Punjab-Haryana High Court
Satbir Singh vs Haryana Financial Corporation And ... on 9 November, 2012
Author: G.S.Sandhawalia
Bench: Ajay Kumar Mittal, Gurmeet Singh Sandhawalia
CWP No. 20405 of 2011 -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
CWP No.20405 of 2011
Date of decision: 9.11.2012
Satbir Singh ....Petitioner
Vs.
Haryana Financial Corporation and another ....Respondents
CORAM: HON'BLE MR.JUSTICE AJAY KUMAR MITTAL
HON'BLE MR.JUSTICE GURMEET SINGH SANDHAWALIA
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1. Whether Reporters of local papers may be allowed to see the
judgment?
2. Whether to be referred to the Reporters or not?
3. Whether the judgment should be reported in the Digest?
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Present: Mr.R.N. Lohan, Advocate for the petitioner.
Mr. Kamal Sehgal, Advocate for respondents No.1 and 2.
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G.S.SANDHAWALIA, J.
1. The present writ petition has been filed under Articles 226/227 of the Constitution of India for quashing the notice dated 18.8.2011(Annexure P-6) issued by the respondent-Corporation. Further prayer has been made for issuance of writ in the nature of Mandamus directing the respondents to credit the amount of Rs.71.25 lacs as per the assessment made by the Valuer in the account of the borrower company as on 14.1.1999 i.e. the date when the respondents had taken over the CWP No. 20405 of 2011 -2- possession of the plant, machinery and building and to release the mortgaged property of the petitioner and for discharge of the petitioner from the liability of the guarantee for the loan amount of the company.
2. The pleaded case of the petitioner is that M/s Lather Textile Pvt. Ltd. had taken a loan of ` 39.40 lacs on 1.3.1996 from the Corporation and the petitioner alongwith others had stood guarantor for the said loan. The additional loan of ` 15.30 lacs was also given for which Ganga Singh Lather had stood guarantor but the said loan was not disbursed to the company and adjusted in the company's loan account by the Corporation with malafide intention. A notice dated 24.11.1998 had been issued for recovery of the due amount along with interest amounting to ` 54,01,871/- and the Corporation had taken over the possession of the land, building, plant and machinery of the company on 14.1.1999. Since the industrial unit had been taken over and, therefore, the company could not utilize the building, plant and machinery and unwarranted action of the respondents had also affected the interests of the petitioner. The value of the unit was not less than ` 1.50 crores but the official valuer assessed the value at only ` 71.25 lacs. The Corporation had removed the valuable part of the plant and machinery and disposed of the same and only skeleton of machinery was lying in the premises of the company. The due amount was raised from ` 54,01,871/- to ` 6 crores and the Corporation imposed the interest and penalty even after 14.1.1999 upon the borrower which had affected the guarantors also. The property was not sold in the year 1999 and the loan amount could be CWP No. 20405 of 2011 -3- adjusted from the real proceeds of the plant and machinery. Had the Corporation taken action in time, the liability of the guarantor could have been discharged automatically. The loanee had also filed a suit for declaration against the respondent-Corporation in which it was held that there were lapses on behalf of the respondent-Corporation vide judgment and decree dated 29.1.2009. The petitioner had requested the respondent- Corporation time and again to credit the amount of ` 71.25 lacs in the loan account of the company as on 14.1.1999 but they had not done so. Notice dated 18.8.2011 was served upon the petitioner whereby the Corporation informed the petitioner that it had received highest offer of ` 38.50 lacs only for the sale of the said property. Since the valuable parts of the plant and machinery had already been misappropriated by the respondent-Corporation, the actual price of the plant and machinery could not be fetched. The respondents were demanding more than ` 5 crores from the borrower as well as guarantor inspite of having taken over the possession on 14.1.1999. Accordingly, it was pleaded that respondent- Corporation was estopped from claiming any interest/penalty on the due amount of loan after 14.1.1999 and action of the Corporation to charge interest and penal interest was illegal and unconstitutional.
3. The respondent-Corporation filed written statement in which it took the plea that the petitioner had filed civil suit No.130/09/08/2005 dated 30.1.2003 in the Court of Additional Civil Judge (Senior Division), Jind and the same was dismissed on 12.9.2007. The said fact had been concealed from this Court. It was averred that the petitioner was seeking quashing of the letter dated 18.8.2011 but the petitioner had not been able CWP No. 20405 of 2011 -4- to point out any deficiency/illegality in the same and he was seeking direction to the Corporation to credit the amount of ` 71.25 lacs in the present writ petition filed in the year 2011 pertaining to taking over of the concern on 14.1.1999. This claim was time barred especially when the said pleadings had not been raised in the civil suit and principle of resjudicata would come into play. The original borrower had filed a civil suit seeking declaration for crediting ` 71.25 lacs from the date the property was taken over on 14.1.1999. The suit was dismissed on 29.1.2009 and the appeal before the Additional District Judge was also dismissed on 1.6.2010. The Regular Second Appeal No.3191 of 2010 was pending in this Court. The relief prayed by the petitioner and principle borrower had been declined and the writ petition was not maintainable. M/s Lather Textiles Pvt. Ltd. had approached the Corporation for a term loan of ` 39.40 lacs and additional loan of ` 15.30 lacs was sanctioned on 5.1.1996 and 24.11.1997 respectively and the said loans had been disbursed in terms of the mortgage deeds dated 1.3.1996 and 22.1.1998 respectively. The term loan was guaranteed by Shri Satpal Lather and Shri Ganga Singh Lather alongwith personal guarantees of Shri Vikram Lather and Shri Naresh Khatri, the two Directors of the Company. The additional loan was guaranteed by the petitioner. The company failed to repay the loan in terms of the mortgage deeds and started committing defaults. The entire loan was recalled and possession of the unit was taken over on 14.1.1999. The respondent-Corporation started making the efforts to auction the property and bids were invited and the auction was fixed on 25.5.1999, 2.8.1999, CWP No. 20405 of 2011 -5- 17.9.1999, 27.10.1999, 24.11.1999, 29.12.1999, 24.1.2000, 1.3.2000, 28.3.2000, 26.4.2000, 23.5.2000, 27.6.2000, 3.8.2000, 31.8.2000, 4.10.2000, 15.11.2000, 20.12.2000, 14.2.2001, 27.3.2001, 26.4.2001, 21.6.2001, 19.7.2001, 7.9.2001, 18.10.2001, 5.12.2001, 28.2.2002, 10.4.2002, 24.5.2002, 26.6.2002, 31.7.2002, 11.9.2002, 23.10.2002, 4.12.2002, 6.1.2003, 10.2.2003, 26.3.2003, 18.6.2004, 30.8.2004 and 5.10.2004. However, no bid was received on the said dates. First bid of ` 4 lacs was received on 10.11.2004 but the sale process could not be continued as the Civil Court in Civil Appeal filed by M/s Lather Textiles Pvt. Ltd. granted stay vide order dated 7.12.2004. The stay was vacated and bids were invited for 11.1.2008. The Corporation did not receive any bid. The Corporation received a bid of ` 8.10 lacs from one Rajbir Singh in the auction conducted on 4.3.2008 but the sale was cancelled due to litigation. The auction fixed on 4.6.2009 could not be held due to stay granted on 5.6.2009 and the sale was again held on 14.1.2011 and no bid was received. Subsequently, on 25.7.2011 bids were invited and sale was finalized for ` 38.50 lacs after making 46 attempts by the respondent-Corporation. After giving the credit of the said amount in the company account, the company and its guarantors were liable to pay the balance amount of ` 6,35,17,564/- in term loan account and amount of ` 2,42,39,161/- in additional loan account alongwith further interest w.e.f. 1.12.2011 and 1.2.2012 respectively. The present petition had been filed only to scuttle and delay the recovery of public money given as a loan.
4. It was further pleaded that the unit was in possession of the CWP No. 20405 of 2011 -6- Corporation and after taking over the possession theft had taken place and certain articles were stolen. The respondent-Corporation made enquiry into the entire incident and thereafter, the value of missing parts was recovered from the security agencies and were credited to loan account of the company. The Corporation had charged interest after 14.1.1999 as per policy of the Corporation and as per the terms and conditions of the loan agreement executed by the company with the Corporation. There was no practice/policy to deduct the assessed value of the property at the time of possession from the outstanding amount. The Corporation had made efforts to start the process of sale of unit by inviting tenders from time to time after taking over the unit but sale could only be effected in the year 2011. After crediting the amount of ` 38.50 lacs in the loan account of the company, an amount of ` 878 lacs was recoverable from the company and its guarantors.
5. The petitioner filed replication to the written statement in which it was pleaded that cause of action in the suit filed was different than to the present writ petition. The respondents were adamant to recover the loan amount against the guarantor and others and there was no delay and laches on the part of the petitioner. The petitioner was not a party in the civil suit and therefore, principle of resjudicata would not be applicable. It was further pleaded that an amount of ` 15.30 lacs was sanctioned as additional loan which was never disbursed by the Corporation and adjusted in the loan account.
6. Counsel for the petitioner on the basis of the pleadings submitted that action of the Corporation was unfair and it was contended CWP No. 20405 of 2011 -7- that once possession had been taken over on 14.1.1999, the Corporation was at fault in not auctioning the property at the earliest and the petitioner was put to loss because of high interest and penalty levied on the principal borrower. Reliance was placed upon the judgments in Subhari Papers (P) Ltd. Vs. Haryana Financial Corporation, Chandigarh and others 1998(1) PLR 77 and M/s Yamuna Enterprises, Yamuna Nagar Vs. Haryana Financial Corporation, Chandigarh and others AIR 2002 Punjab and Haryana 231 in support of his submission.
7. On the other hand, counsel for the respondent-Corporation supported its action and placed reliance upon the judgment of the Hon'ble Apex Court in Punjab Financial Corporation Vs. Surya Auto Industries (2010) 1 Supreme Court Cases 297.
8. After hearing counsel for the parties, in our opinion, the submissions made by the counsel for the petitioner merits rejection. Admittedly the loan was taken way back in the year 1996 and 1998 and mortgage deed dated 1.3.1996 and 22.3.1998 were executed and the petitioner stood guarantor for the additional loan. The unit was taken over on 14.1.1999. For all these long years, the petitioner made no effort to agitate his right regarding the inaction of the Corporation. Merely because the Corporation had sent him a communication dated 18.8.2011 informing him that they had received the highest offer of ` 38.50 lacs for the sale of the unit and he was free to get a purchaser for a higher price would not give him any fresh cause of action for raising a stale claim. The petitioner was only informed that the property was being sold for the said amount and the petitioner and loanee were given an opportunity to CWP No. 20405 of 2011 -8- give a better buyer than the offer received by the Corporation. The said letter would not give a right to the petitioner to raise the dispute of crediting the amount of ` 71.25 lacs in the account of the borrower company in the absence of any legal or contractual right. The borrower Company had filed a civil suit for declaration for the same relief which suit was dismissed on 29.1.2009. The relevant relief clause in the civil suit is reproduced hereunder:-
"Suit for declaration to the effect that the plaintiff is entitled to a credit of ` 71.20 lacs (assessed value of primary security) from the date the property were taken over by the defendants i.e. 14.1.1999 forcibly without any fault of the plaintiff. Now as the defendant failed to make proper use of the property despite lapse of more than 5-9 months utpo 30.11.2004 and the plaintiff has been deprived of its use, moreover, the valuable parts of the plant has been disposed off by the defendants. Further direction be issued to the defendants to re-determine the liability after crediting ` 71.20 lacs from 14.1.1999 so that plaintiff may deposit the due amount, if any, accordingly as soon as possible and after restraining the defendants not to recover the amount which is legally not due towards the plaintiff from its Directors and Guarantors till the decision of the suit."
9. Thus, from the reading of the above clause, it is apparent that the present writ petition is only a proxy battle which is being fought on behalf of the main borrower who had been unsuccessful in the suit and CWP No. 20405 of 2011 -9- the appeal has been dismissed by the Appellate Court also on 1.6.2010. Mere pendency of the second appeal before this Court would not be a ground to allow the petition as urged by the counsel for the petitioner.
11. The petitioner had also filed civil suit No.130/09/08/2005 dated 30.1.2003 for declaration in which he took the plea that the loan was got sanctioned fraudulently and illegally with malafide intention and in the suit no such plea was taken that the amount of assessed value be credited in the loan account of the company. The suit was dismissed in default on 12.9.2007 and no effort was made to get it revived. Those proceedings have become final against the petitioner. Merely because notice was sent on 18.8.2011 informing the petitioner that the property had been auctioned would not give him a fresh cause of action to revive the stale claim, if any.
12. The judgment in M/s Yamuna Enterprises' case (supra) is not applicable to the facts and circumstances of the case. In the said case, computers which were hypothecated were assessed at ` 2.50 lacs but the same were not sold for over four years and in the meantime, the value of the computers depreciated to only a few thousand rupee. The Corporation was not able to explain as to when any advertisement was issued and what it had done from the year 1997 onwards. Accordingly, credit of ` 2.50 lacs was given in the account of borrower. Relevant paragraph of the judgment reads as under:-
"4. Mr. Sehgal does not dispute the fact that the equipment was taken over by the respondents on August 13, 1997. He also concedes that the value was assessed at Rs. CWP No. 20405 of 2011 -10- 2.50 lacs. It is not disputed that despite the lapse of more than four years the goods have not been sold. Still further, it is the admitted position that the petitioner's liability is being continuously raised on account of the levy of interest and penal interest. It is to recover the dues as determined by the Corporation that the plot which was mortgaged by way of collateral security is sought to be sold.
5. It is, undoubtedly, true that public interest must override considerations of an individual's interest. Public dues must be recovered. However, it appears equally clear to us that the action of the authorities must be fair, just and reasonable. In the present case, it is the admitted position that the goods were taken over on August 13, 1997. The value was assessed at Rs. 2.50 lacs. Despite the lapse of four years the goods have not been sold. In the meantime, the computers have admittedly gathered dust and the value has depreciated. We are not surprised that now the offer of the purchaser is for a few thousand rupees only.
6. Should the petitioner suffer for the inaction on the part of the respondents? Mr. Sehgal submits that the Corporation was unable to sell as it could not find a buyer for the assessed value.
7. When were the goods advertised? What were the offers received? What further action was taken? Nothing has been disclosed in the written statement. Yet, the fact remains CWP No. 20405 of 2011 -11- that the goods have remained in the custody of the respondents for the last more than four years. The petitioner has been deprived of the use of the computers and its liability has continued to mount. In this situation, we find that the contention raised on behalf of the petitioner that it is entitled to a credit of Rs. 2.50 lacs from August 1997 is reasonable. It is admitted position that after the take over the respondents had assessed the value of the goods at Rs. 2.50 lacs. If the value has gone down on account of the inaction on the part of the respondents the petitioner should not be made to suffer.
8. In view of the above, we direct that the petitioner shall be given credit for Rs.2.50 lacs with effect from August 1997. Its liability shall be determined in accordance with law and the terms of the agreement. After re-determining the liability, whatever is found due shall be recovered by following the prescribed procedure.
9. The writ petition is disposed of in the above terms. In the circumstances, there will be no order as to costs."
13. In the present case, the respondent-Corporation has explained that the property was put to the auction immediately in the month of May, 1999 itself four months after taking over and inspite of 46 attempts the same could not sold. The details of the litigations initiated by the borrower were also given in the written statement. Thus, in the above facts and circumstances, it cannot be said that the Corporation has CWP No. 20405 of 2011 -12- not acted with due diligence in the present case.
14. Similarly reliance placed on Subhari Papers (P) Ltd.'s case (supra) is also misplaced. The Division Bench therein found that without issuing any notice, the factory premises had been taken over under Section 29 of the State Financial Corporations Act, 1951(in short, the 1951 Act). It was held that the principles of natural justice were violated. The action of the Corporation was quashed and a direction was issued to restore the possession. It was further directed that the Corporation was not entitled to charge interest from the petitioner on the amount due in respect of period during which the possession of the factory remained with the officials of the Corporation in the facts and circumstances of the case.
15. Now, adverting to the judgment in Surya Auto Industries' case (supra) on which heavy reliance has been placed by learned counsel for the respondents, the Hon'ble Apex Court in the said case, while allowing the appeal of the Corporation in a similar situation held that the High Court in absence of violation of any statutory provisions could not sit as a Court of appeal over the decision of the Corporation and it was further held that terms of the contract between the parties could not be changed as the rate of interest could not be reduced to 10% simple interest after the expiry of 6 months from the date of taking over of the unit. The issues therein were identical and the loanee's unit was taken over under Section 29 of the 1951 Act. The High Court had held that the Corporation did not have absolute power in retaining the property without taking any steps and continue to charge interest and penal interest CWP No. 20405 of 2011 -13- without any limit since the period of more than six years had expired before the property could be sold and the said directions were set aside by the Apex Court by holding as under:-
"24. In our view, the appellant-Corporation had acted in a most reasonable and fair manner and the High Court was not justified in nullifying the second notice issued under Section 29 of the Act by assuming that the appellant-Corporation had not taken effective steps for realization of its dues in furtherance of first notice. Unfortunately, the High Court ignored that the respondent had not only adopted a recalcitrant attitude in the matter of payment of the outstanding dues, but also failed to avail the concessions offered by the appellant-Corporation by reducing the rate of interest and rescheduling the payment of outstanding dues and did not take benefit of the schemes notified by the appellant-Corporation for restoration of unit on payment of the principal amount with a 10% outstanding interest.
25. The High Court also committed serious error in declaring that the appellant-Corporation will be entitled to charge simple interest at the rate of 10% w.e.f. 1.4.2003 i.e., after expiry of six months from the date of taking over of the unit. Undisputedly, the respondent had not challenged the terms of loan agreement. Therefore, the High Court could not have suo motu altered terms of agreement and directed the appellant to make fresh calculation of the outstanding dues CWP No. 20405 of 2011 -14- and allowed the respondent to pay the amount as per fresh demand by selling the mortgaged property. This approach of the High Court is ex facie contrary to the law laid down in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. (supra) andHaryana Financial Corporation v. Jagdamba Oil Mills.
26. The direction given by the High Court for review of pending cases in the light of judgment of this Court in Central Bank of India v. Ravindra(supra) is also unsustainable because, as mentioned above, the High Court was not called upon to examine the legality or otherwise of the terms of agreement entered into between the appellant-
Corporation and respondent under which the latter was obliged to pay interest at the particular rate with periodical rests. Moreover, conclusion No.3 contained in para 55 of that judgment clearly postulates that stipulations incorporated in the contract entered into and binding on the parties shall govern their substantive rights and obligations in the matter of recovery and payment of interest.
27. In the result, the appeal is allowed, the impugned order is set aside and the writ petition filed by the respondent is dismissed."
16. In the present case as noticed above, the petitioner has claimed that cause of action has arisen to him on receipt of an information regarding the sale of the property in year 2011. The property CWP No. 20405 of 2011 -15- was taken over way back on 14.1.1999. The suit filed by the petitioner in the year 2003 never raised any such plea. Similar plea raised by the principal borrower had already been rejected. The principal borrower is bound by the terms of the contract. Similar is the position of the guarantor who is under obligation to safeguard the Corporation from the financial risks and had executed mortgage deeds to that effect and cannot now seek to wriggle out on the ground pleaded herein.
17. Accordingly, the writ petition is dismissed.
(G.S.SANDHAWALIA)
JUDGE
9.11.2012 (AJAY KUMAR MITTAL)
Pka JUDGE