Civil Writ Petition No.12226 of 2010 -1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Writ Petition No.12226 of 2010 Date of decision: 2.12.2011 Charanjeet Gaba ...Petitioner Versus State of Haryana and others ...Respondents CORAM: HON'BLE MR.JUSTICE HEMANT GUPTA HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present: Mr. Sandeep Singh, Advocate for Mr. Harkesh Manuja, Advocate for the petitioner. Mr. Narinder Singh, Deputy Advocate General, Haryana for respondent No.1. Mr. Kamal Sehgal, Advocate for respondents No.2 to 4. **** G.S.SANDHAWALIA, J. 1. The challenge in the present writ petition is to the notification dated 10.11.2005 (Annexure P-16) issued by respondent No.1, whereby respondent no.3 Managing Director of the Haryana Financial Corporation has been appointed as specified authority under Section 32-G of the State Financial Corporation Act, 1951(hereinafter referred to as “the Act”) and the order dated 30.3.2010/1.4.2010 (Annexure P-13) passed by the said respondent No.3 exercising its powers under Section 32-G of the Act as well as the recovery certificate dated 21.4.2010 (Annexure P-11) issued in pursuance of the said order passed under Section 32-G of the Act. 2. The case of the petitioner is that respondent No.5-borrower Civil Writ Petition No.12226 of 2010 -2- **** company of whom the petitioner was a Director had been granted a term loan for Rs.88,74,000/- which to be paid within a period of 8 years by way of 28 quarterly installments. The loan agreement between the company and the Corporation was executed on 17.3.1997 and the machinery installed in the premises of the company was hypothecated vide separate deed of hypothecation and deed of guarantee was also signed by the Directors including the petitioner on the same day i.e. on 17.3.1997. Due to financial irregularities in the company, petitioner had resigned from directorship on 6.4.1998, and on 29.7.1998 Corporation had recalled the loan granted to respondent no.5 and notice in this regard was also issued to the petitioner. The petitioner alleges that his account was settled by the respondent No.5-company in October, 1998 and he had intimated the factum of his resignation to the Registrar of the Companies and also to the respondent-Corporation vide letter dated 19.12.1998. Due to the default, the Financial Corporation had taken over the possession of the assets of the company on 31.8.1999 and he had also informed that company was misappropriating the hypothecated property. The industrial unit of the respondent company was put to auction and sold for Rs.61 lacs in pursuance of advertisement dated 29.11.1999. Reference was also made to the criminal proceedings between the petitioner and the other Directors initiated by the petitioner. It was alleged that though the petitioner resigned, he was served a notice dated 26.5.2010 from the Assistant Collector, Karol Bagh Dariyaganj, New Delhi regarding the recovery of Rs.5,72,74,128/- as arrears of land revenue on the basis of some order passed by respondent No.3 and accordingly the petitioner had approached the said Assistant Collector and was informed that recovery was being Civil Writ Petition No.12226 of 2010 -3- **** effected against him in view of the letter dated 21.4.2010, (Annexure P-11) issued by the respondent-Corporation. In the background of this the present writ petition came to be filed alleging that no opportunity of personal hearing was afforded to the petitioner before passing the order dated 30.3.2010/1.4.2010 (Annexure P-13) and even challenge was laid to the notification whereby respondent No.3 had been appointed as specified authority for the purpose of Section 32-G of the Act and also that the same was barred not having been filed within three years from the date of auction. 3. In the written statement filed by respondents No.2 to 4- Corporation, it was alleged that the petitioner had executed personal bond of guarantee being a Director of the company dated 17.3.1997 and since the company had failed to repay the loan, therefore, the proceedings have been initiated against it and its Directors. The factum of intimation of resignation and taking of possession of the unit was admitted. It was further alleged that after selling the assets for Rs.61 lacs on 4.1.2000 and after giving credit of the sale proceeds an amount of Rs.60,62,284/- were found recoverable from the company and firstly recovery certificates were issued under the Haryana Public Money (Recovery of Dues) Act, 1979 on 22.8.2000 and thereafter on 10.8.2005, but the said recovery certificates were received back, as whereabouts of the guarantors were not traceable. The Corporation also pleaded that in view of the judgment of the Hon’ble Supreme Court in Unique Butyle Tube Industries (P) Ltd. Vs. Uttar Pradesh Financial Corporation (2003) 2 SCC 455, proceedings under the Haryana Public Money (Recovery of Dues) Act, 1979 could not be pursued and accordingly notice dated 8.3.2010 under Section 32-G of the Civil Writ Petition No.12226 of 2010 -4- **** Act was issued and since no one has appeared before the specified authority, the specified authority has proceeded to determine the amount under Section 32-G of the Act. Accordingly, recovery certificate was issued on 19.4.2010 for Rs.5,72,74,128/- with further interest. 4. Argument of the counsel for the petitioner is that the order passed under Section 32-G of the Act has been passed behind his back and he has been condemned unheard as notice dated 8.3.2010 was issued to all the Directors but admittedly he was not served and, therefore, such a drastic step of recovery of the amount could not have been ordered from him. It was also submitted that since he had resigned and sent intimation to the Corporation and informed the Corporation that the other Directors were misappropriating the hypothecated goods etc., therefore, he could not held liable and lastly that the Managing Director could not be a judge in its own cause. 5. From the perusal of the record, it transpires that there is substance in the argument of the counsel for the petitioner as it would be clear from the order dated 30.3.2010/1.4.2010 (Annexure P-13) that the registered legal notices were sent to all the defaulters and in the case of the petitioner, one notice was received back with the remarks “incorrect address” in respect of one address out of the two addresses. Thus, it would be clear that no effort was made by the respondent-Corporation to serve the petitioner and inform him of the proceedings under Section 32-G of the Act which it had initiated on 8.3.2010 though he had resigned way back on 19.12.1998. The order passed by the specified authority is reproduced as under:- “PROCEEDINGS OF PERSONAL HEARING AND Civil Writ Petition No.12226 of 2010 -5- **** DETERMINATION OF AMOUNT DUE FROM THE DEFAULTING BORROWERS/GUARANTORS FOR ISSUANCE OF RECOVERY CERTIFICATES IN THE CASES U/S 32(G) OF SFC's ACT, 1951 HELD ON 30.3.2010 AT 11.30 A.M. BY THE SPECIFIED AUTHORITY MS. DHEERA KHANDELWAL, IAS. __________________________________________________ The Corporation issued Registered AD notices to defaulting borrowers /guarantors as per the cases mentioned in the agenda inviting them for personal hearing and determination of the amount due before issuance of Recovery Certificates, out of which some of the notices have been received back undelivered. The discussions held and decisions taken in these cases are as under:- 1. M/s Cosmo Flex (P) Ltd., Gurgaon. The mortgaged assets in this case have been disposed off at Rs.61.00 lacs. Earlier the recovery certificates in this case were issued to the Distt. Collectors, Delhi, Sri Nagar, Gurgaon, Rewari and Alwar on 10.8.2005 against the defaulters u/s 3 of Haryana Public Money (Recovery of Dues) Act, 1979 and the same have been returned as the defaulters were not residing at the given addresses. The B.O., Gurgaon sent new address of Sh. Charanjit Singh Gaba, the defaulter for issuance of fresh recovery certificate u/s 32 (G). The regd. Legal notices were sent to all seven defaulters in this case, out of which notices in respect of three defaulters Civil Writ Petition No.12226 of 2010 -6- **** namely Sh. Arvind Ahuja, Sh. Arjun Lal Ahuja and Smt. Veena Ahuja, have been received back from the postal authorities with the remarks “Sold the house” and in case Sh. Charanjit Gaba, the fourth defaulter, the regd. legal notice has been received back with the remarks “incorrect address” in respect of one address out of two addresses of Sh. Charanjit Gaba. None of the representatives of the company turned up for hearing. The Recovery Certificate be issued for the recovery of amount determined from the company at Rs.5,72,74,128/- in term loan account with further intt.@ 24% p.a. from 1.2.10 under section 32(G) of SFCs' Act, 1951 as per policy of the corporation. Sd/- (Dheera Khandelwal) IAS Specified Authority.” 6. A perusal of the order would further go on to show that it was totally silent in regard to what was the amount due and how much benefit had been given from the sale proceeds of the property out of the due amount and how interest had been calculated. It was also noticed that even the notices under the Haryana Public Money (Recovery of Dues) Act, 1979 had never been served upon the addressee and a huge amount of Rs.5,72,74,128/- with further interest at the rate of 24% from 1.2.2010 had been assessed in pursuance of which recovery certificate had been issued to the Collector, Delhi on 21.4.2010. That this extraordinary power to recover the dues of the Financial Corporation under Section 32-G of the Act has been recognised by the Hon’ble Supreme Court in Delhi Financial Corporation and another Vs. Rajiv Anand and others (2004) 11SCC Civil Writ Petition No.12226 of 2010 -7- **** 625 and Karnataka State Financial Corporation Vs. N. Narsimahaiah (2008) 5 SCC 176. Further a note of caution has also been put that “the words after following the procedure” would mean that principle of natural justice have to be complied with and the parties have to be heard and their objections have to be taken into consideration. Relevant paragraph of Delhi Financial Corporation's case (supra) laying down this safeguard is reproduced as under:- “There is no provision barring jurisdiction of civil courts. Thus a suit can be filed or resort can always be had to the High Court under Article 226 or Article 227 of the Constitution. Section 32-G provides that the State Government or the authority will issue a certificate after following the procedure. The words “after following the procedure” necessarily indicate that principles of natural justice have to be complied with. Thus, notice would have to be issued, the party concerned would have to be heard and and then only the order would be passed. We see no substance in the submission that the order must always be a speaking or a reasoned order. Considering the fact that the provisions only contemplate arithmetical calculations or simple verification, the question of any reasoned or speaking order does not arise. All that is to be stated is that the amount is found due. On that basis the certificate of recovery is to be issued. We, therefore, see no substance in the submission that the provision is arbitrary or discriminatory.” 7. Thus, it would be clear that notice regarding arrears was Civil Writ Petition No.12226 of 2010 -8- **** never served upon the petitioner in the present case and recovery of a huge amount after a period of more than one decade was set up against a Director, who had resigned on 19.12.1998. Thus, the order dated 30.3.2010/1.4.2010 under Section 32-G of the Act passed by the specified authority cannot stand to judicial scrutiny as the principles of natural justice have been not adhered to and consequently the recovery certificate issued to the Deputy Commissioner-cum-Collector, Delhi dated 21.4.2010 (Annexure P-11) has also to be quashed with liberty to the petitioner to file his objections against the show cause notice dated 8.3.2010. However, the submission of counsel that the proceedings under Section 32-G of the Act initiated by the Managing Director are not tenable in view of the judgments of the Apex Court in Delhi Financial Corporation and Karnataka State Financial Corporation’s cases (supra). The petitioner is at liberty to put forth his defence in his objection regarding his liability and raise issue of limitation before the competent authority. Accordingly, writ petition is partly allowed and the order dated 30.3.2010/1/4/2010 and the recovery certificate dated 21.4.2010 (Annexure P-11) are quashed with liberty to the Corporation to proceed after hearing the petitioner and giving him an opportunity to file his objection against the show cause notice. The petitioner shall put in appearance before the specified authority of the Corporation on 10.1.2012 for this purpose. (G.S.SANDHAWALIA) Judge December 02, 2011 (HEMANT GUPTA) Pka Judge