WP/2116/2004 of Andhra Bank, Special Housing Finance Branch, Vs The Commissioner of Police-cum-Competent Authority, on 23 December 2005

ORDER:

WRIT PETITION No.2116 of 2005

Andhra Bank (Special Housing Finance Branch), Vijayawada is the petitioner. Itseeks a writ of Mandamus declaring the action of the Commissioner of Police, thefirst respondent herein, in directing the tenants of the principal borrowers of thepetitioner’s Bank, not to pay the monthly rents to the credit of the housing loanaccount No.99/61, as illegal and arbitrary. A consequential direction to respondents1 and 2 is sought to revoke the said direction to enable the tenants to pay the rent inthe bank account towards discharge of the loan.

The fact of the matter is not in dispute. One Ch.Narasimha Rao and his wife, KrishnaKumari, (hereafter collectively called, borrower) availed a loan of Rs.12,00,000/-(Rupees Twelve lakhs only) for construction of a commercial complex inVijayawada. After obtaining loan in August 1999, the borrower completed theconstruction and let out to Kanaka Durga Grameena Bank (hereafter called,Grameena Bank) and New India Assurance Company (hereafter called, InsuranceCompany). It appears, the borrower also commenced chit fund business andcommitted default in paying the amounts to chit subscribers. Therefore, action was initiated against the borrower under A.P. Protection of Depositors of FinancialEstablishments Act, 1999 (the Act, for brevity). The Government appears to haveissued an order attaching the property of the borrower, which is under the tenancy ofGrameena Bank and Insurance Company. Therefore, the first respondent, who iscontrolling authority under the Act issued a direction to the tenants not to pay therents to the petitioner Bank towards discharge of the amount borrowed by theborrower and further directed that the amount to be kept in a separate account.

The second respondent has filed a counter affidavit. It is stated that the borrower hadthree financial establishments, namely, Chanumolu Finance, Sridevi FinanceCorporation and Rao Auto Finance. As Chairman of said group of companies,Ch.Narasimha Rao collected lakhs of rupees from several depositors and failed topay the amounts to them. It is also alleged that Narasimha Rao acquired severalimmovable properties with the amounts collected from the depositors. A largenumber of complaints were made, based on which, crime Nos.296/2000, 77/2001,112/2001, 113/2001, 200/2001 and 232/2001 under Sections 420, 406, 120-B ofIndian Penal Code, 1860 (IPC) and Section 5 of the Act were registered against theborrower. Further, to safeguard the interest of the depositors, the first respondentseized the properties and on a report submitted by the first respondent, Governmentof Andhra Pradesh passed orders under Section 3 of the Act attaching theproperties.

Arguments

The building, which was attached by the Government, was in possession ofGrameena Bank and Insurance Company. After attachment, the borrower filedCrl.M.P.No.378 of 2002 on the file of the Special Court established under the Act,namely, the Court of Metropolitan Sessions Judge, Vijayawada. The first respondentalso filed Crl.M.P.No.549 of 2002 before the said Court. The Special Court passedorders on 24.6.2002 making attachment orders absolute and partly allowed theCrl.M.P. filed by the borrower, directing the first respondent to handover theresidential house and one Ceilo car to Narasimha Rao and his wife. Aggrieved bythe same, the borrower filed Criminal Appeal No.837 of 2002. The first respondentalso filed Criminal Appeal No.998 of 2002. This Court affirmed the orders passed bythe Special Court. Thereafter the first respondent also filed an application before theSpecial Court seeking permission for auctioning the attached properties with a viewto distribute the sale proceeds to the depositors and the application is still pending.The first respondent also issued a notice on 19.7.2001 to Grameena Bank andInsurance Company advising them to deposit the rents in a separate account tillfurther orders.

Learned Counsel for the petitioner submits that the debt of the petitioner Bank haspriority over all other liabilities of the borrower by reason of the mortgage created infavour of the Bank and therefore, it is illegal on the part of the first respondent toadvise the tenants to deposit the rents in a separate account. Per contra, thelearned Government Pleader for Home relies on Sections 3 and 4 of the Act and therelevant notification issued by the Government under Section 4(1) of the Act insupport of the submission that the first respondent being the controlling authority,has right to manage the properties attached by the Government of Andhra Pradeshunder Section 3 of the Act.

There is no dispute that action has been initiated in accordance with law against theborrower, who also is alleged to have contravened the provisions of the Act. When afinancial establishment defaults in return of the deposit, every person responsible forthe management of the affairs shall be liable for punishment, which may extend toten (10) years. Criminal cases have already been registered against Narasimha Raoand his wife, and investigation is pending. Pending such investigation, theGovernment issued adinterim order under Section 3 of the Act attaching theproperties of the borrower. This order was also made absolute by the Special Courtunder Section 7 of the Act. Be that as it is, under Section 4(1) of the Act, theGovernment is required to appoint the competent authority to exercise control overthe property attached by the Government under Section 3 of the Act. In exercise ofsuch power, the Government issued notification vide G.O.Ms.No.349 dated29.10.1999 appointing District Magistrates in all the Districts and Commissioners ofPolice of Hyderabad, Visakhapatnam and Vijayawada in respect of the citiesHyderabad, Visakhapatnam and Vijayawada as competent authorities to exercisecontrol over the properties attached by the Government under Section 3 of the Act.As per sub section (2) of Section 4 of the Act, every competent authority shall haveall powers to discharge the functions as may be prescribed.

A.P. Protection of Depositors of Financial Establishments Rules, 1999 (the Rules,for brevity) prescribe the powers and functions of the competent authority. Rule 6(1)of the Rules confers the power on the competent authority to make an order eitherseizing the property or prohibiting transfer of the property. Sub section (4) of Section6 of the Rules requires the competent authority to maintain a record of incomereceived. Reading Section 4(2) of the Act with Rule 6 of the Rules, it must be heldthat it is within the purview of the powers of the competent authority to direct thedeposit of rents in a separate account, as and when the properties of accused underAct are attached and seized. In this case, that was precisely what was done. Further,the attachment order of the Government was made absolute and if the petitioner hasany grievance, he has to approach the Special Court-cum-the Court of MetropolitanSessions Judge, Vijayawada for redressal. In this writ petition, the petitioner is notentitled to any relief.

The writ petition is devoid of any merit and is, accordingly, dismissed. No costs.

December 23, 2005.

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(V.V.S.RAO, J)

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