THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION NO. 8297 OF 1993 Date: 22.12.2006 Between: G.V. Narasa Reddy and two others. … Petitioners and A.P. Khadi and Village Industries, Board, Hyderabad, rep., by Executive Officer and three others. … Respondents. THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION NO. 8297 OF 1993 ORDER: Questioning the action of the respondents, in proceeding against the petitioners under the Revenue Recovery Act, as illegal and void, seeking a declaration that they are not liable for the amounts due from M/s Radheshyam Khadi and Village Industries Association, Narsapur and for a direction to the respondent authorities to forbear from proceeding against them, W.P. No. 8297 of 1993 is filed. Facts, in brief, are that the petitioners were issued a notice, under Section 8 of the Revenue Recovery Act, by the Mandal Revenue Officer, Dilawarapoor Mandal for recovery of Rs.11,74,800/-. The petitioners made enquiries and learnt that these amounts were due from M/s Radheshyam Khandasari Unit, Narsapur, a Unit incorporated under Section 3 of the A.P. Non- trading Companies Act, 1962, of which their father was the President. The 1st respondent had sanctioned a loan of Rs.4,80,000/- on 10.09.1976 for establishing the said Unit, and, on the Government of A.P. issuing a licence, permission was granted by the respondent-board for purchase of machinery. However, for various reasons, the Unit did not commence production. The petitioner’s father expired in November, 1986. The petitioners preferred an appeal to the Government on 29.04.1992, against the demand notice dated 06.03. 1992, contending that they were not liable to pay the said amount as they had not obtained any loan from the 1st respondent Board. The Government initially granted stay of recovery. The 1st respondent, vide proceedings dated 19.05.1992, asked the District Collector to stop recovery until further orders. Thereafter the Chief Executive of the Board, vide proceedings dated 14.07.1992, asked the petitioners to verify the accounts and pay the amounts due at the earliest. Thereafter, in November 1992, the petitioners were called upon to arrange payment within a week and were informed that, on their failure to do so, the Collector, Adilabad would be requested to take action against them under the Revenue Recovery Act. The petitioners dis-owned their liability and called upon the Board to recover the amounts due from M/s Radheshyam Khadi and Village Industries which owned substantial movable and immovable properties. Petitioners submitted a representation to the government on 11.03.1993 and the then Minister for Small Scale Industries, on 12.03.1993, directed further proceedings to be stayed, despite which a distraint order under Section 8 of the Revenue Recovery Act was issued by the Mandal Revenue Officer, Dilawarpur on 23.05.1993. Petitioners would refer to Section 19 of the A.P. Khadi and Village Industries Boards Act, 1958 which provides for recovery of the amount due, by any institution or person, under the Revenue Recovery Act, on a certificate issued by the Board, for the amounts due, to the Collector of the District. Under the proviso to sub-section (2) thereof no such certificate shall be issued unless the defaulter has been given an opportunity of making a representation against the action proposed. According to the petitioners, they were neither put on notice nor given an opportunity of being heard before action was initiated for recovery of the amounts due. As no liability was fixed on them, they were not liable to repay the amounts claimed as due, and the impugned order was illegal. Petitioners would further submit that no notice was given to the Association for recovery of the amounts nor was any action taken against them though the machinery and land stood in its name. Petitioners would submit that they came to know that their father had executed a security bond in favour of the respondent board on 24.01.1976 for a sum of Rs.2,68,500/- and that agricultural lands were given as security. According to the petitioners, since the security given was not for the benefit of the joint family, their father had no right to give security of their ancestral property. Petitioners would submit that though the security offered by the petitioner’s father was only for a sum of Rs.2,68,500/-, the amounts mentioned in the distraint order was for a sum of Rs.12,10,800/-. Petitioners plead ignorance of this amount being due as they were not informed of the extent of the liability. Petitioners would contend that, before issuing the certificate, the respondent Board had not determined any liability and, since the petitioners were not defaulters, these amounts could not be recovered from them as any such recovery would be contrary to Section 19 of the A.P. Khadi and Village Industries Act, 1958. Petitioners would submit that, since the Board had not taken any steps against M/s Radheshyam Khadi and Village Industries Association, Narsapur for recovery of the amount nor had they taken possession of the machinery which was hypothecated to the Board which, even according to them, was valued at Rs.8,86,534/-, the action of the Board was not a bonafide exercise of power and ran contrary to Section 19 of the A.P. Khadi and Village Industries Act, 1958. Petitioners would plead violation of principles of natural justice on the ground that no opportunity was given to them to establish that they were not liable to pay the amounts due from M/s Radheshyam Khadi and Village Industries Association, Narsapur. It is contended that, since the entire action was initiated only after the demise of their father Sri G.V. Narayana Reddy, who had given a security bond for Rs. 2,68,500/- , the petitioners, as his L.Rs, were not liable to pay any amount, their properties were not liable for attachment and, if the Board desired to recover the amounts, they had to first recover the same from M/s Radheshyam Khadi and Village Industries Association, Narsapur. Petitioners would contend that the respondent Board was not empowered to adjudicate disputed questions of title and if they intended to proceed against the ancestral properties of the petitioners, given as security by their father late Sri G.V.Narayana Reddy, the Board had to file a suit seeking partition to the extent of Sri G.V. Narayana Reddy’s share. In their counter-affidavit, the respondents would put the very maintainability of the writ petition in issue on the ground that the petitioners had invoked the jurisdiction of this Court, under Article 226 of the Constitution of India, without exhausting the alternative remedy provided for under Section 57 of the Revenue Recovery Act, 1864. It is stated that the respondent Board had sanctioned financial assistance of Rs.4.80 lakhs to M/s. Radheshyam Khadi and Village Industries Association, Narsapur, Adilabad District, towards capital expenditure loan for machinery and equipment for the purpose of setting up of a Hydraulic Khandsari Unit. The Association was headed by the petitioner’s father Sri G.V. Narayana Reddy. It is stated that financial assistance was sanctioned by the Board as per the pattern of financial assistance prescribed by the Khadi & Village Industries Commission, Bombay, that the Unit was not completely established and did not commence production and that, in terms of the sanction, the petitioner’s father Sri G.V. Narayana Reddy, the President of the Association, had offered his own agricultural lands and house situated at Narsapur Village as security for ensuring due repayment of the loans advanced to the Association. The security bond had been registered as document No. 206/77 dated 04.03.1977 in the office of the Sub-Registrar, Nirmal, Adilabad District, and the Association had also mortgaged Ac.8.00cts of land, purchased by it, in favour of the respondent-board. According to the respondents, the Association was also personally liable to the extent of five times the share capital subscribed in terms of clause 8 of the Memorandum of Association. It is stated that the petitioner’s father expired in the year 1986 and that the other members did not evince any interest to ensure that the unit commenced operations. According to the respondents the Board, while issuing a recovery certificate under Section 19 of the A.P. Khadi & Village Industries Board Act, 1958, had addressed a letter to the District Collector, Adilabad on 13.10.1987 requesting him to realize the amounts due from the Association as arrears of land revenue under the provisions of the A.P. Revenue Recovery Act, 1864. It is stated that the question of issuing a notice, of the proposed action to refer the matter to the Collector, did not arise since the Association had become defunct. It is stated that the M.R.O, Dilwarpoor Mandal, acting under the instructions of the District Collector, had initiated action for realizing the dues under the Revenue Recovery Act and that he had issued notice to the petitioners. It is contended that the petitioners have no locus standi either to question the transaction between the respondent Board and the Association or about the machinery purchased by it. It is stated that action was initiated against the petitioners, by the M.R.O, since they were the sons of the surety late Sri G.V. Narayana Reddy, and were in possession of the properties offered as security/mortgaged to the Board. It is stated that, based on a representation submitted by the petitioners on 29.04.1992 to the Chairman of the Board, the 1st respondent had requested the District Collector, vide letter dated 19.05.1992, to stop recovery proceedings until further communication from the Board, that the 1st petitioner was issued notices, on 14.07.1992 and 04.11.1992, to go over to the office of the respondent Board for verification of the accounts and that, despite acknowledging receipt of the notice on 09.11.1992, the petitioners had not chosen to attend for verification of the accounts/records. It is stated that the Board was left with no option but to address the District Collector on 06.01.1993 to proceed with the recovery proceedings, since several opportunities given to the first petitioner were not availed by them. Respondents would deny that action was initiated against the petitioners on the ground that they had availed a loan from the Board and would submit that it was due to the fact that they were the heirs of the late surety and were in possession of the properties mortgaged/offered as security to the Board. It is contended that the properties, offered as security by late Sri G.V. Narayana Reddy, were his self-acquired properties, as per the declaration and documentary evidence produced by him and that the question, as to whether the properties offered as security were self-acquired or not, would not, normally, be adjudicated in writ proceedings under Article 226 of the Constitution of India and that the remedy available to the petitioners, if any, was to approach the competent civil court. It is stated that the security bond executed by late Sri G.V. Narayana Reddy, covers the total loan of Rs.4.80 lakhs sanctioned by the Board and that the total dues payable, including normal and penal interest on the principal loan of Rs.4.80 lakhs, was Rs.12.43 lakhs by 31st March 1993 itself and that, in addition, normal and penal interest, from 01.04.1993 onwards till the date of realization, was also payable. It is stated that the recovery proceedings initiated against the sureties simultaneously was valid under Section 50 of the A.P. Revenue Recovery Act, 1864 and, since the petitioners were in possession of the properties mortgaged/secured to the Board, they were legally bound to discharge the liability incurred by their late father and that the action initiated by the respondent Board for recovery of the dues payable to the Board under Section 19 of the A.P. Khadi and Village Industries Boards Act, 1958 was valid and was not in violation of Article 14 of the Constitution of India. It is stated that the District Collector was requested on 19.05.1992 to stop recovery proceedings with a view to afford an opportunity to the 1st petitioner and, since he had failed to avail the opportunity, the District Collector was again requested on 06.01.1993 to proceed with the recovery. Respondents would submit that the petitioners had rushed to this Court, without exhausting the alternative remedy under Section 57-A of the A.P. Revenue Recovery Act 1864, and that the writ petition as filed was premature and not maintainable. Sri A. Narasimha Reddy, learned Counsel for the petitioners, would question the restraint order and the proceedings of the respondents dated 06.03.1992 seeking to recover the amounts, payable by M/s Radheshyam Khadi and Village Industries Association, Narsapur, from the petitioners, as arbitrary and illegal on the following grounds: 1. Recovery of the amounts due, as arrears of land revenue, is governed by Section 19 of the A.P. Khadi and Village Industries Boards Act, which requires the defaulter to be given an opportunity of making a representation against the action proposed, before a certificate is issued to the Collector. No such opportunity was given to the petitioners. 2. Section 8 of the Revenue Recovery Act only speaks of attachment of movable property and not immovable property and it is Section 25 which relates to immovable property. Action taken, under Section 8 of the Revenue Recovery Act, is without jurisdiction. 3. Since the arrears fell due in 1976, the claim is barred by limitation under Sections 62 and 63 of the Limitation Act. 4. Under Section 7 of the Revenue Recovery Act the interest on arrears of revenue cannot exceed 6% per annum whereas the arrears due was sought to be recovered along with normal and penal interest. Learned Counsel would submit that, under Section 19 of the A.P. Khadi and Village Industries Boards Act, 1958, while any loan or advance granted by the Board may, without prejudice to any other mode of recovery, be recovered as arrears of land revenue, on the basis of a certificate issued by the Board for the amount due, to the Collector of the District concerned, no such certificate under sub-section (1) of Section 19 could be issued unless the defaulter was given an opportunity of making a representation against the proposed action. Learned Counsel would submit that, since the petitioners had not been put on notice, they had been denied the opportunity prescribed under the first proviso to Section 19 of the Act. On the question as to whether any prejudice was caused in this regard, and since the fact that the petitioner’s father had given security for the amount was not in dispute, learned Counsel would refer to paragraph 6 of the affidavit to submit that since the property given as security, by the petitioners’ father, was their ancestral property and the security offered was only for Rs.2,68,500/-, while the amounts mentioned in the restraint order was Rs.12.10.800/-, the petitioners had clearly suffered prejudice in this regard in not being given an opportunity of being heard. Learned Counsel would place reliance on Canara Bank Vs. Debasis Das[1]. Learned Counsel would submit that, while Section 8 of the A.P. Revenue Recovery Act relates to seizure and sale of movable property, section 25 relates to attachment of land and thereunder the Collector is required to cause a written demand to be served upon the defaulter specifying the amount due. Learned Counsel would refer to the certificate given by the Chief Executive of the Board, authorizing the Mandal Revenue Inspector to recover the dues from the petitioner, which is an auction notice under Section 8. Learned Counsel would submit that, since action was taken under Section 8 of the Revenue Recovery Act which does not relate to immovable properties, the entire action of the respondents in this regard is without jurisdiction. On the question of limitation, learned Counsel would submit that under Article 63(b) of the Limitation Act, the period of limitation is 12 years and since the year, as shown in the distraint order, is 1976 and the 12 years period expired by 1988, the certificate issued in 1992 is barred by limitation. While fairly conceding that no plea of limitation had been taken, in the affidavit filed in support of the writ petition, learned Counsel would submit that failure to take such a plea was of no consequence as once the claim was barred by limitation the amounts, even if due, could not be recovered. Learned Counsel would place reliance on State of Kerala Vs. V.R. Kalliyanikutty[2], Narne Rama Murthy Vs. Ravula Somasundaram[3] and N.A. Radha Vs. State of Andhra Pradesh[4] in this regard. Learned Counsel would refer to Section 7 of the A.P. Revenue Recovery Act which provides that the arrears of revenue shall bear interest at the rate of 6% p.a. and would submit that neither interest in excess of 6% p.a. nor penal interest could be collected, even if the respondents were held entitled to recover the amount mentioned as due in the certificate. Learned Counsel would submit that, since the respondents had chosen to invoke the provisions of the Revenue Recovery Act, the jurisdiction of the Civil Court was impliedly barred and it must be held that the respondents were entitled to claim interest, on the arrears due, only upto a maximum of 6% per annum. Sri V.T.M. Prasad, learned Standing Counsel for the Respondent Board, would refer to the provisions of the A.P. Khadi and Village Industries Boards Act to submit that the said Act was made with the laudable object of promoting Khadi and Village Industries in the State of Andhra Pradesh. Learned Standing Counsel would submit that the amount sanctioned as loan to the Association had still not been recovered despite a lapse of more than two decades. He would submit that the dispute, if any, was contractual in nature and the remedy was not by invoking the jurisdiction of this Court under Article 226 of the Constitution of India, but by approaching the Civil Court of competent jurisdiction. Learned Standing counsel would refer to the letter addressed by the petitioner’s father to the Chief Executive Officer of the Board on 10.12.1976 wherein he had stated that on 01.12.1976 he had deposited the title deeds of the immovable properties referred to in the said letter with the intent to secure repayment of all the monies due to the A.P. Khadi and Village Industries Board, from time to time, from M/s Radheshyam Khadi and Village Industries Association, Narsapur, Adilabad District. The petitioners father had stated that the Association and himself, either solely or jointly with any other person, would be liable for the amount advanced as loan including commission and expenditure. The property given as security was of an extent of Ac.8.00cts of land from out of Ac.13.27 cts situated in Sy. No. 638 of Narsapur village in Nirmal Taluq in Adilabad District and the sale deed dated 08.10.1976, with registration as document No. 2168/76, was deposited with the Respondent Board. Learned Standing Counsel would refer to the order of this Court, in W.V.M.P. No. 2641 of 1994 in W.P. No. 8297 of 1993 dated 26.02.1996, wherein this Court had noted the submissions made on behalf of the petitioners that they had no objection if the property of the Association was sold and the amount realized notwithstanding the fact that the said land was mutated in the Revenue Records. This Court granted liberty to the Board to execute the certificate and realize the amount by selling the said land. Before examining the rival contentions, it is necessary to note the relevant statutory provisions. The A.P. Khadi and Village Industries Boards Act, 1958 came into force on 03.11.1958. Section 2(2) thereof defines the “Board” to mean the A.P. Khadi and Village Industries Board constituted under Section 3. Section 3 relates to establishment and constitution of the Board and thereunder the A.P. Khadi and Village Industries Board shall be a body corporate having perpetual succession and a common seal. Section 19 of the Act relates to recovery of arrears and reads thus: “Where any loan or advance granted by Board to any institution or person is not repaid before the date specified therefore, or where any other amount is due to the Board, from any person or institution either under a contract or otherwise, the Board may without prejudice to any other mode of recovery, issue a certificate for the amount due to the Collector of the District concerned and the Collector proceed to recover the amount in the same manner as an arrear of Land Revenue. i. “Provided that no certificate under this sub-section shall be issued unless the defaulter has been given an opportunity of making a representation against the action proposed: ii. Provided further that it shall be lawful for the Board to issue succession Certificates under this sub-section to the Collector for the realization of its dues in full, if it is satisfied that the defaulter has come into possession of assets from which it can recover its dues”. The Board may write off irrecoverable losses with the previous sanction of the Government or the Commission as the case may be subject to such limits as may be laid down in thfe regulations.” Section 7 of the A.P. Revenue Recovery Act, 1864 relates to interest on arrears and thereunder arrears of revenue shall bear interest at the rate of 6% p.a. Section 8 prescribes the Rules for seizure and sale of movable property and Section 25, which relates to the demand to be served prior to attachment of land and the mode of service, reads thus:- Before a Collector, or other officer empowered by the Collector on that behalf proceeds to attach the land of the defaulter, or buildings thereon, he shall cause a written demand to be served upon the defaulter, specifying the amount due, the estate or land in respect of which it is claimed, the name of the party in arrear, the batta due to the person who shall serve the demand, and the time allowed for payment, which shall be fixed with reference to the distance from land on which the arrear is due to the place at which the money is to be paid. Such demand shall be served by delivering a copy to the defaulter, or to some adult male member of his family at his usual pale of abode, or to his authorized agent, or by affixing a copy thereof on some conspicuous part of his last known residence, or on some conspicuous part of the land about to be attached. Section 52-A, which relates to recovery of sums due to certain banks and other public bodies as arrears of land revenue, reads as under: Without prejudice to any other mode of recovery which is being taken or may be taken, all loans granted and all advances made to any person- i. by any bank to which the repayment of the said loans and advances is guaranteed by the State Government or; ii. by such Corporation established by or under the Central Provincial or State Act, or Government Company as defined in Section 617 of the Companies Act, 1956, or such other public body as ;may be notified in this behalf by the State Government in the Andhra Pradesh Gazette; together with interest on such loans and advances and all sums, such as rents, margin money and the like, due to the bodies mentioned aforesaid may be recovered in the same manner as arrears of land revenue under the provisions of the Act: Provided that the State Government may, by notification in Andhra Pradesh Gazette, specify the loans and advances together with interest therein, and other sum due to the bodies mentioned in item (ii) above which may be recoverable under the provisions of this section. Explanation:- In this sub-section, “bank”, means any banking company as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949, and includes- a. the Reserve Bank of India constituted under the Reserve Bank of India Act, 1934. b. The State Bank of India constituted under the State Bank of India Act,1955. c. Any subsidiary bank as defined in the State Bank of India (Subsidiary Bank) Act, 1959; d. Any corresponding new bank constituted under Section3 of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970. 2. Out of the proceeds of