Recovery of Time-Barred Debts: Supreme Court’s Landmark Decision on Financial Corporation Claims

The case of K.P. Khemka & Anr. vs. Haryana State Industrial and Infrastructure Development Corporation Limited & Ors. reached the Supreme Court of India, questioning whether financial corporations could recover time-barred debts using the Haryana Public Moneys (Recovery of Dues) Act, 1979, and the State Financial Corporation Act, 1951. The judgment has significant implications for financial institutions, borrowers, and guarantors.

Background of the Case

The appeals arose from a judgment of the Punjab and Haryana High Court, which had dismissed the writ petitions filed by the appellants. The dispute stemmed from loans provided by financial corporations to companies that later defaulted. The loans had become time-barred under the Limitation Act, 1963, yet the corporations sought recovery under special recovery statutes.

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Key Issues in the Case

• Whether financial corporations can recover debts beyond the limitation period by invoking special recovery laws.
• Whether such recovery violates the principle that time-barred debts cannot be legally enforced.
• Interpretation of ‘amounts due’ under recovery laws.

Petitioners’ Arguments

The appellants contended:

• The debts were time-barred under the Limitation Act, and recovery attempts were therefore illegal.
• The Supreme Court’s decision in V.R. Kalliyanikutty (1999) ruled that time-barred debts could not be recovered under recovery laws.
• The special statutes did not create a new right to recover debts beyond the limitation period.
• Applying recovery laws to time-barred debts was unconstitutional and violated fundamental rights under Article 14 of the Constitution.

Respondents’ Arguments

The financial corporations, including the Haryana State Industrial and Infrastructure Development Corporation Limited, argued:

• The Limitation Act bars the remedy but does not extinguish the debt.
• The special recovery laws provide an independent mechanism for debt recovery.
• The State Financial Corporations Act was designed to provide ‘special privileges’ to financial corporations for recovering dues.
• The interpretation in V.R. Kalliyanikutty did not consider other binding precedents like Bombay Dyeing & Manufacturing Co. (1958).

Supreme Court’s Ruling

The Supreme Court upheld the High Court’s decision, ruling:

• The recovery statutes confer an additional right to financial corporations to recover debts, even if time-barred under the Limitation Act.
• The term ‘amounts due’ in the State Financial Corporations Act and Recovery of Dues Act includes time-barred debts.
• The V.R. Kalliyanikutty precedent required reconsideration, as it did not account for key judgments supporting financial corporations’ rights.
• The matter should be placed before a larger bench for authoritative resolution.

Conclusion

The ruling clarifies that financial corporations may invoke recovery laws even for time-barred debts, reinforcing their ability to enforce claims through specialized statutes. However, the Supreme Court’s decision to refer the issue to a larger bench suggests that further clarification may emerge in the future.

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Petitioner Name: K.P. Khemka & Anr..
Respondent Name: Haryana State Industrial and Infrastructure Development Corporation Limited & Ors..
Judgment By: Justice Surya Kant, Justice K.V. Viswanathan.
Place Of Incident: Haryana.
Judgment Date: 08-05-2024.

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