IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE SEVENTEENTH DAY OF MARCH TWO THOUSAND AND NINE PRESENT THE HON’BLE Ms. JUSTICE G. ROHINI WRIT PETITION No.1380 OF 2005 WRIT PETITION No.21472 OF 2005 AND WRIT PETITION No.10770 OF 2007 In WRIT PETITION NO : 1380 of 2005 Between: M/s. Pragada Enterprises, A Partnership Firm, rep. by its Managing Parner Srimathi, Chennap ragada Annapurna, W/o. Krishna Murthy, Plant at gadala, Korukonda Mandal, E.G.District, R/o. Perupalem Vill, Mogalaturu Mandal, W.G.District. ..... PETITIONER AND 1 The A.P. State Financial Corporation, 25-9-1-, Korukonda Road, Andhra Bank, Complex, Jayakrishnapuram, Rajahmundry, East Godavari District, rep. by its Senior Branch Manager. 2 The Andhra Pradesh State Financial Corporation, Chirag-Ali-Lane, Abids, Hyderabad, rep. by its Managing Director. .....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, order or direction more particularly one in the nature of writ of Mandamus or any other appropriate Writ, declaring to allow the petitioner to participate in the one time Settlement programme by way of its orders dt. 13.10.2004 and 20.1.2005 as illegal, arbitrary and declaring the action of the 1st respondent Corporation in refusing to provide the petitioner a copy of the Scheme/Guidelines of the One Time Settlement(O.T.S.) as illegal and arbitrary and declaring the action of the 1st respondent corporation in proceeding with the sale of the Plant and collateral Securities of the petitioner firm vide the Notification of the 1st respondent dt. 31.12.2004 as illegal and arbitrary and violative of Article 14 and 21 of the constitution of India and it is further consequentially prayed that this Honourable Court may be pleased to direct the 1st respondent corporation to allow the petitioner to participate in the O.T.s. Programme to enable it to arrive at a settlement to enable it to pay off the debts and to direct the 1st respondent not to sell away the plant and collateral security pursuant to the sale notification dt. 31.1.2004 pending arrival of the settlement between the petitioner and the 1st respondent corporation under the One time Settlement Scheme (OTS) Programme and pass such other or further order as this Hon'ble Court may deem fit and proper in the circumstances of the case. Counsel for the Petitioner : MR.S.R.SANKU & KAVITI MURLI KRISNA Counsel for the Respondents : MR. M.S.RAMACHANDRA RAO In WRIT PETITION NO : 21472 of 2005 Between: M/s. Pragada Enterprises, A Partnership Petitioner Firm, Rep by its Managing Partner Chennapragada Annapurna, W/o.Krishna Murthy, Plant at Gadala Village, Korukonda Mandal, E.G.district, R/o.Perupalem, Mogalturu Mandal, W.G.district. ..... PETITIONER AND 1 The A.P.State Financial Corporation, 25-8-1, Korukonda Road, Andhra Bank Complex, Jayakrishnapuram, Rajahmundry, E.G.district, Rep by its Senior Branch Manager. 2 The A.P.State Financial Corporation, Chirag Ali Lane, Abids, Hyderabad, Rep By its Managing Director. 3 Sri K.S.Rao, S/o.Musalaiah, A.P.State Financial Corporation, Near Bus Stand, Boyawada, Nalgonda. 4 Dr.V.R.Devi , M/s.Pragada Enterprises, Gadala Village, Korukonda Mandal, E.G.district. .....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, order or direction, more particularly one in the nature of writ of Mandamus, declaring the action of the respondents 1 to 3 in selling away the Plant/unit of the petitioner situate at Gadala, East Godavari District to the 4th respondent, despite the Proceedings in W.P.No.1380 of 2005 and not allowing the petitioner to participate in the OTS, as illegal, arbitrary and Violative of the One Time Settlement Programme and it is further consequentially prayed that this Hon'ble Court may be pleased to set aside the said sale of the unit/Plant dt.28- 03-2005 to the 4th respondent and to direct the 1st and 2nd respondent to allow the petitioner to participate in the OTS and offer the petitioner the benefits of the OTS and pas such other order or orders. Counsel for the Petitioner : MR. S.R.SANKU & KAVITI MURLI KRISNA Counsel for the Respondents : MR.M.S.RAMACHANDRA RAO In WRIT PETITION NO : 10770 of 2007 Between: M/s Pragada Enterprises, A partnership Petitioner Firm, Rep. by its Partner Chennapragada Saila Kumar Plant at Gadala Village, Korukonda Mandal, East Godavari District R/o Perupalem, Mogalturu Mandal, West Godavari District ..... PETITIONER AND 1 The Andhra Pradesh State Financial Corporation, 25-8-1, Korukonda Road, Andhra Bank Complex, Jayakrishnapuram, Rajahmundry, East Godavari District, Rep.by its Senior Branch manager, 2 The Andhra Pradesh State Financial Corporation, 25-8-1, Korukonda Road, Andhra Bank Complex, Jayakrishnapuram, Rajahmundry, East Godavari District, rep. by its Special Deputy Tahsildar. .....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, order or direction more particularly one in the nature of Writ of Mandamus declaring the action of the respondent in issuing the notices vide Ref.No. AFC/MR&R/2007-08/338 dated 24-04-2007 and Ref No.AFC/SDT/RRACT/2007-08/411 dated 30-04-2007, proposing to take action against the petitioner firm under the provisions of the A.P.R.R Act 1864, as illegal, arbitrary and violative of principles of natural justice and it is further consequentially prayed that this Honourable court may be pleased to set aside the said notices, pending disposal of the Writ Petitions i.e., WP.No.1380 of 2005 and W.P.No.21472 of 2005 pertaining to one time Settlement and setting aside of illegal sale and pass such other or orders as this Hon'ble court may deem fit and proper in the circumstances of the case. Counsel for the Petitioner : MR. S.R.SANKU & KAVITI MURLI KRISNA Counsel for the Respondents : MR.SREEMANNARAYANA VATTIKUTI The Court made the following common order : THE HON’BLE Ms. JUSTICE G. ROHINI WRIT PETITION No.1380 OF 2005 WRIT PETITION No.21472 OF 2005 AND WRIT PETITION No.10770 OF 2007 COMMON ORDER : A partnership firm by name M/s. Pragada Enterprises is the petitioner in all these writ petitions. The facts, in brief, are as under : For the purpose of setting up a Purified Water Manufacturing Plant at Gadala Village, near Rajahmundry, East Godavari District, the petitioner firm availed a loan of Rs.5,20,000/- from the A.P. State Financial Corporation (for short, ‘the Corporation’). Though the plant was installed as proposed, the petitioner firm was compelled to close the same for various reasons in September, 2001. Since the petitioner could not repay the loan amount as agreed upon, the plant was locked by the Corporation on 19.9.2003 and subsequently a sale notice dated 31.10.2003 was issued proposing to sell the plant as well as the immovable properties mortgaged towards collateral security. The petitioner filed W.P.No.23594 of 2003 challenging the said sale notice and this Court by order dated 7.11.2003 granted stay of finalisation of the sale subject to the petitioner depositing a sum of Rs.82,000/- within two weeks. However the petitioner could deposit only Rs.20,000/- and therefore the Corporation issued another sale notice in June, 2004 for sale of the plant as well as the mortgaged properties. At that stage, the petitioner deposited a sum of Rs.40,000/- on 20.07.2004 and another sum of Rs.1,00,000/- on 24.7.2004 and having accepted the same the sale notice was withdrawn by the Corporation. While so, the Corporation notified a Scheme for One Time Settlement (OTS) giving an opportunity to the sick units/defaulters to opt for the same. In response to the same, the petitioner made an application on 30.06.2004 opting for OTS. However the Corporation by letter dated 13.10.2004 rejected the petitioner’s request on the ground that the value of collateral security furnished by the petitioner was high and therefore the proposal did not fit into the OTS scheme. The petitioner was also called upon to close its loan account failing which action would be initiated under Section 29 of the State Financial Corporations Act, 1951 (for short, ‘SFC Act, 1951’). Since the petitioner could not comply with the same, the Corporation issued a sale notice dated 29.12.2004 proposing to sell the plant as well as the mortgaged property i.e., Ac.9.94 cents of land situated at Perupalem Village. Having came to know about the proposed sale, the petitioner by letter dated 17.1.2005 requested the Corporation to furnish a certified copy of OTS Scheme by enclosing a Demand Draft for Rs.150/- towards the required charges. The 1st respondent by letter dated 20.01.2005 declined to provide certified copy of OTS and returned the demand draft sent by the petitioner reiterating that the petitioner’s proposal for closing its loan account under OTS did not fit in the scheme as per the norms of the Corporation. Aggrieved by the said action of the Corporation, W.P.No.1380 of 2005 has been filed seeking a declaration that the action of the Corporation in rejecting the petitioner’s option for OTS is arbitrary and illegal. The petitioner also sought for a declaration that the action of the Corporation in refusing to provide a copy of the OTS scheme as arbitrary and illegal. This Court by order dated 10.06.2005 directed the petitioner to pay a sum of Rs.1,00,000/- and subsequently by order dated 12.7.2005 in W.P.M.P.No.1841 of 2005 the Corporation was directed to supply a certified copy of OTS to the petitioner on payment of usual charges. Accordingly, the petitioner deposited a sum of Rs.1,00,000/- on 14.6.2005 apart from paying the usual charges for a copy of the OTS. Thereafter, on 18.7.2005 a copy of OTS Scheme was furnished to the petitioner by the Corporation. However, in the meanwhile the petitioner’s plant situated at Gadala Village was sold by the Corporation on 28.03.2005 for a sum of Rs.5,00,000/- and the said fact was not revealed even in its counter- affidavit filed in W.P.No.1380 of 2005. Aggrieved by the said action, the petitioner filed W.P.No.21472 of 2005 seeking a declaration that the action of the Corporation in selling away the unit during the pendency of the proceedings in W.P.No.1380 of 2005 and without allowing the petitioner to participate in OTS is arbitrary and illegal. The petitioner also sought a consequential direction to set aside the sale held on 28.03.2005 and to allow the petitioner to participate in OTS Scheme offered by the Corporation. While the said writ petition is pending, the Corporation by notice dated 24.04.2007 informed the petitioner that even after the disposal of the Purified Water Manufacturing Plant and crediting the sale consideration to the loan account, still a sum of Rs.2,96,195/- was outstanding in its loan account as on 31.03.2007 and calling upon the petitioner to remit the said amount. Another notice dated 30.04.2007 was issued calling upon the petitioner to remit the said amount of Rs.2,96,195/- within ten days failing which steps would be taken under Section 52-A of the A.P. Revenue Recovery Act. Challenging the said action of the Corporation, the petitioner filed W.P.No.10770 of 2007 seeking a declaration that the notices dated 24.04.2007 and 30.04.2007 issued by the Corporation proposing to initiate action under the A.P. Recovery of Act, 1864 is arbitrary and illegal. This Court while directing notice to the respondents, ordered that no coercive steps shall be taken by invoking the A.P. Revenue Recovery Act subject to the condition that the petitioner deposits a sum of Rs.96,000/- within four weeks. Separate counter-affidavits have been filed by the Corporation in all the writ petitions contending that since the petitioner failed to repay the outstanding dues, action was rightly initiated under Section 29 of the SFC Act, 1951 and the unit was seized. Thereafter the petitioner failed to respond even to the Recall-cum-Sale Notice issued by the Corporation. In the circumstances, the properties given as collateral security were also seized on 28.09.2003 and they were put to sale by inviting tenders. It is further stated that since the value of the collateral security which was valued at Rs.12,29,510/- and the primary assets would adequately clear the outstanding dues payable by the petitioner, the OTS Scheme cannot be extended to the petitioner. I have heard the learned counsel for both the parties. Admittedly the petitioner availed a term loan from the Corporation for setting up a mineral water plant by creating a primary security of the land and buildings of the plant and hypothecating the machinery of the plant. That apart an extent of Ac.9.94 cents of land situated at Perupalem Village was offered as collateral security. It is also an admitted fact that the petitioner’s plant was closed in the year 2001 itself and the petitioner failed to repay the amounts due to the Corporation. In the circumstances, it is always open to the Corporation to invoke Section 29 of the A.P. State Financial Corporations Act, 1951 and to take the possession of the plant as well as the property mortgaged and to proceed against the same for realization of the amounts due. Since the fact that the petitioner committed default in repayment of loan availed by it is not in dispute, the action of the Corporation in proceeding under Section 29 of the A.P. State Financial Corporations Act, 1951 cannot be held to be either arbitrary or illegal. It is true that the Corporation notified a scheme for OTS and called upon the borrowers to opt for the same. However, the scheme contained a specific clause excluding the borrowers where the value of primary and collateral security is more than 200% of the amounts payable. The specific plea of the Corporation in its counter-affidavits that the value of the collateral security offered by the petitioner exceeded 200% of the amounts payable by the petitioner could not be controverted by the petitioner. In the circumstances, the action of the respondent Corporation in declining to extend the benefit of OTS to the petitioner cannot be held to be illegal on any ground whatsoever. It is also relevant to note that the petitioner failed to challenge the validity of Clause No.4 of the guidelines under which the petitioner was held to be not eligible to opt for OTS. At any rate, it is for the Corporation to frame an appropriate scheme to ensure that the loans advanced by it are recovered and the conditions/clauses of the scheme cannot be held to be bad merely on the ground that such clauses are not suitable to some of the defaulters. The law is well settled that the matters relating to recovery of loans are contractual in nature. Particularly the One Time Settlement of accounts is nothing but a compromise between two parties to contract. Such settlement can be arrived at only with the consent of both the parties, particularly the consent of the creditor who has to relinquish a part of his claim and agree to take a lesser amount. In the absence of consent of one of the parties, there cannot be settlement of accounts. In the case on hand, the Corporation did not accept the petitioner’s option for OTS since the same was not permissible as per the guidelines issued for implementation of OTS. It is also an admitted fact that the petitioner is a defaulter and that apart on more than one occasion it could not comply with the conditional orders passed by this Court. Moreover, the sale of the plant including the land and building was confirmed long back and upon receiving the sale consideration the possession was delivered to the purchaser on 10.6.2005 under a Panchanama. Absolutely, no justifiable reason is made out to unsettle the said transaction at this stage. So far as the sale of properties covered by collateral security is concerned, though W.P.No.1380 of 2005 is pending in the absence of any interim order restraining the Corporation from proceeding against the petitioner for recovery of the amounts due the action of the Corporation in proposing to put the said properties to sale for recovery of the amounts still due from the petitioner cannot be found fault with. However in case the petitioner is willing to pay the entire amount due under the loan account and communicates its willingness to the Corporation within four weeks from today, the Corporation shall consider the same in accordance with law and withdraw the proceedings initiated for sale of the immovable properties given as collateral security. Subject to the above observation, the Writ Petitions are dismissed. No costs. ______________ G. ROHINI, J. Dt. 17.03.2009 gbs