Case: S.K. Bhargava Vs. The Collector, Chandigarh &amp; Ors

2. Briefly stated the facts are that the appellant was appointed as one of the Directors of M/s. Depro Foods Pvt. Ltd., which was subsequently converted into a public limited company. In 1971 and in 1973 the said company took loans on two occasions from the Financial Corporation. According to the appellant, he resigned as a Director of the company on 25th February, 1974 and the factum of his resignation was communicated to the Registrar of Companies on 11th March, 1974. It is further the case of the appellant that after he ceased to be a Director of the company, another loan of a sum of Rs. 3 lakhs on the basis of a registered mortgage was taken by the company on 12th November, 1974.3. It appears that default was committed by the company in repayment of the loan and the interest thereon. This led to the filing of the winding up petition in the Punjab & Haryana High Court. On 18th September, 1978, the Haryana Financial Corporation filed an application under Section 31 of the State Financial Corporation Act, 1951 for an order for the recovery of Rs. 52,78,227.48 (Rs. 30,07,621.86 plus interest thereon) being the outstanding amount against the loans taken by the company on three different occasions. It may here be stated that by order dated 21st August, 1980, the company was ordered to be wound up. Thereupon in an application which was filed, the Company Judge by order dated 3rd December, 1981 held the Haryana Financial Corporation to be a preferential creditor in respect of the amounts which were due to it. Thereafter, the assets of the company were sold and from the proceeds thereof some amount was paid to the Haryana Financial Corporation. After adjusting the amount so paid, there remained a shortfall of Rs. 18,22,178.05 plus interest thereon.4. In order to recover the shortfall of Rs. 18,22,178.05, the Corporation took recourse to proceedings under Section 3(3) ofthe Haryana Public Moneys (Recovery of Dues) Act, 1979 and a Recovery Certificate was thereupon issued to the Collector, Chandigarh for realisation of the said amount from various persons including the appellant. This certificate was transferred to the Collector, Delhi for effecting recovery. Thereupon, to cut a long story short, when the appellant did not get any redress from the Collectors office he filed a writ petition in the Punjab & Haryana High Court, inter alia, contending that as he had resigned as a Director, no recovery could be effected from him. It was also stated therein that he had never been informed or made party to any of the proceedings before any authority whatsoever and no liability could be fixed on him merely by issuing a recovery notice. By a short judgment dated 26th July, 1985, a Division Bench of the High Court came to the conclusion that as the amount of Rs. 18,22,178.05 had been found to be recoverable in judicial proceedings, it did not think that the guarantor was entitled to any other notice before the amount which was sought to be realised, could be recovered. It is this decision which has been challenged in this appeal.

Court's reasoning:
6. It is not in dispute that before a certificate was sent by the Managing Director to the Collector for recovering the amount of Rs. 18,22,178.05, no notice was given to the appellant. Section 3(1) provides a procedure where any sum is recoverable from a defaulter. Section 3(1)(b) requires the Managing Director of a Corporation or a Government company to whom amount is due to determine the sum due from the defaulter. It is that sum so found due in respect whereof certificate is sent by the Managing Director under sub-section (2) of Section 3. The certificate so sent is by sub-section (3) regarded as conclusive proof of matters stated therein and the Collector, on receipt of the said certificate, is required to proceed to recover the amount stated therein as arrear of land revenue. Sub-section (4) ousts the jurisdiction of the civil court to entertain or adjudicate upon any case or proceedings relating to the recovery of any sum due from the defaulter.7. It is clear from the perusal of the above quoted Section that before a certificate can be issued by the Managing Director under sub-section (2) of Section 3, he must determine the `sum due from the defaulter as enjoined upon him by Section 3(1)(b). It is difficult to appreciate the contention of the learned counsel for the respondent Financial Corporation that any such determination can take place without notice to the defaulter. The jurisdiction of the civil courts to go into the question as to what is the amount due is expressly ousted by sub-section (4) of Section 3. In its place, the power has been given to the Managing Director under Section 3(1)(b) to determine as to what is the amount due from the defaulter. There can be no doubt that any such determination by the Managing Director will result in civil consequences ensuing. The determination being final and conclusive, would have the result of the passing of a final decree, inasmuch as the defaulters from whom any amount is found to be due, would become liable to pay the amount so determined and the Collector will have the right to recover the same as arrears of land revenue.8. In our opinion, even though Section 3 does not expressly provide for an opportunity being given to the alleged defaulter to explain as to whether any amount is due or not but in view of the nature of the said provision, the principles of natural justice must be read into it. The requirement of determination of the sum due by the Managing Director must be regarded as providing for the Managing Director hearing the alleged defaulter before coming to the conclusion as to what is the sum due. The very use of the words `determine and `sum due implies that there may be a lis between the parties and they have to be heard before a final conclusion is arrived at by the Managing Director. It is not a mere claim of the Corporation which is forwarded to the Collector for realisation, but it is the `sum due as determined by the Managing Director which alone is recoverable. As already observed, this determination cannot be done without notice to the alleged defaulter.For the reasons hereinabove as, admittedly, principles of natural justice were not complied with, it must be held that determination of the Managing Director under Section 3(1)(b) and the consequent certificate issued under Section 3(2) of the Haryana Act, both were vitiated.