HIGH COURT OF UTTARAKHAND, AT NAINITAL Appeal against Order No.120 of 2002 Uttar Pradesh Financial Corporation 14/88 Civil Lines Kanpur, through its Managing Director … Appellant Versus 1. Hanu Motel Private Limited B-15 Harsh Vihar, Sector – S Aliganj Lucknow 2. Ramraj Singh S/o Bhagwant Singh 3. Avdhesh Kumar S/o Shri Giri Raj Singh …. Plaintiff / Respondents Dated:- 29th December, 2010 Hon’ble Tarun Agarwala, J. 1. This is an appeal against the order of the trial court dated 20.02.2002 passed by the Civil Judge (S.D.), Haridwar granting an injunction under Order 39 Rule 1 & 2 of the Code of Civil Procedure. 2. The facts leading to the filing of the present appeal is, that the plaintiff opposite party no.1 M/s Hanu Motel Pvt. Limited is a company registered under the Companies Act and is engaged in the business of hotel and hospitality. The plaintiff no.2 has been arrayed as a Director of the company, who has been authorised to file the suit. It transpires that the company took a loan from the U.P. Financial Corporation (hereinafter referred to as the Corporation) in the year 1987 and a sum of Rs.40 lakhs were sanctioned. An agreement was executed between the Directors of the Company and the Corporation in the year 1989. The four Directors at that time was Sri Guru Prasad, Sri Sandeep Singh, Sri Mahant Ghanshyam Giri and Sri Narendra Kumar. These Directors also executed a personal bond of guarantee in the year 1991. An additional term loan of Rs.5.70 lakhs was sanctioned, which the company could not avail and the same elapsed. It is alleged that Avdhesh Kumar, a Director requested for change of management in the year 1996 and for re- schedulement of the loan. It further transpires that new Directors were inducted, namely, Avdhesh Kumar, Ramraj Singh and Deepak Gupta. A personal bond of guarantee of Avdhesh Kumar and the bond of the earlier Directors was released by the Corporation. Avdhesh Kumar executed an agreement and a bond of guarantee on 29.01.1996. 3. It transpires that inspite of the re-schedulement of the loan and sufficient time being granted to the company and to the Directors, the loan was not repaid and a recovery certificate dated 20.04.1998 was issued under the Public Money Recovery of Dues Act, 1972. Based on that, the company deposited a sum of Rs.1 lakh, but failed to deposit the balance amount. It is alleged that subsequently, the recovery certificate was withdrawn on 17.10.2001 and, immediately thereafter, a notice of demand under Section 29 of the State Financial Corporation Act, 1951 was issued to the company as well as to the Directors. It further transpires that a notice of the sale of the company was also published on 16.12.2001 in the Amar Ujala and in the Hindustan Times on 12.01.2002 and again a notice was published in the Amar Ujala on 16.09.2003 for the sale of the company on as is where is basis. 4. It further transpires that the company filed a civil suit through its authorised Director Ramraj Singh on 28.04.2001 being Suit No.111/2001 before the Civil Judge (Senior Division), Haridwar for a declaration that the recovery of loan alongwith interest was barred by time and that no amount whatsoever could now be recovered by the Corporation. The appellant, namely, the U.P. Financial Corporation appeared and contested the suit and filed their written statement submitting that the suit 3 was not maintainable and that the provisions of the Indian Limitations Act were not applicable and that the State Financial Corporation Act, being a special Act, had an overriding effect over other Acts, including the Limitations Act and that no suit could have been filed. During the pendency of the suit and after the issuance of the notice for publication of sale of the assets of the company, which was published in Amar Ujala on 16.12.2001, the plaintiff filed an application under Order 39 Rule 1 & 2 of the C.P.C. praying that the Corporation be restrained from realizing any dues. The Corporation objected to the injunction application. The trial court, after considering the matter, granted an interim injunction restraining the Corporation from selling the land and building of the company by an order dated 20.02.2002. The Corporation, being aggrieved by the said order, has filed the present appeal under Order 43 Rule 1(r) of the C.P.C. 5. At the time when the present appeal was entertained, an interim order dated 01.06.2002 was passed:- “Heard Sri B. C. Pande, learned counsel for the appellant and learned counsel for the respondents. The respondents shall deposit Rs.50,00,000/- (Rupees Fifty lakhs only) in this court within 45 days. List on 26.07.02.” 6. It transpires that inspite of the direction, the plaintiff opposite party has not deposited the amount of Rs.50 lakhs, out of the total dues of Rs.185.20 lakhs as demanded by the Corporation in the year 2001. During the pendency of the appeal, the plaintiff no.2 Ramraj Singh filed an application in the year 2002 praying for the deletion of his name from the array of parties. Ramraj Singh contended that he had not filed the suit and that his signatures were forged. In December, 2002, 4 Avdhesh Kumar filed an impleadment application indicating therein that in August, 2002 the Board of Directors had passed a resolution to remove Ramraj Singh as Director of the company and that by the same resolution, the applicant Avdhesh Kumar was authorised to prosecute the suit and other proceedings and, consequently, prayed that he should be impleaded. This court by an order dated 14.12.2002 passed an order directing Avdhesh Kumar to be impleaded as respondent no.3. 7. This court, after hearing the appeal found that since the plaintiff Ramraj Singh respondent no.2 had not filed the suit and that his signatures were forged, dismissed the suit No.111/2001 and consequently dismissed the appeal as having been rendered infructuous. The court, by an order dated 06th May 2003, having found that a fraud had been played by the plaintiff company, and that the process of law was abused, directed the CBI to register a case against the company and its Directors and investigate as to who had played the fraud. The court, accordingly, directed the S.P., CBI to investigate the matter personally and prosecute the persons who were found guilty. 8. Subsequently, a review application was filed by Avdhesh Kumar for recalling the order dated 06.05.2003. Avdhesh Kumar urged that he was not heard and the said order was passed exparte without giving any opportunity of hearing. The court, by an order dated 28.05.2003, rejected the review application and further recalled the order dated 14.12.2002 by which Avdhesh Kumar was impleaded as a party. 9. Subsequently, plaintiff no.2 opposite party Ramraj Singh filed an application praying that no cognizance should be taken pursuant to the investigation done by the CBI and further prayed for the quashing of the investigation. The court, after considering the matter, held that the report submitted by the Inspector, CBI was not in accordance with the directions of the court dated 06.05.2003 and that the Registrar General could not have lodged the prosecution without taking previous permission from the court. The court, accordingly by an order dated 22.12.2006 quashed the proceedings in Complaint Case No.297/2006 lodged by the Registrar General of this Court before the C.J.M., Nainital, which was lodged pursuant to the report of the CBI. 10. The orders dated 06.05.2003, 28.05.2003 and 22.12.2006 were challenged by the plaintiff before the Supreme Court. All the three orders were set aside by the Supreme Court by its judgment dated 24.10.2008. The Supreme Court held that the plaintiff Avdhesh Kumar was not heard and, consequently, the impugned orders were violative of principles of natural justice and, on that short ground, the aforesaid orders of this court were set aside and the matter was remitted again to the High Court for re-consideration. The Supreme Court observed that the High Court would consider the entire material on record, including the report of the CBI and would pass appropriate orders in the light of the material available before the court. Based on the aforesaid, the matter is now being reheard. 11. Heard Mr. Naresh Pant, the learned counsel assisted by Ms. Menka Tripathi, the learned counsel for the appellant, Mr. Sudhir Kumar, the learned counsel for the respondent no.1 and respondent no.3 Avdhesh Kumar, who had been impleaded earlier by an order of the court, Mr. Prashant Chandra, the learned senior counsel assisted by Mr. Anil Kumar Joshi, the learned counsel for the respondent no.2 Ramraj Singh. 12. The learned counsel for the appellant submitted that the plaintiff Ramraj Singh had no right to file the suit and that there is no resolution of the company under Section 291 of the Companies Act authorizing Ramraj Singh to file the suit. Consequently, on this ground, the suit was not maintainable and therefore, the question of grant of interim injunction in favour of the plaintiff does not arise. In support of his submission, the learned counsel for the appellant placed reliance upon the decisions in M/s Nibro Limited Vs. National Insurance Co. Ltd. AIR 1991 Delhi 25, H. P. Horticultural Marketing and Processing Corporation Ltd. Vs. United India Insurance Company Ltd. & another AIR 2000 Himachal Pradesh 11 and Al-Amin Seatrans Ltd. Vs. Owners and Party interested in Vessel M. V. ‘Loyal Bird’ AIR 1995 Calcutta 169. The learned counsel for the appellant submitted that no temporary injunction could be granted in the absence of any prayer being made for a grant of permanent injunction and, in support of his submission, the learned counsel placed reliance upon the decision in V. D. Tripathi & others Vs. Vijai Shanker Dwivedi & others AIR 1976 Allahabad 97. The learned counsel for the appellant submitted that proceedings initiated under Section 29 of the State Financial Corporation Act, being a special Act, the court could not have granted an injunction and that a blanket injunction was barred. Under Order 39 Rule 2(2)(g) of the C.P.C. as amended in the State of Uttar Pradesh whereby recovery of the amount as land revenue could not be stayed unless adequate security was furnished. In this context, the learned counsel for the appellant pointed out that the security was neither taken by court nor offered by the plaintiff. The learned counsel submitted that Section 46-B of the State Financial Corporation Act will override 7 the provisions of the Indian Limitations Act and, in support of his submission, submitted that the question of the claim of the plaintiff that the recovery was barred by limitation was erroneous. In support of his submission, the learned counsel for the appellant placed reliance upon the decisions in Kerala Fisheries Corporation Ltd. Vs. P. S. John & others 1997 (88) Company Cases 104 (Kerala) and U.P. Financial Corporation Vs. A. S. Solvent Extraction Pvt. Ltd. 1997 (89) Company Cases 729 (Allahabad) and submitted that no injunction could be issued. The learned counsel for the appellant submitted in the alternative that even assuming that the Limitation Act was applicable, the recovery was not barred in view of Article 62 of the Limitation Act. 13. Sri Sudhir Kumar, the learned counsel for the respondent no.1 & 3 plaintiff submitted that the suit was maintainable and that an application for grant of injunction could have been filed and that in view of the amended provision of Order 39 sub-rule(2)(g) of Rule 2 of the C.P.C. as contained in the State of Uttar Pradesh, which is applicable in the State of Uttarakhand, the court could have asked for a security at its discretion but the grant of injunction was not barred. The learned counsel for the respondent nos.1 & 3 submitted that the company had passed a resolution in favour of plaintiff no.2 Ramraj Singh, but since no allegations were raised by the Corporation either before the trial court or before this Court, such resolution could not be brought on record and, if required, the learned counsel submitted that he would place the resolution of the company to be brought on the record. The learned counsel further submitted that in the present case, the recovery certificate issued by the Corporation under Section 29 of the State Financial Corporation Act was wholly illegal and without jurisdiction in as 8 much no recovery certificate could be issued under Section 29 and that a recovery certificate, if any, could only be issued under Section 32(G) of the State Financial Corporation Act. The learned counsel submitted that Article 62 of the Limitation Act is not applicable since the property was not mortgaged. 14. Mr. Prashant Chandra, the learned senior counsel for the respondent no.2 Ramraj Singh submitted that a perusal of the agreement executed between the plaintiffs and the Corporation clearly indicates that an equitable mortgage was created in favour of the Corporation and that the application for grant of temporary injunction was filed after the notice of the sale of the property was published in the Amar Ujala, which notice was issued under Section 29 of the said Act. The learned senior counsel for the respondent no.2 submitted that no recovery certificate was issued and that the submissions of the learned counsel for the plaintiff company was patently erroneous. The learned senior counsel submitted that the application of respondent no.2 for the deletion of his name from the array of parties should be considered and appropriate order should be passed since he has nothing to do with the affairs of the plaintiff company. 15. In the light of the aforesaid submissions, the court finds that the basic contention of the plaintiff in the suit filed before the trial court is, that the loan taken by the plaintiff company cannot be recovered by the U.P. Financial Corporation as the same had become barred by limitation. Pursuant to the notice for the sale of the property published in the Amar Ujala, the plaintiff chose to file an application for grant of temporary injunction under Order 39 Rule 1 & 2 of the C.P.C. The contention of the plaintiff again was, that the loan amount cannot be recovered as the same had been barred by limitation and, in the event, the amount was recovered after selling the property of the company, the suit of the plaintiff would be rendered infructuous and therefore submitted that a prima facie case was made out for grant of temporary injunction. The plaintiff further submitted that irreparable injury would also be caused in the event the property was sold and on that basis, the trial court being impressed that the property would be dissipated in the event the property was sold, granted a blanket injunction restraining the Corporation from selling the property of the company and realizing the amount towards the loan. The trial court lost sight the amendment in Order 39 (2), which was incorporated in the State of Uttar Pradesh. For ready reference, the amendment incorporated under Order 39 sub-rule(2)(g) of Rule 2 of the C.P.C., is quoted hereunder:- “Uttar Pradesh. In rule 2, sub-rule(2), insert the following proviso:- “Provided that no such injunction shall be granted – (a) ……… (b) ……… (c) ……... (d) ……… (e) ……… (f) ……… (g) to stay the proceedings for the recovery of any dues recoverable as land revenue unless any enactment for the security is furnished, or 16. A perusal of aforesaid clause (g) would indicate that no injunction shall be granted to stay the proceedings for the recovery of any dues recoverable as land revenue unless adequate security is furnished. In the present case, the plaintiff did not furnish security nor the trial court demanded any security while granting the injunction. The language of the amendment incorporated in the U.P. Act is mandatory. The word is “shall” and not ‘may’ and in the present context, the word ‘shall’ is mandatory, meaning thereby that no injunction under any circumstances can be granted where recovery of any amount is being sought as arrears of land revenue unless adequate security was furnished. The court is of the opinion that the offer of furnishing security is fastened upon the plaintiff before invoking an injunction for stay of the recovery. In the present case, no security was furnished by the plaintiff. Consequently, on this short ground, the injunction order cannot be sustained. 17. In A. S. Solvent Extraction Pvt. Ltd. (supra), a Division Bench of the Allahabad High Court, after considering the provision of Section 29 of the U.P. Financial Corporation Act, held that the statutory mandate issued under Section 29 of the Act cannot be interfered. The court held as under :- “5. A bare reading of Section 29 of the Act postulates that in default of payment in accordance with the agreement arrived at between the parties the corporation shall have the right to take over the management or the possession of the unit and realise the sum advanced to the unit which is pledged, mortgaged, hypothecated or assigned to the corporation. This statutory mandate issued under Section 29 of the Act cannot be interfered with by issuing any temporary injunction. We may further observe that by executing various documents in favour of the Corporation the corporation is in constructive possession of the unit and on its behalf the unit is being looked after by the respondent-plaintiff A. S. Solvent Extraction Pvt. Ltd. Therefore, the requirements for the grant of temporary injunction, i.e., prima facie case and balance of convenience are not made out. Besides this the notice under Section 29 of the Act being a statutory one the question of any irreparable loss in the event of its execution does not arise. In equity also the respondent- plaintiff has no case for seeking any injunction. No doubt this court is aware of the legal position that once injunction is granted the appellate court should be slow in interfering with the same except where patent illegality or irregularity is pointed out.” 18. In the light of the aforesaid, admittedly, the application for grant of temporary injunction was filed pursuant to the notice issued by the Corporation under Section 29 of the Act for the sale of the assets of the company. In view of the decision of the Division Bench of the Allahabad High Court in A. S. Solvent Extraction Pvt. Ltd. (supra), no injunction could have been granted. In the light of the aforesaid, the court is of the opinion that the court below committed a manifest error, which cannot be sustained. Consequently, the impugned order is quashed. The appeal is allowed. 19. The application of respondent no.2 for deletion of his name from the array of parties cannot be considered by this court nor such application be allowed by this court. This court on the basis of the application of respondent no.2 / plaintiff no.2 had directed the S.P., CBI to investigate the matter but, subsequently, that order was quashed and the complaint filed before the CJM has also been quashed. The reason assigned by the Division Bench of this Court was that the report was not submitted by the person who was authorised by the court to do so and further the investigation done was halfhearted. The CBI report however observed that the plaintiff no.2 was prima facie a Director in the company, but, whatever may have been the case and without being influenced by the report submitted by the CBI, this court is of the opinion that the appropriate remedy for plaintiff no.2 is to file an application before the trial court itself. If such an application is filed, the trial court will deal with the matter appropriately on the basis of the evidence that would be filed before it. This court is of the opinion that the jurisdiction of the court while dealing in a miscellaneous appeal is limited and should not be enlarged by issuance of a direction to the CBI to investigate the alleged fraud at the behest of a party. Since the order of the court dated 06.05.2003 directing to lodge a complaint against the company has been set aside by the Supreme Court by its order dated 24.10.2008, this court is of the opinion that no further direction is required to be given by this court for a fresh investigation and leaves it to the trial court if such an application is filed before it. The suit is of the year 2001 and the proceedings have not been conducted after the issuance of the grant of temporary injunction. The court, accordingly, directs the trial court to commence the proceedings in suit No.111/2001 and decide the suit on a priority basis within one year from the date of the receipt of a certified copy of this order. If necessary, the suit should be decided on day-to-day basis. (Tarun Agarwala, J.) Dated 29.12.2010 LSR