Punjab-Haryana High Court
M/S. Bags And Cortons And Another vs Haryana Financial Corporation on 8 January, 1993
Equivalent citations: AIR1993P&H156, [1994]80COMPCAS509(P&H), (1993)104PLR84, AIR 1993 PUNJAB AND HARYANA 156, (1995) BANKJ 279, (1994) 80 COMCAS 509, (1993) 1 CURLJ(CCR) 748, (1993) 2 BANKLJ 455, 1993 REVLR 1 473, (1993) 2 RRR 314, (1993) 2 PUN LR 84, 1993 CHANDLR(CIV&CRI) 571
ORDER
1. Petitioner firm through its proprietor has filed this petition under Art. 226 of the Constitution, challenging the order dated May 30, 1988 (Annexure P-6 with the petition) passed by the Haryana Financial Corporation (for short the 'Corporation') under Section 29 of the State Financial Corporation Act, 1951 (hereinafter called 'the Act') whereby possession of the factory belonging to the petitioners was sought to be taken on defaults being committed by it in the repayment of the loan advanced by the Corporation. Facts giving rise to this petition are as under :--
Petitioner No. 1 of which petitioner No. 2 is now stated to be the sole proprietor is an industrial concern within the meaning of Clause (c) of Section 2 of the Act, and was carrying on business of printing labels of various types and making plastic pouches and bags etc. at Gurgaon under the name and style of M/s. Bags and Cortons which to begin with was a partnership firm but was reduced to a sole proprietorship concern at the time when the present petition was filed. For carrying on its business, this industrial concern had purchased land measuring over 20,000 Sq. yards at Daultabad Road, Gurgaon and set up a factory by putting up sheds etc. It is stated that a Bungalow has also been built in which the family members of the present proprietor are residing. During the course of business, the industrial concern needed finances and the Corporation agreed to advance to it a sum of Rs. 4,90,000/- as loan on the security of its land along with the factory buildings constructed thereon as also the machinery installed therein. A registered mortgage deed was executed between the parties on October 11, 1967. The loan was required to be repaid along with interes! in nine instalments commencing from April, 1968. It is admitted that the industrial concern did not run satisfactorily and suffered losses and, therefore, it could not keep up the schedule of payment of the instalments. Consequenly, the Corporation filed a petition under Section 31 of the Act against the petitioners herein and some others who were at that time partners of petitioner No. I. This petition was filed in the Court of District Judge. Gurgaon. On July 26, 1976, an ex parte order against all the respondents therein including the petitioners was passed holding that a sum of Rs. 6,91,644.73p including interest had become due to the Corporation as on March, 31, 1974. The District Judge further ordered that the mortgaged property including plant and machinery be sold and the Corporation be paid the aforesaid sum out of the sale proceeds with future interest ai the rate of 10% per annum from April 1, 1974 till realisation. The Corporation then moved an application on January 20, 1979 under subsection (8) of Section 122 of the Act read with Order 21, Rule 66 of the Code of Civil Procedure, for execution of the ex parte order. The application for execution was initially contested on behalf of the judgment-debtors and the District Judge as per his order dated February 27, 1982, directed the sale of the attached property in execution of the order and posted the case for report of sale on May 3, 1982. However, on March 20 1982, the learned counsel for the Corporation moved an application intimating the Court that the parties have compromised the matter and it was on this application that the case was taken up on that date. A written compromise deed was filed in Court and the statement of Sh. O.P. Mohindra, who is presently the sole proprietor of the industrial concern and a petitioner in this writ petition was recorded. A prayer was made to the Court that the matter be disposed of in terms of the compromise. According to the compromise, the schedule of payment was revised by the Corporation by giving more time to the judgment debtors. It was specifically agreed that interest up to March 20, 1982 would be charged at the rate of 10% per annum but for ihc subsequent period thereon, it would be charged at the rate of 17.5% per annum. It was further agreed between the parties that if payment was made by the judgment-debtors on the due dates, they would be entitled to a rebate of 3% in the rate of interest. The matter was then disposed of on March 20, 1982 in terms of the compromise. It appears that the judgment debtors were not able to keep up the revised schedule of payment and the amounts due on different dates were not paid. The Corporation issued several notices to them till the year 1987 pointing out that a sum of more than Rs. 20 lacs had become due from them with future interest at the rate of 17.5% per annum from March !, 1987. The industrial concern sent a reply to one of the notices disputing the total amount claimed by the Corporation. It was also stated in the reply that the judgment-debtors had agreed to the compromise on March 20, 1982 under coercion, and that some of the amounts paid to the Corporation had not been accounted for. It was at this stage in May, 1988 that the Corporation decided to exercise its powers under Section 29 of the Act and take possession of the factory of the Industrial concern and sell the same to realise its dues. A communication dated May 30, 1988 was sent to the petitioners herein which reads as under:--
"We are sorry to note that you have not cared to make payment in spite of our registered notice No. 34053 dated 17-9-1987. At present we are due a sum of Rs. 22,60,177.50 (Rupees Twenty two lacs sixty thousand one hundred seventy seven and paise fifty only) with further interest from 1-3-1988 @ 17.5% p.a. and costs.
It is no longer possible for us to wait indefinitely for the payment of the amount due to us. We have therefore decided to take over the possession of your factory and to sell it ourselves under Section 29 of the State Financial Corporation Act, 1951. This will be done on 20-6-1988, You will please arrange to deliver possession of the factory to us on 20-6-1988 failing which we shall be constrained to take over the possession with the help of Police, if necessary. We will then sell it either by public auction or by private negotiations for recovery of our dues."
2. This communication has been impugned in the present writ petition.
3. In the background of the aforementioned facts that I have now to examine whether the provisions of Sections 29, 31 and 32 of the Act can be invoked simultaneously by the Corporation.
4. Before dealing with this aspect, it is necessary to refer to the provisions of Ss. 29, 31 and 32 of the Act which read as under:--
"29. Rights of Financial Corporation in case of defaults:-- (1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof (of in meeting its 'obligation in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the (right to take over the management or possession or both) of the industrial concern), as well as the (right to transfer by way of lease or sale) and realise the property pledged, mortgage, hypothecated or assigned to the Financial Corporation.
2. Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the property transferred (as if the transfer) had been made by the owner of the property.
3. The Financial Corporation shall have the same rights and powers with respect to goods manufactured orproduced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
4. (Where any action has been taken against an industrial concern) under the provisions of sub-section (1) all costs (charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it (as incidental thereto) shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and secondly in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto).
5. Where the Financial Corporation has taken any action against an industrial concern) under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of (the concern).
31. Special provisions for enforcement of claims by Financial Corporation -- (1) where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof (or in meeting its obligation in relation to any guarantee given by the Corporation) or otherwise fails to comply with the terms its agreement with the Finan-
cial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment (then without prejudice to the provisions of Sec. 29 of this Act and of Section 69 of the Transfer of Property Act, 1882) any officer of the Financial Corporation, generally, or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs namely:--
(a) for an order for the sale of property pledged, mortgaged, hypothecated or assigned to the (Financial Corporation) as security for the loan or advance; or (aa) for enforcing the liability of any surety; or).
(b) for transferring the management of the industrial concern to the Financial Corporation; or
(c) For an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.
2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed.
32. Procedure of District Judge in respect of applications under Section 31. -- (1) When the application is for the reliefs mentioned in clauses (a) and (c) of sub-section (1) of Section 31, the District Judge shall pass an ad interim order attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equivalenlt in value to the outstanding liability of the industrial concern to the Financial Corporation, together with the costs of the proceedings taken under S. 31, with or without an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipments.
(1A) When the application for the relief mentioned in clause (aa) of sub-section (1) of Section 31, the District Judge shall issue a notice calling upon the surety to show cause on a date to be specified in. the notice why his liability should not be enforced:
(2) When the application is for the relief mentioned in clause (b) of sub-section (1) of Section 31, the District Judge shall grant an ad interin injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment and issue a notice calling upon the industrial concern to show cause, on a date to be specified in the notice, why the management of the industrial concern should not be transferred to the Financial Corporation.
(3) Before passing any order under subsection (1) or sub-section (2), or issuing a notice under sub-section (1A) the District Judge may if he thinks fit, examine the officer making the application.
(4) At the same time as he passes an order under sub-section (1), the District Judge shall issue to the industrial concern or to the owner of the security attached a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it or him to show cause on a date to be specified in the notice why the ad interim order of attachement should not be made absolute or the injunction confirmed.
(4A) If no cause is shown on or before the date specified in the notice under subsection (1A), the District Judge shall forthwith order the enforcement of the liability of the surety);
(5) If no cause is shown on or before the date specified in the notice under the subsections (2) and (4), the District Judge shall forthwith make the ad interim order absolute and direct the sale of the attached property or transfer the management of the industrial concern to the Financial Corporation or confirm the injunction.
(6) If cause is shown, the District Judge shall proceed to investigate the claim of the Financial Corporation in accordance with the provisions contained in the Code of Civil Procedure, 1908, in so far as such provisions may be applied thereto.
(7) After making an investigation under sub-sec. (6), the District Judge may -
(a) confirm the order of attachment and direct the sale of the attached property;
(b) vary the order of attachment so as to release a portion of the property from attachment and direct the sale of the remainder of the attached property;
(c) release the property from attachment;
(d) confirm or dissolve the injunction; (--) (da) direct the enforcement of the liability of the surety or reject the claim made in this behalf; or);
(e) transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf :
Provided that when making an order under clause (e) (or making an order rejecting the claim to enforce the liability of the surety under clause (da) or making an order rejecting the claim to transfer the management of industrial concern to the Financial Corporation under clause (e) the District Judge may make such further orders as he thinks necessary to protect the interests of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit.
Provided further that unless the Financial Corporation intimates to the District Judge that it will not appeal against any order releasing any property from attachment (or rejecting the claim to enforce the liability of the surety or rejecting the claim to transfer the industrial concern to the Financial Corporation) such order shall not be given effect to, until the expiry of the period fixed under sub-sec. (9) within which an appeal may be preferred or, if an appeal is preferred, unless the High Court otherwise directs until the appeal is disposed of.
(8) An order of attachment or sale of property under this section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure, 1908 for the attachment or sale of property in execution of a decree, as if the Financial Corporation were the decree-holder.) (8A) An order under this section transferring the management of an industrial concern to the Financial Corporation shall be carried into effect, as far as may be practicable, in the manner provided in the Code of Civil Procedure, 1908, for the possession of immovable property or the delivery of movable property in execution of a decree, as if the Financial Corporation were the decree-holder).
(9) Any party aggrieved by an order (under sub-sec. (4 A), sub-sec. (5) or sub-sec. (7) may, within thirty days from the date of the order appeal to the High Court, and upon such appeal the High Court may, after hearing the parties, pass such orders thereon as it thinks proper.
(10) Where proceedings for liquidation in respect of an industrial concern have commenced before an application is made under sub-sec. (1) of S. 31 nothing in this section shall be construed as giving to the Financial Corporation any preference over the other creditors of the industrial concern not conferred on it by any other law.
(11) The functions of a District Judge under this section shall be exercisable -
(a) in a presidency town, where there is a city civil court having jurisdiction, by a judge of that court and in the absence of such court, by the High Court; and (b) elsewhere, also by an additional district judge (or by any judge of the principal court of civil jurisdiction).
(12) For the removal of doubts it is hereby declared that any court competent to grant an ad interim injunction under this section shall also have power to appoint a Receiver and to exercise all the other powers incidental thereto.
5. It will be seen that S. 31(1) of the Act prescribes a special procedure for enforcement of claims by the Financial Corporation through Court. It enables the Corporation in the event of breach of agreement or default in payment of loan or advance or an instalment thereof to make an application not merely for sale of mortgaged property hut even for transferring the management of the industrial concern to the Corporation. It is procedural in nature and does not confer any substantive right upon the Corporation. Section 29 of the Act, on the other hand, deals not only with the question of the rights of the Corporation in case of default but also provides for a remedy to take over the management of the defaulting industrial concern with or without possession as well as the right to transfer by way of lease or sale of mortgaged property and realise its dues. Thus. S. 29 of the Act does not merely confer rights but provides a procedure as well for the enforcement thereof whereby it is not necessary for the Corporation to have recourse to the provisions of S. 31 of the Act. The argument is that the Corporation has two remedies available to it which are not neces-sarjly mutually exclusive and, therefore, both can be availed of at any point of time for the recovery of the amount due from a defaulting concern. 1 cannot persuade myself to accept this contention. In my opinion, when two remedies are available for the same relief, a person to whom the remedies are available has the option to elect either of them and not that he can pursue the both simultaneously. In the case in hand, it is the admitted position that the Corporation had invoked the remedy available to it under S. 31 of the Act and has obtained an order from the District Judge, Gurgaon regarding sale of mortgaged, property to recover its dues from the sale proceeds Having, thus, invoked the jurisdiction of the District Judge, under S. 31 of the Act and obtained the order, the Corporation cannot by pass the order of the Court and revert to the provisions of S. 29 of the Act. To permit such a course of action will be contrary to well established principles of interpretation of statutes and likely to lead injustice and inconsistent results. Before initiating any action, the Corporation had two remedies available to it to recovw its dues -- one under S. 29 and the other under S. 31 of the Act. It had initially the right to choose which of the two remedies it should resort to and once the choice is made and necessary steps are taken which have culminated in the passing of an order by the District Judge, the Corporation cannot fall back on the remedy under S. 29 of the Act which could result in a complete negation of what has been done after taking steps for enforcement of its claims under S. 31 of the Act. Assume that in a given case the Corporation fails to prove its claim under S. 31 of the Act, can it be said that it can ignore the adjudication by the Court and itself become the arbiter and have recourse to the remedy under S. 29 of the Act and bring the property of the industrial concern to sale which relief has been denied by the Court. Obviously not. The use of the expression "without prejudice to the provisions of S. 29 of the Act" in S. 31 of the Act on a plain reading means only this much that the Financial Corporation in addition to its rights and remedies as given in the self contained S. 29 can, notwithstanding those remedies have recourse to the special procedure in S. 31 at its own choice. It does not, however, get a right to pursue both the remedies simultaneously and having once knocked at the door of the Court under S. 31 to revert to the exercise of its rights under S. 29. In this view of the matter, the contention of Mr. D. S. Nehra, Senior Advocate that the decision of the Corporation to exercise its power under S. 29 of the Act in May, 1988 is illegal and without jurisdiction, has to be accepted and the said decision as communicated to the petitioner on May 30, 1988 must be quashed. It is, however, made clear that the Corporation would not be debarred from exercising its right to have the order of the District Judge executed which right it undoubtedly has under the provisions of sub-sec. (8) of S. 32 of the Act. For the view that I have taken, I find support from the Full Bench judgment of the Andhra Pradesh High Court in K.. Subba Reddy v. Andhra Pradesh State Financial Corporation, AIR 1987 AP 119 and a Division Bench judgment of the Orissa High Court in M/s Gulf Fishing & Co. v. Orissa State Financial Corporation, AIR 1987 Orissa 119.
6. It was then urged on behalf of the petitioner that the compromise allegedly arrived at between the parties as reflected in the order of the District Judge dated March 20, 1982 was the result of coercion and undue influence exercised by the Corporation and its officers on the petitioner. I regret my inability to accept this contention. There is no material on the record of this case to justify such a conclusion. It appears that the petitioner agreed to the settlement because it was being given more time for the repayment of the loan due from it and the schedule of payment had been revised. Having agreed to the terms referred to in the compromise order dated March 20, 1982 passed by the District Judge, under Section 32(8) of the Act. it is too late in the day for the petitioner to wriggle out of the same, on the allegation that it was the result of coercion or undue influence. Consequently, I reject the contention.
7. Lastly, it was contended that since the matter remained pending in this Court for some time for no fault of the petitioner, some relief should be granted at least in the matter of interest. It was also submitted that interest at the rate of 17.5% was excessive and substantially unfair. 1 am afraid I cannot give any relief to the petitioner in this regard and its up to date liability under Sections 31 and 32 of the Act will have to be computed by taking into consideration the terms of the agreement entered into between the parties as subsequently modified by agreement whereby the petitioners agreed to pay interest at the rate of 17.5% p.a. The petitioners have to blame themselves for the situation in which they now find themselves because despite the revised schedule of payment they did not keep up to the schedule and lost also the right to rebate in the rate of interest. The cases of Mahesh Chandra v. Regional Manager, U.P. Financial Corporation, 1992 (2) UT SC 326 : (1992 AIR SCW 3629) and The Divisional Manager, LIC of India v. Bhagavathy Amma, AIR 1902 Ker 329, cited by the learned Counsel for the petitioners are on different facts and thus of no help to the petitioners.
8. For the reasons recorded above, the writ petition is allowed to the extent that the decision of the Corporation as communicated on May 30, 1988 taking over possession of the factory of the petitioners under Section 29 of the Act is quashed. It will, however, be open to the Corporation to enforce the order of the District Judge dated July 26, 1976 as modified by the order dated March 20, 1982 and recover its dues in accordance with law. Possession, if taken, under Section 29 of the Act during the pendency of the petition will be restored to the petitioners. Parties are left to bear their own costs.
9. Petition allowed.