IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE ANTONY DOMINIC FRIDAY, THE 6TH MARCH 2009 / 15TH PHALGUNA 1930 WP(C).No. 2666 of 2009(P) ------------------------- PETITIONER(S): 1 ---------------- USMATECH TEXTILE ENGINEERS PVT,LTD P.O.PATTANAKKAD, SHERTALLAI, REPRESENTED BY ITS MANAGING DIRECTOR, T.P.S.MENON. BY ADV. SRI.C.C.THOMAS, SENIOR ADVOCATE SRI.M.G.KARTHIKEYAN SRI.NIREESH MATHEW RESPONDENT(S): --------------- 1. THE BRANCH MANAGER, KERALA FINANCIAL CORPORATION LTD, KUMARANASAN SMARAKA MANDIRAM, COURT ROAD ALLEPPEY. 2. THE KERALA FINANCIAL CORPORATION LTD, THIRUVANANTHAPURAM, REPRESENTED BY ITS MANAGING DIRECTOR. ADV. SRI.S.SREEKUMAR,SC,KERALA FINANCIAL COR FOR R1 & 2 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06/03/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC NO.2666/2009 APPENDIX PETITIONER'S EXHIBITS P1 : COPY OF the APPLICATION DATED 03/12/2005 SUBMITTED TOT HE 2ND RESPONDENT. P2 : COPY OF THE LETTER DATED 13/12/2005 ISSUED BY THE 1ST RESPONDENT. P3 : COPY OF THE JUDGEMNT DATED 04/04/2006 IN WPC NO.11393/2005 OF THIS HONOURABLE COURT. P4 : COPY OF THE LETTER DATED 12/07/2006 SENT TO THE 1ST RESPONDENT. P5 : COPY OF THE LETTER DATED 23/09/2006 SENT TO THE 1ST RESPONDENT. P6 : COPY OF THE LETTER DATED 29/12/2006 ISSUED BY THE 2ND RESPONDENT. P7 : COPY OF THE ORDER DATED 28/09/2007 IN WPC NO.5271/2007 PASSED BY THIS HONOURABLE COURT. P8 : COPY OF THE LETTER DATED 12/12/2007 SENT TO THE 2ND RESPONDENT. P9 : COPY OF the ORDER DATED 17/03/2008 IN WPC NO.5271/2007 PASSED BY THIS HONOURABLE COURT. P10 : COPY OF THE ORDER DATED 10/04/2008 IN I.A.NO.5170/2008 IN WPC NO.5271/2007 PASSED BY THIS HONOURABLE COURT. P11 : COPY OF THE LETTER DATED 14/05/2008 ISSUED BY THE 1ST RESPONDENT. P12 : COPY OF the JUDGMENT DATED 19/11/2008 IN WPC NO.5271/2007 PASSED BY THIS HONOURABLE COURT. P13 : COPY OF THE RECOVERY POLICY FOR THE YEAR 2007-08 DATED 13/09/2007 ISSUED BY THE K.F.C. P14 : COPY OF THE CIRCULAR NO.59 DATED 01/12/2007 ISSUED BY THE K.F.C. WP(C) No.2666/2009 P15 : COPY OF THE LETTER DATED 27/11/2008 SENT TO THE RESPONDENTS. P16 : COPY OF THE MINUTES OF the MEETING OF THE K.F.C. HELD ON 25/07/2008. P17 : COY OF THE MINUTES OF THE MEETING OF THE K.F.C. HELD ON 15/12/2007. P18 : COPY OF THE CALCULATION STATEMENT ISSUED BY THE K.F.C. P19 : COPY OF THE ORDER NO.KFC/ALP/1237/2009 DATED 16/01/2009 ISSUED BY THE 1ST RESPONDENT. P20 : COPY OF THE LETTER DATED 05/01/2009 ISSUED BY THE 1ST RESPONDENT. P21 : COPY OF THE LETTER DATED 12/2005 ISSUED BY THE 1ST RESPONDENT. P22 : COPY OF THE STATEMENT OF REMITTANCE PREPARED BY THE PETITIOENR AS ON 17/03/2008. P23 : COPY OF THE LETTER DATED 26/12/2007 ISSUED BY THE 1ST RESPONDENT. RESPONDENT'S EXHIBITS R1(a) : COPY OF DETAILS OF THE ASSETS SUBMITTED BY MANAGING DIRECTOR OF PETITIONER COMPANY. R1(b) : COPY OF STATEMENT OF ASSETS SUBMITTED BY THE DIRECTOR OF THE PETITIONER COMPANY. R1(c) : COPY OF STATEMENT OF ASSETS SUBMITTED BY THE DIRECTOR OF the PETITIONER COMPANY. R1(d) : COPY OF BIO-DATA SUBMITTED BY THE MANAGING DIRECTOR OF THE PETITIONER COMPANY. //TRUE COPY// PA TO JUDGE. jg ANTONY DOMINIC, J. ------------------------- W.P.(C.) No.2666 of 2009 --------------------------------- Dated, this the 6th day of March, 2009 J U D G M E N T Prayers in this writ petition are to quash Ext.P19 and declare that the petitioner Company is entitled to the benefit of Exts.P13, Recovery Policy for the Financial Year 2007-08, {hereinafter referred to as the One Time Settlement (OTS) scheme} as amended by Ext.P14, announced by the 2nd respondent, based on Ext.P8 application made by the petitioner on 12/12/2007. 2. The petitioner is a company incorporated under the Companies Act, 1956. Pursuant to applications made by the Company, on 29/12/2000 and on 09/11/2001, the respondents had granted loan for a total amount of Rs.97.13 lakhs and for the security of which, the Company had mortgaged 1.25 acres of land and the improvements therein and also the residential property of the Managing Director, as additional collateral security. Though by about 2000, production was commenced in the factory set up by the Company, from the records it is evident that consequent on the losses suffered, the factory was closed in 2004 and that position WP(C) No.2666/2009 -2- continues even now. While so, payments were defaulted and finally, Ext.P1 application was made by the Company on 03/12/2005, requesting that it be given the benefit of OTS scheme to liquidate the liability. By Ext.P2, the respondents informed the petitioner that the request could not be considered for non-payment of the prescribed advance of 10%. At that stage, the Company approached this Court by filing WP(C) No.11393/2005. That writ petition was disposed of by Ext.P3 judgment directing the respondents to consider Ext.P1, without insisting on remittance of the 10% as indicated in Ext.P2. Accordingly, the request of the Company for the benefit of OTS scheme was considered and by Ext.P6 dated 29/12/2006, the petitioner was informed that its total liability was Rs.129.27 lakhs and as they had offered only Rs.28.58 lakhs, the offer for settlement was unacceptable. 3. Again the petitioner challenged Ext.P6 before this Court in WP(C) No.5271/2007. In that writ petition this Court passed Ext.P7 order dated 28/09/2007 directing the Company to make an immediate payment of Rs.40 lakhs and it was also directed that within six weeks from 01/10/2007, the balance amount due to the Corporation will also be paid. Further, the petitioner was also given WP(C) No.2666/2009 -3- the freedom to make an application seeking the benefit of OTS scheme, and it was directed that if payment was made as ordered, the application will be considered and the payment made will be given credit to the amount quantified towards the OTS amount. The petitioner states that thereupon, Rs.40 lakhs was paid and that they made Ext.P8, a request for the benefit of OTS scheme, praying inter alia for the adjustment of Rs.40 lakhs paid in pursuance to Ext.P7 order. Subsequently, again, Ext.P9 interim order was passed, directing a further remittance of Rs.60 lakhs, as offered by the petitioner, and it was also directed that the same should also be given credit, once OTS amount is quantified. It is admitted that this payment was made by the petitioner. 4. Again Ext.P10 order was passed by this Court, where taking note of the tentative quantification of Rs.130 lakhs that the Corporation had made in the meanwhile, and holding that after giving credit to Rs.1 crore already paid, the balance OTS dues, which was remaining to be paid, was only Rs.30 lakhs, this Court ordered that the petitioner will be permitted to sell the industrial shed and machineries and thereafter, on the remittance of the balance Rs.30 lakhs, the shed and the machinery will be allowed to be removed WP(C) No.2666/2009 -4- from the site. It is now admitted by both sides that as against Rs.30 lakhs ordered to be paid in Ext.P10, only Rs.3.4 lakhs was paid. True, the learned counsel for the KFC has a case that by making payment of Rs.3.4 lakhs, the petitioner removed the shed and machineries, but however, this is disputed by the petitioner. 5. Be that as it may, finally the Corporation issued Ext.P11, its final decision on Ext.P8 proposal made by the petitioner for the benefit of OTS scheme, intimating that as on 01/05/2008, the petitioner’s liability was Rs.157.58 lakhs and that in terms of Ext.P13, the Recovery Policy for 2007-08, the petitioner was entitled to a concession of only Rs.4.73 lakhs. WP(C) No.5271/2007 was finally disposed of by this Court by Ext.P12 judgment. Here, it should be stated that in the above writ petition, the Corporation was justifying Ext.P11 giving a concession of only Rs.4.73 lakhs to the petitioner, relying on Ext.P13, the OTS Scheme, on the basis of which the petitioner was classified under D2 category. According to the Corporation, those defaulters, who are classified under D2 category under Ext.P13, the Recovery Policy 2007, were eligible for a maximum waiver of 50% of the penal interest only, and that in spite of it, the petitioner was given waiver of the entire penal interest viz. WP(C) No.2666/2009 -5- Rs.4.73 lakhs. Contradicting this assertion of the Corporation, the petitioner, along with I.A.No.9490/2008, produced circular No.59 dated 01/12/2007, which is Ext.P14 herein, by which the Recovery Policy 2007 (Ext.P13) was amended and providing that those defaulters falling under D1 & D2 categories are also entitled to additional benefits as per the OTS scheme. 6. While disposing of WP(C) No.5271/2007, these contentions were dealt with by this Court in paragraphs 4 & 5 of the judgment, a copy of which is Ext.P12 in this writ petition. Thereafter taking into account the fact that Ext.P11, disposing of Ext.P8 application made by the petitioner for OTS scheme, was issued without taking into account the circular No.59 dated 01/12/2007, this Court held that Ext.P11 deserves to be invalidated for that reason and that the matter needs to be re-considered. On this basis, WP(C) No.5271/2007 was disposed of by Ext.P12 judgment dated 19/11/2008 with the following directions:- “8. The request of the petitioner for OTS made by Ext.P31 application dated 12/12/2007, shall be reconsidered by the Corporation in the light of Recovery Policy dated 05/09/07 as amended by Circular No.59 dated 01/12/2007 and in the light of the rules untrammeled by Ext.P16 and order dated 14/05/2008. On such reconsideration, if the petitioner is found to be eligible WP(C) No.2666/2009 -6- for the benefit, the liability shall be quantified and from the amount that is quantified to be payable, Rs.1 crore paid by the petitioner pursuant to orders dated 28/09/07 and 17/03/2008 and Rs.3.4 lakhs paid on 23/10/2008 towards the value of the machinery sold shall be given credit. Thereafter, the balance as found due will be demanded from the petitioner, which shall be paid also. 9. It is directed that both parties shall maintain status quo in regard to the assets, until a decision is taken, as ordered above. It is also directed that the Corporation shall decide the matter in the manner as directed, as expeditiously as possible, at any rate within 6 weeks of receipt of a copy of this judgment.” 7. In pursuance to Ext.P12 judgment, the petitioner made Ext.P15 representation and finally the representation has been considered and Ext.P19 order dated 16/01/2009 has been issued. In so far as the claim of the petitioner for the benefit of Circular No.59 (Ext.P14) is concerned, the same has been dealt with in Ext.P19 in the following manner :- “As far as the first condition is taken, it cannot be said that promoters are unable to run the unit. The unit is owned by private limited company having three Directors. The company and its Directors are affluent and is borne out of the fact that the company could raise Rs.40 lakhs as per the order dated 28/09/2007 in WP(C) No.5271/07 and remitted on 06/10/2007 without creating any liability on the E.M.property. Thereafter another sum of Rs.60 lakhs was paid on 25/03/2008. This shows WP(C) No.2666/2009 -7- that the company has sufficient liquidity and could run the unit. Moreover the company has no contention before the Hon’ble High Court or before the OTS committee that the company is unable to run the unit. No explanation much less satisfactory has been made either in the written request dated 12/12/2007 for OTS benefit or at the time of personal hearing that company had paid Rs.103.40 lakhs and it is entitled to OTS. Hence the company does not fall under Clause (a). Admittedly, Clause (b) does not apply as none of the directors are sick or dead. Admittedly Clause (c) it is pertinent to refer to the petition filed by the company in the Hon’ble High Court in the bail application that the value of assets mortgaged to the Corporation is more than Rs.4 Crores. The company could raise Rs.40 lakhs on 06/10/2007 in pursuance of order dated 28/09/2007 and another sum of Rs.60 lakhs on 25/03/2008. This shows that the company and its directors are not in financial difficulties more over one of the director is a leading Doctor practicing in reputed Hospitals. At the time of personal hearing also the company had no case that the company or its Directors are in financial difficulties. As far as Clause (d) the company has not pointed out any genuine reasons beyond its control. Nothing has been stated at the time of hearing to give the benefit of Clause (d) as well.” It is challenging Ext.P19 and seeking the reliefs mentioned earlier, this writ petition has been filed. 8. The learned counsel for the petitioner challenges Ext.P19. According to him, the petitioner is entitled to the benefit of Clauses (a) & (d) of Ext.P14, Circular No.59, amending Ext.P13 Recovery Policy for the year 2007-08. It is stated that Ext.P19 WP(C) No.2666/2009 -8- reflects that the endeavour was only to reject his claim for the benefit of OTS scheme. 9. Counter affidavit has been filed by the respondents. According to the respondents, OTS benefit is given considering the repaying capacity and the value of the assets of the Company. It is stated that the Directors themselves have declared that the Company has assets of more than Rs.4 crores and this statement is said to have been made in a bail application filed by them before this Court. They have also produced Exts.R1(a), R1(b) and R1(c) containing the details of the assets of the Managing Director and two Directors of the petitioner Company. It is stated that these documents disclose that these persons are holding substantial assets and therefore, they cannot claim the benefit of OTS scheme, which is normally available to the persons, who are indigent. 10. It is stated that despite all these, the Corporation categorized the petitioner under D2 category as per the OTS Scheme and extended the benefit of full waiver of penal interest. In so far as the benefit of Clause 1(a) of Ext.P14 claimed by the petitioner is concerned, reference is made to Ext.R1(d), the bio-data of the Managing Director of the Company, and it is contended that the WP(C) No.2666/2009 -9- Managing Director is a technically competent person capable of running the industrial unit. According to them, the closure of the unit does not indicate the inability to run the unit. In so far as Clause 1(b) of Ext.P14 is concerned, it is stated that the Directors are very much alive that the petitioner has no case that any of its Directors are sick. In so far as Clause 1(c) of Ext.P14 is concerned, it is contended in the counter affidavit, that the petitioner has no case that the company as well as the Directors are not financially sound and that on the otherhand they possess assets worth crores. In so far as Clause 1(d), it is stated that the petitioner could not bring out any genuine reason in order to attract this Clause. In short, what is stated in the affidavit is that the petitioner is not entitled to any further benefit than what has already been extended by the Respondents. 11. The learned counsel for the respondents also placed reliance on Clause 17 of Ext.P13 providing that the amounts prescribed for settlement in the table are only minimum amounts and that all concerned shall negotiate for higher amounts depending on the value of available securities, solvency and repaying capacity of the borrowers / guarantors / co-obligants / WP(C) No.2666/2009 -10- legal heirs. Reliance was also placed on the judgment of the Apex Court in U.P.Financial Corporation v. Gem Cap (India) Pvt. Ltd. And Others (1993(2) SCC 299) and Haryana Financial Corporation and Another v. Jagadamba Oil Mills And Another (2002(3) SCC 496). The learned counsel also placed reliance on the Division Bench judgment of the Allahabad High Court in Mahesh Chand Agarwal & Anr. v. Union of India & Ors. (AIR 2007 Allahabad 119). According to him, Ext.P14 is only a guideline conferring discretionary power on the Corporation and that the benefit of the scheme cannot be claimed as a matter of right and that too by taking recourse to a writ of mandamus. 12. I have considered the submissions made by both sides. 13. Before Ext.P12 judgment was rendered by this Court in WP(C) No.5271/2007, the Corporation had already assessed the eligibility of the petitioner for the benefit of OTS scheme on the basis of Ext.P13, the Recovery Policy for the financial year 2007-08. Applying the standards laid down in Ext.P13 scheme, the Corporation had classified the petitioner under D2. On this basis, the Corporation assessed the eligibility of the petitioner for concessions and held that the petitioner was entitled to waiver of WP(C) No.2666/2009 -11- 50% of the penal interest. This was communicated to the petitioner as per Ext.P11 dated 14/05/2008. Therefore, the fact that the petitioner was eligible for the benefit of Ext.P13 scheme and that the petitioner was entitled the benefit to those categorised under D2 cannot be disputed at this stage. 14. However, when the eligibility of the petitioner was assessed and Ext.P11 was issued in May, 2008, the Corporation did not take into account the amendment made to Ext.P13, by Ext.P14 dated 01/12/2007 and in fact this document was suppressed before this Court. As per this amendment, those who are categorized under S2, D1 & D2 were also eligible for the benefit of OTS scheme provided they satisfy any of the four conditions specified in paragraph 1 of Ext.P14, which reads as under:- “1) It is decided to extend the OTS benefit to S2, D1 & D2 cases also in the best interest of the Corporation on satisfying any of the following conditions. (a) the promoter(s) is/are unable to run the unit. (b) Owners/co-obligants are dead or sick (c) Owners/co-obligants are in financial difficulties and (d) Other genuine reasons, beyond the control of the entrepreneur / legal heirs.” The claim of the petitioner is mainly for the benefit of Clause 1(a) of Ext.P14, which extends the benefit of OTS scheme to those WP(C) No.2666/2009 -12- classified under D2 category, provided the promoter is unable to run the unit. 15. In this case, the admitted factual position is that though the Company commenced production in 2002, the factory was closed in 2004 and has not been reopened so far. By that time loss was incurred and default was committed in repayments and ultimately by Ext.P1 dated 03/12/2005 that the petitioner had applied for settling the liability under OTS Scheme. When Ext.P14 provides for extension of the benefit of Ext.P13 OTS Scheme in a case where the promoter is unable to run the unit, the inability of the promoter has to be appreciated in a pragmatic sense. Otherwise, to deny the benefit there must be material to conclude that the factory has been closed for malafide reasons. There is no material in this case leading to such an inference. On the material produced, I have no reason to think that an entrepreneur like the petitioner would have left the unit closed since 2004 without any reason. 16. The 1st respondent on the other hand disputes the claim of the petitioner of its inability to run the unit, mainly relying on the payments that the petitioner made pursuant to Exts.P7 and P9 WP(C) No.2666/2009 -13- interim orders, Exts.R1(a) to R1(c), the bio-data of the Directors of the Company, which also contains the details of the assets and liabilities of the persons concerned and Ext.R1(d) is the bio-data of the Managing Director of the Company, containing his age, educational qualification, experience etc. On this basis, it is contended that the case of inability canvassed by the petitioner is incorrect. Although the learned counsel for the petitioner argued that the Directors do not possess the assets indicated in the statement of assets and liabilities, in my view a pronouncement on this contention is unwarranted. What is contemplated in Clause 1(a) is the inability of the promoters to run the unit. In my view, this provision has to be viewed in a commercial and pragmatic sense, and the inability to run the unit is the commercial inability which can be spelt out when the unit itself is making losses leading to its closure. Otherwise there must be material to conclude that the loss and closure is deliberate and manipulated, which is absent in this case. Further to say that payments made following Exts.P7 & P9 show the affluence of the promoters, to say the least, is perverse, in as much those payments were made under compelling circumstances and on the specific directions that it will be adjusted WP(C) No.2666/2009 -14- towards OTS liability. In my view, Clause 1(a) is attracted in this case and therefore, the argument of the Corporation that the petitioner is not eligible for the benefit of Clause 1(a) of Ext.P14 is totally incorrect. 17. Shri.Sreekumar, the learned counsel for the respondent Corporation relied on the judgments referred to above. In so far as the judgments in U.P.Financial Corporation v. Gem Cap (India) Pvt. Ltd. And Others (1993(2) SCC 299) and Haryana Financial Corporation and Another v. Jagadamba Oil Mills And Another (2002(3) SCC 496) are concerned, these are cases where in exercise of powers under Article 226 of the Constitution of India, the respective High Courts interfered with the proceedings initiated by the State Financial Corporations concerned, invoking their right under Section 29 of the State Financial Corporations Act. In the facts of these cases, dealing with the law that is applicable, the Apex Court held that the steps taken by the Corporation for realising its dues, should not have been interfered with. In my view, the law laid down in these two judgments can be of no application to the facts of this case for the reason, that in this case, admittedly, the Corporation had floated the OTS scheme, the benefit of which WP(C) No.2666/2009 -15- alone is claimed by the petitioner. If the rejection of the application made by the petitioner was on erroneous grounds, this Court is perfectly justified in interfering with such illegal rejection, and directing that the benefit of the Scheme should be extended to the petitioner, if they otherwise deserve the same. The next is the decision of the Allahabad High Court in Mahesh Chand Agarwal & Anr. v. Union of India & Ors. (AIR 2007 Allahabad 119). That again was a case, where the High Court held that in the absence of an OTS scheme, the Court cannot compel the Financial Corporation to settle the liabilities, otherwise than in terms of the agreement between the parties. Here again unlike the case dealt with by the Allahabad High Court, what the petitioner herein claims is the benefit of the OTS scheme floated and implemented by the respondent Corporation. Therefore, the three judgments relied on by the learned counsel for the respondent Corporation are totally irrelevant in so far as this case is concerned. In this context, I should also make reference to Exts.P16 & P17 proceedings of the respondent Corporation itself, produced by the petitioner, where about 200 similar defaulters have been given the benefit of OTS scheme and the petitioner has in specific terms contended that they have been discriminated. In the WP(C) No.2666/2009 -16- counter affidavit filed, this contention of the petitioner is sought to be brushed aside by making a general and vague statement that each case is to be dealt with on its own merit. It may be true that there is an element of discretion conferred on the respondents. But, it being an instrumentality of state, cannot exercise the discretionary power discriminatively or capriciously, I am also not impressed with the argument that none can claim the benefit of the scheme as a matter of right. Therefore, on the facts of this case, I am satisfied that the petitioner is entitled to the benefit of Ext.P13, giving the benefit of Clause 1(a) of Ext.P14, and by rejecting the claim of the petitioner as per Ext.P19, the Corporation acted arbitrarily. 18. Ordinarily, in a case of this nature, if Ext.P19 is held erroneous, the course to