Delhi District Court
Sh. N.C. Bansal vs Uttar Pradesh Financial Corporation on 20 November, 2014
Page No. 1/22
IN THE COURT OF MS. SUJATA KOHLI:ADDITIONAL DISTRICT JUDGE:
WEST DISTRICT:TIS HAZARI COURTS:DELHI
RCA No. 121/14/11
SH. N.C. BANSAL
S/o SH. RAM KISHAN BANSAL,
R/o S11, MIG FLATS, PRASAD NAGAR,
KAROL BAGH, NEW DELHI110005.
.......APPELLANT
VERSUS
1. UTTAR PRADESH FINANCIAL CORPORATION
HEAD OFFICE - 22/14, CIVIL LINE,
KANPUR CITY, (UTTAR PRADESH)
(THROUGH ITS MANAGING DIRECTOR)
2. THE REGIONAL MANAGER
UTTAR PRADESH FINANCIAL CORPORATION
REGISTERED OFFICE AT:
SHOPCUMOFFICE BUILDING,
SECTORVI, NOIDA,
DISTRICTGAUTAM BUDH NAGAR,
UTTAR PRADESH.
RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
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......RESPONDENTS
DATE OF FILING OF THE APPEAL : 22.09.2011
DATE OF RESERVATION OF ORDER/ JUDGMENT: 01.11.2014
DATE OF DECISION/JUDGMENT : 20.11.2014
ORDER: Vide the impugned judgment, the suit for declaration and permanent injunction filed by the plaintiff has been dismissed with costs. 2 Brief facts as stated are that the plaintiff filed the suit for declaration and permanent injunction to the effect that the second floor of the property no. 21, NWA, Club Road, Punjabi Bagh Extension, New Delhi, is not a collateral security for any loan, and sought decree for permanent injunction, restraining the defendants from taking forcible possession of the suit property, further restraining the defendants from selling the suit property, and creating any interference in the use and enjoyment of the suit property on the averments that RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 3/22the plaintiff was the owner of the suit property.
3 Defendant no. 1 was the financial corporation under the Government of Uttar Pradesh, and it was stated that Mr. Avdesh Mittal and Mrs. Reena Mittal, (not parties in the suit), had setup a limited company under the name and style of M/s Jersey Industries Ltd., on 16.08.1995. 4 In the year 1996, the said two persons had approached the plaintiff, and offered the post of Director in the said company with the assurance that plaintiff would be able to make huge profits, and therefore, the plaintiff had agreed to become a Director in M/s Jersery Industries Ltd. w.e.f. 28.01.1997, and the requisite Form32 under the Companies Act, was filed on 27.02.1997. 5 It was further stated that the said Mr. Avdesh Mittal, proposed to obtain a loan from defendant no. 2 for a project of the company. According to the plaintiff, the defendants had sanctioned a term loan of Rs. 55 lacs in February, 1998, and Rs. 20 lacs in August, 1998.
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6 As per the plaintiff, the said Mr. Avdesh Mittal had not invested the
loan amount in the project, and instead siphoned it for his personal activities in Dubai, and therefore, the loan amount could not be paid. 7 Plaintiff claims that he was not aware about the wrong designs and intentions of Mr. Avdesh Mittal, and further that plaintiff had given the papers of the suit property to Mr. Avdesh Mittal, on his request for other purposes. Further stated that plaintiff later on discovered that the said property papers had been deposited by Mr. Avdesh Mittal with the defendants as a collateral security towards the loan, and without any authorization from the plaintiff. 8 Further alleged that plaintiff feeling aggrieved by the illegal acts of Mr. Avdesh Mittal, and as such,he resigned from the Directorship of the said company w.e.f. 25.01.2000. He also intimated defendant no. 2 regarding his resignation vide his letter dated 15.03.2000, and also informed that he was not liable for repayment of the said loan. Plaintiff even claims to have lodged a RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 5/22complaint with the police against the said Avdesh Mittal on 04.09.2002. 9 Further alleged that plaintiff had even managed payment of a substantial amount to the defendants in March, 2000 to regularize the loan account, and that outstanding and other charges had been paid at that time, and further vide letter dated 15.03.2000, the plaintiff had even informed defendant no. 2 to take physical possession of another property of the company at Noida, for recovery of the outstanding loan amount.
10 Plaintiff had even furnished the particulars of the other properties of the company situated at Bhiwadi industrial area in Rajasthan, but defendants failed to take the appropriate action for recovery of loan amount. Plaintiff even claims to have intimated the defendants that he had not deposited the property papers as a collateral security and that they had been deposited by Mr. Avdesh Mittal, fraudulently without the consent and knowledge of the plaintiff, and therefore, the suit property was not a mortgaged property. Plaintiff had never RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 6/22signed any document with respect to the mortgaged of the suit property. 11 Defendants had issued a notice dated 22.03.2003 to the plaintiff, stating that they were going to take over the physical possession of the suit property. As per the plaintiff, the suit property has been letout to Sh. R.K. Convent School Education Society, and earlier plaintiff had filed a suit for permanent injunction against defendant no. 2 being suit no. 309/03, and therein, he had even moved an application for amendment of the plaint, in order to incorporate the fact, that the suit property had neither been mortgaged nor offered as a collateral security. The application had been dismissed by the concerned Court, and later on, the plaintiff had withdrawn the said suit with liberty to file a fresh suit.
12 On 16.07.2005, the officials of the defendants threatened to sell the suit property, for which, they had even got published advertisement in the newspaper dated 26.07.2005. According to the plaintiff, the defendants have no RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 7/22right to sell or to take over the possession of the suit property, and they have no right over the title or any other interest in the suit property. 13 Ultimately, the plaintiff was compelled to file the suit for declaration and which has been dismissed by the Ld. Trial Court.
14 In the WS, defendant nos. 1 and 2 contended that plaintiff was challenging the recovery proceedings by way of the present suit, and in fact, he was challenging the virus of the Section 29 of State Financial Corporation Act, 1951. The plaintiff had concealed the material facts from the Court, and in fact, the earlier suit filed for permanent injunction was stated to be still pending before the concerned Court at Delhi.
15 In fact, as per the defendants, the Ld. Civil Court in that case had already observed that there was no hindrance or impediment to defendant no. 2 in putting the suit property to sale U/S 29 of State Financial Corporation Act, 1951. Even an appeal is said to have been filed against the said Order, and RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 8/22later on, even a writ petition is stated to have been filed by the plaintiff therein. 16 According to the defendant, the suit property had very well been mortgaged for a total financed loan of Rs. 75 lacs given to the company of the plaintiff, of which, he was Director. It is the company, which had approached the defendants for financial assistance for establishing manufacturing unit of knitting fabric in Noida, through its Director Sh. N.C. Bansal i.e. the plaintiff himself, and defendants had sanctioned the term loan for WORKING, and the suit property had been mortgaged as a collateral security of the plaintiff in favour of the defendants.
17 Since the said company had failed to repay the loan, the defendant/corporation, after giving due opportunity, started recovery proceedings U/S 29 of State Financial Corporation Act, 1951.
18 It is alleged that plaintiff had even made a representation to the defendant on 11.10.2001 and 12.10.2002, both of which were replied.
RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 9/22Thereafter, the plaintiff had even filed a writ petition before the Hon'ble High Court of Allahabad seeking a restraint order against the defendants from auctioning the suit property. Even the said writ petition was disposed off with a direction to the defendants to decide the representation of the plaintiff within four weeks as per directions of the Hon'ble High Court, the defendant corporation decided the representation of the plaintiff and thereafter they started the recovery proceedings u/S 29 of the Act.
19 In the meantime, a tenant of the plaintiff also filed a suit for permanent injunction titled R.K.C.S Vs. N.C. Bansal being suit No.270/03. The concerned Civil Court had restrained the defendants from evicting R.K.C.S. from the suit property without due process of law and then plaintiff also filed a suit for injunction being suit No.309/03 and the plaintiff, however, later on withdrew the said suit on 18.08.2005 with liberty to file a suit for declaration and permanent injunction.
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20 It is the plaintiff who had approached the defendant on behalf of his
company for financial assistance and who had mortgaged the suit property on 21.08.1998 as collateral security.
21 Defendants claimed to have issued a notice u/S 29 of S.F.C. Act to the plaintiff and even published an advertisement in the Amar Ujala dated 26.07.2005. According to the defendants, the plaintiff had very well signed a mortgage deed and handed over the property papers to the defendants on 21.08.1998.
22 The main argument on behalf of the appellant/plaintiff, before Ld. Trial Court has been that Section 29 of the S.F.C. Act was not applicable to the present case. Further it was argued that whether the suit property had or had not been mortgaged was a question yet to be decided and plaintiff was entitled to prove that he had not mortgaged the suit property with the defendants.
23 Ld. Trial Court has gone by the reasoning that firstly, the plaintiff
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himself has admitted that he was one of the Directors of M/s Jersey Industries Ltd. and it was also his admitted case that he had been appointed as Director w.e.f. 28.01.1997 and that the requisite form had been filed on 27.02.1997. The factum of giving of the loan by the defendants for the project of the company were also admitted facts.
24 The plaintiff himself has stated that he had resigned from Directorship of the company only on 25.01.2000 and therefore, it was clear that the loan of Rs.75 lacs had been availed from the defendants, but during the period when plaintiff was very well one of the Directors of M/s. Jersey Industries Ltd.
25 It was further observed that even if assuming that even Mr. Avdesh Mittal had siphoned of the loan amount, that would not have any bearing on the liability of the company of the plaintiff visavis the repayment of the loan amount to the defendants. It was also not the case of the plaintiff that loan amount of the RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 12/22defendants had been paid at any stage. Though the plaintiff had claimed that he had managed to pay a substantial amount to the defendants in March 2000 to regularize the loan account, the plaintiff had not given any particulars and details of the said payment.
26 Reference was then had to the civil suit earlier filed by the tenant of the plaintiff i.e. suit No.309/03 against the defendants, wherein the Ld. Trial Court concerned had observed that there was no hindrance or impediment for the defendants to put the property to sale u/S 29 of the S.F.C. Act in the appeal preferred against the said order i.e. MCA no.02/04 as well. It was observed by the appellate court therein that the said suit had been filed by the plaintiff in order to somehow avoid the sale of the suit property. The representations of the plaintiff have also already been decided by the defendants and as per Section of the Act, the corporation has a right to take over possession of the suit property. The defendants are held to have followed the process of law by issuing the RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 13/22notice u/S 29 of the S.F.C. Act being the notice dated 22.03.2003 and they even put an advertisement in the Newspaper dated 26.07.2005 and thus, they have followed the due process of law and are held to be entitled to take possession. 27 The suit filed by the plaintiff has been held to be not maintainable in view of the provisions of Section 29 of the S.F.C. Act and also not maintainable in view of the order dated 02.12.2003 as passed in Civil Suit No.270/03 and further also in view of the order dated 10.02.2003 passed by the Hon'ble High Court of Allahabad in C.W.P. No.6831/03.
28 Accordingly, the two preliminary issues i.e. about maintainability of the suit in view of the preliminary objections no.2, 3 and 4 of the written statement was held to be decided in favour of the defendant and against the plaintiff. As a result, the suit has been disposed off. 29 It is against this order that the appellant/plaintiff is aggrieved and has challenged the same mainly raising the following grounds during arguments.
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30 The main thrust of the arguments on behalf of the appellant was
that Section 29 of State Financial Corporations Act, 1951, as amended, would not have applied to the present case. The said provision deals with the rights of financial corporation in case of default by the borrower. The Section provides as under: "29. Rights of Financial Corporation in case of default (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 installment thereof or [or in meeting its obligation in relation to any guarantee given by the Corp] 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 concerns], as well as the [right to transfer by way of lease or sale] and realize the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
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 property 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 RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
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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 The term "industrial concern", and the terms "guarantee", would neither apply to the appellant/plaintiff nor to his individual property, has been the strong contention of Ld. Counsel for the appellant/plaintiff, throughout. Ld. Counsel has urged that the property in question was not belonging to the industrial concern, and it was his individual property. The emphasis made by Ld. Counsel for the appellant/plaintiff is that the action which the financial corporation can take, is against the industrial concern and not against its Directors individually and the property which can be sold should be a property belonging to the RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 16/22industrial concern and not to an individual Director. 32 In this respect, Ld. Counsel for the appellant/plaintiff has further drawn support from the amendment in subSection 4 wherein the words "where any action has been taken against an industrial concern", had been added. 33 Further, he has relied upon the decision of the Hon'ble Supreme Court in the case of "Subhranshu Sekhar Padhi Vs Gunamani Swain & Ors." Civil Appeal No. 7936 of 2014, arising out of SLP (C) No. 12961 of 2011, wherein also, aggrieved by the judgment of Hon'ble High Court of Orissa, one of the respondents, who was a purchaser of a property in an auction, held U/S 29 of SFC Act, had preferred the appeal, the facts therein being that sometime in the financial year 200203, the 9th respondent i.e. Orissa Finance Corporation had sanctioned a term loan in favour of 6 respondents, who was the wife of 7 th respondent, to purchase a TATA Truck. The said loan transaction was secured by a mortgage of a piece of land by the fatherinlaw of 6th respondent and father RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 17/22of 7th respondent (since deceased). Since there was a default in repayment, the finance corporation attempted to seize the truck, which had also been hypothecated to them. As same was not traceable, the financial corporation, proceeded against the mortgaged property, the value of which was estimated at about Rs. 10,08000/, and eventually, the property put to sale by auction on 09.02.2009, and wherein the appellant had become the highest bider. The financial corporation confirmed the sale in favour of the appellant. On 31.03.2009, possession was also handed over to the appellant. 34 After appropriating the amount due to it, the financial corporation intimated the three sons of the mortgagor to receive the residual amount from the Corporation. At that stage, challenging the seizure and the sale of the mortgaged property, writ petition came to be filed by the wife and the children of the mortgagor, which was duly contested by the appellant.
35 The Hon'ble High Court was pleased to allow the writ petition, and
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thus, the appeal was preferred before the Hon'ble Supreme Court. 36 The Hon'ble Supreme Court was pleased to formulate two questions:
(i) Whether the OSFC was legally entitled to invoke Section 29 of the Act, and bring the properties of the guarantor to sale without resorting to the procedure contemplated U/S 31 of the Act?
(ii) Whether the High Court was right and entertaining a challenge to the sale from 150 days after the date of the sale and the property had already been handed over to the auction purchaser i.e. the appellant. 37 As regards the first question, the Hon'ble High Court, had answered the first question emphatically against the OSFC holding as under: "The right of financial Corporation in terms of Section 29 must be exercised only on a defaulting party. Section 29 does not empower the Corporation to proceed against the surety even if some properties are mortgaged or hypothecated to it. Our view is further strengthened by the provisions of subsection (4) of Section 29 which lays down appropriation of sale proceeds with reference to only industrial concern and not surety or guarantor.
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xxx xxx xxx xxx
In view of the above, we are of the considered view
that the OSFC in exercise or power vested under Section 29 of the SFC Act cannot sell out the properties mortgaged to it by the guarantors."
38 Consequently, the second question was also answered against the OSFC, and the sale of the properties of the guarantors and subsequent Deed of Transfer, were quashed for having been done in flagrant violation of statutory provision contained in Section 31 of the Act.
39 The Hon'ble High Court had relied upon a decision of the Hon'ble Supreme Court itself in "Karnatka State Financial Corporation Vs N. Narsimaiyah & Ors." (2008) 5 SCC 176, wherein it had been categorically held that, it is only the properties of the defaulters which can be proceeded against U/S 29 of the Act, but not the properties of third parties, even if they were guarantors of mortgagors etc. In para 20 of the said judgment, it was further observed that Section 29 of the Act, nowhere states that the Corporation can proceed against RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 20/22the surety, even if some properties are mortgaged or hypothecated by it, and that, the right of the financial corporation in terms of Section 29 of the Act, must be exercised only on a defaulting party. There cannot be any default as is envisaged in Section 29, by a surety or a guarantor.
40 In the case cited by Ld. Counsel for the appellant herein, the appeal filed before the Hon'ble Supreme Court was dismissed as being merit less, and towards the end, Lordships further observed that when the Hon'ble Supreme Court had already clearly declared in their earlier decision given in the case of KSFC, referred above, and declared that the authority of SFCs to invoke the provisions of Section 29 with respect to properties other than those belonging to defaulter industrial concern in their judgment dated 30.03.2008, the sale in question in the appeal before Hon'ble Supreme Court in Subranshu Sekhar Padhi (the citation referred above), was dated 09.02.2009, almost a year later, and thus, it was observed that the authorities of the 9 th respondent RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.
Page No. 21/22Corporation sold the properties to the appellant therein, in flagrant violation of the settled position of law, and accordingly, 9th respondent/The Corporation was directed to refund the amount of Rs. 10,09,000/ to the appellant therein (auction purchaser), with interest. It was also left open to the Financial Corporation to recover the amount, either from the default industrial concern or from such other third party against whom the Corporation had a legal right to proceed. Even cost of Rs. 1 lacs was imposed upon the Corporation.
41 The argument given by ld. Counsel for respondent by relying upon the earlier decision of Hon'ble High Court in the writ petition was misplaced as the same was only directing the respondent corporation to consider the representation of the appellant herein expeditiously and not an order on merit.
I am in agreement with the contentions raised by the Ld. Counsel for appellant and following the case law cited above, the impugned Order needs to be setaside.
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As such, allowing the appeal, with the result that the impugned Order dated 20.09.2011, disposing off the suit on issue nos. 1 & 2, is setaside, and with further directions for the matter to be remanded back to the Trial Court for trial on issue nos. 3 & 4, and to give decision on merits.
Parties & Ld. Counsels are directed to appear before Trial Court on 20.12.2014.
TCR be returned alongwith copy of the detailed Order.
Appeal file be consigned to Record Room.
ANNOUNCED IN THE OEPN COURT (SUJATA KOHLI)
TODAY i.e. ON 20 NOVEMBER , 2014 Additional District Judge (West)
th
THC/Delhi:20.11.2014
RCA No. 121/14/11 N.C. BANSAL Vs UPFC & ANR.