Full Judgment Text
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PETITIONER:
CANARA BANK
Vs.
RESPONDENT:
STATE OF TAMIL NADU & ANR. C
DATE OF JUDGMENT: 08/03/2000
BENCH:
S.N.Phukan, S.R.Babu
JUDGMENT:
RAJENDRA BABU, J. :
The appellant filed a writ petition in the High Court
seeking for a writ or direction or order to the first
respondent to pay a sum of Rs. 1,24,87,487.47 together with
interest amount of Rs. 2,24,80,070.88 upto July 29, 1987
with further interest at the rate of 19.5% until date of
discharge. The appellant in the course of its banking
business had granted different kinds of loans on security
like mortgage or pledge or hypothecation of floating charge
of all assets of Madura Sugars Limited, Randiarajapuram,
Madurai District, [for short ‘the company’], a company
registered under the Companies Act. The Government of Tamil
Nadu took over the undertaking by the Madura Sugars Limited
(Acquisition & Transfer of Undertaking) Act, 1984
[hereinafter referred to as ‘the Act’]. The undertaking of
the company is engaged in the manufacture or production of
sugar by means of vacuum pans and with the aid of mechanical
power stood transferred to and vested in the Government.
Section 5 of the Act provides for extinguishment of all
encumbrances such as mortgage, charge, lien or other
interests and it is further provided therein that the
payment of mortgage money or other dues who holds such
charge, lien or other interest shall be paid in whole or in
part out of the amounts specified in Section 9, but no such
mortgage, charge, lien or other interest shall be
enforceable against any property which is vested in the
Government. Section 8 provides that the liability of the
company prior to the appointed day shall be enforceable
against it and not against the Government or the
undertaking. Section 9 provides for payment of certain
amount in cash in the manner specified therein. Section 15
makes provision for appointment of Commissioner for payments
and entire Chapter VI deals with the manner in which claims
have to be made to the Commissioner, Priority of Claims,
Examination or admission or rejection of the same. Section
26 provides that in respect of certain category of amounts
due to be paid mentioned in the Second Schedule if not
discharged by the Commissioner out of amount paid to him
under the Act, he shall intimate to the Government the
extent of liability remaining undischarged and which shall
be assumed as liability of the Government. The learned
single Judge considered the various aspects of the case and
noticed that there was no material to show that the Managing
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Director or the Special Officer of the company had been
served with a notice in respect of the claim made by the
appellant and, on actual examination of the records this
position was conceded to by the learned counsel for the
appellant. A contention was raised that the company had
knowledge of the award and, therefore, non-service of the
notice would not be fatal to the award made for payment by
the Commissioner. The learned single Judge held that where
law requires notice to be served and if the notice has not
been served and a claim is foisted upon a party without such
service of notice, there is clear violation of the
principles of natural justice and an order passed in such a
proceeding would be void. On that basis he took the view
that the relief sought for by the appellant could not be
granted and dismissed the writ petition. On appeal filed by
the appellant, the Division Bench of the High Court
considered the matter and, while agreeing with the learned
single Judge, observed as under :-
"As the undertaking of the company had vested in the
Government, notice ought to have been directed to both the
respondents therein in the claim proceeding and the
Commissioner ought to have heard both of them before passing
any order. The view expressed by the learned Judge that the
order passed by the Commissioner is null and void inasmuch
as notice was not served on the respondents is correct and
no exception can be taken thereto.
The Division Bench again stated as follows :- "It is
contended that the communication discloses that the
respondents had full knowledge of the entire proceedings
before the Commissioner and they are not entitled to
challenge the order of the Commissioner made in those
proceedings in this Court. We are unable to accept this
contention. The learned Judge has found from the records
that there was no service of notice on either of the
respondents and consequently, the entire proceedings of the
Commissioner are vitiated."
The Division Bench on examination of the scheme of the
Act particularly with reference to Sections 5(4), 8, 9, 16,
17, 20 and 26 of the Act, had no doubt that the liability of
the Government under the provisions of the Act is to the
extent only upto the total amount determined under Section 9
which the Government is bound to pay to the Commissioner for
payments to the company. The Division Bench also noticed
that the liability of the company continues to exist and it
is not enforceable against the Government or the Government
company. On that basis, the Division Bench dismissed the
appeal. Shri V.R. Reddy, the learned senior Advocate
appearing for the appellant, contended that the view taken
by the Division Bench of the High Court on the scheme of the
enactment is plainly erroneous. He submitted that Section
5(4) of the Act while extinguishing rights against the
Government or the undertaking arising out of the security
made it clear that a secured creditor is nevertheless
entitled to claim in accordance with his rights and
interests, payment of the mortgage or other dues, in whole
or in part out of the amounts specified in Section 9 and did
not limit it only to the amounts specified in Section 9. He
further pointed out that other provisions to which the
learned Judges adverted to were only provisions which were
made not to override the other provisions of the Act which
was made clear in the expression "save as otherwise
expressly provided in the Act". He further submitted that
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Section 26 is an independent provision and is not controlled
by any other provisions of the Act. The interpretation
placed by the Division Bench on Section 26 would render it
otiose. The learned counsel appearing for the respondent,
however, supported the view taken by the learned single
Judge and the Division Bench of the High Court in the writ
petition and writ appeal respectively. It is no doubt true
that Section 5(4) refers to rights of a secured creditor to
make a claim in regard to the dues out of the amounts
specified in Section 9, but the purpose of Section 5(4) if
borne in mind it becomes clear that while extinguishing the
rights of the secured creditor as against any property
vested in the Government, a claim can be made for payment
out of the amounts specified in Section 9. Section 26 in
particular provides that if the dues arising out of secured
loans obtained by the company from nationalised banks and
public financial institutions during any period before the
appointed day is not discharged fully by the Commissioner
out of the amount paid to him under the Act, intimation will
have to be given to the Government the extent of the
liability which remains undischarged and that liability
shall be assumed by the Government. We cannot without
closer examination say that argument of the learned counsel
for the appellant is without merit. However, we do not
propose to consider or answer this aspect as we propose to
rest our decision on another ground. We have set out in the
earlier part of this order that the learned single Judge on
full investigation of the records found that notice to the
company had not been given, which was admitted by the
learned counsel for the appellant before the learned single
Judge. Under the scheme of the Act it is clear that the
company is also liable to make good the amounts which remain
outstanding and, therefore, principles of natural justice
also require that a notice should have been given to it.
The view taken by the learned single Judge and accepted by
the Division Bench to which we have adverted to is placed on
sound footing. Therefore, we are of the view that the
adjudication made by the Commissioner is void for want of
notice to the company and, therefore, unenforceable and so
the High Court was justified in refusing to grant the relief
to the appellant.
In this view of the matter, we affirm the view taken
by the High Court and dismiss the appeal. However, there
will be no order as to costs.