Full Judgment Text
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CASE NO.:
Appeal (civil) 3636-3637 of 1998
PETITIONER:
Pawan Kumar Jain
RESPONDENT:
The Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Ors.
DATE OF JUDGMENT: 11/08/2004
BENCH:
S. N. Variava & Arijit Pasayat
JUDGMENT:
J U D G M E N T
S. N. VARIAVA, J.
These Appeals are against the Order of the Allahabad High Court
dated 01.09.1997 by which Appellant’s Writ Petition has been
dismissed and the Order dated 06.11.1997 by which the Review
Petition has been dismissed.
Briefly stated the facts are as follows.
The 1st Respondent had advanced monies to the 4th Respondent.
The Appellant stood guarantor in respect of the said loan as at that
time he was a Director of the 4th Respondent-Company. By the Writ
Petition, the Appellant challenged the Recovery Notice issued against
him under the Uttar Pradesh Public Moneys (Recovery of Dues) Act,
1972. The High Court has dismissed the Writ Petition and the Review
Petition.
Mr. Mohta submitted that the Central Government has
issued a Notification specifying 1st Respondent-Corporation as a
Financial Institution within the meaning of the term as defined in
Section 2(h) of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (hereinafter referred to as the "Debt Recovery
Act"). He submitted that such an Institution can only proceed in the
manner laid down in the Debt Recovery Act. He submitted that it is
not open to give a go-by to the provision of the Debt Recovery Act and
use the machinery under the U.P. Public Moneys (Recovery of Dues)
Act, 1972 (hereinafter called the "U.P. Act"). For this reason the
Notice is bad and requires to be quashed. In support of his
submission, he relied upon the case in Unique Butyle Tube
Industries (P) Ltd. Vs. U. P. Financial Corporation & Ors. [(2003)
2 SCC 455]. In this case, it has been held that a Financial Institution
within the meaning of that term in the Debt Recovery Act cannot
proceed under the U. P. Act.
This authority would have been binding upon us. However, in
reply Mr. Bhalla pointed out that in respect of the 1st Respondent-
Institution the Notification by the Central Government has only been
issued on 24.01.2004, whereas the Recovery Certificate is of a much
earlier date. He submitted that, therefore, in this case the
proceedings under the U. P. Act are not barred. He pointed out that
under Section 31 of the Debt Recovery Act, it is only suit or proceeding
pending before any Court, which stand transferred to the Tribunal
established under that Act. In our view, Mr. Bhalla is right. As the
action was initiated prior to the Notification being issued by the Central
Government, the action would not be barred and would not stand
transferred to the Tribunal.
Mr. Mohta then relied upon Sections 3 and 4 of the U. P. Act,
which read as follows:-
"3. Recovery of certain dues as arrears of
land revenue.\027(1) Where any person is party\027
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(a) to any agreement relating to a loan,
advance or grant given to him or relating to
credit in respect of, or relating to hire-
purchase of goods sold to him by the State
Government or the Corporation, by way of
financial assistance; or
(b) to any agreement relating to a loan,
advance or grant given to him or relating to
credit in respect of, or relating to hire-
purchase of goods sold to him, by a banking
company or a Government company, as the
case may be, under a State-sponsored
scheme; or
(c) to any agreement relating to a guarantee
given by the State Government or the
Corporation in respect of a loan raised by an
industrial concern; or
(d) to any agreement providing that any
money payable thereunder to the State
Government shall be recoverable as arrears of
land revenue; and such person\027
(i) makes any default in repayment of the
loan or advance or any instalment thereof; or
(ii) having become liable under the conditions
of the grant to refund the grant or any
portion thereof, makes any default in the
refund of such grant or portion or any
instalment thereof; or
(iii) otherwise fails to comply with the
terms of the agreement,-- then, in the case
of State Government, such officer as may be
authorized in that behalf by the State
Government by notification in the official
Gazette, and in the case of the Corporation or
a Government company the Managing
Director thereof, and in the case of a banking
company, the local agent thereof, by
whatever name called, may send a certificate
to the Collector, mentioning the sum due
from such person and requesting that such
sum together with costs of the proceedings
be recovered as if it were an arrear of land
revenue.
(2) The Collector on receiving the certificate shall
proceed to recover the amount stated therein as
an arrear of land revenue.
(3) No suit for the recovery of any sum due as
aforesaid shall lie in the civil court against any
person referred to in sub-section (1).
4. Savings.\027(1) Nothing in section 3, shall \026
(a) affect any interest of the State
Government, the Corporation, a Government
company or any banking company, in any
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property created by any mortgage, charge,
pledge or other encumbrance; or
(b) bar a suit or affect any other right or
remedy against any person other than a
person referred to in that section, in respect of
a contract of indemnity or guarantee entered
into a relation to an agreement referred to in
that section or in respect of any interest
referred to in clause (a).
(2) Where the property of any person referred to
in Section 3 is subject to any mortgage, charge,
pledge or other encumbrance in favour of the
State Government, the Corporation, a
Government company or banking company,then \026
(a) in every case of a pledge of goods,
proceedings shall first be taken for sale of the
thing pledged, and if the proceeds of such sale
are less than the sum due, then proceedings
shall be taken for recovery of the balance as if
it were an arrear of land revenue :
Provided that where the State Government is of
opinion that it is necessary so to do for
safeguarding the recovery of the sum due to it or
to the Corporation, Government company or
banking company, as the case may be, it may for
reasons to be recorded, direct proceedings to be
taken for recovery of the sum due, as if it were an
arrear of land revenue before or at the same time
as proceedings are taken for sale of the thing
pledged;
(b) in every case of a mortgage, charge
or other encumbrance on immovable
property, such property or, as the case may
be, the interest of the defaulter therein, shall
first be sold in proceedings for recovery of
the sum due from that person as if it were an
arrear of land revenue, and any other
proceeding may be taken thereafter only if
the Collector certifies that there is no
prospect of realization of the entire sum due
through the first mentioned process within a
reasonable time."
He submitted that by virtue of these provisions, the 1st
Respondent cannot proceed against the Appellant/guarantor until the
1st Respondent has first sold the property of the principal-debtor which
had been mortgaged in their favour. He points out that on 22nd July,
1996 action under Section 29 of the State Financial Corporation Act,
1951 had been initiated and physical possession taken. He points out
that thereafter on 12.02.1996 a One Time Settlement was arrived at
by the 1st Respondent with the 4th Respondent. He points out that
thereafter the property was handed back to the 1st Respondent. He
submits that, therefore, the 1st Respondent is not entitled to proceed
against the Appellant.
Mr. Bhalla admits the above mentioned facts. He, however,
submits that the company committed defaults and, therefore, the One
Time Settlement failed. He submitted that earlier attempts to sell the
properties of the 4th Respondent Company yielded no result as no
offers were received. He submitted that action under Section 29 has
again been initiated against the 4th Respondent Company. He
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submitted that as the 4th Respondent Company has committed
defaults and it has not been possible to recovery by sale of property,
action has been taken against the guarantor for recovery of the
amount.
In our view, the above set out provisions of the U. P. Act are
very clear. Action against the guarantor cannot be taken until the
property of the principal-debtor is first sold off. As the Appellant has
not sold the property of the principal-debtor, the action against the
Appellant cannot be sustained. We, therefore, set aside the Recovery
Notice.
We, however, clarify that it will be open to the 1st Respondent to
proceed against the Appellant before the Debt Recovery Tribunal in
accordance with principles laid down in Unique Butyle Tube’s case
(supra).
The Appeals stand disposed of accordingly. There will be no
order as to costs.