2004 (5) TMI 322 - HC - Companies Law

Clarification on Limitation Period for State Financial Corporation Act Applications: Full Bench Decision

The Full Bench clarified that applications under Section 31 of the State Financial Corporations Act made to the District Judge fall within the ... Special provisions for enforcement of claims by Financial Corporation Issues Involved:1. Jurisdiction of District Judge under Section 31 of the State Financial Corporations Act.2. Applicability of Limitation Act to applications under Section 31 of the State Financial Corporations Act.3. Limitation period for applications under Section 31 of the State Financial Corporations Act.4. Continuing guarantees and limitation period for recovery under Section 31.5. Interpretation of 'ordinarily carries on business' in Section 31(1) of the State Financial Corporations Act.Issue-wise Detailed Analysis:1. Jurisdiction of District Judge under Section 31 of the State Financial Corporations Act:The court examined whether an application under Section 31 of the State Financial Corporations Act (SFC Act) made to the District Judge is an application made to a Civil Court. It was determined that the District Judge exercising power under Section 32 while considering an application under Section 31 is not a persona designata but a court of ordinary civil jurisdiction. This conclusion aligns with the Supreme Court's decision in Asnew Drums Ltd's case and Maharashtra State Financial Corporation's case, which clarified that the District Judge acts as a Civil Court under these provisions.2. Applicability of Limitation Act to applications under Section 31 of the State Financial Corporations Act:The court considered whether applications under Section 31 of the SFC Act are governed by any period of limitation stipulated under the Limitation Act, 1963. It was concluded that since no specific period of limitation is prescribed under the SFC Act, the provisions of the Limitation Act, 1963, including Article 137, apply. This decision is supported by the Supreme Court's rulings in Kerala State Electricity Board's case and Thakoredas's case, which held that Article 137 of the Limitation Act applies to applications under special Acts when no specific limitation period is provided.3. Limitation period for applications under Section 31 of the State Financial Corporations Act:The court addressed the appropriate limitation period for applications under Section 31 of the SFC Act. It was determined that Article 137 of the Limitation Act, which prescribes a three-year limitation period from the date when the right to apply accrues, is applicable. The court rejected the applicability of Article 112 and Article 136, as these pertain to suits by the government and execution of decrees, respectively, which do not align with the nature of applications under Section 31.4. Continuing guarantees and limitation period for recovery under Section 31:The court noted that the determination of whether guarantees furnished by the respondents are continuing guarantees and the applicable limitation period for recovery under Section 31 depends on the specific terms of the contract and the facts of each case. Therefore, this issue should be resolved by the appropriate Bench considering the appeals on their merits, as it involves factual determinations rather than purely legal questions.5. Interpretation of 'ordinarily carries on business' in Section 31(1) of the State Financial Corporations Act:Similar to the issue of continuing guarantees, the interpretation of the expression 'ordinarily carries on business' in Section 31(1) requires a factual analysis of each case. The appropriate Bench should consider whether an application can be made to a District Judge within whose territorial jurisdiction the borrower used to carry on business but is no longer doing so on the date when the application was filed, based on the specific circumstances of the case.Conclusion:The Full Bench provided authoritative clarifications on the applicability of the Limitation Act to applications under Section 31 of the SFC Act and the jurisdiction of the District Judge. The issues of continuing guarantees and the interpretation of 'ordinarily carries on business' were left to be determined by the appropriate Bench based on the specific facts of each case. The appeals were directed to be posted before the appropriate Bench for disposal on merits.