Madras High Court Dismisses ₹1842 Crores Recovery Claim by Tamil Nadu Industrial Investment Corporation as Time-Barred and Unsubstantiated

A petition for recovery of dues filed 22 years after foreclosure and 6 years after the last payment without acknowledgment of debt is barred by limitation" – Madras High Court dismissed a recovery claim of ₹1842 crores filed under Section 31 of the State Financial Corporations Act, 1951, citing limitation and procedural lapses. The court, presided over by Justice Dr. G. Jayachandran, found that the claim was time-barred and unsupported by valid evidence, while also questioning the inflated recovery amount in comparison to the original loan sanctioned.

The Tamil Nadu Industrial Investment Corporation (TIIC), a public financial institution under the State Financial Corporations Act, 1951, sought recovery of ₹1842 crores from M/s Feena Petro Products Limited and its guarantors. The loans in question were sanctioned in 1994 and 1995, including a term loan of ₹84.10 lakhs and a hire purchase loan of ₹90 lakhs, for which the respondents defaulted on repayment.

The respondents contested the petition on the grounds that it was barred by limitation and argued that the mortgages purportedly securing the loans were invalid. They also contended that the petitioner’s claim of ₹1842 crores was baseless, given the original loans amounted to less than ₹2 crores.

The loans were foreclosed in 1997, but the recovery petition was filed in 2017. The respondents maintained that no acknowledgment of debt or renewal of guarantees had occurred within the statutory limitation period, making the claim untenable. They also questioned the petitioner’s procedural compliance, including the lack of proper authorization for the representative who deposed on behalf of TIIC.

"A petition for recovery filed after 22 years and without acknowledgment of debt renders the claim hopelessly barred by limitation."

The court held that the recovery petition was filed beyond the limitation period prescribed under the Limitation Act, 1963. The last payment toward the loan was made in 2011, while the loans were foreclosed as far back as 1997. The court observed, “The failure to establish any renewal of the guarantee or acknowledgment of debt within the period of limitation makes the case of the petitioner hopelessly worst.”

Further, the court highlighted that, under the State Financial Corporations Act, recovery petitions must be filed within three years from the date of the last transaction unless there is a valid acknowledgment of debt or renewal of guarantees. The court stated, “Filing the petition after 22 years of foreclosure and six years after the last payment without any acknowledgment of debt renders the claim hopelessly barred by limitation.”

Recovery under Section 31 – Requirements for Mortgage Validity

The court scrutinized the validity of the mortgages purportedly securing the loans. The petitioner claimed that properties owned by respondents 4 and 6 were mortgaged to TIIC. However, the court found that the mortgage deed submitted (Ex.P-5) was executed by the directors of the borrowing company, and not the actual owners of the properties.

In its ruling, the court remarked, “The properties mentioned in the schedule of the petition were not legally mortgaged as the mortgage deed was executed by company directors and not the property owners. Without valid mortgages, the petition cannot be maintained under Section 31 of the State Financial Corporations Act.”

The court further noted that other related documents, such as the deed of undertaking (Ex.P-6) and power of attorney (Ex.P-7), were similarly not signed by the property owners. This rendered the petitioner’s claim untenable, as no valid mortgage had been created.

"The absence of material details and unexplained inflated claim of ₹1842 crores demonstrates suppression of material facts and renders the claim illegal and misleading."

The court took issue with the petitioner’s failure to provide a clear breakdown of the loans, repayments, and interest calculations. The original loans amounted to less than ₹2 crores, yet the recovery claim was for ₹1842 crores. The court remarked, “In view of vague and truncated particulars furnished by the petitioner, which are not adequate to substantiate the relief sought, and also in view of limitation, this petition stands dismissed as devoid of merits.”

Justice Dr. G. Jayachandran noted that, despite repeated payments by the respondents through auctions and adjustments from fixed deposits, the petitioner failed to disclose these transactions or provide an accurate account of the outstanding amount. The court observed, “Without giving proper credit to these payments under respective loan accounts, the petition is filed for a consolidated amount with interest at two different rates.”

Competency of Witness – Authorization and Evidence Admissibility

The court also addressed the procedural impropriety regarding the representative who deposed on behalf of TIIC. The Junior Officer (PW-1) who gave evidence lacked valid authorization to represent the corporation, as required under Order XXIX, Rule 1 of the Civil Procedure Code, 1908.

Quoting a previous judgment (Canara Workshops Limited vs. Mantesh), the court emphasized, “The Board of Directors alone can authorize an officer to represent the corporation in legal proceedings. The Branch Manager’s authorization of PW-1 was invalid, making the evidence inadmissible.”

The court further noted that the financial statements submitted by the petitioner were uncertified and failed to comply with the requirements of the Bankers’ Book Evidence Act, 1891. “The petitioner’s financial records, marked as Ex.P-16, were uncertified, and the witness was unable to explain entries or substantiate the claim, rendering the evidence unreliable,” the court stated.

The Madras High Court dismissed the petition, stating that the petitioner failed to comply with statutory requirements, provide valid evidence, or substantiate its recovery claim. The court remarked that the petition was not only time-barred but also misleading and unsupported by proper documentation.

“In view of vague and truncated particulars furnished by the petitioner, which are not adequate to substantiate the relief sought, and also in view of the limitation, this Original Petition stands dismissed as devoid of merits.”

Date of Decision: January 22, 2025