Case: M/s. A.P.T. Ispat Pvt. Ltd Vs. U.P. Small Industrial Corporation Ltd. &amp; Another

2. The Managing Director of the Corporation drew up the two identical recovery certificates and sent them to the District Magistrate, Lucknow, stating that the Directors of the appellant company had received from the Corporations Dadanagar depot 1027.15 MT wire rods (iron and steel) worth Rs.1,54,93,421/- (Rupees one crore fifty four lakhs ninety three thousand four hundred twenty one only). But the payment of the goods had not been made to the Corporation and it was to be recovered from the persons (named in the recovery certificates as the companys Directors) together with interest. Paragraphs 1 and 3 of the recovery certificate are relevant for the present and are reproducedTill 30.11.2000 a sum with interest of Rs.1,79,03,848=00 (Rupees one crore seventy nine lakhs three thousand eight hundred and forty eight only) has been due to the defaulter M/s A.P.T. Ispat Pvt. Ltd. and the said sum has to be recovered from the defaulter.3. In accordance with the Government Order No. 12/3/7704/Revenue-7 dated 13.11.75 send the amount recovered from the defaulter by a bank draft drawn in favour of the Corporation (U.P. Small Industries Corporation Limited, Kanpur) to his office.It is significant to note that on the same day the Regional Manager of the Corporation, Kanpur region, submitted a written report to the Senior Police Officer, Kanpur Nagar, Kanpur. On the basis of the written report, a First Information Report was instituted giving rise to a substantive criminal case under various sections of the Penal Code against the persons named in it. In the written report it was stated that since the year 1994-95 M/s Anuj Steels whose proprietor was Anuj Tandon s/o Shri Durga Prasad Tandon was appointed by the Corporation as its Sales Coordinator for the purposes of selling iron and steel from the Corporations Dadanagar godown at Kanpur as a raw material to small scale industries. According to the Memorandum of Understanding, the Coordinator booked the demand for iron and steel as might be required by the small scale industrial units with the Steel Authority of India Ltd. (SAIL). The SAIL would then dispatch the booked quantity of iron and steel either from its stockyard or by railway either on unsecured credit or on the deposit of money by the Coordinator. The Coordinator lifted the goods, through its Handling Contractor, either from the SAIL stockyard or from the railway siding and brought it to the UPSIDC godown at Dadanagar. The Coordinator was also responsible for selling the iron and steel bought from the SAIL to the small scale industrial units after depositing its value in the depot or in the regional office of Corporation.4. The written report further stated that Anuj Tandons brother Arun Tandon, the proprietor of M/s Pranay Sales was appointed as the Transporter of the Corporation for lifting the iron and steel from the railway siding and the SAIL stock yard and bringing the stock to the Dadanagar depot. Arun Tandon extended cooperation to Anuj Tandon in the sale and purchase of the raw materials. He also participated in the meetings of the Corporation and performed several important jobs connected with the purchase and sale of iron and steel procured from the SAIL.5. It is further stated that the appellant company is a small industrial unit whose directors were Ashok Tandon (another brother of Anuj and Arun), Prateak Tandon (son of Ashok Tandon) and Anuj Tandon. The appellant company was a purchaser of wire rods from Dadanagar depot of the Corporation.6. From the statements made in the written statement, it is evident that the running of the day to day affairs of the Corporation was practically handed over to the members of the Tandon family. One does not know whether the arrangement, as stated in the written report, was made consciously, in collusion with the officers of the Corporation, or it came into being mindlessly and without any proper consideration of the Corporations interests. Be that as it may, an arrangement of this kind was fraught with the risk of grave financial losses to the Corporation. And, as is further alleged in the written report, the Corporation actually came in for heavy losses. In the written report it is further alleged asstock verification of Dadanagar Depot, it has come to the light that M/s A.P.T. Ispat Pvt. Ltd., Amausi, Lucknow, has taken away 1027.15 metric tonne wire rod worth Rs.1,54,93,421=00 (iron and steel raw material) from Dadanagar Depot which raw material was purchased by U.P.S.I.D.C. from Steel Authority of India on unsecured credit for supplying to the small industrial units at the instance of M/s Anuj Steels and the price of the said goods have not been deposited in the Depot or the bank account of the Corporation. The bills of the aforesaid raw material prepared by the employees of the Depot were found while no entry thereof has been made in the account books of the bills. In this manner, Arun Tandon, Anuj Tandon, Ashok Tandon, Prateak Tandon, R.N. Sharma, Depot Manager, Raw Materials Depot, Dadanagar, Kanpur, Jagdhari Yadav, Excise clerk, Lalji Yadav, Depot Illegible, Raw Material Depot, Dadanagar, Kanpur under a conspiracy to cause loss to the Corporation and to get for themselves unlawful gain have taken away iron and steel raw materials worth Rs.1,54,93,421=00 (Rupees one crore fifty four lakhs ninety three thousand four hundred twenty one only) and the Corporation has suffered a loss of Rs.1,54,93,421=00 and has been suffering loss of interest @ 21% per annum thereon.A bare reading of the FIR makes it manifest and clear that according to the Corporation the accused persons including the Directors of the appellant company entered into a conspiracy amongst themselves and with the staff of the Corporation and committed various offences, e.g. dishonest misappropriation of property, criminal breach of trust, cheating, theft, etc.

Court's reasoning:
13. We are completely unable to accept the view taken by the High Court. If the appellant company was purchasing wire rods as raw material from the Corporation we fail to see how the sale of the goods would become financial assistance rendered to the appellant unless it is shown that the supply of the goods was as a loan or grant or by way of hire purchase in terms of some agreement. We are, therefore, unable to follow the observation by the High court that "Thus the raw materials, that is, wire rods, were sold, to the petitioner by the respondent company by way of financial assistance". We also find no basis for the observation made by the High Court that "it is, however, admitted that respondent company (sic Corporation) had been supplying raw materials to the petitioner-company for carrying all its business" and further that the goods supplied "were admittedly on credit". There is no such admission by the appellant. On the contrary the case of the appellant is that it used to purchase wire rods from the Corporation on payment of price and it made payment for all the purchases from the Corporation.14. We think that the High Court has stretched the meaning of "financial assistance" as defined in section 2 and the scope of section 3 of the Act beyond reasonable limits. From a bare reading of section 3 it is evident that the dues must arise from an agreement to which the person from whom recovery is to be made is a party. Sub clause (a) of sub-section 1 then enumerates the kinds of agreement under which the transaction should have taken place. It needs also to be borne in mind that in the scheme of the Act there is no provision for any adjudication. Once there is any default under an agreement, the designated authority is authorized to issue a recovery certificate and send it to the Collector who is obliged to recover the certificate amount together with interest from the certificate debtor as arrears of land revenue. At no stage the certificate debtor is given an opportunity to put up his case. Such being the legal position, the recovery certificate must be based on a tangible agreement and it should even prima facie appear that the dues arise from a breach of the terms of the agreement. A proceeding under section 3 of the Act cannot be sustained by piling up assumptions in favour of the certificate holder and against the judgment debtor.15. In the present case it is evident that the dues of which recovery is sought by the impugned certificates do not pertain to any loan, advance or grant given to the appellant or to any credit concerning any hire purchase of goods sold to the appellant by the Corporation under any agreement, express or implied. The dues do not relate to any financial assistance.16. We also cannot overlook the fact that in this case the so called supplies were not even made in the normal course of business. A reference to the FIR makes it clear that according to the Corporation the goods were taken away by the appellant in a criminal action constituting a number of offences under the Penal Code. The U.P. Public Moneys (Recovery of Dues) Act, 1972 was clearly not intended to recover the goods or the monetary value of goods taken away in course of theft or dacoity or lost as a result of dishonest appropriation or any other alleged criminal action.17. For the reasons discussed above, we are of the view that in the facts of this case the two impugned recovery certificates are quite illegal and untenable and we are unable to sustain the High Court order coming under appeal.18. There is another point and though it was not raised before the High Court, we think proper to mention it since it is crucial to the proceeding under section 3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972. In a decision by this court in Unique Butyle Tube Industries (P) Ltd. vs. U.P. Financial Corporation and Others, (2003) 2 SCC 455 , it was held that after the coming into force of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, recourse cannot be taken for recovery of dues to the provisions of U.P. Public Moneys (Recovery of Dues) Act, 1972 because the U.P. Act does not find mention in section 34(2) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.