Holding

The Supreme Court held that, as the bank had not indicated a failure of the settlement before the final payment, the matter was not fit for exercise of jurisdiction under Article 136 and dismissed the appeal.

Summary

State Bank of India filed a recovery petition before the Debt Recovery Tribunal, which led to a compromise deed filed in Lok Adalat specifying a payment schedule and a default clause. The respondent defaulted on the schedule but later paid the full settlement amount along with interest for the default period. The respondent filed a writ petition in the Punjab and Haryana High Court, which accepted his explanation of genuine difficulties, held that the first instalment was paid on time, and directed the bank to charge interest at 10.4% per annum. The bank appealed, arguing that the High Court erred in its findings and that the default clause should have operated to allow recovery of the entire decree amount. The Supreme Court observed that the bank never indicated that the settlement had failed before the final payment and concluded that the case was not suitable for exercise of jurisdiction under Article 136, thereby dismissing the appeal.

Issues considered

Whether the High Court erred in holding that the first instalment was paid on time and in directing that the compromise deed be acted upon despite default.
Whether the default clause in the compromise deed operates to permit the bank to recover the entire decree amount.
Whether the Supreme Court can entertain the appeal under Article 136 of the Constitution.

Subjects

debt recoverycompromise deeddefault clauseArticle 136Lok Adalatinterestpayment scheduleSupreme Court

Judgment

I

t
~ STATE BANK OF INDIA A
v.
VIJAYKUMAR

MAR(;H 26, 2007

[DR. ARIIlTPASAYAT AND LOKESHWAR SINGH PANTA, JJ.) B

--1
Constitution of India, 1950:
~

Art.136-Debt recovery proceedings-Compromise deed setting time
schedule for making payment and default clause-Default in payment within c
.. time-Bank claiming recovery of entire decretal amount-Writ petition by
respondent indicating difficulties for making payment_ in time-High Court
accepted the stand of respondent and directed the payment of interest for
default period@ 10.5% p.a.-On appeal, held, respondent had made full
payment alongwith the interest for the default period uMoreover, Appellant- D
.. bank had never indicated that settlement failed due to failure to stick to time
schedule-Hence not fit case to exercise jurisdiction under Art.136.

The appellant-Bank filed recovery petition before the DRT._The matter
was referred to Lok Adalat where a compromise deed was filed setting out
terms of settlement. The compromise deed specified that respondent was to E
deposit the settlement amount by 31st March, 2004 and a failure clause setting
out consequences of default in payment according to the time schedule. DRT
passed an order in terms of compromise. Respondent defaulted in payment.
Appellant-Bank took the view that there was non-compliance with the terms
of the compromise/settlement, therefore, they were entitled to recover the
~
F
.. entire decretal amount.

Respondent filed writ petition before High Court indicating the
difficulties on account of which the payments could not be made in time. The
High Court allowed the appeal and accepted the stand of the respondent that
though there was some default, the entire amount had been paid by 12th July,
G
2004 alongwith interest ofRs.45,000/- for the defaulted period. It further held
that the difficulties were genuine and the compromise should be acted upon
but directed the bank to charge interest for the defaulted period @ 10.4%
-,r
p.a. Hence the present appeal.

475 H
+
476 SUPREME COURT REPORTS (2007] 4 S.C.R. .
A Dismissing the appeal, the Court ~

HELD: 1. Normally, when there is failure of the terms of the settlement
the default clause, if provided, operates. Therefore, in the peculiar features
appellant-bank agreed to settle the claim taking into account various factors.
It is true that the High Court has erroneously recorded that Rs.2,00,000/-
B has been paid within the stipulated time. The respondent had paid
Rs. 45,000/- as interest for the defaulted period. Interestingly, pursuant to
the direction of the High Court the appellant-bank had charged interest of \.-·
Rs.29,353/-. [Paras 7 and 8) [477-G-H; 478-E) ......

2. Appellant-Bank at no point of time before the fmal payment was made,
c had indicated that settlement failed because of failure to stick to the time
schedule. Above being the position, it is not a fit case where jurisdiction under
Article 136 of the Constitution oflndia, 1950 is to be exercised.
[Paras 9 and 10) [478-F)
-
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1573 of2007.
D
From the Judgment and Order dated 26.5.2006 of the High Court of ....
)...
Punjab and Haryana at Chandigarh in C.W.P. No. 15032/2005.

Sanjay Kapur, Shubhra Kapur, Rajiv Kapur, and Arti Singh for the
Appellant.
E
Rajiv K. Garg, Ashish Garg and Annam D.N. Rao for ~he Respondent.

The Judgment of the Court was delivered by

DR. ARIJIT PASAYAT, J. 1. Leave granted. ....
F
~
2. Challenge in this appeal is to the order passed by the Division Bench
of the Punjab and Haryana High Court allowing the writ petition filed by the
respondent.

3. The background facts which are almost undisputed are as follows:
G
The appellant~bank field a recovery petition before the Debt_ Recovery
Tribunal, Chandigarh {in short 'ORT'). The amount claimed was Rs.14,92,295.99.
The decree was passed and revision petition was filed by the appellant-bank. ':y
A compromise deed was filed at the Lok Adalat setting out the different terms
of settlement. The relevant term was that the respondent was to deposit 20%
H
i

t
STATEBANKOFINDIAv. VIJAYKUMAR [PASAYAT,J.) 477
of the compromise/settlement amount within 30 days i.e on or before December A
28, 2003 and the remaining amount of Rs.8,00,000/- was to be paid in equal
monthly/quarterly/half yearly instalment on or before March 31, 2004. There
was also a failure clause setting out the consequences of default in payment
according to the time schedule. DRT passed an order in terms of the
compromise. Undisputedly there was some default in payment. Since the B
appellant-bank took the view that there was non-compliance with the terms
of the compromise/settlement, therefore, the appellant-bank was entitled to
recover the entire decreetal amount.

4. A writ petition was filed before the High Court indicating the difficulities
on account of which the payments could not be made in time. The High Court C
took note of the fact though there was some default on the part of the
respondent the entire amount had been paid by 12th July, 2004 along with
interest of Rs.45,000/- for the defaulted period. The High Court held that the
difficulties were genuine. The respondent had proved his bona fide by making
the payment of whole amount as agreed to in the compromise and that also
paid for the defaulted amount. D
5. The High Court was of the view that the first instalment was paid ii).
time. Therefore, it accepted the stand of the writ petitioners and held that the
compromise should be acted upon but directed the bank to charge interest
for the defaulted period @ 10.4% p.a.. A sum of Rs.20,000/- which was
deposited pursuant to the order of the High Court was directed to be adjusted E
for publication charges etc.

6. In support of the appeal learned counsel for the appellant-bank
submitted that the High Court has wrongly held that the first instalment was
made in time. Additionally, when the amounts had not been paid according F
to the fixed schedule the default clause operated and the High Court could
not have come to the aid of a defaulter.

7. Learned counsel for the respondent submitted that High Court took
note of all the relevant factors, the bona fides of the respondent and even
had directed charging of interest which in fact has been charged by the G
appellant bank and has been paid. Normally, when there is failure of the terrris
of the settlement the default clause, if provided, operates. Therefore, in the
peculiar features appellant-bank agreed to settle the claim taking into account
various factors. It is true that the High Court has erroneously recorded that
Rs.2,00,000/- has been paid within the stipulated time. The details of the
payment are as follows: H
+
478 SUPREME COURT REPORTS [2007) 4 S.C.R.

A S.No. Date of Amount Mode of Payment
Payment

1. 28.122003 Rs.90,000 Cash deposited with the Respondent
bank

B 2 2.1.04 Rs20,000 Cash deposited with the Respondent
bank

3. 5.1.04 Rs.10,000 . Cash deposited with the Respondent
bank
c
4. 25.4.04 RsJ,80,000 Cash deposited with the Respondent
bank

5. 12.7.04 Rs.5,00,000 Vide bank draft deposited with the
Recovery officer.
D
Total Rs.10,00,000

8. Additionally, we find that the respondent had paid Rs.45,000/- as
interest for the defaulted period. Interestingly, pursuant to the direction of the
E High Court the appellant-bank had charged interest ofRs.29,353/-. There into
arrangements with third party for selling the property but the payment in
respect of the sale was to be made directly to the bank.

· 9. It is noted that Bank at no point of time before the final payment was
made appears to have indicated that settlement failed because of failure to
F stick to the time schedule.

10. Above being the position, we do not find this to be a fit ca5e where
jurisdiction under Article 136 of the Constitution of India, 1950 is to be
exercised. The appeal is dismissed.

D.G. Appeal dismissed.