IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 2666 of 2009(P)
1. USMATECH TEXTILE ENGINEERS PVT,LTD
... Petitioner
Vs
1. THE BRANCH MANAGER,
... Respondent
2. THE KERALA FINANCIAL CORPORATION LTD,
For Petitioner :SRI.C.C.THOMAS (SR.)
For Respondent :SRI.S.SREEKUMAR,SC,KERALA FINANCIAL COR
The Hon'ble MR. Justice ANTONY DOMINIC
Dated :06/03/2009
O R D E R
ANTONY DOMINIC, J.
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W.P.(C.) No.2666 of 2009
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Dated, this the 6th day of March, 2009
J U D G M E N T
Prayers in this writ petition are to quash Ext.P19 and declare
that the petitioner Company is entitled to the benefit of Exts.P13,
Recovery Policy for the Financial Year 2007-08, {hereinafter referred
to as the One Time Settlement (OTS) scheme} as amended by
Ext.P14, announced by the 2nd respondent, based on Ext.P8
application made by the petitioner on 12/12/2007.
2. The petitioner is a company incorporated under the
Companies Act, 1956. Pursuant to applications made by the
Company, on 29/12/2000 and on 09/11/2001, the respondents had
granted loan for a total amount of Rs.97.13 lakhs and for the
security of which, the Company had mortgaged 1.25 acres of land
and the improvements therein and also the residential property of
the Managing Director, as additional collateral security. Though by
about 2000, production was commenced in the factory set up by the
Company, from the records it is evident that consequent on the
losses suffered, the factory was closed in 2004 and that position
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continues even now. While so, payments were defaulted and finally,
Ext.P1 application was made by the Company on 03/12/2005,
requesting that it be given the benefit of OTS scheme to liquidate
the liability. By Ext.P2, the respondents informed the petitioner that
the request could not be considered for non-payment of the
prescribed advance of 10%. At that stage, the Company approached
this Court by filing WP(C) No.11393/2005. That writ petition was
disposed of by Ext.P3 judgment directing the respondents to
consider Ext.P1, without insisting on remittance of the 10% as
indicated in Ext.P2. Accordingly, the request of the Company for
the benefit of OTS scheme was considered and by Ext.P6 dated
29/12/2006, the petitioner was informed that its total liability was
Rs.129.27 lakhs and as they had offered only Rs.28.58 lakhs, the
offer for settlement was unacceptable.
3. Again the petitioner challenged Ext.P6 before this Court
in WP(C) No.5271/2007. In that writ petition this Court passed
Ext.P7 order dated 28/09/2007 directing the Company to make an
immediate payment of Rs.40 lakhs and it was also directed that
within six weeks from 01/10/2007, the balance amount due to the
Corporation will also be paid. Further, the petitioner was also given
WP(C) No.2666/2009
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the freedom to make an application seeking the benefit of OTS
scheme, and it was directed that if payment was made as ordered,
the application will be considered and the payment made will be
given credit to the amount quantified towards the OTS amount. The
petitioner states that thereupon, Rs.40 lakhs was paid and that they
made Ext.P8, a request for the benefit of OTS scheme, praying inter
alia for the adjustment of Rs.40 lakhs paid in pursuance to Ext.P7
order. Subsequently, again, Ext.P9 interim order was passed,
directing a further remittance of Rs.60 lakhs, as offered by the
petitioner, and it was also directed that the same should also be
given credit, once OTS amount is quantified. It is admitted that this
payment was made by the petitioner.
4. Again Ext.P10 order was passed by this Court, where
taking note of the tentative quantification of Rs.130 lakhs that the
Corporation had made in the meanwhile, and holding that after
giving credit to Rs.1 crore already paid, the balance OTS dues, which
was remaining to be paid, was only Rs.30 lakhs, this Court ordered
that the petitioner will be permitted to sell the industrial shed and
machineries and thereafter, on the remittance of the balance Rs.30
lakhs, the shed and the machinery will be allowed to be removed
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from the site. It is now admitted by both sides that as against Rs.30
lakhs ordered to be paid in Ext.P10, only Rs.3.4 lakhs was paid.
True, the learned counsel for the KFC has a case that by making
payment of Rs.3.4 lakhs, the petitioner removed the shed and
machineries, but however, this is disputed by the petitioner.
5. Be that as it may, finally the Corporation issued Ext.P11,
its final decision on Ext.P8 proposal made by the petitioner for the
benefit of OTS scheme, intimating that as on 01/05/2008, the
petitioner’s liability was Rs.157.58 lakhs and that in terms of
Ext.P13, the Recovery Policy for 2007-08, the petitioner was entitled
to a concession of only Rs.4.73 lakhs. WP(C) No.5271/2007 was
finally disposed of by this Court by Ext.P12 judgment. Here, it
should be stated that in the above writ petition, the Corporation was
justifying Ext.P11 giving a concession of only Rs.4.73 lakhs to the
petitioner, relying on Ext.P13, the OTS Scheme, on the basis of
which the petitioner was classified under D2 category. According to
the Corporation, those defaulters, who are classified under D2
category under Ext.P13, the Recovery Policy 2007, were eligible for a
maximum waiver of 50% of the penal interest only, and that in spite
of it, the petitioner was given waiver of the entire penal interest viz.
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Rs.4.73 lakhs. Contradicting this assertion of the Corporation, the
petitioner, along with I.A.No.9490/2008, produced circular No.59
dated 01/12/2007, which is Ext.P14 herein, by which the Recovery
Policy 2007 (Ext.P13) was amended and providing that those
defaulters falling under D1 & D2 categories are also entitled to
additional benefits as per the OTS scheme.
6. While disposing of WP(C) No.5271/2007, these
contentions were dealt with by this Court in paragraphs 4 & 5 of the
judgment, a copy of which is Ext.P12 in this writ petition.
Thereafter taking into account the fact that Ext.P11, disposing of
Ext.P8 application made by the petitioner for OTS scheme, was
issued without taking into account the circular No.59 dated
01/12/2007, this Court held that Ext.P11 deserves to be invalidated
for that reason and that the matter needs to be re-considered. On
this basis, WP(C) No.5271/2007 was disposed of by Ext.P12
judgment dated 19/11/2008 with the following directions:-
“8. The request of the petitioner for OTS made by
Ext.P31 application dated 12/12/2007, shall be reconsidered by
the Corporation in the light of Recovery Policy dated 05/09/07 as
amended by Circular No.59 dated 01/12/2007 and in the light of
the rules untrammeled by Ext.P16 and order dated 14/05/2008.
On such reconsideration, if the petitioner is found to be eligible
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for the benefit, the liability shall be quantified and from the
amount that is quantified to be payable, Rs.1 crore paid by the
petitioner pursuant to orders dated 28/09/07 and 17/03/2008
and Rs.3.4 lakhs paid on 23/10/2008 towards the value of the
machinery sold shall be given credit. Thereafter, the balance as
found due will be demanded from the petitioner, which shall be
paid also.
9. It is directed that both parties shall maintain status
quo in regard to the assets, until a decision is taken, as ordered
above. It is also directed that the Corporation shall decide the
matter in the manner as directed, as expeditiously as possible, at
any rate within 6 weeks of receipt of a copy of this judgment.”
7. In pursuance to Ext.P12 judgment, the petitioner made
Ext.P15 representation and finally the representation has been
considered and Ext.P19 order dated 16/01/2009 has been issued.
In so far as the claim of the petitioner for the benefit of Circular
No.59 (Ext.P14) is concerned, the same has been dealt with in
Ext.P19 in the following manner :-
“As far as the first condition is taken, it cannot be said that
promoters are unable to run the unit. The unit is owned by private
limited company having three Directors. The company and its
Directors are affluent and is borne out of the fact that the
company could raise Rs.40 lakhs as per the order dated
28/09/2007 in WP(C) No.5271/07 and remitted on 06/10/2007
without creating any liability on the E.M.property. Thereafter
another sum of Rs.60 lakhs was paid on 25/03/2008. This showsWP(C) No.2666/2009
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Moreover the company has no contention before the Hon’ble High
Court or before the OTS committee that the company is unable to
run the unit. No explanation much less satisfactory has been
made either in the written request dated 12/12/2007 for OTS
benefit or at the time of personal hearing that company had paid
Rs.103.40 lakhs and it is entitled to OTS. Hence the company
does not fall under Clause (a).
Admittedly, Clause (b) does not apply as none of the directors are
sick or dead. Admittedly Clause (c) it is pertinent to refer to the
petition filed by the company in the Hon’ble High Court in the bail
application that the value of assets mortgaged to the Corporation
is more than Rs.4 Crores. The company could raise Rs.40 lakhs on
06/10/2007 in pursuance of order dated 28/09/2007 and another
sum of Rs.60 lakhs on 25/03/2008. This shows that the company
and its directors are not in financial difficulties more over one of
the director is a leading Doctor practicing in reputed Hospitals. At
the time of personal hearing also the company had no case that
the company or its Directors are in financial difficulties.
As far as Clause (d) the company has not pointed out any
genuine reasons beyond its control. Nothing has been stated at
the time of hearing to give the benefit of Clause (d) as well.”
It is challenging Ext.P19 and seeking the reliefs mentioned earlier,
this writ petition has been filed.
8. The learned counsel for the petitioner challenges
Ext.P19. According to him, the petitioner is entitled to the benefit
of Clauses (a) & (d) of Ext.P14, Circular No.59, amending Ext.P13
Recovery Policy for the year 2007-08. It is stated that Ext.P19
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reflects that the endeavour was only to reject his claim for the
benefit of OTS scheme.
9. Counter affidavit has been filed by the respondents.
According to the respondents, OTS benefit is given considering the
repaying capacity and the value of the assets of the Company. It is
stated that the Directors themselves have declared that the
Company has assets of more than Rs.4 crores and this statement is
said to have been made in a bail application filed by them before
this Court. They have also produced Exts.R1(a), R1(b) and R1(c)
containing the details of the assets of the Managing Director and
two Directors of the petitioner Company. It is stated that these
documents disclose that these persons are holding substantial
assets and therefore, they cannot claim the benefit of OTS scheme,
which is normally available to the persons, who are indigent.
10. It is stated that despite all these, the Corporation
categorized the petitioner under D2 category as per the OTS Scheme
and extended the benefit of full waiver of penal interest. In so far
as the benefit of Clause 1(a) of Ext.P14 claimed by the petitioner is
concerned, reference is made to Ext.R1(d), the bio-data of the
Managing Director of the Company, and it is contended that the
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Managing Director is a technically competent person capable of
running the industrial unit. According to them, the closure of the
unit does not indicate the inability to run the unit. In so far as
Clause 1(b) of Ext.P14 is concerned, it is stated that the Directors
are very much alive that the petitioner has no case that any of its
Directors are sick. In so far as Clause 1(c) of Ext.P14 is concerned,
it is contended in the counter affidavit, that the petitioner has no
case that the company as well as the Directors are not financially
sound and that on the otherhand they possess assets worth crores.
In so far as Clause 1(d), it is stated that the petitioner could not
bring out any genuine reason in order to attract this Clause. In
short, what is stated in the affidavit is that the petitioner is not
entitled to any further benefit than what has already been extended
by the Respondents.
11. The learned counsel for the respondents also placed
reliance on Clause 17 of Ext.P13 providing that the amounts
prescribed for settlement in the table are only minimum amounts
and that all concerned shall negotiate for higher amounts
depending on the value of available securities, solvency and
repaying capacity of the borrowers / guarantors / co-obligants /
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legal heirs. Reliance was also placed on the judgment of the Apex
Court in U.P.Financial Corporation v. Gem Cap (India) Pvt. Ltd. And
Others (1993(2) SCC 299) and Haryana Financial Corporation and
Another v. Jagadamba Oil Mills And Another (2002(3) SCC 496).
The learned counsel also placed reliance on the Division Bench
judgment of the Allahabad High Court in Mahesh Chand Agarwal &
Anr. v. Union of India & Ors. (AIR 2007 Allahabad 119). According
to him, Ext.P14 is only a guideline conferring discretionary power on
the Corporation and that the benefit of the scheme cannot be
claimed as a matter of right and that too by taking recourse to a writ
of mandamus.
12. I have considered the submissions made by both sides.
13. Before Ext.P12 judgment was rendered by this Court in
WP(C) No.5271/2007, the Corporation had already assessed the
eligibility of the petitioner for the benefit of OTS scheme on the
basis of Ext.P13, the Recovery Policy for the financial year 2007-08.
Applying the standards laid down in Ext.P13 scheme, the
Corporation had classified the petitioner under D2. On this basis,
the Corporation assessed the eligibility of the petitioner for
concessions and held that the petitioner was entitled to waiver of
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50% of the penal interest. This was communicated to the petitioner
as per Ext.P11 dated 14/05/2008. Therefore, the fact that the
petitioner was eligible for the benefit of Ext.P13 scheme and that
the petitioner was entitled the benefit to those categorised under D2
cannot be disputed at this stage.
14. However, when the eligibility of the petitioner was
assessed and Ext.P11 was issued in May, 2008, the Corporation did
not take into account the amendment made to Ext.P13, by Ext.P14
dated 01/12/2007 and in fact this document was suppressed
before this Court. As per this amendment, those who are
categorized under S2, D1 & D2 were also eligible for the benefit of
OTS scheme provided they satisfy any of the four conditions
specified in paragraph 1 of Ext.P14, which reads as under:-
“1) It is decided to extend the OTS benefit to S2, D1 &
D2 cases also in the best interest of the Corporation on satisfying
any of the following conditions.
(a) the promoter(s) is/are unable to run the unit.
(b) Owners/co-obligants are dead or sick
(c) Owners/co-obligants are in financial difficulties and
(d) Other genuine reasons, beyond the control of the
entrepreneur / legal heirs."
The claim of the petitioner is mainly for the benefit of Clause 1(a) of
Ext.P14, which extends the benefit of OTS scheme to those
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run the unit.
15. In this case, the admitted factual position is that though
the Company commenced production in 2002, the factory was
closed in 2004 and has not been reopened so far. By that time loss
was incurred and default was committed in repayments and
ultimately by Ext.P1 dated 03/12/2005 that the petitioner had
applied for settling the liability under OTS Scheme. When Ext.P14
provides for extension of the benefit of Ext.P13 OTS Scheme in a
case where the promoter is unable to run the unit, the inability of
the promoter has to be appreciated in a pragmatic sense.
Otherwise, to deny the benefit there must be material to conclude
that the factory has been closed for malafide reasons. There is no
material in this case leading to such an inference. On the material
produced, I have no reason to think that an entrepreneur like the
petitioner would have left the unit closed since 2004 without any
reason.
16. The 1st respondent on the other hand disputes the claim
of the petitioner of its inability to run the unit, mainly relying on the
payments that the petitioner made pursuant to Exts.P7 and P9
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interim orders, Exts.R1(a) to R1(c), the bio-data of the Directors of
the Company, which also contains the details of the assets and
liabilities of the persons concerned and Ext.R1(d) is the bio-data of
the Managing Director of the Company, containing his age,
educational qualification, experience etc. On this basis, it is
contended that the case of inability canvassed by the petitioner is
incorrect. Although the learned counsel for the petitioner argued
that the Directors do not possess the assets indicated in the
statement of assets and liabilities, in my view a pronouncement on
this contention is unwarranted. What is contemplated in Clause 1(a)
is the inability of the promoters to run the unit. In my view, this
provision has to be viewed in a commercial and pragmatic sense,
and the inability to run the unit is the commercial inability which can
be spelt out when the unit itself is making losses leading to its
closure. Otherwise there must be material to conclude that the loss
and closure is deliberate and manipulated, which is absent in this
case. Further to say that payments made following Exts.P7 & P9
show the affluence of the promoters, to say the least, is perverse, in
as much those payments were made under compelling
circumstances and on the specific directions that it will be adjusted
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towards OTS liability. In my view, Clause 1(a) is attracted in this
case and therefore, the argument of the Corporation that the
petitioner is not eligible for the benefit of Clause 1(a) of Ext.P14 is
totally incorrect.
17. Shri.Sreekumar, the learned counsel for the respondent
Corporation relied on the judgments referred to above. In so far as
the judgments in U.P.Financial Corporation v. Gem Cap (India) Pvt.
Ltd. And Others (1993(2) SCC 299) and Haryana Financial
Corporation and Another v. Jagadamba Oil Mills And Another
(2002(3) SCC 496) are concerned, these are cases where in exercise
of powers under Article 226 of the Constitution of India, the
respective High Courts interfered with the proceedings initiated by
the State Financial Corporations concerned, invoking their right
under Section 29 of the State Financial Corporations Act. In the
facts of these cases, dealing with the law that is applicable, the
Apex Court held that the steps taken by the Corporation for
realising its dues, should not have been interfered with. In my view,
the law laid down in these two judgments can be of no application
to the facts of this case for the reason, that in this case, admittedly,
the Corporation had floated the OTS scheme, the benefit of which
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alone is claimed by the petitioner. If the rejection of the application
made by the petitioner was on erroneous grounds, this Court is
perfectly justified in interfering with such illegal rejection, and
directing that the benefit of the Scheme should be extended to the
petitioner, if they otherwise deserve the same. The next is the
decision of the Allahabad High Court in Mahesh Chand Agarwal &
Anr. v. Union of India & Ors. (AIR 2007 Allahabad 119). That again
was a case, where the High Court held that in the absence of an OTS
scheme, the Court cannot compel the Financial Corporation to settle
the liabilities, otherwise than in terms of the agreement between the
parties. Here again unlike the case dealt with by the Allahabad High
Court, what the petitioner herein claims is the benefit of the OTS
scheme floated and implemented by the respondent Corporation.
Therefore, the three judgments relied on by the learned counsel for
the respondent Corporation are totally irrelevant in so far as this
case is concerned. In this context, I should also make reference to
Exts.P16 & P17 proceedings of the respondent Corporation itself,
produced by the petitioner, where about 200 similar defaulters have
been given the benefit of OTS scheme and the petitioner has in
specific terms contended that they have been discriminated. In the
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counter affidavit filed, this contention of the petitioner is sought to
be brushed aside by making a general and vague statement that
each case is to be dealt with on its own merit. It may be true that
there is an element of discretion conferred on the respondents. But,
it being an instrumentality of state, cannot exercise the
discretionary power discriminatively or capriciously, I am also not
impressed with the argument that none can claim the benefit of the
scheme as a matter of right. Therefore, on the facts of this case, I
am satisfied that the petitioner is entitled to the benefit of Ext.P13,
giving the benefit of Clause 1(a) of Ext.P14, and by rejecting the
claim of the petitioner as per Ext.P19, the Corporation acted
arbitrarily.
18. Ordinarily, in a case of this nature, if Ext.P19 is held
erroneous, the course to be adopted is to set aside the same and to
direct the respondents to reconsider the matter in accordance with
the scheme floated by it. But, in this case, as already noticed, this is
the 3rd round of litigation and on a reading of Ext.P19, I am satisfied
that injustice has been done to the petitioner on unreasonable
grounds. Therefore, I do not think it proper to remit the matter for
reconsideration. For these reasons, I direct the respondent
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Corporation to extend the benefit of Ext.P13 OTS Scheme, treating
the petitioner’s case as one coming under Clause 1(a) of Ext.P14.
Orders shall be passed on Ext.P8 application made by the petitioner
in the light of the above, as expeditiously as possible, at any rate,
within four weeks of production of a copy of this judgment.
19. Needless to say that Rs.40 lakhs paid by the petitioner in
pursuance to Ext.P7, Rs.60 lakhs paid by the petitioner in pursuance
to Ext.P9 and Rs.3.4 lakhs paid by the petitioner on the disposal of
the industrial shed, will be given credit to the amount found to be
due from the petitioner towards the liability under the OTS scheme.
20. It is directed that both the parties shall maintain status
quo in regard to the assets of the Company until a decision is taken
as ordered above.
The writ petition is disposed of as above.
(ANTONY DOMINIC, JUDGE)
jg