TaxTMI 
TaxTMI 
1982 (3) TMI 270
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....aid advertisement in the newspaper dated 29-3-1976 the Petitioner applied for a loan of Rs. 7.18 lakhs to the Corporation for setting up an industry in tools etc. The amount of loan was subsequently reduced to Rs. 4,11,000/-. Going ahead with his project the Petitioner applied on 1-4-1976 for a piece of land to set up his manufacturing unit to the U.P. State Industrial Development Corporation at Amausi. The land was allotted to him on 8-4-1976. The Corporation sanctioned a loan of Rs. 3,70.000/- against the demand of Rs. 4,11,000/- and communicated the sanction to the Petitioner by letter dated 27-9-1976. The terms and conditions of the loan were mentioned in Annexures Nos. 1 and 2 attached to that letter. The purpose for which the amount of loan was to be utilised was as follows: (i) (a) For Land direct payment to U. P. S.I.D.C and balances to be paid by the party Rs. 46,000/- (b) For construction of factory Building Rs. 54,000/- (c) For purchase of plant and machinery Rs. 2,40,000/- (d) For other expenses, viz. interest during construction period and mortgage expenses Rs. 30,000/- Total 3,70,000/- 3. T....
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.... amount for purchasing plant and machinery vide his letter dated 21-3-1978 (Annexure No. 4). He also demanded a sum of Rs. 46,000/- for making payment towards the cost of the land. The Petitioner also had an interview with the Corporation authorities to secure the, release of the amount, The Corporation, however, released a sum of Rs. 2,500/-. The Corporation had also remitted a sum of Rs. 46,200/- on 31-3-1978 on behalf of the Petitioner to the U.P. State Industrial Development Corporation against the cost of the land. But it did not disburse the balance amount demanded by the Petitioner alleging that he had not created sufficient assets so as to give stipulated margin for disbursement as per terms and conditions of the agreement deed. The contention of the corporation was that in view of the condition No. 23 of the agreement deed margin of security at each stage of disbursement should, not be less than 15% and the borrower should also invest proportionate amount for completion of the scheme. According to the Corporation the condition imposed vide Clause No. 23 of the agreement deed was a condition precedent and in absence of the fulfilment of the said condition loan amount could ....
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....rote a letter on T4-8-1978 reiterating its stand and the Petitioner wrote a letter on 4-9-1978. It may be mentioned here that the first instalment of the principal amount of loan was due to be paid in July, 1979. The Corporation, however, by its letter dated 16-6-1979 recalled the entire loan advanced to the Petitioner with interest. That letter was served on the Petitioner on 8-8-1979. The amount claimed in that letter was Rs. 1,62,382.31. The Petitioner sent a notice on 26-6-1979 to the Corporation claiming an amount, of Rs. 1,89,710/- a-"compensation and stated that after adjustment of the amount of Rs. 1,38,500/- and Rs. 7,700/- paid out of the sanctioned term loan and margin money loan an amount of Rs. 43,510/- was due to the Petitioner from the Corporation. The Petitioner, therefore, asked for the return of the title deeds. However, on 3/9/1980 the Petitioner received a notice of that date from the Tahsildar, Lucknow asking him to deposit an amount, of Rs. 2,31,440.83 p. for the recoveries sent by the Corporation. The original notice is Annexure No. 14 of the Writ Petition. The Petitioner has filed thiswrit petition under Article 226 of the Constitution impugning the validity....
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....tioner had not, created sufficient assets which was a condition precedent vide Clause 23, The Corporation has also averred in the counter-affidavit that, the recall notice was issued on 16-6-1980 when the Petitioner refused to clear overdue interest and even did not allow the Technical Officer of the Corporation to inspect his unit by taking the plea that the U.P. Financial Corporation had violated the terms of agreement. The Corporation also denied that, the Petitioner has suffered any losses. It, however, admitted that a recovery certificate was issued on 14-4-1980 for Rs. 2,10,398.94 including Rs, 19,127.17 as collection charges, 5. In his rejoinder-affidavit the Petitioner reiterated the averments made in the writ petition. He pointed out that the term 'Margin of Security' had been defined in the Vivran Patrika published by the Respondent No. 1 as "entrepreneurs' contribution" expressed as percentage of the total cost of project. It has been alleged in the rejoinder-affidavit that while reckoning the margin of security at any stage, the investment towards the various components of the total cost of the project was to be taken into account. The Petitioner had alre....
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....erms of agreement. So, each party alleged that the other had committed breach of the agreement. Significantly, by letter dated 24-7-1978 the Petitioner informed the Corporation that as the Corporation had committed breach of the agreement, the agreement of 11-1-1978 was no more operative and the Petitioner was absolved of all his liabilities under the agreement and he was also entitled to be compensated for the losses and damages which he had suffered due to the said breach. He also asked for the return of his title deeds. The Corporation denied that it had committed breach of agreement vide reply dated 14-8-1978 and stated in no unmistakable terms that the Petitioner would not be entitled to further disbursement until he created further assets from his own resources or alternatively furnished a suitable bank guarantee for a period of at least six months from any scheduled bank. The Petitioner was asked to choose any of the alternatives. The Petitioner refuted these allegations and then on 6-8-1979 a notice recalling the entire loan already advanced was given by the Corporation to the Petitioner on the ground that the Petitioner had failed to abide by the terms of the mortgage deed....
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.... verdict in an action for unliquidated damages is not a debt, till judgment has been signed. In that case it was held that a claim for damages does not become a debt even after the jury has returned a verdict in favour of the Plaintiff till the judgment is actually delivered. In O'Driscoll v. Manchester Insurances Committee ((1915) 3 KB 499: 85 LJKB 83) Swinten Eady, L.J., said while considering the claim for unliquidated damages: ... In such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given.... 9. No pecuniary liability thus arises till the court has determined that the party complaining of the breach is entitled to damages. The Court in the first place must decide that the Defendant is liable and then it should proceed to assess what that liability is. But, till that determination, there is no liability at all upon the Defendant, (see AIR 1954 Bom 423 (Iron and Hardware (India) Co. v. Firm Shamlal and Bros.)). The view of the Bombay High Court was referred to with approval in the case of Union of India v. Raman Iron Foundry AIR 1974 SC 1265. The court said: &nb....
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....s promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. The rightful rescinding of a contract involving reciprocal promises has been dealt with under Section 53 of the Act which provides that when a contract contains reciprocal promises and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the other party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract. Section 54 deals with the effect of default as to the promise which should be first performed, in a contract consisting of reciprocal promises. The section provides that when a contract consists of reciprocal promises such that one of them cannot be performed, or that its performance cannot, be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such o....
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....contract had been entered into but in a position as if the contract had been performed. The one restores the benefit, the other recoups the loss. The person who lawfully rescinds a contract is, on the one hand, under a legal liability to restore the benefit, if any received by him under the contract to the person from whom he has received it, and gives him at the same time and on the other hand, a legal right to claim compensation for the damage, if any, he has suffered through the non-fulfilment of the contract (see "Law of Claims' by Dr. R.G. Chaturvedi, pages 454 and 455). The kind of refusal contemplated in Section 39 of the Contract Act is one which affects the vital part of the contract and pro vents the promisee from getting in substance what he bargained for. The claim for compensation under Section 75 is maintainable when the right of repudiation of the contract has been exercised under either of the Sections 39, 53, 54 or 55 of the Contract Act. 14. The law with regard to claim for interest is also by now well settled. The claim for interest may be sustained on]v in cases where the same is claimed either in terms of the agreement itself or when it is permitted by s....
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....y instalments as aforesaid. The first instalment was to fall due for repayment on the second anniversary date of the advance of the first instalment of the loan by the Corporation. The first instalment of loan was advanced by the Corporation on 23-7-1977. So, the first instalment of repayment of the loan by the Petitioner to the Corporation was to fall due on 23-7-1979 and every subsequent instalment was to be paid half yearly, The Petitioner had also agreed In clear terms that the repayment will lie made "together with interest" on the said principal sum or the balance thereof remaining unpaid for the time being at the rate of 4%, per annum above the Reserve Bank of India rate subject to a minimum of 13.5% per annum computed on the said sum of Rs. 3,70,000/- from the respective dates on which the various instalments of loan had been actually lent and advanced by the Corporation to the Petitioner and payable half yearly on the thirtieth day of June and 31st day of December each year; the first of such payments was to be made on the 30th day of June, 1978 It: was also agreed that all interest which shall during the continuance of the loan accrue due on the said principal sum or any ....
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....he time for the payments' thereof had expired, namely, (a) if default shall be made by the borrower for a period exceeding three months in the payment of any instalment of the said principal sum, or (b) if interest amounting to at least Rs. 500/- (Rupees five hundred) shall be in arrears and, unpaid for three months after becoming due. Clause 14 of the agreement laid down that all dues in connection with the loan advanced by the Corporation or advanced by or on behalf of the State Government or Central Government shall at the option of the Corporation be also realisable as arrears of land revenue. It appears that the first instalment of interest had not been paid by the Petitioner. The Petitioner had demanded further release of loan amount but the Corporation insisted for the creation of more assets for the purposes of security before further loan could be advanced, The Petitioner contended that the Corporation was imposing unwarranted conditions, that the total investment made by the Petitioner was Rs. 1,96,727.05 p. against the disbursed loan amount of Rs. 1,38,500/- while under Clause 23 of the agreement an investment of Rs, 1,52,350/- only was expected from the Petitioner, ....
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....4) further claims a sum of Rs. 21,039.89 as collection charges. The Petitioner has contended that there is no provision either in the deed of agreement executed by him or any law entitling the Respondents or any of them to claim any whimsical sum as collection charges from the Petitioner without incurring any costs in the collection proceedings. Moreover, the claim for Rs. 40,167.06 (i.e. Rs. 19,127.17 plus Rs. 21,039.89) is totally unjustified, unwarranted and illegal inasmuch as no costs had been incurred in collection proceedings and no property was put to sale. In our view, there is substance in this contention. 16. Section 3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972 enables recovery of certain dues as arrears of land revenue. It provides inter alia that where any person is party to an agreement relating to a loan given to him by the Corporation by way of financial assistance the Managing Director of the Corporation may send a certificate to the Collector mentioning the sum due from such person and requesting that such sum together with costs of the proceedings be recovered as if it were an arrear of land revenue. The Collector on receiving the certificate shall....
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....nds that nothing is payable by him to the Corporation. He admits to have taken loan but he contends that as a result of the breach of contract committed by the Corporation he has suffered damages to the tune of Rs. 1,89,710/-, hence after adjusting the amount of Rs. 1,38,500/- being the principal amount of loan and Rs. 7,700/- paid out of the sanctioned term loan and margin money loan an amount of Rs. 43,510/- was due to him from the Corporation. The Corporation on the other hand has contended that it has not committed breach of agreement and by reason of Section 30 of the State Financial Corporations Act, 1951 as also under the terms of the agreement it had recalled the payment of the entire amount advanced to the Petitioner along with interest thereon. Whether the breach of contract was committed by the Petitioner or by the Corporation the fact remains that the contract has been put an end to. Assuming though not deciding, that the Corporation had committed breach of contract, the Petitioner then rescinded the contract. This would have given rise both to a right and a liability together. The Petitioner in such circumstances, on the one hand, would be under a legal liability to re....
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....to ask for the payment of the entire amount of the loan with interest. Section 30 of the State Financial Corporations Act, provides that notwithstanding anything in any agreement to the contrary, the Financial Corporation may, by notice in writing, require any industrial concern to which it has granted any loan or advance to discharge forthwith in full its liabilities to the Financial Corporation if the industrial concern has failed to comply with the terms of its contract with the Financial Corporation in the matter of the loan or advance or if there is a reasonable apprehension that the industrial concern is unable to pay its debts or that proceedings for liquidation may be commenced in respect thereof, or if for any reason it is necessary to protect the interests of the Financial Corporation. The Corporation may impose such conditions as if may think necessary or expedient for protecting its interest and securing that the accommodation granted by if. is put to the best use by the industrial concern as provided under Section 27 of the Act. Where any industrial concern, which is under a liability to the Corporation under an agreement, makes any default in repayment of any loan or ....