WP/27606/2005 of M/s. The Plant Protection Products Pvt.Ltd., A Regd.Private Vs Union Bank of India, a Baning Company constituted under on 27 December 2005

:: ORDER::

Counsel for the petitioner : Sri G. Dhananjai Counsel for the respondent No.1 : Sri A. Krishnam Raju December 27, 2005

Per G.S. Singhvi, CJ.

This petition is yet another illustration of attempt by thosewho take loan from public financial institutions but do not repay thesame for years together and then seek intervention of one or theother Court for frustrating the proceedings initiated by the concernedpublic financial institution for recovery of public money.

Petitioner No.1 is a private limited company. PetitionerNo.2 is its managing director. Respondents 2 to 5 are the directors. In1997, petitioner No.1 approached the authorities of Nellore Branch ofUnion Bank of India (hereinafter described as ‘the Bank’) for grant ofloan and other facilities. The competent authority of the Banksanctioned Rs.45,00,000/- towards cash credit hypothecation facility,Rs.10,00,000/- for secured overdraft facility, Rs.10,00,000/- forcheque purchase facility, Rs.20,00,000/- for letter of credit facility andRs.6,00,000/- for term loan facility. Petitioner No.2 and respondentsNo.2 to 5 furnished various securities for repayment of loan.Thereafter, petitioner No.1 availed various financial benefits in termsof the sanction issued by the competent authority of the Bank. In Apriland September 2001 the petitioners and respondents 2 to 5confirmed their liability to repay the loan etc., with interest. On 6-2-2001, petitioner No.1 informed the Bank that production had beenstopped in the factory since August 2000 due to seizure of stocksand suspension of manufacturing licence. In 2001, the Bank filed anapplication under Section 19 of the Recovery of Debts Due to Banks& Financial Institutions Act, 1993 (for short ‘the Act’) for payment ofRs.61,74,277 outstanding under cash credit hypothecation facilityaccount and Rs.12,61,121/- under secured overdraft book debtfacility. The Bank also applied for temporary injunction againstdisposal of properties by the petitioners and respondents No.2 to 5.Debts Recovery Tribunal, Hyderabad (for short ‘the Tribunal’)accepted the Bank’s prayer and granted temporary injunction. Lateron, the Tribunal appointed Commissioner for taking inventory andsale of moveable assets. Accordingly, Commissioner sold moveableassets and recovered a sum of Rs.2,98,000/- which was deposited with the Tribunal.

In the year 2002, the original application filed by theBank was transferred to Visakhapatnam Bench of the Tribunal andwas registered as O.A.No.234 of 2002. The notice sent by theTribunal through courier was received by one of the directors viz., M.Venkateswarlu. Another director, namely, Sri V. Nandagopal refusedto accept service and, as such, he was treated as duly served. Freshsummons were issued to the remaining directors. On 4-12-2002, aletter was received from Sri S.J. Mehta, who sought adjournment.Notices issued to the other directors were ordered to be servedthrough substituted service by publication. On 6-3-2003 the Bankfiled the required publication. However, on the date of hearing, neitherthe petitioners nor respondents No.2 to 5 appeared beforeVisakhapatnam Bench of the Tribunal. Therefore, after hearingrepresentative of the Bank, the Tribunal passed order dated 24-4-2003 vide which the original application was decreed in the followingterms:

a. The defendants are jointly and severally liable to payRs.61,74,277/- under cash credit hypothecation facilitywith interest @ 16.85% per annum thereon withquarterly rests from the date of this OA till 18-11-2001;Rs.61,74,277/- under cash credit hypothecation facilitywith interest @ 16.85% per annum thereon withquarterly rests from the date of this OA till 18-11-2001;

b. Rs.2,98,000/- shall be deducted from the total arrived as on18-11-2001;18-11-2001;

c. The defendants are jointly and severally liable to pay thebalance amount after deducting Rs.2,98,000/- withinterest @ 16.85% per annum thereon with quarterlyrests from 19-11-2001 till the date of this order;balance amount after deducting Rs.2,98,000/- withinterest @ 16.85% per annum thereon with quarterlyrests from 19-11-2001 till the date of this order;

d. The defendants are jointly and severally liable to payfurther simple interest @ 16.85% per annum on suchamount from the date of this order till the date ofrealization;further simple interest @ 16.85% per annum on suchamount from the date of this order till the date ofrealization;

e. The defendants are jointly and severally liable to payRs.12,61,121/- under secure overdraft (book debt)Rs.12,61,121/- under secure overdraft (book debt)

facility with interest @ 16.85% per annum thereon withquarterly rests from the date of this OA till the date ofthis order; f. The defendants are further jointly and severally liable topay simple interest @ 16.85% per annum onRs.12,61,121/- from the date of this order till realization;pay simple interest @ 16.85% per annum onRs.12,61,121/- from the date of this order till realization;

g. The defendants are given three months time to pay thedebt;debt;

h. In default, the immovable mortgaged properties mentionedin “A” to “K” Schedule shall be sold and the saleproceeds be deposited into the Tribunal for the purposeof applying towards discharge of the debt;in “A” to “K” Schedule shall be sold and the saleproceeds be deposited into the Tribunal for the purposeof applying towards discharge of the debt;

i. Accordingly issue Recovery Certificate.

The petitioners and respondents No.2 to 5 did not paythe decretal amount necessitating issuance of recovery certificatedated 17-9-2004 under Section 19 (22) of the Act. After another 1 year and 2 months, the Recovery Officer issued proclamation ofsale under Rule 38.52 (2) of the Second Schedule appended to theIncome Tax Act, 1961.

On realizing that they will not be able to stall theproceedings of recovery, the petitioners attempted to file a petitiondated 23-12-2005 under Order 9 Rule 13 for recalling order dated 24-4-2003 on the ground that the same had been passed ex partewithout service of notice on them. After three days, the petitionersfiled the present petition with a prayer that the proceedings initiatedfor recovery of the amount specified in decree dated 24-4-2003passed by Visakhapatnam Bench of the Tribunal may be stayed.

Learned counsel for the petitioners submitted that onaccount of non-availability of the Presiding Officer of the Tribunal atVisakhapatnam, the application filed by his clients could not be takenup for hearing and, therefore, this Court should intervene and protecttheir legitimate right. He emphasized that the petitioners cannot be deprived of their right to contest the claim of the Bank merelybecause of the non-availability of the Presiding Officer of the Tribunal.Learned counsel then argued that order and decree dated 24-4-2003passed by Visakhapatnam Bench of the Tribunal should be declaredas nullity because the petitioners and respondents No.2 to 5 were notserved with the notices issued by the Tribunal.

Arguments

In the context of the submissions made by the learnedcounsel, we enquired from him whether his clients had between 2002and 2003 made any attempt to find out the fate of the case which wasinstituted in Hyderabad Bench of the Tribunal. To this, the learnedcounsel could not give any satisfactory reply. He also could not showas to what the petitioners had been doing between 2002 i.e. whenthe case was transferred to Visakhapatnam Bench of the Tribunaland 2005, when they are said to have acquired knowledge about thesteps initiated by respondent No.1 for enforcing decree dated24.4.2003.

In our opinion, the failure of the petitioners to find out thefate of the case instituted by the Bank under Section 19 of the Actmilitates against their bona fides. Therefore, it is not possible to actupon the assertion that the ex parte decree was passed byVisakhapatnam Bench of the Tribunal without giving them opportunityof hearing. Moreover, the assertion of the petitioners that noticeswere not served on them is prima facie belied by the followingextracts of para 3 of order dated 24-4-2003 passed by the Tribunal:

3. … On behalf of D.1 and 2, one V.S. Krishnudu appeared.The docket shows that he reported no objection for the report ofthe Commissioner. The record also shows that D3, 4, 5 and 6were served. Later this case was transferred to this Tribunaland renumbered as OA.No.234 of 2002 and summons wereissued to all defendants. The notice sent by courier wasreceived by D6 and refused by D5. Therefore, on 17-10-2002,D5 and 6 were called absent. It was sufficient service for themand they were set ex parte. Fresh summons were ordered forother defendants. On 4.12.2002 a letter was received from D3that he received summons and requested time. The bank wasasked to intimate the D3 about next date of adjournment and send a copy of OA to D3. Substituted service for D1 and 2 wasordered, as they are not available at the address given by them.Substituted service to D1, 2 and 4 by way of publication in“Eenadu” Nellore edition and “Hindu” Mumbai edition wasordered. On 3.2.2003, D3, who wrote letter on the last occasionwas absent. It was noted that it was he to look out to watch thecase and date of adjournment. Therefore, D3 was called absentand set ex parte. On 6.3.2003, publication was filed and as itwas sufficient service, D1, 2 and 4 were called absent and setex parte and posted the matter for applicant’s evidence to26.3.2003 and to 23.4.2003. …”

De hors the aforementioned conclusion, we are of theview that interference with the proceedings initiated by respondentNo.1 for recovery of the decretal amount is not warranted becausethe petitioners have got an effective alternative remedy of appealunder Section 20 of the 1993 Act and there are no extraordinaryreasons for making a departure from the settled law that the HighCourt will not entertain writ petition under Article 226 of theConstitution of India if an effective alternative remedy is available tothe petitioner. Reference in this connection can be made to thedecisions of the Supreme Court in A.V. Venkateshwaran v. R.S.Wadhwani, Thansingh Nathmal v. Superintendent of Taxes,Champa Lal v. I.T. Commissioner, C.I.T. v. Ramendra NathGhosh, Titaghur Paper Mills Co. Ltd., v. State of Orissa andAssistant Collector of Central Excise, Chandan Nagar, WestBengal v. Dunlop India Ltd., and others.

I n Baburam v. Zilla Parishad, the Supreme Courtcarved out the following two exceptions to the rule of alternativeremedy:

1. where proceedings are taken before a Tribunal under aprovision of law, which is ultra vires to the Constitution;provision of law, which is ultra vires to the Constitution;

2. where the impugned order has been made in violation ofthe rules of natural justice.the rules of natural justice.

I n Harbanslal Sahnia v. Indian Oil Corporation Ltd., theSupreme Court considered the situations in which the High Courtmay exercise power under Article 226 of the Constitution of Indianotwithstanding the availability of alternative remedy and held:

“The rule of exclusion of writ jurisdiction by availability of analternative remedy is a rule of discretion and not one ofcompulsion. In an appropriate case, in spite of availability of thealternative remedy, the High Court may still exercise its writjurisdiction in at least three contingencies: i) where the writpetition seeks enforcement of any of the fundamental rights; (ii)where there is failure of principles of natural justice; or (iii) wherethe orders or proceedings are wholly without jurisdiction or the v. vires of an Act is challenged. (See Whirlpool Corpn.Registrarof Trade Marks {(1998) 8 SCC 1} The present case attractsapplicability of the first two contingencies. Moreover, as noted,the petitioners’ dealership, which is their bread and butter, cameto be terminated for an irrelevant and non-existent cause. Insuch circumstances, we feel that the appellants should havebeen allowed relief by the High Court itself instead of drivingthem to the need of initiating arbitration proceedings.”

The petitioners’ case does not fall in any of theaforementioned exceptions. They could have filed appeal againstorder and decree dated 24-4-2003. They could have also applied forcondonation of delay by showing that they were not aware of theorder and decree passed by the Tribunal. However, the fact of thematter is that instead of availing the remedy of appeal, they havechosen to directly invoke jurisdiction of the High Court under Article226 of the Constitution, which, in our view, is impermissible.

In the result, the writ petition is dismissed leaving thepetitioners free to avail the remedy of appeal under Section 20 of theAct.

Before parting with the case, we consider it proper tomention that during the course of arguments learned counsel for thepetitioners made a feeble attempt to persuade the court to entertain the petition by saying that his clients are prepared to deposit a sum ofRs.10,00,000/-. Subsequently, he modified his statement by sayingthat his clients would be ready and willing to pay a sum ofRs.20,00,000/-. In our opinion, the tenor of the statement made by thelearned counsel for the petitioners shows that his clients are inclinedto make bargain with the court, which cannot be accepted under anysituation.

G.S. SINGHVI, CJ

R. SUBHASH REDDY, J

December 27, 2005

MVB / svs