*THE HONOURABLE SRI JUSTICE V.V.S.RAO + WRIT PETITION Nos.25315 and 26014 of 2005 %16-09-2008 # A. Laxmipathi and others. ..PETITIONERS Vs. $ Andhra Pradesh State Financial Corporation Ltd., and others. ..RESPONDENTS ! Counsel for the Petitioners: SRI V.HARI HARAN ^ Counsel for the Respondents: MR.J.PARTHASARATHY <GIST >HEAD NOTE: ?CASES REFERRED: 1. AIR 1999 SC 1305 2. 2000 (2) ALD 560 3. AIR 2008 AP 101 4. (1995) 2 SCC 754 5. (1995) 4 SCC 595 = JT (1995) 6 SC 283 6. (1996) 5 SCC 65 = JT (1996) 6 SC 37 7. (2002) 3 SCC 496 = AIR 2002 SC 834 IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE SIXTEENTH DAY OF SEPTEMBER TWO THOUSAND AND EIGHT PRESENT THE HON'BLE SRI JUSTICE V.V.S.RAO WRIT PETITION Nos.25315 and 26014 of 2005 WRIT PETITION NO : 25315 of 2005 Between: 1 A. Laxmipathi, S/o. Late SriA. Venkateswara Rao, R/o. Quarter NO.414 A, Type III, BHEL Township, R.C. Purrmn, Hyderabad. 2 A. Laxmipathi, S/o. Late Sri S.S. Nairu, R/o. H.No.20-213, Bank Colony, Road No.2, West Venkatapuram, Secunderabad-15. ..... PETITIONERS AND 1 Andhra Pradesh State Financial Corporation Ltd., rep. by its Managing Director, 5-9-194, Chirag Ali Lane, P.B. No.165. Hyderabad. 2 Sr. Branch Manager, A.P. State Financial Corporation ltd., rep. by its Managing Director, 5-9-194, Chirag Ali Lane, P.B. No.165. Hyderabad. 3 The Special Dy. Tahsildar, A.P. State Financial Corp Ltd., Ranga Reddy West Branch, 5-9-194, II Floor, Chirag Ali Lane, P.B. No.165. Hyderabad. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Aﬃdavit ﬁled herein the High Court will be pleased to issue a writ or order or direction, more preferably in the nature of writ of Mandamus declaring the action of the respondents in seeking to recover any amounts allegedly due on account of the Company, M/s. Nagarjuna Cable Industries Private Ltd., from the petitioners under the provisions of A.P. Revenue Recovery Act or any other law for the time being in force as wholly illegal, untenable and arbitrary and consequently direct the respondents to forbear from exercising any such enforcement as against these petitioners and pass such other order or orders. WRIT PETITION NO : 26014 of 2005 Between: 1 Pulukuri Venkateswarlu, S/o.Kotaiah, R/o.H.No.1-20-35/12, Road No.12, Bank Colony, West Venkatapur Secunderabad-15. 2 Nithyananda Babu Prem Kumar, S/o.PRN Mowna, R/o.H.No.12-10-590/83, Warisguda, Secunderabad-500 061. ..... PETITIONERS AND 1 A.P.State Financial Corporation Limited., Rep by its Managing Director,5-9-194, Chirag Ali Lane, P.B.No.165, Hyderabad. 2 Sr.Branch Manager, A.P.State Financial Corporation- Limited., Rep by its Managing Director,5-9-194, Chirag Ali Lane, P.B.No.165, Hyderabad. 3 The Special Dy.Tahsildar, A.P.State Financial Corporation Limited., Ranga Reddy, West Branch, 5-9-194, II floor, Chirag Ali Lane, P.B.No.165, Hyderabad. .....RESPONDENTS Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Aﬃdavit ﬁled herein the High Court will be pleased to issue a writ or order or direction, more preferably in the nature of Writ of Mandamus, declaring the action of the respondents in seeking to recover any amounts allegedly due on account of the Company, M/s.Nagarjuna Cable Industries Private Limited from the petitioners under the provisions of A.P.Revenue Recovery Act or any other law for the time being in force as wholly illegal, untenable and arbitrary and consequently direct the respondents to forbear from exercising any such enforcement as against these petitioners and pass such other order or orders. Counsel for the Petitioners: SRI V.HARI HARAN Counsel for the Respondents: MR.J.PARTHASARATHY The Court made the following : THE HON'BLE SRI JUSTICE V.V.S.RAO WRIT PETITION Nos.25315 and 26014 of 2005 COMMON ORDER: These two writ petitions can be disposed of by a common order as they came to be filed with a similar factual background and raise similar questions for consideration. In 1988 Andhra Pradesh State Financial Corporation Limited (SFC) sanctioned term loan and soft loan in a sum of Rs.11,60,000/- to M/s.Nagarjuna Cable Industries Private Limited. Petitioners are sureties for the due payment of the loan. As there was default on the part of the borrower to pay the loan amount, in 1992 assets of the company were seized and sold in accordance with Section 29 of the State Financial Corporations Act, 1951 (the Act, for brevity). It is alleged that the sale-cum-recall notice under Section 29 of the Act was not issued to the petitioners. In August 2005 third respondent sent a communication dated 08.08.2005 to the second petitioner in W.P.No.26014 of 2005 informing that an amount of Rs.87.20 lakhs is due from the borrower. The petitioners were asked to pay the said amount failing which action under the Andhra Pradesh Revenue Recovery Act, 1864 (RR Act, for brevity) would be initiated against them. Aggrieved by the said notice/letter these writ petitions are ﬁled. The petitioners seek a direction to respondents to forbear from enforcing the debt of the borrower against them. The Branch Manager of SFC, Ranga Reddy (West) Branch, ﬁled counter aﬃdavit opposing the writ petition. It is stated that the loan sanctioned by SFC was duly secured by equitable mortgage of land to an extent of 1483.03 square metres and the building bearing shed No.B/58 situated at IDA, Phase IV, Jeedimetla, that the petitioners executed personal guaranties jointly and severally guarantying repayment of loan availed by the company, and that as the borrower failed to discharge the loan, after completing formalities under Section 29 of the Act, the Unit was sold in auction to M/s.S.S.Industries. Unit was duly handed over on 11.01.1995. Even after realizing the sale proceeds the debt could not be discharged. Therefore, SFC made eﬀorts to locate petitioners for recovering balance dues payable by petitioners. They failed to respond to the notices issued by the Corporation, and therefore, SFC initiated action by resorting to the provisions of the RR Act. The main contention of the petitioners’ Counsel is that in purported exercise of power under Section 52-A of RR Act SFC cannot enforce a time barred debt. Reliance is placed on the leading decision on the point in State of Kerala v V.R.Kalliyanikutty[1] and a decision of this Court i n N.A.Radha v State of Andhra Pradesh[2]. Opposing the case, the learned Standing Counsel for SFC made two submissions. First, he contends that the debt sought to be enforced in accordance with Section 52-A of RR Act is not time barred debt. According to the learned Counsel on 05.10.1999 SFC issued notices to the petitioners calling upon them to pay a sum of Rs.7,20,000/- failing which action was proposed under Section 52-A of RR Act. Secondly, he submits that when action is initiated subsequent to the enforcement of debt under Section 29 of the Act for recovery of balance dues, the ratio in Kalliyanikutty (supra) has no application. He placed reliance on a recent judgment of this Court in Kumar Chemicals and Fertilizers (P) Limited v Andhra Pradesh Industrial Development Corporation Limited[3]. The short point that arises for consideration is whether the action impugned is not sustainable. The Act is a legislation for establishment of State Financial Corporations. It regulates the sanction of loans to Small and Medium Scale Industries/Enterprises (SMEs). Before 1985 the Act contained two diﬀerent procedures for recovery of loans advanced to SMEs. First procedure is contained in Section 29 of the Act, which enables SFC to take over the management or possession of industrial units of the borrower and lease/sell the property for realizing loan. This provision has been interpreted by the Courts in a number of judgments as conferring power on the SFC to sell the assets of the borrower Industry by adopting a fair and unarbitrary procedure keeping in view the objects of the Act (See U.P.Financial Corporation v Naini Oxygen & Acetylene Gas Limited[4], Chairman and Managing Director, SIPCOT v Contromix (P) Limited[5], Karnataka State Financial Corporation v Micro Cast Rubber & Allied Products (P) Limited[6] and Jagdamba Oil Mills v Haryana Financial Corporation[7]). The other procedure for recovery is contained in Sections 31 and 32 of the Act. When a SME fails to comply with loan agreement, without prejudice to the provisions of Section 29 of the Act, SFC may apply to the jurisdictional District Judge for an order for sale of mortgaged property for enforcing liability of surety for transferring management to ﬁnancial corporation and/or for ad interim injunction restraining Industrial Concern from transferring or moving machinery from the premises. The procedure to be adopted by the District Judge in respect of such applications is contained in Section 32 of the Act. Subsection (9) thereof provides for an appeal to the High Court against order of District Judge passed under Section 32(7) of the Act. In 1985 the Act was amended. In addition to making amendments to various other provisions, Section 32G was added, which reads as under. 32G. Recovery of amounts due to the Financial Corporation as an arrear of land revenue Where any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorized by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it, and if the State Government or such authority, as that government may specify in this behalf, is satisﬁed, after following such procedure as may be prescribed, that any amount is so due, it may issue a certiﬁcate for that amount to the Collector, and the Collector shall proceed to recover that amount in the same manner as an arrear of land revenue. (emphasis supplied) A plain reading of Section 32G of the Act would show that without prejudice to any other mode of recovery (as noticed hereinabove) SFC may make an application to the State Government for recovery of the amount due to it and if satisﬁed, the State Government or designated authority may follow such procedure as may be prescribed, that any amount is so due and issue a certiﬁcate for that amount for recovery of the amount as arrear of land revenue. In addition to this, by A.P.Act No.18 of 1977, Section 52-A was added in RR Act. This provision enables recovery of all loans as arrears of land revenue under RR Act, subject to a notiﬁcation by the State Government. In exercise of the powers conferred on them under Section 52A(1) of RR Act, the State Government issued notiﬁcation vide G.O.Ms.No.287, dated 03.02.1978. As per this notiﬁcation rupee loans and foreign exchange loans (term loans) granted to Industries for land, buildings, plant and machinery, sanctioned by SFC are recoverable in the same manner as arrears of land revenue under provisions of Section 52A of RR Act. Thus, reading Section 32G of the Act and Section 52A of RR Act makes it clear that SFC may recover the loan amount due to it as arrears of land revenue under RR Act. It is no doubt true that Section 52A of RR Act does not speciﬁcally contemplate recovery of amounts due to SFC under subsection (1) of Section 52A of RR Act. But, notiﬁcation in G.O.Ms.No.287, dated 03.02.1978, referred to hereinabove speciﬁcally lays down that SFC may recover the loans and advances together with interest to them under RR Act. When the period of limitation expires, can it be said that the loans and advances sanctioned by SFC are “due” to them. The question directly fell for consideration in Kalliyanikutty (supra) with reference to Section 71 of the Kerala Revenue Recovery Act, 1968. The purport of Section 71 of the said Act is same as that of Section 52A of RR Act. It enabled – as in the case of proviso to Section 52A(1) of A.P.Act, the public authorities to recover “amounts due” as land revenue. But, the Supreme Court observed that the amount “due” normally refers to the amounts, which a creditor has right to recover. When such amount or debt amount is time barred, the same cannot be described as the amount due which a creditor can recover. In view of this, while holding that under Section 71 of the Kerala Revenue Recovery Act, the claims, which are time barred on the date of requisition is issued, are not “amounts due”. The Supreme Court observed as under. There is no question, however, in the present case of any payment voluntarily made by a debtor being adjusted by his creditor against a time-barred debt. The provisions in the present case are statutory provisions for coercive recovery of "amounts due". Although the necessity of ﬁling a suit by a creditor is avoided, the extent of the claim which is legally recoverable is not thereby enlarged. Under Section 70(2) of the Kerala Revenue Recovery Act the right of a debtor to ﬁle a suit for refund is expressly preserved. Instead of the bank or the ﬁnancial institution ﬁling a suit which is defended by the debtor, the creditor ﬁrst recovers and then defends his recovery in a suit ﬁled by the debtor. The rights of the parties are not thereby enlarged. The process of recovery is diﬀerent. An Act must expressly provide for such enlargement of claims which are legally recoverable, before it can be interpreted as extending to the recovery of those amounts which have ceased to be legally recoverable on the date when recovery proceedings are undertaken. Under the Kerala Revenue Recovery Act such process of recovery would start with a written requisition issued in the prescribed form by the creditor to the collector of the District as prescribed under Section 69(2) of the said Act. Therefore, all claims which are legally recoverable and are not time-barred on that date can be recovered under the Kerala Revenue Recovery Act. In N.A.Radha (supra) the action of the SFC to enforce its dues by notices under Section 52A of RR Act was challenged. This Court following Kalliyanikutty (supra) held as under. The only question that survives and has been urged at the hearing of this writ petition is that the demand by the Corporation of the amounts due from the petitioners is barred by limitation and as such unenforceable per se or under the provisions of the Act. In view of the decision of the Supreme Court in State of Kerala v Kaliyani Kutty, AIR 1999 SC 1305, proceedings under the Act cannot lie for recovery of amounts that are barred by limitation. The question that arises is whether the claim of the respondent – Corporation is barred by limitation and whether this question would be adjudicated in these proceedings. In Kumar Chemicals (supra) on which strong reliance is placed by the learned Standing Counsel for SFC also does not deviate from the ratio of Supreme Court’s decision. It is observed therein that when Section 32G of the Act is invoked the ratio in Kalliyanikutty (supra) may get attracted because a similar expression “amounts due” is also contained in the said section. This Court also held that when the action was initiated under Section 29 of the Act for sale of assets of the borrower, the period of limitation would not apply, and it is only in cases where SFC invokes Section 52A of RR Act read with Section 32G of the Act, period of limitation applies. To get over this aspect of the matter learned Standing Counsel has placed before this Court Xerox copy of the notice dated 05.10.1999 issued by the third respondent to the petitioners in both the writ petitions calling upon them to pay an amount of Rs.7,20,000/-, failing which action was proposed under RR Act. This Court is not able to comprehend as to how a notice demanding payment by the creditor to the debtor extends period of limitation as per Section 18 of the Limitation Act, 1963. Secondly, there is not even a whisper about issue of such notices in the counter aﬃdavit ﬁled by SFC. For the ﬁrst time copy is produced before this Court without any evidence of service of such notices on petitioners. Therefore, importance cannot be attached to this aspect of the matter. SFC sanctioned loans to the borrower on 23.02.1988, and therefore, notice proposing to initiate action under Section 52A of RR Act issued on 08.08.2005. Hence recovery of debt is wholly time barred, and same cannot be recovered under said provision. In the result, for the above reasons, the writ petitions must succeed, and they are allowed accordingly. But, in the circumstances of the case, there shall be no order as to costs. _____________ (V.V.S.RAO, J) 16.09.2008 Note: LR copy to be marked. (B/o) vs To 1 The Managing Director, Andhra Pradesh State Financial Corporation Ltd., 5-9-194, Chirag Ali Lane, P.B. No.165. Hyderabad. 2 Sr. Branch Manager, A.P. State Financial Corporation ltd., rep. by its Managing Director, 5-9-194, Chirag Ali Lane, P.B. No.165. Hyderabad. 3 The Special Dy. Tahsildar, A.P. State Financial Corp Ltd., Ranga Reddy West Branch, 5-9-194, II Floor, Chirag Ali Lane, P.B. No.165. Hyderabad. 4 2CCs to 5 2CD copies Form-NIC-OGS/WP{TRR} [1] AIR 1999 SC 1305 [2] 2000 (2) ALD 560 [3] AIR 2008 AP 101 [4] (1995) 2 SCC 754 [5] (1995) 4 SCC 595 = JT (1995) 6 SC 283 [6] (1996) 5 SCC 65 = JT (1996) 6 SC 37 [7] (2002) 3 SCC 496 = AIR 2002 SC 834