M/S.
A.P.T. Ispat Pvt. Ltd. Vs. U.P. Small Industrial Corpn. Ltd. & ANR. [2010]
INSC 303 (23 April 2010)
Judgment
REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.663
OF 2003 M/s. A.P.T. Ispat Pvt. Ltd. ... Appellant Versus U.P. Small Industrial
Corporation Ltd. & Anr. ... Respondents
AFTAB
ALAM, J.
1. The
appellant is a private limited company incorporated and registered under the
Companies Act. It seeks to challenge two recovery 2 certificates issued by the
Managing Director of the U.P. Small Industries Corporation Ltd. (a government
corporation) in purported exercise of power under section 3 of the U. P. Public
Moneys (Recovery of Dues) Act, 1972.
Challenging
the two recovery certificates, the appellant filed a writ petition (Civil
Misc.20 of 2001) before the Allahabad High Court which was dismissed by a
division bench of the Court by judgment and order dated April 26, 2001. Against
the High Court judgment, the appellant has come in appeal by grant of special
leave.
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 Corporation's
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 company's Directors) together with interest. Paragraphs 1 and 3 of the
recovery certificate are relevant for the present and are reproduced below:
"1.
Till 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 3 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. "
3. 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 Corporation's 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.
4 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 Tandon's 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 Corporation's 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
as follows:
"On
stock 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 6 the Corporation has suffered a loss of
Rs.1,54,93,421=00 and has been suffering loss of interest @ 21% per annum
thereon. "
7. 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.
8. In
fairness to the appellant it may be stated here that it has its own story to
counter the allegations made in the FIR. According to the appellant, the
Corporation owed it a sum of Rs.3,83,894 (Rupees three lakhs eighty three
thousand and eight hundred ninety four only) and on December 7, 2000 the appellant
had instituted Original Suit No.1245 of 2000 for injunction against the
Corporation. The injunction suit was filed, when the officers of the
Corporation started harassing the Directors of the appellant company and tried
to subject them to undue pressure of government authorities, including the
police. Mr. Shirish Kumar Mishra, learned counsel appearing for the appellant
also invited our attention to the bills raised by the Corporation against the
appellant company in support of its case. Mr. Mishra submitted that a bare
glance at the bills would show that those were not 7 drawn in the normal course
of business but were manufactured later as a prop to support the allegations
made by the Corporation's officers.
9. The
allegations made in the FIR against the appellant company and the counter
allegations made by the appellant against the Corporation are of no concern to
us for the present. We may assume for the purpose of the present case that the
appellant company "received" from the Corporation the quantity of
wire rods as stated in the two recovery certificates for which it has not made
payment to the Corporation. But the question for consideration is whether the
provisions of the U.P. Public Moneys (Recovery of Dues) Act, 1972 can be
pressed into service for realization of the dues of the kind indicated above.
10. Let
us now take a look at the various provisions of the Act. Section 2(a) of the
Act defines "Corporation" to include any corporation owned or
controlled by the Central government or the state government or notified by the
state government in the official gazette. Section 2(b) defines financial
assistance as follows:
"2(b)
"financial assistance" means any financial assistance- (i) for
establishing, expanding, modernizing, renovating or running any industrial
undertaking; or (ii) for purposes of vocational training; or (iii) for the
development of agriculture, horticulture, animal husbandry of agro-industry; or
(iv) for purposes of any other kind of planned development; or 8 (v) for relief
against distress; "
Section 3
deals with recovery of certain dues as arrears of land revenue and insofar as
relevant it is reproduced below:
"3.
Recovery of certain dues as arrears of land revenue- (1) Where any person is
party- (a) to any agreement relating to a loan, advance or grant given to him
or relating to credit in respect of, or relating to hire purchase of, goods,
sold to him by the State Government or the Corporation, by way of financial
assistance;
(b) to
any agreement...........
(c) to
any agreement...........
(d) to
any agreement...........
(i) makes
any default in repayment of the loan or advance or any installment thereof; or
(ii) having become liable under the conditions of the grant to refund the grant
o any portion thereof, makes any default in the refund of such grant or portion
or any installment thereof; or (iii) otherwise fails to comply with the terms
of the agreement;
then, in
the case of the State Government, such officers as may be authorized in that
behalf by the State Government by notification in the official Gazette, and in
the case of the Corporation or a Government company the Managing Director or
where there is no Managing Director then the Chairman of the Corporation, or by
whatever name called or such officers of the Corporation or Government company
as may be authorized in that behalf by the Managing Director or the Chairman
thereof, and in the case of a banking company, the local agent thereof, by
whatever name called, may send a certificate to the Collector, mentioning the
sum due from such person and requesting such sum together with costs of the
proceedings be recovered as if it were an arrear of land revenue;
(2).................
(3).................
(4).................
9
(5)................."
11. Mr.
Mishra submitted that the appellant company was neither receiving any financial
assistance from the Corporation nor it was party to any agreement with the
Corporation relating to any loan, advance or grant to it or relating to credit
in respect of or relating to hire purchase of goods to it by the Corporation by
way of financial assistance. Hence the provisions of section 3 of the U.P.
Public Moneys (Recovery of Dues) Act, 1972 could not be invoked for recovery of
the alleged dues of the Corporation.
12. The
same contentions were raised before the High Court, but the High Court rejected
the objection raised on behalf of the appellant observing, in the judgment
coming under appeal, as follows:
"The
term financial assistance thus, means any financial assistance provided for
running any industrial undertaking. If the term financial assistance is read
along with section 3 of the Act then it would mean a party to any agreement
relating to goods sold to him by the Corporation as financial assistance for running
any industrial unit.
Admittedly,
in the instant case, the petitioner had been purchasing wire rods materials
from the respondent company for carrying on its business. Thus the raw
materials, that is, wire rods, were sold, to the petitioner by the respondent
company by way of financial assistance. Learned counsel for the petitioner has
contended that in view of section 3 there should be an agreement for sale of
goods by the corporation by way of financial assistance to any person and only
then the case would be covered under section 3 of the Act. As there is no
agreement between the petitioner and the respondent company 10 for sale of
goods by way of financial assistance and, therefore, the provisions of section
3 of the Act are not applicable.
There is
no dispute about the fact that there is no written agreement between the
petitioner and respondent Company for supply of raw materials to the
petitioner. It is, however, admitted that respondent company had been supplying
raw materials to the petitioner-company for carrying all its business. In writ
petition no.Nil of 1987, in re: R.K. & Sons, Bhadoi vs. The Collector,
Varanasi and Others, decided on 12.3.1987, it has been held by a Division Bench
of this Court that although there was no agreement executed in writing as such,
an agreement may be said to have come into being as a result of mutual contact
of the parties accompanied with delivery of goods which were admittedly on
credit and this was to enable the petitioner to run the industrial unit held by
him.
In this
manner his case is covered under Section 3(1) (a) read with Section 2(b) of the
Act. In the instant case also as a result of mutual contract between the
parties delivery of goods were made to the petitioner by respondent company.
The petitioner obtained huge quantity of raw materials without making payment
and thus, the respondent company is claiming the price of the goods sold to the
petitioner by way of financial assistance. The case of the petitioner is
therefore, also covered under Section 3(1)(a) read with Section 2(b) of the
Act."
(emphasis
added) 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 11 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 12 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.
19. For
all these reasons the order of the High Court is set aside and the impugned
recovery certificates are quashed.
20. It is
made clear that this judgment shall not in any way affect the criminal case
instituted against the Directors of the appellant company and it will proceed
on its own merits and in accordance with law. This judgment shall also not
stand in the way of the respondent Corporation in seeking 14 recovery of its
claims from the appellant by any other means duly sanctioned by law.
21. In
the result the appeal is allowed but with no order as to costs.
....................................J. (AFTAB ALAM)
....................................J. (SWATANTER KUMAR)
New Delhi
April 23, 2010.
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