P.V.Chandran vs The Kerala Financial Corporation on 29 August, 2008

[Cites 19, Cited by 0]

Kerala High Court

P.V.Chandran vs The Kerala Financial Corporation on 29 August, 2008

This Writ Appeal is directed against the order passed by the learned single Judge in Original Petition No. 18055 of 1998 dated 4.10.2006. By the impugned order the learned single Judge has partly allowed the Original Petition.

2. Writ Petitioner is the appellant. The averments in the Writ Petition are, that he has purchased an extent of 14 = cents of land along with the building situated thereon from the 5th respondent under Ext.P1-sale deed dated 24.10.1996. Ext.P2-encumberance certificate dated 7.9.1996 would reveal that there was no encumbrance with regard to the property, except the transaction by which the vendor of the petitioner had purchased the property from its original owners. 5th respondent had purchased the property from respondents 3 and 4 as per Ext.P3 dated 20.11.1995. Ext.P4 encumbrance certificate issued in favour of the 5th respondent dated 16.11.1995 also would show that there was no encumbrance on the property. According to the petitioner, when he purchased the property from 5th respondent, encumbrance certificate did not reveal that the property was encumbered.

3. The petitioner was served with a notice dated 18.8.1997 issued by the second respondent, Deputy Tahsildar (RR), Kerala Financial WA No.58 of 2008 - 2 - Corporation, Kannur, stating that the property purchased by the petitioner originally belonged to the 3rd respondent, who was the proprietor of an industrial concern by name M/s Anjaneya Industries and the 3rd respondent had availed a loan from the 1st respondent-Kerala Financial Corporation and there was default in the repayment of the said loan, and that notices in Form Nos. 1 and 10 of the Revenue Recovery Act were served on the 3rd respondent on 28.2.1994 and that the alienation in favour of 5th respondent and thereafter in the name of the petitioner took place subsequent to the service of RR notice and, therefore, proceedings are liable to be taken against the property in question in terms of Section 44(2) of the RR Act. Ext.P7 is the copy of the notice. By Ext.P8 petitioner had sent a detailed reply to the notice narrating the circumstances leading to his purchase of the property from 5th respondent and that the encumbrance certificate issued did not show any kind of encumbrance over the property. Regarding the loan availed of by 3rd respondent, it is the contention of the petitioner that the 3rd respondent had mortgaged a property having an extent of 50 cents worth more than Rs.30 lakhs to the KFC. The loan was to the tune of Rs. 9 lakhs only. Therefore, the KFC could have proceeded on the property mortgaged and that they need not have to proceed against the property purchased by the petitioner and that too from the 5th respondent. According to the petitioner, the transaction effected in his favour cannot be deemed to be in violation of Section 44(2) of the Revenue Recovery Act, as it was not a case of alienation WA No.58 of 2008 - 3 - by 3rd respondent-defaulter in favour of a close relative. In reply, 2nd respondent has stated that a notice under Section 34 had been issued to respondents 3 and 4 and instead of clearing off the dues, they had maliciously assigned the property to the 5th respondent. Ext.P11 dated 11.3.1998 is a notice stating that the property in question was attached in terms of Section 36 of the Revenue Recovery Act. Ext.P12 dated 21.8.1998 is another notice under Section 49(2) stating that the property with building thereon will be put to sale in revenue action. Ext.P13 dated 22.2.1994 is the notice in Form No. 1 issued in the name of respondents 3 and 4. Since 2nd respondent was proceeding against the property in question on the basis of Exts.P13 and P14, petitioner by filing original petition had requested this court to quash Exts.P11 and P13 by issuing a Writ in the nature of Certiorari and secondly, for a direction to the respondents 1 and 2 not to proceed against the property purchased by the petitioner for recovery of loan amount allegedly availed of and defaulted by respondents 3 and 4.

4. 1st respondent-Corporation has filed its counter affidavit in the Writ Petition. The essence of its contentions is that, the respondents 3 and 4 had availed of a loan from the 1st respondent by mortgaging the machineries, land and the building thereon in favour of the 1st respondent. Since they committed default in repayment of the loan, the Corporation had initiated revenue recovery proceedings after complying with the procedural requirements as provided under the Kerala Revenue Recovery Act, 1968. WA No.58 of 2008 - 4 - They have further stated the transactions evidenced by Exts.P1 and P3 are not genuine ones and they were intended only to defeat the revenue recovery proceedings initiated by the Corporation.

5. The 2nd respondent has also filed a counter affidavit detailing the circumstances which led to the initiation of the revenue recovery proceedings and the procedures followed in that regard.

6. The learned single Judge by judgment dated 4.10.2006 has disposed of the Writ Petition by granting One Time Settlement benefit to the petitioner. The relevant portion of the judgment reads as under:

"Section 44 of the Revenue Recovery Act serves as a charge on the property of the defaulter. So much so, sale of property effected by respondents 3 and 4 on 20.11.1994 after receipt of revenue recovery notice is subject to liability due to the first respondent. Since the same property purchased by the petitioner is also subject to charge, respondents 1 and 2 are entitled to proceed for recovery by attachment and sale of the property after ignoring the sale deeds both in favour of 5th respondent and the petitioner However, on account of escalation of value of land, I feel petitioner can be given OTS benefit for settlement of liability and in that event, he is entitled to retain the property. If petitioner so desires, petitioner is directed to file application before Managing Director of KFC after making payment of 15% of the liability as of now for OTS benefit and if such an application is filed along with payment of 15% of the arrears within three WA No.58 of 2008 - 5 - weeks from the date of receipt of copy of this judgment, then there will be direction to the Managing Director to grant OTS benefit to the petitioner and if payment is made accordingly, to allow the petitioner to retain the property. Recovery proceedings will remain stayed for payment as above and recovery will be restarted only if petitioner does not settle liability. In the absence of any settlement of liability as above, respondents 1 and 2 will ignore the sale transactions involved and proceed for sale of the property."

7. Aggrieved by the directions issued by the learned Single Judge, the petitioner has come up in appeal.

8. According to the appellant-petitioner, Section 44(2) of the Revenue Recovery Act does not come to the aid of the respondent-Corporation. According to the appellant, the said provision comes into operation only when a transfer of immovable property is made by a defaulter after the public revenue due on a land from him has fallen in arrears. The said transfer should be with an intent to defeat the revenue recovery proceedings. The appellant has mortgaged the property to a nationalized Bank for availing of a loan. The mortgage will create a charge over the property whereas the attachment will not create any charge. Any attachment after the creation of the mortgage has to be ignored. It is further stated that attachment of the property was effected only on 11.3.1998 whereas Ext.P1 title deed is dated 24.10.1996, much earlier to the attachment. So also, Ext.P3 WA No.58 of 2008 - 6 - is dated 20.11.1995 whereby 5th respondent had purchased the property from respondents 3 and 4. The learned Single Judge failed to notice the fact that respondents 1 and 2 ought to have proceeded against the property mortgaged by the borrowers instead of proceeding against the property already sold by them to the 5th respondent. The appellant further asserts that, in view of the decision rendered by the Apex Court in Unique Butyle Tube Industries (P) Ltd v. U.P. Financial Corporation and others ({2003} 2 SCC 455), any recovery of the loans exceeding Rs. 10 lakhs by the State Financial Corporation has to be made before the Debt Recovery Tribunal and recourse to other modes of recovery under the Revenue Recovery Act is impermissible. Appellant-petitioner contends that requisition for revenue recovery proceedings against his predecessor was made on 24.9.1993 and by that time the Recovery of Debts Due to Banks and Financial Institutions Act had come into force. Therefore, the present recovery proceedings should lie only before the Debt Recovery Tribunal and the proceedings initiated by the 2nd respondent is liable to be quashed.

9. The learned Senior Counsel, Sri. R.D.Shenoy, while reiterating the assertions made in the Memorandum of Appeal, would contend, that, Section 44(2) of the Revenue Recovery Act comes into operation only when a transfer of immovable property is made by a defaulter after the public revenue due on the land from him has fallen in arrears and secondly, the transfer should be with the intent to defeat the revenue recovery proceedings. The WA No.58 of 2008 - 7 - learned Senior Counsel would further contend, that, the action of the respondent-Corporation is against the dictum of the Apex Court in Unique Butyle Tube Industries (P) Ltd v. U.P. Financial Corporation and Others ({2003} 2 SCC 455). While elaborating his contentions, the learned Senior Counsel would contend, that, this Court in Usman v. K.F.C. (2007 (2) KLT

604), while considering the action of the respondent corporation for realising the debts due to it by resorting to revenue recovery proceedings had relied upon Unique Butyle Tube Industries' case, but has not analyzed the dictum laid down by the Apex Court in the proper perspective and therefore, the said judgment requires reconsideration. It is further contended that the revenue recovery proceedings by the respondent-Corporation was initiated against the appellant's predecessor was made on 24.9.1993 and the Recovery of Debts Due to Banks and Financial Institutions Act, came into force on 24.6.1993 even before requisition and therefore, the proceedings for any recovery of dues to the Corporation would lie only before the Debt Recovery Tribunal and therefore, revenue recovery proceedings initiated by the Corporation requires to be set aside, since the same is without jurisdiction and illegal.

10. The learned Senior Counsel in support of his contention has relied on the observations made by Apex Court in the case of Mohanalal Jain v. His Holiness Maharaja Shri. Sawai Man Singhji (AIR 1962 SC 73), M/s. Unique Butyle Tube Industries Pvt Ltd. v. U.P. Financial Corporation and Others (AIR 2003 SC 2103), Karnataka State Financial Corporation v. WA No.58 of 2008 - 8 - N. Narasimhaiah and Others ({2008} 5 SCC 176), State of Kerala v. V.R. Kalliyanikutty (1999 (2) KLT 146 {SC}).

11. Mr. V.B. Unniraj, learned counsel for the Corporation, relying on the judgment of this Court in Usman v. Kerala Financial Corporation (2007 (2) KLT 604) and Indian Bank v. Ernakulam District Harijan Girijan Motor Transport, justifies the action of the Corporation in resorting to revenue recovery proceedings for realisation of debts due to the Corporation from a defaulter.

12. Admittedly, respondents 3 and 4 had availed loan from respondent-Corporation by entering into a loan agreement dated 14.3.1990. They had committed default in settling the amounts due to the Corporation. The Corporation had initiated revenue recovery proceedings against respondents 3 and 4 by serving revenue recovery notice dated 20.8.1994. Even after receiving the notice, respondents 3 and 4 have transferred the property in question to 5th respondent on 20.11.1995. In turn, 5th respondent has sold the property to the petitioner-appellant on 24.10.1996 and the revenue recovery proceedings are initiated against the petitioner by issuing notice under Section 44(2) of the Kerala Revenue Recovery Act, 1968 dated 18.8.1997 and thereafter the property is brought to sale by public auction. These are the facts in nutshell.

13. The Kerala Revenue Recovery Act,1968 is an Act to consolidate and amend the laws relating to recovery of arrears of public revenue in the WA No.58 of 2008 - 9 - State of Kerala. It extends to the whole of State of Kerala. It has come into force on 15.12.1968. For the purpose of this case, we need to notice only Section 5, Section 44, Section 68 and Section 71 of the Act. Section 5 of the Act provides, that, whenever public revenue due on land is in arrears, such arrears together with interest, if any, and cost of the process may be recovered by one or more of the modes so prescribed by attachment and sale of the defaulters movable or immovable property. Section 44 of the Act, provides for effect of engagements and transfers by the defaulter. The provision contemplates that any engagement entered into by the defaulter with any one in respect of any immovable property after service of written demand on him shall not be binding on the Government. Sub-section (2) of Section 44 of the Act, provides that any transfer of immovable property made by the defaulter after public revenue due on any land has fallen in arrears, with an intent to defeat or delay the recovery of such arrears shall not be binding on the Government. Sub-section (3) is not relevant for the purpose of this case and therefore it is not noticed. Section 68 of the Act speaks of application of the Kerala Revenue Recovery Act for the recovery of certain other dues to the Government. Apart from others, it provides for recovery of all sums declared by any other law for the time being in force to be recoverable as arrears of public revenue due on land or land revenue. Section 71 of the Act authorises the State Government in public interest to declare the Kerala Revenue Recovery Act is applicable to certain institutions by issuing notification in the WA No.58 of 2008 - 10 - Official Gazette, for the recovery of amounts due from any person or class of persons to any specified institution or any class or classes of institutions and after issuance of such notification by the State Government all the provisions of Revenue Recovery Act is applicable to such recovery. It is not in dispute nor it can be disputed that the State Government has issued notification under Section 71 of the Act bearing SRO No.851 of 1979 making the Revenue Recovery Act, 1968 applicable for recovery of dues from the defaulter under the provisions of State Financial Corporation Act. Thus in public interest, the State Government has made applicable the speedy recovery of loans given by a bank for agricultural purposes as well as for speedy recovery of loans given by the Financial Corporation by invoking the provisions of Revenue Recovery Act. The Supreme Court while commenting on Revenue Recovery Act in U.R.Kalliyanikutty's case,1992 (2) KLT 146 (SC) has observed, that, the overall scheme of the Act is to provide for speedy recovery , not merely of public revenue but also of certain kinds of loans which are required to be recovered speedily in public interest. Agricultural loans and loans by the State Financial Corporation are also loans given in public interest for the purpose of economic advancement of the people of the State, to help them in agricultural operations or establishment of industries. For this reason, the Kerala Revenue Recovery Act has been made applicable to such loans, so that, there can be a speedy recovery of such loans and the amounts can be utilised for similar objects again.

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14. Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, provides that the provisions in that Act, "shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of law other than this Act". Necessarily this Act will have an overriding effect over any other law. The saving clause provided under Section 34(2) makes it clear that the provisions have been made in the Debt Recovery Act is in addition to the provisions provided in the five Acts mentioned therein. Therefore, the jurisdiction vested in the authorities named in the Special Statute, namely, the Industrial Finance Corporation Act, 1948, the State Financial Corporation Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Act, 1984 and the Sick Industrial Companies (Special Provisions) Act, 1985 can be invoked notwithstanding the jurisdiction in the Debts Recovery Tribunal under Section 19 of the Act. In short, sub-section 34 of the Act, 1993 consists of two parts. Sub section (1) deals with the overriding effect of the Act and the sub-section itself makes an exception as regards matters covered by sub-section (2). Such being the scheme of the Act, the Apex Court in Unique Butyle Tube Industries Pvt. Ltd. vs. U.P.Financial Corporation, AIR 2003 SC 104, has observed, that "the U.P. Public Monies (Recovery of Dues) Act, 1972 has not been placed in the saving clause of Section 34(2) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The mode of recovery of debt under the U.P. WA No.58 of 2008 - 12 - Act is not saved under the said provision i.e. sub-section (2). Even a bare reading therein makes it clear that it is intended to be in addition to and not in derogation of certain statutes, one of which is the State Financial Corporation Act, 1951. In other words, a bank or a financial institution has the option or the choice to proceed either under Recovery of Debts Due to Banks and Financial Institutions Act, 1993, or under the modes of recovery prescribed under the State Financial Corporation Act, 1951. The U.P.Act deals with separate modes of recovery and such proceedings are not relatable to proceedings under the State Financial Corporation Act, 1951".

15. Keeping in view what has been said in Unique Butyle Tube Industries case, the learned Senior Counsel Sri.R.D.Shenoy would contend that the Financial Corporation can only resort to two modes of recovery to recover debts due to it and it is further argued that the Financial Corporation for realisation of debts due to it may initiate proceedings under Section 32 G of the Financial Corporation Act or the Corporation may approach the Debts Recovery Tribunal and at any rate they cannot resort to proceedings under Revenue Recovery Act. In support of this argument, the learned counsel again relies on the observations made by the Apex Court in the aforesaid cited decision, wherein the court has observed that Section 32G of the State Financial Corporation Act which is additional to the mode of recovery provided in Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, but exception was taken particularly and only to the WA No.58 of 2008 - 13 - U.P.Public Monies (Recovery of Dues)Act,1972, because the procedure for recovery therein was different rather inconsistent with the provisions of Section 32G of that Act, whereunder a certificate of recovery can be issued only after determining whether any amount is due, but under the U.P.Act of 1972 there is no such procedure for determining the amount due. Loan or advance or grant or credit given by a banking company to the borrower under a State sponsored scheme alone can be recovered by taking recourse to Section 3 of the U.P.Public Monies (Recovery of Dues) Act, 1972.

16. In our view, what fell for consideration before the Apex Court in Unique Butyle Tube Industries case was, whether the proceedings for recovery initiated by U.P.Financial Corporation under the Uttar Pradesh Public Monies (Recovery of Dues) Act, 1972 are maintainable in view of Section 34(2) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The facts in that case was, a certificate was issued under U.P.Public Monies (Recovery of Dues) Act, for recovery of certain dues from a defaulter by a competent authority under the Act as arrears of land revenue. The said proceedings was questioned on the ground that, in view of Section 32 G of the State Financial Corporation Act, no other proceedings is permissible under the Act. In that scenario, the Apex Court after referring to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Section 32 G of U.P.Financial Corporation Act and Section 3 of U.P.Public Monies (Recovery of Dues) Act, 1972 at WA No.58 of 2008 - 14 - Para 9 of the judgment has stated as under:-

"Section 34 of the Act consists of two parts.

Sub-section (1) deals with the overriding effect of the Act notwithstanding anything anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the Act. Sub-section (1) itself makes an exception as regards matters covered by sub-section (2). The U.P. Act is not mentioned therein. The mode of recovery of debt under the U.P.Act is not saved under the said provision, i.e., sub-section (2) which is of considerable importance so far as the present case is concerned. Even a bare reading therein makes it clear that it is intended to be in addition to and not in derogation of certain statutes; one of which is the Financial Act. In other words, a Bank or Financial Institution has the option or choice to proceed either under the Act or under the modes of recovery permissible under the Financial Act. To that extent, the High Court's conclusions quoted above were correct. Where the High Court went wrong is by holding that proceedings under the U.P.Act were permissible. U.P.Act deals with separate modes of recovery and such proceedings are not relatable to proceedings under the Financial Act.".

17. The State Financial Corporation Act, when it was enacted, it provided for the purpose of enforcing a liability of industrial concern only under Sections 29 and 32 of the Act. Section 32 G of the Act, which was inserted by Act 43 of 1985, provides for yet another remedy to a Financial WA No.58 of 2008 - 15 - Corporation for enforcing the liability due to it from an industrial concern. The said provision is as under"-

"32 G. Recovery of amounts due to the Financial Corporation as an arrear of land revenue.- Where any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorised by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it, and if the State Government or such authority, as that Government may specific in this behalf, is satisfied, after following such procedure as may be prescribed, that any amount is so due, it may issue a certificate for that amount to the Collector, and the Collector shall proceed to recover the amount in the same manner as an arrear of land revenue.".

18. As observed by the Apex Court in Narasimhaiah's case (2008) 5 SCC 176, the Corporation under the State Financial Corporations Act, 1951, after coming into force of Section 32G of the Act has four remedies, for the purpose of enforcing a liability of an industrial concern; i.e. to file a suit; to take recourse to Section 29 of the Act; to take recourse to Section 31 of the Act; and to take recourse to Section 32G of the Act.

19. Section 32G of the Act provides for recovery of amounts due to the financial corporation as an arrear of land revenue. This provision is in addition to and not in derogation of any other modes of recovery provided in WA No.58 of 2008 - 16 - the Act, by making an application to the State Government for the recovery of amounts due to it and if the State Government or any other officer authorised in that behalf, if he is satisfied that any amount is due to the financial corporation, may issue a certificate for that amount to the Collector and the Collector shall proceed to recover the amount in the same manner as an arrear of land revenue.

20. In our considered view, the learned senior counsel would have been fully justified in his submission that in view of Section 32G of the Financial Corporation Act and Section 32(2) of the Debt Recovery Tribunals Act, the Financial Corporation can enforce its liability only as provided under those provisions and not by resorting to the provisions of the Kerala Revenue Recovery Act. But, in view of the notification issued by the State Government, in exercise of its power under Section 71 of the Act, wherein the provisions of the Revenue Recovery Act are also made applicable to the recovery of amounts due from any person or class of persons to Kerala Financial Corporations Act, it is difficult to accept the submissions made by the learned Senior Counsel Sri.R.D.Shenoy. Keeping in view this aspect, a Division Bench of this Court in the case of Usman vs. Kerala Financial Corporation, 2007(2) KLT 604 has observed, that, "Government of Kerala has issued notification under S.71 of the Revenue Recovery Act making the provisions of the Act applicable to recovery of amounts due to the Kerala Financial Corporation, on finding that the amount recovered by proceeding WA No.58 of 2008 - 17 - under S.29 of the SFC Act is not sufficient to satisfy the debt due from the Company, the KFC was perfectly justified in proceeding against the personal guarantors for the loan given to the Company by resorting to proceedings under the Revenue Recovery Act. Mode of recovery under the SFC Act is in addition to and not in derogation of other modes of recovery and therefore it is perfectly within the powers of the KFC to invoke the Kerala Revenue Recovery Act to realize the amounts due to them despite the provisions of the SFC Act".

21. We are in full agreement with the reasoning and conclusions reached by the Division Bench in the aforesaid decision. We should notice here that the judicial decorum and certainty of law require a Division Bench to follow the decision of another Division Bench. The binding effect of a decision does not depend upon whether a particular argument was considered therein or not, provided the point with reference to which an argument was subsequently advanced was actually decided. We hasten to add, where a learned Judge or a Division Bench does not agree with the decision of a bench of co-ordinate jurisdiction, the matter shall be referred to a larger bench.

22. The learned Senior Counsel has also referred to the decision of the Apex Court in the case of Mohanlal Jain, AIR 1962 SC 73. In our view, the principles laid down in that decision has no relevance for deciding the issues raised in this appeal.

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23. Before we part with the case, we make it clear, if for any reason, the appellant is aggrieved by the procedure adopted by the authorities under the Revenue Recovery Act, he is at liberty to question the same as provided under the Act, subject to limitation provided under the Act itself.

24. In view of the above discussion, we do not find any merit in this writ appeal. Accordingly, the appeal requires to be rejected and it is rejected. Consequently, all pending interlocutory applications are closed. In the facts and circumstances of the case, parties are directed to bear their own costs.

Sd/-

H.L.DATTU, CHIEF JUSTICE.

Sd/-

A.K. BASHEER, JUDGE DK.

(True copy)

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