debt.
Supreme Court's Analysis
The Supreme Court, after considering the reasoning of the Court in V.R. Kalliyanikutty, noted that the Court in the said case did not dispute the principle that the statute of limitation only bars the remedy and does not extinguish the debt. It also noted that after observing this principle, the Court in V.R. Kalliyanikutty only held that there is no enlargement of rights in the Kerala Revenue Recovery Act.
The Court observed that the real question that arises for consideration is whether the State Financial Corporation Act, 1951, and the Recovery of Dues Act create a distinct right and provide an alternative mechanism of enforcement to recover the amount due, even if the amounts due were time-barred.
To answer this question, the Court relied upon the objects and reasons of the State Financial Corporations Act and noted that the Act was enacted to set up State Financial Corporations with an intention to finance medium and small-scale industries and, interalia, to provide for special powers for the enforcement of its claims and recovery of dues. The corporation also has special privileges in the matter of enforcement of its claim against borrowers. The Court noted Section 32-G of the State Financial Corporation Act, which provides for the recovery of amounts due to the financial corporations as an arrear of land revenue. The Supreme Court also observed the relevant provisions of the Recovery of Dues Act. The Court held that Section 32-G confers a right of recovery on the financial corporation, without prejudice to any other mode of recovery which includes the right to file a suit.
The Supreme Court explained the correlation between rights and duties and legal power and liabilities. A debt is not the same thing as a right of action for its recovery. The former is a right, and it corresponds to the duty of the debtor to pay. The latter, i.e., the right of action to repay, is a legal power of the creditor that corresponds to the liability of the debtor to be sued. The two are different in terms of the fact that the right of action can be destroyed (as by prescription) while the debt remains.
Thus, the process of filing a civil suit may be barred because of the statute of limitation; the power to recover vested through Section 32-G is a distinct power that continues even when another mode of recovery is barred. Therefore, the Court held that there is an additional right to enforce the claims of the financial corporations notwithstanding the bar of limitation.
Conclusion
This judgment affirms the legal understanding that while the Limitation Act bars the remedy of filing a suit, it does not extinguish the debt itself. Creditors can still seek recovery through other statutory means, provided the object of those statutes creates an additional right in favour of the creditors. The statute of limitation only bars a remedy, while the right to recover the loan through any other suitable manner provided remains untouched. This principle is crucial for financial institutions and creditors, ensuring that their rights to recover debts remain intact despite the passage of time.
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