Civil Writ Petition No.10275 of 2009 -1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Writ Petition No.10275 of 2009 Date of decision: 12.12.2011 Shree Jagdambey Steel Tubes, Pvt. Ltd. ...Petitioner Versus State of Punjab and others ...Respondents CORAM: HON'BLE MR.JUSTICE HEMANT GUPTA HON'BLE MR.JUSTICE G.S.SANDHAWALIA **** 1. Whether Reporters of local papers may be allowed to see the judgment? 2. Whether to be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? **** Present: Mr. Nand Lal Sammi, Advocate for the petitioner. Mr. A.P.S.Mann, Addl. Advocate General, Punjab for respondent no.1. Mr. J.S.Brar, Advocate for respondents No.2 and 3. **** G.S.SANDHAWALIA, J. 1. The present writ petition filed by the petitioner is for the issuance of writ in the nature of mandamus directing respondents No.2 and 3-Punjab Financial Corporation to implement the One Time Settlement policy dated 2.3.2009 (for short “the OTS”), praying that benefit under the Civil Writ Petition No.10275 of 2009 -2- **** clause where 'property/assets have been acquired and sold by PFC' be granted to him and his OTS be processed as on the outstanding principal + expenses + 10% of interest outstanding as on the last date of sale. 2. The case of the parties is that petitioner had taken a loan for a sum of Rs.44,16,000/- and the said loan was secured by way of registered mortgage deed dated 31.3.1995 whereby prime security in the form of land measuring 3 Bighas 3 Biswas situated in village Shambhu Khurd, Hadbast No.133, Tehsil Rajpura, District Patiala. Apart from this the petitioner had also by way of collateral security mortgaged two plots of land measuring 9 Bighas 7 Biswas situated in village Tepla, Hadbast No.149, Tehsil Rajpura, District Patiala being 1/3rd share of 28 Bighas 1 Biswas and land measuring 11 Bighas 13 Biswas also situated in village Tepla, Hadbast No.149, Tehsil Rajpura, District Patiala. Due to financial indiscipline the unit of the petitioner closed down in the year 1999 and was taken over by the PFC under Section 29 of the State Financial Corporation Act, 1951 (hereinafter referred to as “the Act”) and was sold on 23.2.2007 and as per the statement of accounts the benefit of Rs.38,60,000/- has been given to the petitioner for the sale proceeds of the unit. Thereafter, the OTS scheme dated 2.3.2009 (Annexure P-3) was notified by the Government of Punjab which was circulated to the loanees. In the said notification where 'property/assets have been acquired and sold by PFC', the outstanding principal was to be paid + expenses + 10% of the interest outstanding as on the last date of the sale. The case of the petitioner is that in pursuance of the said OTS vide application dated 23.4.2009, they had applied for settling the loan but vide communication dated 4.5.2009, the respondent-Corporation had communicated that OTS amount worked out to Rs.1,07,31,440/- as on 15.3.2009 and was asked them to make 15% of Civil Writ Petition No.10275 of 2009 -3- **** the upfront amount to process their case under the said scheme. The respondent-Corporation, however, instead of processing the case as against the heading of loans where 'property/assets have been acquired and sold by PFC' had processed the case under another heading for 'loan above Rs.5 lacs' and charged principal + expenses + 12% interest since beginning compounded half yearly. Aggrieved against this the petitioner had approached this Court by way of Civil Writ Petition No.8053 of 2009 praying that his case be considered under the clause 'property/assets have been acquired and sold by PFC' and this Court vide order dated 26.5.2009 was pleased to direct that the Managing Director of the Financial Corporation would consider the petitioner's stand and settle the loan liability under the OTS policy dated 2.3.2009 and may intimate the petitioner the outstanding dues and if the petitioner applied for settlement of its account, a decision be taken by the Managing Director of the Corporation at the earliest not later than the last cut off date. 3. In pursuance of the said direction of this Court, the respondent-Corporation vide communication dated 28.5.2009 informed the petitioner that since the collateral security mortgaged by the petitioner was yet to be sold and was in deemed possession of the Corporation, therefore, his case was being processed under the general loan case under the clause 'loan above Rs.5 lacs' and accordingly, a sum of Rs.1,07,31,440/- was due as on 15.3.2009 + expenses by way of settlement out of the otherwise sum of Rs.4,11,14,219/- due as per mortgage deed. It is in these circumstances the petitioner has approached this Court pleading for the relief that his case may be ordered to be processed under the clause 'property/assets have been acquired and sold by PFC' and not under the general clause 'loan above Rs. 5 lacs'. Civil Writ Petition No.10275 of 2009 -4- **** 4. The case has been contested by the respondent-Corporation on the ground that apart from the prime security which was secured by mortgage deed dated 31.3.1995 two more tracts of land as mentioned above had also been mortgaged as collateral security which had not yet been sold and, therefore, the case of the petitioner was not being considered under the OTS scheme under the clause 'property/assets have been acquired and sold by PFC' and as per the calculation of the respondent, the petitioner was liable to pay Rs.1,07,31,440/- under the clause 'loan above Rs. 5 lacs'. 5. This stand of the respondent-Corporation, in our opinion, is legally not sustainable and frustrates the very purpose of OTS which had been floated by the State Government and also adopted by the Corporation. The relevant portion of the scheme is reproduced as under:- “GOVERNMENT OF PUNJAB DEPARTMENT OF INDUSTRIES & COMMERCE (INDUSTRIES BRACH) NOTIFICATION No.16/6/09/As-3/ Dated: 2.3.2009 The Governor of Punjab is pleaded to approve an One Time Settlement Policy for the loanee units of Punjab Financial Corporation as per details given below: OTS amount: Outstanding principal, expenses plus interest as given below or principal plus expenses alongwith documented rate of interest from date of disbursement till the cut off date less interest paid on reducing balance basis without adjustment against principal. Civil Writ Petition No.10275 of 2009 -5- **** For Loan upto Rs.1.00 lac Outstanding Principal plus expenses Cases of Ex-serviceman/ Dharmi Fauji, Danga Pirit of Transport Sector, upto maximum of two vehicles i.e. Buses or Trucks sanctioned, upto 31.12.1995 Outstanding principal plus expenses. Loan upto Rs. 5.00 lacs where promoters have expired Outstanding principal plus expenses. Loan upto Rs.5.00 lacs. Outstanding principal plus expenses plus 20% of outstanding interest subject to a maximum amount not more than double the principal sanctioned. For loan above Rs.5.00 lacs a) Gen. Loan cases Principal plus expenses plus 12% interest since beginning compounded half yearly. b) AAIFR/BIFR cases Principal plus expenses plus 10% interest since beginning compounded half yearly. Loans where properties/Assets acquired and sold by PFC. Outstanding principal plus expenses plus 10% of the interest outstanding as on the last date of sale. Eligibility All NPA accounts as on 31.3.2008 except willful defaulters. Policy to be open for 90 days from 2.3.2009. The borrowers will pay 15% amount recoverable under the OTS Scheme, upfront and further 15% within one month of acceptance. Balance to be paid in eight equated quarterly installments along 13.20% rate of interest compounded quarterly. If the payment will be made within twelve quarters, the OTS amount will carry interest @ 14.4% compounded quarterly. Civil Writ Petition No.10275 of 2009 -6- **** If the borrowers make lump sum payment within 90 days, no interest will be charged on the OTS amount and 5% rebate will be given on the OTS amount. Option to be exercised at the time of application. Post dated cheques will be submitted for quarterly installments at the time of settlement. All legal cases filed against the Corporation by the borrowers shall be withdrawn. Chandigarh, Dated 2nd March, 2009. S.S.Channy Principal Secretary to Government of Punjab Department of Industries & Commerce Endst. NO.16/6/09/As-3/ Dated 2.3.2009.” 6. The said scheme was modified on 2.12.2009 wherein under the eligibility head following amendments were made and the policy was extended till 31.12.2009. Amendments to the Eligibility Clause are made as under:- All NPA accounts as on 31st March, 2008 except profit making units. Policy to be open till 31.12.2009. If the borrowers make lump sum payment within 90 days, no interest will be charged on the OTS amount, and 5% rebate will be given on the OTS amount. However, the OTS (net of rebate) shall not be below the outstanding principal and expenses, in any case. Following Clauses are added in the Eligibility. Policy to be applicable to bridge loan cases also. OTS amount will be worked out on the basis of loan amount Civil Writ Petition No.10275 of 2009 -7- **** disbursed and not sanctioned. Multiple loans to be settled simultaneously. However, where all the mortgaged assets of the loanee concern/company/guarantors have already been sold, a guarantor, who is not promoter will be allowed to settle his/her share of liability independently without linking to the settlement of liability by the remaining guarantors/promoters. Provided such guarantor has no linkage by way of family relationship, joint property or business interest with other guarantors/promoters. The settlement as above will be qua such guarantor and not the loanee concern/company whose liability will remain as such. If tangible assets are available in the name of the guarantor, then OTS amount will be calculated with interest @ 12% in accordance with Clause 11(d) of OTS policy for loans of PSIDC/PAIC.” 7. From a perusal of the above scheme, it would go on to show that various categories were created wherein the loanee units could settle their accounts and interest was to be calculated at different rates. In case of 'property/assets have been acquired and sold by PFC' the interest was to be calculated on the outstanding principal + expenses + 10% of the interest outstanding as on the last date of sale. In the present case admittedly the sale had taken place on 23.2.2007 which would be clear from the account statement attached as Annexure P-2 and it has been averred so in paragraph 2 of the writ petition and the said fact has not been denied. However, the benefit of the said clause under the OTS is being denied to the petitioner solely on the ground that collateral security in the form of two tracts of land had yet to be sold though they were in deemed Civil Writ Petition No.10275 of 2009 -8- **** possession of the Corporation and, thus, the case of the petitioner was being processed under a different clause 'for loans above Rs.5 lacs' as a general loan case where principal + expenses + 12% interest since beginning compounded half yearly was being charged and accordingly, the petitioner had been communicated. This stance of the Corporation regarding its right against the other mortgaged property as collateral security cannot be accepted as under Section 29 of the Act, the Corporation can only take action against the industrial unit which is under liability and makes default in repayment of loan or advance and has a right to take over the management or possession or both of the industrial unit concern as well as realise the property pledged or mortgaged to the Financial Corporation. In the present case, the Corporation has sold the property of the unit for a sum of Rs.38,60,000/- and now cannot deny the benefit of the policy under the 'property/assets have been acquired and sold by PFC'. 8. The term property assets having been acquired and sold by the Corporation has necessarily to be read as the property and assets which have been acquired and taken over under Section 29 of the Act and resultantly sold thereafter. The Corporation has a right to take over the properties of the industrial unit which would be clear from the definition of Section 29 of the Act and this right of sale has to be read in such continuation of the Section and cannot be extended to other properties which have been mortgaged by the Directors as guarantors of the industrial concern. The Corporation has a right to put the mortgaged property to sale which has been given as a collateral security but right to take over the said property under Section 29 of the Act does not arise as the other two properties had been mortgaged by way of guarantee by the Directors of the Civil Writ Petition No.10275 of 2009 -9- **** Company, namely, Kanwar Singh and Smt. Maya Devi which would be clear from paragraph 4 (b) of the mortgage deed and schedule A wherein the detail of the land was mentioned and it was specifically mentioned that it was the land of the above said Directors. The relevant portion of the mortgage deed is reproduced as under:- “4) b) Sh. Kanwar Singh s/o Sh. Kartar Singh and Smt. Maya Devi, Director of the company is interested in the development of the company and has agreed to mortgage his land measuring 21 Bighas alongwith building constructed and to be constructed thereon fully described in schedule 'A' hereto and delineated in the plan hereto attached which/are free from all encumbrances.” xxx xxx xxx SCHEDULE 'A' IMMOVEABLE PROPERTIES OWNED AND HELD BY THE COMPANY land measuring 3 Bigha 3 Biswas comprised of khewat No.8 Kni No.15 Khasra No.12 Min (1-16½) 13 Min (1-6½) situated in village Shambhu Khurd, H.B. No.133, Tehsil Rajpura, District Patiala as entered in jamabandi for the year 1990-91. Land measuring 9 B- 7 B i.e. 1/3 share of land measuring 28 B 1 B comprised in Khewat No.20 Kni No.45 Khasra No.1156 (6-5), 1157 (6-5), 1158 (6-5), 1159 (6-5), 1930/1160/2/1(3-1) situated in vill. Tepla, H.B. No.149, Tehsil Rajpura, District Patiala as entered in Jamabandi for the year 1991-92 (Land of Kanwar Singh). Land measuring 11 B 13 B comprised of Khewat No.9 Kni No.26 Kra NO.2110/864(4-7), 2112/865 min (1-18) Khewat Civil Writ Petition No.10275 of 2009 -10- **** no.104 Kni 210 Kr. 2127/1728/887(1-6), 2128/888(1-13), 2130/889(2-9) situated in vill. Tepla, Hadbast No.149, Teh Rajpura, District Patiala as entered in jamabandi for the year 1991-92 (Land of Smt. Maya Devi).” 9. Thus from the above, it would be clear that the other two tracts of land could not be proceeded against by the Financial Corporation under Section 29 of the Act as it was not the land of the industrial concern. The Hon'ble Supreme Court in Karnataka State Financial Corporation Vs. N. Narsimahaiah (2008) 5 SCC 176 has specifically held that Section 29 of the Act cannot be invoked against the guarantor or surety and from the facts it would be, thus, clear that once the land belongs to the Directors the Corporation cannot take over possession and sell the same under Section 29 of the Act and neither they can be in deemed possession of the same as has been pleaded by the Corporation. 10. The Corporation had a right to proceed against the said property under Section 31(1)(a) of the Act. Admittedly, the other properties have neither been taken over or sold by the Corporation even though the default was way back in year 1999 and the unit was taken over in 1999 and has been sold on 23.2.2007. No effort has been made by the Corporation to sell or acquire the properties which were mortgaged by way of collateral security by the Director of the Company and the stand of the Corporation now to take this defence and deny the relief to the petitioner is not sustainable. As it has already been held above that the right to acquire and sell pertains to the property of the industrial corporation which the Corporation is entitled to take over under Section 29 of the Act and not regarding the other property mortgaged by the Directors of the Company as guarantors. Civil Writ Petition No.10275 of 2009 -11- **** 11. The persons eligible for the OTS have also been added by the amendments dated 10.12.2009 and the benefits have also been given to bridge loan cases and to guarantors who had no relation with the main promoters. The purpose of the policy, thus, is to settle the outstanding and given benefit to defaulters and give them an opportunity to settle their accounts. By taking a restricted view and taking the defence that collateral security had not been sold, hence, the petitioner's case would not a fall under the clause 'property/assets have been acquired and sold by PFC' is not sustainable stance and cannot be justified. 12. Accordingly, the writ petition is allowed and the Corporation is directed to consider the case of the petitioner under the clause 'property/assets have been acquired and sold by PFC' of OTS scheme dated 2.3.2009 and to communicate to him the outstanding principal + expenses + 10% of interest outstanding as on the last date of sale i.e. 23.2.2007, so that it can deposit the said amount and settle its account within a period of one month from today. On such communication, the petitioner shall deposit the said amount as communicated within two months and on such deposit, the Corporation shall give No Dues Certificate and release the title deeds which are lying with the Corporation. In case the petitioner company fails to deposit the amount intimated, the Corporation will be at liberty to take action as per law. (G.S.SANDHAWALIA) Judge December 12, 2011 (HEMANT GUPTA) Pka Judge