Andhra HC (Pre-Telangana)
State Bank Of Hyderabad, Msme ... vs The Tahsildar, Hanamkonda Mandal, ... on 5 October, 2012
Author: L.Narasimha Reddy
Bench: L.Narasimha Reddy
THE HON'BLE SRI JUSTICE L.NARASIMHA REDDY
WP Nos.27987 of 2012 and Batch
05-10-2012
State Bank of Hyderabad, MSME Branch,Warangal
The Tahsildar, Hanamkonda Mandal, Warangal District & others
Counsel for the petitioner: Sri Addepally Suryanarayana andSri A. Krishnam Raju
Counsel for respondents:G.P.for Revenue for RRs 1&2 Sri A. Ravinder Reddy for
R-3
<Gist:
>Head Note:
?Citations:
1)1997(6) ALD 726 (DB)
2)(2009)4 SCC 94
3)(1995)2 SCC 19
Writ Petition Nos.27987, 11101 and 11102 of 2012
COMMON ORDER:
The subject-matter of these writ petitions is common. Hence, they are disposed of through a common order. For the sake of convenience, the parties are referred to, as arrayed in W.P.No.27987 of 2012.
All the three writ petitions are filed by the same petitioner. While in W.P.Nos.11101 and 11102 of 2012, two notices dated 02-04-2012 and 09-04-2012 issued by the Tahsildar, Dharmasagar Mandal, the 1st respondent herein, under Section 22 of the A.P. Revenue Recovery Act, 1864 (for short 'the Act') are challenged, W.P.No.29787 of 2012 is filed, challenging the notice dated 09-08-2012, issued under Section 36 of the Act.
The petitioner advanced loans to two rice mills, viz., M/s Lakshminarasimha Industries, IDA, Rampur Village, Dharmasagar Mandal, and M/s Somanath Agro Industries, Ramanjapur, Venkatapur Mandal, Warangal District. It is stated that movable and immovable properties pertaining to the rice mills were hypothecated or mortgaged, as the case may be, as security, for repayment of loan. Both the loans are said to have become non-performing assets. It is stated that proceedings are being initiated before the Debt Recovery Tribunal, Hyderabad.
The A.P. State Civil Supplies Corporation Limited, the 3rd respondent herein, supplied huge quantities of paddy to the two rice mills, referred to above, for conversion into rice and supply of the same to the Food Corporation of India. However, the mills did not supply the rice, and have virtually appropriated the paddy supplied to them. The 3rd respondent approached the District Collector, Warangal, the 2nd respondent, who, in turn, directed the 1st respondent to initiate proceedings under the Act. Initially, notices were issued under Section 22 of the Act, requiring the defaulter to pay the amounts due, which run into crores of rupees, within the stipulated time. Since the amount was not deposited, steps were initiated for sale of the property owned by the mills as well as, of their partners.
The petitioner contends that the movable and immovable properties owned by the respective mills are hypothecated or mortgaged to it, and as long as the charge remains, the proceedings under the Act cannot be initiated, vis--vis the said properties. It is also pleaded that the very initiation of proceedings under the Act is untenable, since prior determination of the amount was not done. The petitioner further contends that the primacy accorded to the process of recovery of arrears of land revenue cannot be extended to the amounts, referred to as 'deemed arrears' and that they can be recovered through the ordinary process of law.
The 3rd respondent filed detailed counter-affidavit. He has furnished the details of the paddy that was procured from farmers and handed over to the mills, for conversion into rice. He submits that the rice mills have appropriated public property handed over to them did not supply the resultant rice in spite of repeated demands, and left with no alternative, the proceedings under the Act were initiated. He submits that the Corporation is nothing but an extension of civil supplies department and that the proceedings are initiated strictly in accordance with law. He has also pleaded that the charge said to have been created in favour of the petitioner is subject to the claim under Section 17 of the Act.
The petitioner filed a reply affidavit, contradicting the contentions raised in the counter-affidavit filed by the 3rd respondent.
Sri Addepally Suryanarayna and Sri A. Krishnam Raju, learned counsel for the petitioner submit that long before the 3rd respondent supplied paddy to the rice mills, loans were advanced by the petitioner, duly creating charge over the movable and immovable properties under validly executed documents. They submit that though it is competent for the respondents to proceed against the rice mills to recover any amount due to them, they cannot touch the properties as regards which, hypothecation or mortgage exists. They further submit that the very initiation of the proceedings under the Act is contrary to the prescribed procedure, since no prior determination of the amount due was taken place. Learned counsel further submit that vast difference exists between the arrears of land revenue as such, on the one hand, and the amounts, that are treated as land revenue by legal fiction, on the other hand, in the context of initiation of proceedings under the Act. In support of this contention, they relied upon a judgment rendered by the Division Bench of this Court in D. VENKATESHWARA RAO v. COLLECTOR, NIZAMABAD AND OTHERS1.
Learned Government Pleader for Revenue, and Sri A. Ravinder Reddy, learned counsel for the 3rd respondent, on the other hand, submit that the rice mills have cheated the State and the Civil Supplies Corporation by not returning the resultant rice after receiving huge quantity of paddy, for milling. They submit that the security that is said to have been created in favour of the petitioner for repayment of loans is subject to the claim of the State under the Act, and have drawn the attention of this Court, to Section 17 of the Act. They have placed reliance upon the judgments of the Supreme Court.
The proceedings, which are initiated under the Act by the respondents are not against the petitioner as such: they are against the properties that are owned by the rice mills, which committed default in returning the rice, even after receiving huge quantity of paddy for milling. The contention of the petitioner is that they hold charge over the properties, that are sought to be proceeded against. Three principal contentions are raised in this regard:
1) The deemed arrears of revenue cannot be treated on par with arrears of revenue as such, and the same procedure cannot be followed to recover the amounts falling into the respective categories;
2) The proceedings are vitiated on account of the fact that the prior determination was not undertaken after issuing notice to the concerned party; and
3) The proceedings under the Act cannot be initiated against the properties which are already hypothecated or mortgaged in favour of a nationalized bank.
The farmers in Warangal District or for that matter in other districts of the State have been complaining that they are not being paid proper price by the traders for the paddy produced by them. The fact that the traders were making phenomenal profits by purchasing the paddy by paying megre price and selling the rice at a totally proportionate and higher cost, was taken note of by the Government. The women self-help groups were provided adequate funds to enable them to purchase the paddy directly from the farmers and making it available to the civil supplies corporation.
The paddy so procured is given to the rice mills for custom milling and the resultant rice is delivered to the Food Corporation of India, so that it can be made available for public distribution. One of the rice mills by name, M/s Lakshminarasimha Industries, IDA Rampur Village was handed over 4,492 metric tones of paddy.
It has delivered only 1,023 metric tonnes of rice and withheld the rice in respect of about 3000 metric tonnes of paddy. The figures in respect of other rice mill are almost in the same range. Since the rice was not handed over, the revenue department initiated proceedings under the Act, at the instance of the 3rd respondent.
The Act provides for a mechanism for recovery of arrears of revenue. The term 'arrears of revenue' defined under the Act, was basically intended to cover the arrears of revenue as such. Over the period, as and how activities of the Government increased, the amounts payable to it, though not as arrears of land revenue, were also brought under the definition. Section 52-A was added to the Act, enabling the recovery of the other amounts due to the Government, as well as the dues, to the Nationalized Banks, and the corporations established by the State of Central Governments.
One requirement under proviso to sub-section (1) of Section 52-A of the Act is that it is only in respect of such of the State owned Corporations, as regards which, notification is issued in the gazette, that the provisions of the Act can be pressed into service for recovery of the amount due to them. It is not in dispute that the 3rd respondent is a State-owned Corporation. The notification under Section 52- A in respect of this organization was issued in G.O.Ms.No.261, Revenue Department, dated 17-03-1987. The G.O. is not in respect of any specific item due to the Corporation. It covers every amount due to it from the stockiests, fair price shop dealers or any other person or agency.
The first contention advanced by the petitioner is about the distinction between arrears of 'land revenue' and 'deemed arrears'. They submit that throughout the Act, it is only the arrears of land revenue, that are dealt with, and for recovery of deemed arrears with the same procedure cannot be followed. It is common that whenever Legislature enacts law, it defines certain terms with the possible amount of precision and provides for a mechanism, which may be regulatory, prohibitory or reformatory in nature. The definitions may be, either inclusive or exclusive, depending upon the subject-matter of the legislation. While an attempt to adopt too narrow a definition may result in exclusion of certain categories, which are otherwise within the definition, a loosely worded definition may bring in its fold, certain phenomenon, that genuinely do not fall in the proposed regime. In such cases, a rigid definition is evolved and whenever it becomes necessary to bring certain other items and objects within the fold of definition, a provision enabling it to extend legal fiction is incorporated. Such exercises are common in the field of taxation, customs, central excise, income tax, and the like. The fiction provided for under the relevant law is for the limited purpose under the Act.
It is not in dispute that through a legal fiction, provided for under Section 52-A of the Act, the amounts that are due to the Government, its Corporations, Nationalized Banks, etc, are treated as arrears of land revenue. Once such amounts are treated as, or deemed to be, the arrears of land revenue, no distinction can be maintained between the two, unless the Act or the Rules made thereunder given such an indication. Learned counsel for the petitioner are not able to point out any distinction in this regard. Therefore, the first contention cannot be accepted.
The second contention is that the initiation of proceedings under the Act must be preceded by proper determination of the amount due, and it is only for recovery of the amount so determined, that the proceedings can be initiated. It has already been mentioned that the proceedings are initiated against the rice mills, and the amounts sought to be recovered was mentioned. The rice mills did not dispute the accuracy of the figures furnished in the proceedings. Therefore, the petitioners cannot raise any objection in this regard. Further, the Tahsildar, who initiated the proceedings has furnished to this Court, the statement showing the item-wise arrears, that included the cost of rice, cost of milling, etc. The exercise to be undertaken in the matter of determination of amount is not akin to that of a preliminary decree for determination of mesne profits. Further, if the only objection is as to the correctness of the amount, the person or agency, which is sought to be preceded against, can indicate the same.
Therefore, the second contention also deserves to be rejected.
The last contention advanced by the learned counsel for the petitioner is that once an item of property is under mortgage, as a security for repayment of loan, it cannot be proceeded against under the Act. They submit that the mortgage in favour of the petitioner would have precedence and priority over the subsequent claims, even if they are in favour of the State.
Whenever an item of property is offered as security for repayment of more than one loan, the priority of the charges or mortgages has to be determined on the basis of the terms of the respective deeds, intention of the parties, and the relevant provisions of law, that govern the situation. Section 17 of the Act reads, "Sec. 17. Claims to property distrained and sold-Revenue to be the first charge:--
Where any person, not being a defaulter or responsible for a defaulter, may claim a right to the property distrained, and the distrainer may, notwithstanding, cause the same to be sold such claimant, on proof of such right in any Civil Court of competent jurisdiction, and in the event of the distrainer being unable to prove the responsibility for the arrear of revenue, on account of which the property may have been sold, shall recover from the distrainer the full value of such property, with interest, costs, and damages, according to the circumstances of the case. But claims to crops upon the ground or to gathered products of the ground attached in the possession of the defaulter, whether founded upon a previous sale, mortgage, or otherwise, shall not bar the prior claim of revenue due from the ground upon which such crop or product may have been grown".
A combined reading of Sections 35 and 42 of the Act would give a clear indication that the proceedings initiated under the Act would have precedence over the other claims, in respect of the same property, be it, through mortgage, or the like. Questions of similar nature have arisen before various High Courts and the Hon'ble Supreme Court. Recently in CENTRAL BANK OF INDIA v. STATE OF KERALA AND OTHERS2, the Supreme Court dealt with a batch of cases of this nature. The precedents on this issue were reviewed extensively. The observations made by the various High Courts and the Supreme Court, with reference to the relevant provisions of law were taken note of. The following observation of the Supreme Court in STATE BANK OF BIKANER AND JAIPUR v. NATIONAL IRON AND STEEL ROLLING CORPORATION3 was quoted with approval.
"...Where a mortgage is created in respect of any property, undoubtedly, an interest in the property is carved out in favour of the mortgagee. The mortgagor is entitled to redeem his property on payment of the mortgage dues. This does not, however, mean that the property ceases to be the property of the mortgagor. The title to the property remains with the mortgagor. Therefore, when a statutory first charge is created on the property of the dealer, the property subjected to the first charge is the entire property of the dealer. The interest of the mortgagee is not excluded from the first charge..."
The charge in that case was referable to a provision of the Rajasthan Sales Tax Act. In the instant case, the charge and precedence are referable to Section 17 of the Act. It was held by the Hon'ble Supreme Court that its judgment in STATE BANK OF BIKANER AND JAIPUR v. NATIONAL IRON AND STEEL ROLLING CORPORATION (3 supra) continues to hold the field.
Hence, the writ petitions are dismissed. The miscellaneous petitions filed in the writ petitions shall also stand disposed of.
There shall be no order as to costs.
_______________________ L. NARASIMHA REDDY, J.
Dt.05-10-2012.