TaxTMI 
TaxTMI 
2002 (3) TMI 886
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....ulati (who is the respondent herein) stood sureties for due repayment of the loan advanced. Out of the sanctioned amount of Rs. 6,50,000 the borrower availed of a sum of Rs. 1,42,500. He committed default in payment of the instalments of the loan amount in terms of the agreement which led to the filing of the proceeding under section 31(1) of the Act before the District Judge for recovery of a sum of Rs. 1,98,824.41 with interest at the stipulated rate in accordance with mortgage deed dated 9-4-1979, calculated from 1-10-1982, till the date of realization beside incidental and miscellaneous charges and the cost by putting on sale the property and assets mortgaged by the respondents as security of the loan. The principal borrower M/s. Durgesh Copper and Brass Rolling Mills, Mr. Durgeshwar Parshad Bhatnagar were impleaded as respondent Nos. 1 and 2 and sureties Mrs. Renu Bhatnagar and Mr. Harish Chander Gulati (respondent herein) were arrayed as respondent Nos. 3 and 4 respectively. This application was disposed of by an Additional District Judge by an ex parte order dated 16-2-1983. The relevant extract of the finding and the operative portion of the order is as under : "As far as ....
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.... sections 31 and 32G of the Act for recovery of the debt due against the industrial concern were independent of each other and not in the alternative therefore, the petitioner had a right to get a certificate of recovery issued under section 32G of the Act for recovery of the amount. The respondent filed an appeal but the appellate court declined to grant interim stay of the recovery proceedings. 4. Thereafter, the respondent filed objections under section 47 read with Order 21; rule 68 of the Civil Procedure Code before the Additional District Judge. In the objection petition he alleged that respondent No. 2-M/s. Durgesh Copper and Brass Rolling Mills through its proprietor Mr. Durgeshwar Parshad Bhatnagar had taken a loan of Rs. 1,45,000 from Delhi Financial Corporation, arrayed as respondent No. 1, against hypothecation of the machinery lying in their factory. The objector was persuaded to sign certain documents executed in favour of the Corporation as an attesting witness. He then narrated other sequence of events like filing of the proceeding under section 31(1) of the Act by the petitioner-Corporation, impleading the principal debtors, and the other surety, disposal of the p....
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....e simultaneously or one after the other for the recovery of the loan amount due from the borrower industrial concern. It was contended that the petitioner had a right to invoke the provision of section 32G for getting a recovery certificate issued for the recovery of the outstanding dues as arrears of the land revenue from the respondent also. In the reply the Corporation also referred to the civil suit filed by the respondent which was dismissed by the Civil Judge and the dismissal of the appeal filed against that order. It was stated that the objections were not maintainable under section 47 read with Order 21, rule 68 of the Civil Procedure Code. 6. The learned Additional District Judge by order dated 14-2-1996, however, allowed the objections holding that the recovery of the amount could not be made from the objector in pursuance of the recovery certificate. He further held that the judgment of the Additional District Judge dated 16-2-1983, was final and in accordance with this judgment defendant Nos. 3 and 4 (defendant No. 4 being the respondent) were not liable to pay the outstanding loan amount and also that in accordance with the judgment the Corporation was entitled to re....
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....ing 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 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 ....
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....e (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 interim 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 sub-section (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 specif....
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....iod fixed under sub-section (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 (5 of 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 (5 of 1908), for the possession of immovable property or the delivery of movable property in execution of a degree, as if the financial corporation were the decree-holder. (9) Any party aggrieved by an order under sub-section (4A), sub-section (5) or under sub-section (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....
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.... over the management or possession or both of the industrial concern; (2) as well as the right to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothecated or assigned to the corporation. On the other hand section 31 lays down that where an industrial concern 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 of the corporation or where the financial corporation requires an industrial concern to make immediate repayment of loan or advance under section 30 and the industrial concern fails to make such repayment then any officer of the corporation may apply to the District Judge for an order for sale of the property pledged or for transferring the management of the industrial concern to the corporation or 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. 9. The remedies available to the corporation under sections 29 and 31 are not mutually....
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....age money by sale of the mortgaged property. Having considered the scheme of sections 31 and 32 the Supreme Court proceeded to make the following observations : "...The claim of the corporation is not the monetary claim to be investigated though it may become necessary to specify the figure for the purpose of determining how much of the security should be sold. But the investigation of the claim does not involve all the contentions that can be raised in a suit. The claim of the corporation is that there is a breach of agreement or default in making repayment of loan or advance or instalment thereof and, therefore, the mortgaged property should be sold. It is not a money claim. The contest can be that the jurisdictional fact which enables the corporation to seek the relief of sale of property is not available to it or no case is made out for transfer of management of the industrial concern... Sub-sections (6), (7) and (8) of section 32 read together would give an opportunity to the industrial concern to appear and satisfy the District Judge that the situation envisaged by section 31(1) has not arisen and the relief should not be granted... The provision contained in sub-section (6)....
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....te Financial Corpn.'s case (supra ). It was also held in the said case as under : "... However, to hold that since the corporation has initially taken action under section 31 of the Act and obtained an order/decree from the court, the corporation is prohibited from invoking the provisions of section 29 of the Act, notwithstanding the fact that the defaulting concern has not honoured the court's order or decree made under section 31 of the Act, would amount to putting a premium on the activities of the defaulting concern aimed at frustrating the order/decree of the court and depriving the corporation of recovering its legitimate dues and thereby rendering the expression 'without prejudice to...' occurring in section 31 as otiose . Courts do not favour such a course." (p. 155) The Court further proceeded to hold as under : "...The corporation cannot, indeed, execute the order under section 31 of the Act and yet simultaneously take recourse to proceedings under section 29 of the Act for the same relief. The position may also be different if the claim of the corporation is negatived, on facts, by the court in the proceedings under section 31 of the Act. In that event depending upon ....
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....red to submit an application to the State Government for the recovery of its dues from the industrial concern ; (2) it has to satisfy the State Government or its specified authority that the amount is due. Only thereafter the recovery certificate may be issued to the Collector for realizing the amount as land revenue. The State Government and specified authority while determining the liability has to follow such procedure as may be prescribed by rules. In the absence of such rules it has to determine as to how much amount is due and recoverable by following principles of natural justice. The Division Bench of this Court in Rajeev Anand v. Union of India [1998] 93 Comp. Cas. 89 considered the scope and import of this section and observed as under : "...Under the Act, the procedure is to be prescribed either by the State Government framing the rules or the Board framing requisite regulations. The provisions in the Act do not show that operation of section 32G would depend upon the action of the State Government or the Board and on account of their inaction, the legislative intent would remain in abeyance. In the absence of the procedure being prescribed, the authority under section ....
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....ing words of section 32 would have been something like 'where amount is due to the financial corporations from any industrial concern'. In view of the clear language of the provision, we are unable to accept the contention that applicability of section 32G is restricted to only industrial concerns and it cannot be invoked against the sureties." (pp. 94-96) In accordance with this judgment the corporation has the necessary power and authority to get a recovery certificate issued not only against the industrial concern, i.e., the principal borrower, but also against the guarantor and sureties to that accommodation. Another important question decided is that the State Government or the authority specified by it will first determine the amount due to the corporation from the industrial concern/the sureties in a summary proceeding by following a procedure which allows reasonable opportunity of hearing to the affected parties by following the principle of natural justice. 12. Section 32G used the expression 'without prejudice to any other mode of recovery' which has widened the scope of this section and has provided one more mode for the recovery of the outstanding dues of the corporat....
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....de of recovery of the outstanding dues of the corporation. It is in addition to the other remedies available to the corporation. It is not in the alternative. The observations of the Supreme Court in Andhra Pradesh State Financial Corpn's case (supra) though were on the consideration of the provisions of sections 29 and 31 are applicable with equal force to the provision of section 32G. Though the Act does not contemplate that the corporation will resort to all the modes of recovery or remedies available to it under the Act simultaneously but there is no bar to the corporation taking recourse to one mode of recovery after the other in case the claim of the corporation as determined by the appropriate authority remained unsatisfied. Accordingly, it should be held that the provisions of section 32G on the one hand and the provisions of sections 29 and 31 on the other hand are not mutually exclusive. 13. In the instant case, the corporation filed an application before the District Judge for determining the liability of the industrial concern and the sureties/guarantors including that of the respondent, and also for sale of the property hypothecated and mortgaged by the defaulting ind....
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.... on the date of invocation of the mode of recovery under section 32G the amount was due from the industrial concern and the sureties. Therefore, by no stretch of reasoning it could be said that the application of the corporation to the State Government or the authority specified by the State Government, for determination of the liability of the surety and for recovery of the amount due from the sureties or even the industrial concern was not maintainable once the corporation moved the District Judge for such determination of the liability and enforcing it for recovery of the dues from the sale of the hypothecated/mortgaged property or the liability of the surety. Indeed once the liability against the defaulting industrial concern and the surety was determined in accordance to the procedure prescribed by section 32 in a proceeding under section 31 it will be inappropriate for the specified authority under section 32G to determine it afresh. But it will not preclude it to redetermine it as mandated by law. The order passed on the application under section 31 may in a particular case satisfy the State Government/specified authority about the liability. The State Govern- ment or the sp....
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....ble in section 32G which is not at all in conflict with the other remedies available to it under sections 29 and 31. The remedy given in provision of section 31 was not available against the surety but was available only against the borrower industrial concern, before it was amended in 1985. The application filed by the corporation before the District Judge was to be dealt with and has in fact been decided under the unamended provisions of section 31. The right to recover the dues under section 32G is not taken away by sections 31 and 29 or by any other provision of the Act. It remained intact and is enforceable as a mode of recovery other than sections 29 and 31. For these reasons, the contention of the respondent that once the procedure for recovery of the amount due was exhausted by the corporation it could not abandon it and get a recovery certificate issued for recovery of the amount due as land revenue has no force at all. 17. The expression 'without prejudice to any other mode of recovery' used in section 32G clearly demonstrated that the Legislature had not intended to restrict the corporation to adopt only one of the several remedies against the defaulting concern/surety ....