Karnataka High Court
M/S. Valdel Engineers And Constructors ... vs M/S. Cfm Asset Reconstruction Private ... on 3 August, 2023
Author: Krishna S Dixit
Bench: Krishna S Dixit
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NC: 2023:KHC:27124
WP No. 15038 of 2023
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3RD DAY OF AUGUST, 2023
R
BEFORE
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
WRIT PETITION NO. 15038 OF 2023 (GM-RES)
BETWEEN:
M/S. VALDEL ENGINEERS AND CONSTRUCTORS
PRIVATE LIMITED
A COMPANY INCORPORATION UNDER
THE PROVISIONS OF THE COMPANIES ACT, 1956,
HAVING ITS CORPORATE OFFICE AT NO. 27,
KCN TOWERS, RACE COURSE ROAD,
BENGALURU-560 001.
REGISTERED OFFICE AT THE RESIDENCY,
133 AND 133/1, 5TH FLOOR,
RESIDENCY ROAD, BENGALURU-560 025,
REPRESENTED BY ITS MANAGING DIRECTOR.
...PETITIONER
(BY SRI. S S NAGANAND., SENIOR COUNSEL A/W
MS. SUMANA NAGANAND., ADVOCATE)
Digitally
signed by
SHARADA
AND:
VANI B
Location:
HIGH COURT M/S. CFM ASSET RECONSTRUCTION PRIVATE LIMITED
OF A COMPANY INCORPORATED UNDER THE
KARNATAKA
PROVISIONS OF THE COMPANIES ACT, 2013
HAVING ITS CORPORATE OFFICE AT 1ST FLOOR,
WAKEFIELD HOUSE, SPROTT ROAD,
BALLARD ESTATE, MUMBAI-400 038,
REGISTERED OFFICE AT BLOCK NO. A/1003,
WEST GATE, NEAR YMCA CLUB,
SUR. NO. 835/1 3, S.G. HIGHWAY, MAKARBA,
AHAMEDABAD-380 051.
REPRESENTED BY AUTHORISED OFFICER/TRUST.
...RESPONDENT
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NC: 2023:KHC:27124
WP No. 15038 of 2023
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO CALL
FOR RECORDS AND ISSUE A WRIT OF CERTIORARI TO QUASH
THE DEMAND NOTICE UNDER SECTION 13(2) OF THE
SECURITISATION AND RECONSTRUCTION OF FINANCIAL
ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT,
2002 DATED 04/05/2023 ISSUED BY THE RESPONDENT TO
THE PETITIONER (ANNEXURE K) AND QUASH THE REPLY
UNDER SECTION 13(3) A OF THE SECURITISATION AND
RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT
OF SECURITY INTEREST ACT, 2002 DATED 20/06/2023 ISSUED
BY THE RESPONDENT TO THE PETITIONER (ANNEXURE N) AND
ETC.,
THIS PETITION COMING ON FOR PRELIMINARY HEARING,
THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
Petitioner, a private limited company incorporated under the provisions of the erstwhile Companies Act, 1956, is knocking at the doors of Writ Court for calling in question the loan repayment demand notice dated 4.5.2023 issued u/s 13(2) at Annexure-K, and the reply dated 20.6.2023 issued u/s 13(3) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 at Annexure-N. Both these communications have been issued by the respondent- financial institution, for coercing the loan recovery which is secured by the lands in question.
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NC: 2023:KHC:27124 WP No. 15038 of 2023
2. Learned Sr. Advocate appearing for the petitioner argues that the subject lands which are furnished by way of security for the repayment being agricultural in nature, the same are exempt from proceeded against in view of section 31(i) of the Act. An application is also moved seeking leave of the court to amend the petition by adding two more grounds namely 12A & 17.5. The new ground 12A is an elaboration as to the subject land continuing to be agricultural despite there being conversion orders at Annexures-P, Q, R, S, T & U. The other ground at paragraph 17.5 is as to violation of principles of natural justice. Learned counsel for the petitioner presses into service the Apex Court decision in STATE OF KARNATAKA vs. SHANKARA TEXTILES MILLS LIMITED, (1995) 1 SCC 295, in support of his submission.
3. Having heard the learned counsel for the petitioner and having perused the Petition Papers, this court declines indulgence in the matter for the following reasons:
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(a) There is absolutely no dispute about the subject borrowing of money in crores of rupees and the same remaining unrepaid; there is also no dispute as to the land in question having been mortgaged and the repayment of debt in question is thereby secured.
Admittedly, all these lands have been converted to non- agricultural user by the orders of jurisdictional Deputy Commissioner made under the provisions of Sec.95 of the Karnataka Land Revenue Act, 1964. These Conversion Orders are dated 16.04.1992, 29.04.1992 (2 nos.), 15.05.2004 (2 nos.) & 19.07.2004; copies thereof are produced as Annexures-P to U to the Amendment Application, which is taken along with the main matter itself. It hardly needs to be stated that on the basis of these Conversion Orders, the subject lands cease to be agricultural in nature; it is not disputed by the learned Sr. Counsel appearing for the petitioner, amongst other, these Conversion Orders have been handed to the respondent- financial institution while mortgaging the property for securing repayment of the loan. It is a matter of common -5- NC: 2023:KHC:27124 WP No. 15038 of 2023 knowledge that the availability of security for repayment figures as a dominant factor whilst processing the loan applications. In fact, there are RBI Guidelines which to an extent shun lending sans securities. Thus but for the Conversion Orders, the subject lands would not have been taken by way of security for the repayment of loan.
(b) The vehement submission of learned Sr. Counsel for the petitioner that despite the Conversion Orders, lands have not lost their agricultural character since the conditions incorporated therein have not been complied with, is too farfetched an argument, and reasons for saying it are apparent: Firstly, it is not the case of petitioner that any inkling was given to the financial institution that these lands could still be agricultural, the subject Conversion Orders notwithstanding. Secondly, it is true that ordinarily such orders are conditioned; however, the object of incorporating the conditions is to bind the beneficiaries of such orders with some responsibility to put the land for to the purpose for which -6- NC: 2023:KHC:27124 WP No. 15038 of 2023 conversion is obtained; even if there is non-compliance of these conditions, the land does not get reconverted to agricultural character, on its own. Sub-section (2) of Sec.96 of the 1964 Act, supports this view. The same reads as under:
"(2) If any land assessed or held for the purpose of agriculture has been diverted for any other purpose in contravention of an order passed or of a condition imposed under Section 95, the Deputy Commissioner may serve a notice on the person responsible for such contravention directing him, within a reasonable period to be stated in the notice, to use the land for its original purpose or to observe the condition; and such notice may require such person to remove any structure, to fill up any excavation or to take such other steps as may be required in order that the land may be used for its original purpose, or that the condition may be satisfied. Subject to the orders of the State Government, the Deputy Commissioner may also impose on such person a penalty not exceeding one thousand rupees for such contravention and a further penalty not exceeding twenty-five rupees for each day during which such contravention continues."
The said provision specifically empowers the Deputy Commissioner to serve a notice on the person responsible for contravention of the conditions of conversion, requiring him to use the land for agricultural purpose or to comply -7- NC: 2023:KHC:27124 WP No. 15038 of 2023 with the condition. It is not the case of petitioner that any such notice was issued to him when the subject lands were mortgaged to the bank. If there is any notice issued subsequent to the mortgage, the protection granted to the farmers in terms of Sec.31(i) of the 2002 Act, cannot be availed.
(c) The reliance of petitioner's counsel on the decision in SHANKARA TEXTILES supra does not come to his aid. Paragraph 9 of the decision which was heavily banked upon, reads as under:
"...The consistent stand taken by the authorities is that the land was never converted for non-agricultural use as required by the provisions of Section 95(2) of the Revenue Act. The mere fact that at the relevant time, the land was not used for agricultural purpose or purposes subservient thereto as mentioned in Section 2(18) of the Act or that it was used for non- agricultural purpose, assuming it to be so, would not convert the agricultural land into a non-agricultural land for the purposes either of the Revenue Act or of the Act, viz., Karnataka Land Reforms Act. To hold otherwise would defeat the object of both the Acts and would, in particular, render the provisions of Section 95(2) of the Revenue Act, nugatory. Such an interpretation is not permissible by any rule of the interpretation of statutes. What is further, -8- NC: 2023:KHC:27124 WP No. 15038 of 2023 the respondent-Company had itself filed a declaration under Section 79-B(2)(a) of the Act stating therein that the entire disputed land was agricultural land and had claimed exemption from the provisions of the said Section 79- B under Section 109 of the Act on the ground that the land was mortgaged to the Mysore State Financial Corporation. We are, therefore, unable to agree with the view taken by the High Court on the point".
Firstly, the question canvassed before this court was not involved and therefore not examined in the above decision; secondly, the pith of ratio of the said decision is:
a land does not cease to be agricultural regardless of its user for non-agricultural purpose, unless an order converting it to non-agricultural user has been obtained under the provisions of Sec.95 of the 1964 Act. That proposition has no invocability in the fact matrix of this petition. A case is an authority for the proposition that is directly and substantively laid down therein, and not for all that which logically follows from what has been so laid down. Lord Halsbury more than a century ago, in the celebrated case of Quinn v Leathem (1901) A.C. 495, 506 has observed as under:-9-
NC: 2023:KHC:27124 WP No. 15038 of 2023 "Now before discussing the case of Allen v. Flood, (1898) A.C. 1 and what was decided therein, there are two observations of a general character which I wish to make, and one is to repeat what I have very often said before, that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical Code, whereas every lawyer must acknowledge that the law is not always logical at all."
(d) It becomes apparent from the reading of Apex Court decision in the cognate case that it had repelled the contention of the litigant company therein that the land was no longer agricultural, because the company had projected to the authorities that the land was agricultural;
same is the case here inasmuch as petitioner company had represented to the financial institution that the subject
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NC: 2023:KHC:27124 WP No. 15038 of 2023 lands were converted to non-agricultural user and thereby driven the financial institution to lend money by taking mortgage of the subject lands. Thus, it has altered its position to its own detriment and to the advantage of petitioner company. That being the position, the doctrine of estoppel comes in the way of any relief being granted to him by this court. There is also no scope for the argument of "no estoppel against law" either, in the fact matrix of the case.
(e) Except producing copies of Conversion Orders, petitioner has not placed on record the Record of Rights to show that entries relating to crops grown post conversion could have been seen; such entries enjoy presumptive value u/s 133 of the1964 Act. Petitioner has not produced any other material such as APMC records to prima facie show that the lands are being used for agricultural purpose. The structure of the petitioner's pleadings and the arguments advanced on its behalf, gives a lot of scope to assume that an 'afterthought' is being tried to defeat or delay the loan recovery proceedings.
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(f) It needs no research to know the undesirable consequences of countenancing an argument to the contra above: There have been umpteen number of cases wherein land converted to non-agricultural purpose have been mortgaged to the banks/financial institutions for securing repayment of the debt. If contention of the kind is accepted, that would render several such loans unsecured, if not bad debts. This court has to keep in mind that it is the public money which the banks and financial institutions deal with. The submission of learned Sr. Advocate Mr. Naganand that the financial institution concerned ought to have taken precaution while accepting the subject lands as security for repayment of loans, is tainted with unconscionability, to say the least. Petitioner is not a poor farmer, an agricultural labourer or a naïve person hailing from rural background with less exposure to the outer world. It is "a company incorporated under the provisions of the Companies Act, 1956 and is a part of the Valdel Group of Companies". This is how the first paragraph of the petition describes the petitioner. It is a
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NC: 2023:KHC:27124 WP No. 15038 of 2023 common knowledge that companies of the kind are promoted by persons having education & exposure to the outer world. For such litigants, an argument of the kind does not avail. Added, countenancing such a contention not only amounts to placing premium on illegality but also playing fraud on the statute. Law cannot be permitted to be used as an instrument of fraud.
(g) The averment taken up in the amendment application as to violation of principles of natural justice does not much come to the aid of Petitioner Company; these principles ordinarily do not apply in cases involving loan transactions that are largely animated by private law elements. Secondly, they cannot be invoked ritualistically; had the petitioner been given an opportunity of hearing, the impugned action would not have followed, has to be demonstrated; that requirement remains unsubstantiated. Even otherwise, the issue of validity of impugned reply dated 20.06.2023 does not much go to the root of the matter and therefore the arguable violation of principles of natural justice pales into insignificance.
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NC: 2023:KHC:27124 WP No. 15038 of 2023 In the above circumstances, this writ petition being thoroughly devoid of merits is liable to be rejected in limine and accordingly it is.
The Registry shall send a copy of this judgment to the respondent by Speed Post, immediately.
Sd/-
JUDGE Bsv List No.: 1 Sl No.: 43