CWP No. 1450 of 2009 -1- IN THE PUNJAB AND HARYANA HIGH COURT AT CHANDIGARH CWP No. 1450 of 2009 Date of Decision: 31.10.2011 Iqbal Singh Sandhu ...Petitioner Versus Punjab Financial Corporation ..Respondents CORAM: Hon'ble Mr. Justice Hemant Gupta Hon'ble Mr. Justice Gurmeet Singh Sandhawalia Present: Mr. P.K. Mutneja, Advocate for the petitioner. Mr. G.S. Gill, Advocate for the respondent. Gurmeet Singh Sandhawalia, J. The petitioner, who is an auction purchaser from Punjab Financial Corporation is challenging the advertisement dated 9.1.2009 (Annexure P-6) by which plot No.82 measuring 450 sq. yards situated in Industrial Area, Focal Point, Mehta Road, Amritsar has been put up for sale by the Corporation on the ground that there was default in payment of instalments by the auction purchaser and therefore, deemed possession has been taken over by the Corporation and whether it was entitled to put the property for sale on account of default. The petitioner has also challenged the rate of interest being charged by the Corporation. Brief facts of the case are that the Corporation had taken over the mortgaged property from the borrower industrial concern namely M/s CWP No. 1450 of 2009 -2- Sun Plast Petro Products, Amritsar under Section 29 of the Act and thereafter, sold the same for a consideration of Rs.10.75 lacs vide sale agreement dated 17.4.2000 to the petitioner who was put in possession on receiving an amount of Rs.2.70 lacs as part payment and the balance amount was payable in quarterly instalments of Rs.67,000/-. The case of the petitioner is that he made improvements in the said property and also started residing in the same plot. The strict compliance of the instalments was not made and it is pleaded that there was financial difficulty due to dropping of the profit margin of the industry and it was not possible to pay the penal interest of 26%. It is also alleged that in another case the agreement for sale dated 20.7.2004 had been entered into with interest @ 20% p.a. Accordingly, the writ petition was filed aggrieved by the advertisement issued on 9.1.2009 wherein the property was put to auction. In the written statement filed by the corporation, it is averred that the balance 75% was to be paid in three years and the repayment period had expired on 15.3.2003 and interest was charged @ 26% and the petitioner was liable for a rebate of 6% if instalments for principal and interest were paid on due dates. Regarding the rate of interest of 20% per annum with rebate of 4% regarding another contract it was alleged that rate of interest as applicable at the time of advertisement of the other property for sale was charged in the year 2004 and therefore, there could be no parity as there were two different contracts between the parties and the said rate could not be challenged after nine years. The outstanding amount against the petitioner was alleged to be Rs.39,54,517/- with further interest on 15.3.2009 with principal amount being Rs.8,14,865/- and interest of CWP No. 1450 of 2009 -3- Rs.31,39,652/-. The Corporation also alleged that it had resumed the property on 4.12.2007 and the deemed possession was taken by the Corporation due to the default committed by the petitioner and therefore, it had a right to put the property for sale. Learned counsel for the petitioner has stressed that the extraordinary powers conferred under Section 29 of the State Financial Corporation Act, 1951 (for short `the Act') cannot be exercised against him as he is an auction purchaser and had never taken loan from the Corporation. To substantiate the said plea reliance has been placed upon a judgment of Hon'ble the Supreme Court in Haryana Financial Corporation and another Vs. Rajesh Gupta (2010) 1 Supreme Court Cases 655. A perusal of Section 29 of the Act goes on to show that where any industrial concern which is under liability of the Financial Corporation under an agreement makes any default in repayment of the loan advance and if it fails to comply with the terms and conditions then the Financial Corporation has a right to take over management or possession or both of the industrial concerns. In the present case, admittedly no loan or advance has been taken by the petitioner under an agreement and the petitioner is not an industrial concern having the liability to the Financial Corporation with reference to Section 29 of the Act. The Corporation could have acted on the agreement dated 17.4.2000 (Annexure P-1) to take over possession by availing appropriate remedies under law to enforce Clauses 4(i) and 5(v), which are reproduced as under: “4(i) - The purchaser shall pay to the transferor the balance amount of Rs.8.05 lacs (Rs. Eight Lacs five thousand only) in instalments as deferred payment during a period of three years CWP No. 1450 of 2009 -4- (hereinafter referred to as the said sum) as under: Date Amt (Rs.in lacs) 15.6.2000 60,000 15.9.2000 67,000 15.12.2000 67,000 15.3.2001 67,000 15.6.2001 67,000 15.12.2001 67,000 15.3.2002 67,000 15.6.2002 67,000 15.9.2002 67,000 15.12.2002 67,000 15.3.2003 67,000 Together with the interest 26% per annum from the date of agreement and will in case and so long as the said sum or any part thereof shall remain unpaid, pay to the Corporation interest on the said sum or on remain unpaid, pay to the Corporation interest on the said sum or on so much thereof as shall for the time being remains unpaid pay at the rate aforesaid and shall be paid along with the above instalments are on the dates specified above. However, a rebate of 6% (Six percent) in the interest rate aforesaid shall be allowed if the instalments of principal and interest are paid on the said due dates. Provided always and it is hereby agree and declared that the purchaser shall pay the compound interest on the above rate and on the said sum which remains unpaid for the time being on the basis of daily products. The purchaser further agrees that in case he fails to pay the remaining sale consideration the Corporation shall be entitled to resume the possession of the property resale the same. The purchaser further CWP No. 1450 of 2009 -5- agrees that of the resale of the said properties, if the Corporation suffers on loss on account of principal or interest and expenses, the purchaser shall be liable to make good the loss to the Corporation. Interest tax as applicable shall be charged over and above interest.” “5.(v)- In the event, the purchaser failing to make the balance payment of Rs.8.05 lacs (Rs.Eight Lacs five thousand only) or any part thereto together with interest in the manner mentioned above to the transferor within the said stipulated period or in case of breach of any of the above covenants. The amount of Rs.2.70 lacs (Rs.Two lacs seventy thousand only) and other amounts already paid to the transferor shall stand forfeited and further the purchaser shall vacate the premises and redeliver the vacant possession of the said property in good and working condition as described in schedule herewith. In case the purchaser fails to redeliver the possession as aforesaid, the transferor shall be entitled to have recourse to law for getting back the possession of said property at the cost of the purchaser including expenses to be incurred on watch and ward and insurance of the property if resumed, and other legal action in terms of this agreement including criminal breach of trust.” By virtue of the said clause, the Corporation was free to take possession of the property in accordance with law but however, it could not exercise its powers under Section 29 of the Act and take over the possession or deemed possession as has been alleged in the written statement on 4.12.2007, in view of Section 29 of the Act. This action of the Corporation cannot be sustained in view of the judgment in Haryana Financial CWP No. 1450 of 2009 -6- Corporation and another Vs. Rajesh Gupta (supra) wherein in paragraph 26, such action was not approved, which is quoted below: “In our opinion, the reliance on Section 29 of the State Financial Corporations Act, 1951 is wholly misplaced. The aforesaid section pertains to action which the Corporation can take against the unit which had defaulted in payment of loan. In such circumstances the Corporation has the power to sell the property that has been hypothecated or mortgaged with the Corporation. The respondent herein is an auction-purchaser and therefore cannot be confused with the defaulting unit.” Regarding the second issue of charging penal interest which has been raised by the petitioner, no relief can be given to the petitioner on that count since it is bound by the terms of the sale agreement dated 17.4.2000 and had entered into the said agreement with open eyes and therefore, is liable to pay the amount claimed by the Corporation and the said terms of the contract can not be altered as has been held by Hon'ble the Supreme Court in the case of Punjab Financial Corporation Vs. M/s Surya Auto Industries 2010(1) PLR 404. Consequently, the writ petition is partly allowed and the action of the respondent Corporation in taking over the deemed possession of the Unit on 4.12.2007 is quashed alongwith the subsequent action of advertisement for sale of the property in dispute. However, the Corporation is at liberty to recover the amount due by filing appropriate proceedings in the Court of competent jurisdiction to enforce the terms of the agreement under Clause 4(i) and (vi) and for recovery of the arrears of instalments. CWP No. 1450 of 2009 -7- (Gurmeet Singh Sandhawalia) Judge ( Hemant Gupta ) 31.10.2011 Judge Meenu