JUDGMENT
Lokeshwar Singh Patna, J.
1. The above writ petitions have been filed seeking to strike down Section 3 of the H. P. Public Moneys (Recovery of Dues) Amendment Act, 1982 (hereinafter referred “the Act”), being ultra vires the Constitution of India and to quash the demand notices issued by
the managing director of the H. P. Financial Corporation (HPFC) and recovery notices by the Collectors of the Districts calling upon the petitioners to deposit the loan amount advanced to them and in default thereof, their movable and immovable property would be attached and recovery be effected as arrears of land revenue under the Himachal Pradesh Land Revenue Act, 1978. These writ petitions have to be dealt with in common since they not only raised common questions of law but learned counsel appearing also have made common submissions subject to certain variations pertaining to the facts of the each case. The factual details necessary for appreciating the claims of the contesting parties are as follows :
C. W. P. No. 375 of 1998.–The petitioner, Jagjeet Singh, stood guarantor to one Sawant Singh who borrowed loan amounting to Rs. 1,73,000 for the purchase of truck in the year 1982 from the respondent-financial corporation. The said Sawant Singh died on October 25, 1987, and before his death he had deposited a sum of Rs. 60,600 in the years 1983 to 1988. The petitioner alleged that the respondent-corporation sold the mortgaged truck on March 31, 1988, for a sum of Rs. 97,500. The petitioner also alleged that the respondent-corporation instead of taking any steps for recovering the outstanding loan from the legal heirs of the late Shri Sawant Singh, initiated proceedings against him under the Himachal Pradesh Public Moneys (Recovery of Dues) (Amendment) Act, 1982. The Collector District, Sirmour-respondent No. 2 directed the Tehsildar, Paonta Sahib, on March 3, 1997, to take steps for auctioning the land of the petitioner for recovery of loan amount and the petitioner was served with a notice dated August 29, 1997, vide which he was directed to deposit a sum of Rs. 5,91,352 before the Collector on or before September 15, 1997, failing which his land measuring 1-3 bighas situated in village Badripur, Tehsil Paonta Sahib will be put to auction. The petitioner was served with another notice by the respondent-Collector on May 21, 1998, marked annexure-PA to the writ petition calling upon him to deposit the loan amount within a period of 15 days failing which the land would be put to auction and the amount shall be recovered as arrears of land revenue.
C. W. P. No. 376 of 1998.–The petitioner, Dile Ram, was advanced loan of Rs. 1,33,000 by the respondent-corporation in the year 1987 for installation of steel and wooden steel industry in Tehsil Chhachyot, District Mandi. The petitioner mortgaged his 15 bighas of land in favour of respondent-corporation, vide deed executed at the time of execution of the agreement. The petitioner alleged that till the year 1995 he has repaid the loan amount approximately to the extent of Rs. 60,000 and on January 9, 1993, a fire broke out in his industry as a result of which the industry building along with machinery tools, accessories and stocks, etc., were damaged and on account of the fire incident, the petitioner failed to make the instalments of
the loan amount. The respondent-corporation sent the case of the petitioner to the respondent-Tehsildar (Recovery) under the Act for the recovery of Rs. 4,64,427 who initiated recovery proceedings against the petitioner and attached his immovable property under the Land Revenue Act.
C W. P. No. 533 of 1998.–The petitioner, Megh Singh and Parkash Chand, stood guarantors for the loan of Rs. 2,04,000 advanced to one Gian Chand Minhas by the respondent-corporation on March 17, 1983, for financing the purchase of a new TDB chassis, etc. The loan advanced to Gian Chand Minhas was payable in 20 quarterly instalments commencing from June 10, 1983, and the last instalment was to be paid on or before March 10, 1988. Gian Chand Minhas defaulted the payment of instalments and the respondent-corporation filed a suit on July 21, 1990, for recovery of Rs. 4,47,732 which was got dismissed as withdrawn on December 19, 1996. Thereafter, the petitioners were served with notices dated October 1, 1997, issued by the Collector, Kangra at Dharamshala calling upon the petitioners to deposit a sum of Rs. 13,22,230 and the said notices were issued by the respondent-Tehsildar under the Act.
2. On the premises of the abovestated facts, all the petitioners have prayed for striking down Section 3 of the Act being ultra vires the Constitution and to quash the notices issued by the authorities concerned.
3. The written statement on behalf of the respondent-corporation has been filed by Shri B.S. Thakur, Manager (Legal), of the corporation. The factual position averred by the petitioners is admitted by the respondent-corporation. It is alleged that the loanees committed persistent default in repaying the loan dues of the corporation in accordance with the agreed schedule and despite legal notices issued to them the loanees failed to make the payment and the respondent-corporation was left with no alternative but to initiate proceedings against the petitioners under the provisions of the Himachal Pradesh Public Moneys (Recovery of Dues) (Amendment) Act, 1982. It is also stated that Section 24 of the State Financial Corporations Act, 1951, stipulates the separate scheme and it does not correlate with the recovery action initiated by the respondent-corporation against the petitioners for realisation of its loan dues from the defaulters and the action of the respondent-corporation is legal, valid and constitutional to fulfil its statutory objectives, i.e., to boost the industrial growth of the State due to shortage of funds.
4. In his supplementary affidavit filed by Shri B.R. Bhalaik, Under Secretary (Revenue) to the Government of Himachal Pradesh on behalf of respondent No. 3 in C. W. P. No. 375 of 1998, it was alleged that the State Financial Corporations Act, 1951, was enacted under entry No. 43 of List I by Parliament and this Act provides procedure for recovery of dues from the defaulters by invoking Sections 29 and 31 of the Act. Section 46(b) expressly states that the provisions of that Act shall be in addition to and
not in derogation of any other law for the time being applicable to an industrial concern. Thus, it is clear that the financial corporation may also resort to any other mode provided under any other law made by the State for the recovery of its dues from the defaulters and the H. P. Public Moneys (Recovery of Dues) Act, 1973 (hereinafter referred to “Act No. 22 of 1973”), which was amended by Act No. 10 of 1982 was enacted with the sole object to provide for the speedy recovery of certain classes of dues by the State on the subject contained in List II of the Seventh Schedule. It is also stated that the managing director of the respondent-corporation is fully competent to send a certificate to the Collector mentioning the sum due from such defaulters and requesting that such sum together with the cost of the proceedings or other sum be recovered as arrears of land revenue.
5. Mr. Rajiv Sharma, learned counsel for the petitioner-Jagjeet Singh made the leading submissions and learned counsel appearing for the petitioners in the other two writ petitions have adopted the arguments of Mr. Sharma. Mr. Rajiv Sharma contended that the provisions of Section 3 of Act No. 22 of 1973 and Amendment Act No. 10 of 1982 were wholly ultra vires Article 14 of the Constitution as the State Legislature could not have enacted the impugned Act. In any case, the provisions of Act No. 22 of 1973 and Amendment Act No. 10 1982 were repugnant to those of the State Financial Corporations Act, 1951.
6. Act No. 22 of 1973 was passed in the year 1973 to provide for the speedy recovery of certain classes of dues payable to the H. P. Financial Corporation established under the State Financial Corporations Act, 1951, and any other corporation owned or controlled by the Central Government or the State Government which the State Government may, by notification, specify. The Act contains four sections. The first section deals with the title of the Act and the second section is the definition clause. Section 2(b) of the Act defines the expression “financial assistance” as any financial assistance ; (i) for the purposes of vocational or technical training; or (ii) for the construction of residential building ; or (iii) for providing drinking water kuhl or pipe line, or (iv) for the development of animal husbandry, agriculture or horticulture ; or (v) for establishing, expanding, modernising, renovating or running any village or cottage industry, industrial undertaking or agro-industry ; or (vi) for purposes of any other kind of planned development; or (vii) for relief against distress ; or (viii) for loan under the National Loan Scholarship Scheme. Section 3 of Act No. 22 of 1973 with which we are now concerned reads as follows :
“3. Recovery of certain dues as arrears of land revenue.–(1) Where any person either as principal or as surety or as guarantor is a party-
(a) (i) to any agreement relating to a loan, advance, grant, subsidy, stipend or scholarship given to him under that agreement or relating to
credit in respect of, or relating to hire purchase or goods sold by the State Government or the corporation by way of financial assistance ; or
(ii) to any agreement relating to a loan, advance, grant or subsidy given under that agreement or relating to credit in respect of, or relating to hire purchase of goods sold by the Government company under the sponsored scheme, or
(b) to any agreement relating to a guarantee given by the State Government or a corporation in respect of a loan raised by an industrial undertaking ; or
(c) to any agreement providing that any money payable thereunder to the State Government shall be recoverable as arrears of land revenue ; or
(d) to any agreement to sell or distribute goods or any other article supplied by or through the State Government and such person-
(i) makes any default in the repayment of the loan, advance stipend or scholarship or any instalment or interest thereof; or
(ii) having become liable under the conditions of the grant to refund the grant or any portion thereof, makes any default in repayment of such grant or portion or instalment thereof, or
(iii) having become liable to pay the price of the goods or any other article or interest thereof, fails to pay the same or part thereof, or
(iv) otherwise fails to comply with the terms of the agreement, then, in case of the State Government such officer as may be authorised in this behalf by the State Government by notification in the Official Gazette, and in the case of the corporation or the company the managing director thereof, may without prejudice to any other mode of recovery under any other law for the time being in force, send a certificate to the Collector, mentioning the sum due from such person and requesting that such sum together with the costs of the proceedings or any other sum, be recovered as if it were an arrear of land revenue.
(2) The Collector on receiving the certificate under Sub-section (1) shall proceed to recover the amount stated therein as an arrear of land revenue.
(3) Nothing in Sub-section (1) shall affect any interest of the State Government, a corporation or a Government company, in any property created by any mortgage, charge, pledge or other encumbrance.
(4) Where the property of any person referred to in Sub-section (1) is subject to any mortgage, charge or other encumbrance in favour of the State Government, a corporation or a Government company, then in every case of a pledge or hypothecation of goods, or a mortgage, charge or other encumbrance on immovable property, such property or, as the case may be, the interest of the defaulter therein, shall first be sold in proceedings for recovery of the sum due from that person, and if the proceeds of the
sale of the property are less than the sum due, proceedings may be taken against the other property of such person :
Provided that where the State Government, is of the opinion that it is necessary to do so for safeguarding the recovery of the sum due to it or to the corporation or Government company, as the case may be, it may, for reasons to be recorded, direct proceedings to be taken simultaneously for the recovery of the sum due in respect of goods pledged or hypothecated, the immovable property, mortgaged, charged or encumbered and other property of such person.”
7. Section 3 of the principal Act came to be amended by Section 4 of Act No. 10 of 1982 which reads as under :
“4. In Section 3 of the principal Act,–
(i) after the word ‘persons’ occurring for the first time in Sub-section (1), the words ‘either as principal or as surety or as guarantor’ shall be inserted ;
(ii) for Clauses (a) and (b) of Sub-section (1) the following Clauses (a) and (b) shall be substituted, namely ;–
‘(a) (i) to any agreement relating to a loan, advance, grant, subsidy, stipend or scholarship given to him under that agreement or relating to credit in respect of, or relating to hire purchase of, goods sold by the State Government or the corporation by way of financial assistance ; or
(ii) to any agreement relating to a loan, advance, grant or subsidy given under that agreement or relating to credit in respect of, or relating to hire purchase of, goods sold by the Government company under the sponsored scheme ; or
(b) to any agreement relating to a guarantee given by the State Government or a corporation in respect of a loan raised by an industrial undertaking ; or’
(iii) for the words ‘then, such officer as may be authorised in this behalf by the State Government by notification in the Official Gazette’, occurring in Sub-section (1), the words, then in the case of the State Government such officer as may be authorised in this behalf by the State Government, by notification in the Official Gazette, and in the case of the corporation or the company, the managing director thereof, shall be substituted ; and
(iv) after Sub-section (2), the following Sub-sections (3) and (4) shall be added, namely :–
‘(3) Nothing in Sub-section (1) shall affect any interest of the State Government, a corporation or a Government company, in any property created by any mortgage, charge, pledge or other encumbrance.
(4) Where the property of any person referred to in Sub-section (1) is subject to any mortgage, charge or other encumbrance in favour of the State Government, a corporation or a Government company, then in every
case of a pledge or hypothecation of goods, or a mortgage, charge or other encumbrance on immovable property, such property or, as the case may be, the interest of the defaulter therein, shall first be sold in proceedings for recovery of the sum due from that person, and if the proceeds of the sale of the property are less than the sum due, proceedings may be taken against the other property of such person :
Provided that where the State Government is of the opinion that it is necessary to do so for safeguarding the recovery of the sum due to it or to the corporation or Government company, as the case may be, it may, for reasons to be recorded, direct proceedings to be taken simultaneously for the recovery of the sum due in respect of goods pledged or hypothecated, the immovable property mortgaged, charged or encumbered and other property or such persons.”
8. It may be seen that Section 3(1)(c) of the principal Act provides that any money payable thereunder to the State Government shall be recoverable as arrears of land revenue. Section 3(1)(d) of the Act provides that where such person makes any default in repayment of the loan, advance, stipend or scholarship or any instalment or interest thereof due and payable by him the arrears may be recovered as if it were an arrear of land revenue by issuing a certificate to the Collector. The Collector on receiving the certificate under Sub-section (1) shall proceed to recover the amount stated therein as an arrear of land revenue under Sub-section (2) of Section 3. By amendment of Section 3 of the principal Act, the word “person” occurring for the first time in Sub-section (1), the words “either as principal or as surety or as guarantor” came to be inserted. The remedy of the State Government or the corporation to recover the loan amount by instituting a suit also remains unaffected by the principal Act.
9. The question for determination in this case is whether Section 3 of the principal Act or as amended by Act No. 10 of 1982 violates Article 14 of the Constitution. In order to decide this question, it is necessary to determine the object of the principal Act and whether the classification made between the State on the one hand and others who have also advanced moneys under the mortgage deeds bears any reasonable relation to the object of the statute. The principal Act is passed with the object of providing a speedier remedy to the State Government or corporation to realise the loans advanced by it. The State Government or corporation while advancing loans does not act as an ordinary banker with a view to earning interest. Ordinarily, it advances loans in order to assist the people financially in establishing an industry in the State or for the development of agriculture, animal husbandry, residential building or the transport of passengers or goods, etc. and for such other purposes which would advance the economic well-being of the people. The amounts so advanced are repayable in easy instalments with interest which would ordinarily be
lower than the rate of interest payable on loans advanced by banking institutions which are run on commercial lines. The loans are advanced from and out of the funds of the State in which all the people of the State are vitally interested. Moneys advanced by the State Government or the corporation have got to be recovered expeditiously so that fresh advance may be made to others who have not yet received financial assistance from the State Government or the corporation. If the State Government or the corporation should resort to a remedy by way of a suit on the mortgage deeds or bonds executed in its favour, the realisation of the amounts due to the Government is bound to be delayed resulting in non-availability of sufficient funds in the hands of the State Government for advancing fresh loans. It is with the object of avoiding the usual delay involved in the disposal of suits in the civil court and providing for an expeditious remedy, the principal Act has been enacted. It cannot, therefore, be said that there is no reasonable basis for the classification made by the statute and that the classification does not have a reasonable relation to the object of the statute.
10. It is no doubt true that there is no express provision in the principal Act containing such guidelines to the authorities concerned regarding the circumstances under which the amounts could be realised by resorting to the procedure prescribed for recovering arrears of land revenue. That, however, in the circumstances of the case it is not sufficient to hold that Section 3 of the principal Act confers arbitrary power on the State Government or the corporation and makes a hostile discrimination. Under Section 3 of the principal Act, the Collector can proceed to realise the amount due as arrears of land revenue only on the basis of a certificate, issued by an officer as may be authorised in that behalf by the State Government or the corporation mentioning the sum due from any person referred to therein. Such officer is expected ordinarily to avail himself of the speedier remedy provided under the statute. We are of the view that the principal Act which is passed with the object of providing a speedier remedy itself provides sufficient guidance to the officer concerned as to when he should resort to the remedy provided by it.
11. Certain provisions similar to the principal Act and Amendment Act impugned in these cases enabling the State Government to recover the amounts due to it by resorting to a speedier remedy have been upheld by the apex court in three cases, namely, Manna Lal v. Collector of Jhalawar, AIR 1961 SC 828, Lachhman Das v. State of Punjab, AIR 1963 SC 222 and Director of Industries v. Deep Chand Agarwal [1980] 2 SCC 332. In Director of Industries v. Deep Chand Agarwal [1980] 2 SCC 332, the question which arose for consideration was whether Section 3 of the Public Moneys (Recovery of Dues) Act, 1965 (U. P. Act No. XXV of 1965) offended Article 14 of the Constitution. Their Lordships answered that Section 3 could not be
held to be discriminatory and violative of Article 14 of the Constitution, In that case, it was emphasised by their Lordships that “the moneys advanced by the State Government have got to be recovered expeditiousiy so that fresh advances may be made by the State Government. It is with the object of avoiding the usual delay involved in the disposal of suits in civil courts and providing for an expeditious remedy, the Act has been enacted”. Section 3 which was almost in similar and identical terms was upheld by their Lordships. In Vivek Sarin v. State of Haryana [1999] 96 Comp Cas 907 the vires of the Haryana Public Moneys (Recovery of Dues) Act, 1979, came to be challenged before a Division Bench of the Punjab and Haryana High Court and the learned judges held that the Act is within the legislative competence of the State Legislature and the Legislature is competent to legislate in respect of “public debt of State”. The State law is concluded to ensure a quick recovery of the public dues. The impugned legislation squarely falls within entry 43 and this finding was recorded by the court relying upon the judgment of the apex court in Director of Industries v. Deep Chand Agarwal [1980] 2 SCC 332. In State of Tamil Nadu v. G.N. Venkataswamy [1994] 5 SCC 314, the validity of Section 52A of the Tamil Nadu Revenue Recovery Act, 1864, amended by the Tamil Nadu Revenue Recovery (Amendment) Act, 1972, came to be challenged on the ground that the Tamil Nadu Legislature has no legislative competence to enact the section and the said section was violative of Article 14 of the Constitution of India. Section 52A deals with recovery of sums due to the Tamil Nadu Agro Industries Corporation and other corporations, etc. Their Lordships of the Supreme Court held (page 322) : “that Section 52A of the Act is passed with the object of providing a speedier remedy to the State-owned corporations to realise the loan advanced by them. While advancing loans the corporations do not act as ordinary bankers with a view to earn interest. The loans are advanced as a financial assistance to establish an industry, develop agriculture or any other purpose which would advance the well being of the people…. The loans are advanced out of the funds of the State which is a public money. Money has to be recovered expeditiousiy so that fresh advances be made to others who have not yet received financial assistance from the State agencies. If the corporations are left to a remedy of a suit the recovery is bound to be delayed considerably. It is with the object of avoiding the unusual delay which normally takes place in the civil courts, the expeditious remedy by enacting Section 52A has been provided”. Thus, Section 52A of the Act has been brought on the statute book with a view to expedite recovery of the loans advanced by the corporations. The legislation is directly related to entry 30 List II of the Constitution of India. Applying the ratio of law laid down in the above referred to judgments in the cases on hand, the submissions of learned counsel for the petitioners that Section 3 of the impugned Act is violative of Article 14
of the Constitution of India is answered against the petitioners. Thus, the State legislation was clearly within the competence of the Legislature. Consequently, Section 3 of the Act is not ultra vires and the Act which is passed with the object of providing a speedier remedy itself provides sufficient guidance to the officer concerned as to when he should resort to the remedy provided by it.
12. The next contention of learned counsel was that the provisions of the Act are not applicable to those petitioners who stood guarantors in respect of the loan amount advanced to the principal loanee since they have not been rendered financial assistance defined in Section 2(b) of the principal Act. We are afraid to accept the contention of learned counsel for the reason that under Section 2(b), Clause (v) of the principal Act “financial assistance” is rendered for establishing, expanding, modernising, renovating or running any village or cottage industry, industrial undertaking or agro-industry. “Industrial undertaking” means and includes under Section 2(d) any undertaking for the manufacture, preservation, storage or processing of goods, or mining, or the hotel industry, or the transport of passengers or goods, etc. In the present cases, the loan was advanced to the principal loanee for establishing industrial units or purchasing transports for carrying goods. Under the amended Section 3 of the principal Act after the word “person” is inserted “either as principal or as surety or as guarantor” and the property of the principal loanee, or surety or guarantor hypothecated, mortgaged or encumbered with the State Government, corporation or a Government company shall be sold in proceedings for the recovery of sums due from that person under Sections 3 and 4 of the principal Act and similar provisions are incorporated in the amended Act. The proposition of law settled by the apex court in Califf India Ltd. v. Syndicate Bank [1999] 97 Comp Cas 61 (SC) relied on by learned counsel for the petitioners is of no assistance to them in the present cases. In that case, their Lordships were dealing with expression “development scheme” as defined in Clause (1) of the Explanation to Section 71 of the Kerala Revenue Recovery Act, 1968, and said that “development scheme” is an exclusive definition and the respondent-bank has not been able to show that the bank has framed any “development scheme” and the loan was advanced by the respondent-bank to the appellants under such scheme. Nor was there anything to show that any “development scheme” was approved by the State/ Central Government or other Government agencies with a view to meet living conditions of the economically and socially weaker sections of the community and the loan was advanced to the appellants under such a scheme. Their Lordships proceeded to hold that no material was placed before the court by the respondent-bank to show that the loan advanced by the bank was under any “development scheme”. In the present case as noticed in the earlier part of the judgment “financial assistance” has been
given to the principal loanee, and surety or guarantor is a person party to the agreement relating to a loan which is in the nature of “financial assistance” to the parties concerned. Thus, the petitioners cannot derive any assistance from the decisions of the apex court relied on by their learned counsel. The second contention too is answered against the petitioners.
13. Mr. Rajiv Sharma further contended that the managing director of the respondent-corporation cannot be a judge of his own cause and, therefore, there is strong departmental bias on his part while issuing the certificate under Section 3(1)(d)(iv) of the principal Act mentioning the sum due from the borrower and requesting the Collector to proceed against the person concerned under the Act. In support of his submission he relied on various judgments of the Supreme Court and High Courts, namely, Gullapalli Nageswara Rao v. Andhra Pradesh State Road Transport Corporation, AIR 1959 SC 308, Kraipak (A.K.) v. Union of India, AIR 1970 SC 150, Mohapatra (J.) and Co. v. State of Orissa [1984] AIR 1984 SC 1572, Krishna Bus Service Pat. Ltd. v. State of Haryana [1985] AIR 1985 SC 1651 and Rajeev Anand v. Union of India [1998] 93 Comp Cas 89 (Delhi). In Gullapalli Nageswara Rao’s case, AIR 1959 SC 308, one of the questions involved for consideration before their Lordships of the Supreme Court was whether the scheme framed by the State Government under the Motor Vehicles Act, 1939, and of Rules 8, 9 and 10 of the Motor Vehicles Rules imposing duty on the State Government to decide to act judicially in approving or modifying the scheme proposed by the transport undertaking and if an authority is called upon to decide respective rights of contesting parties or, to put it in other words, if there is a lis, ordinarily there will be a duty on the part of the said authority to act judicially. In that case pursuant to the Rules, the Minister who was in charge of transport made an order directing” the Secretary to the Government to hear objections filed under Section 68D against the scheme proposed by the State Transport Department, gave a personal hearing to the parties who had filed objections, and the entire material recorded by him was placed before the Minister incharge of the Transport Department who made his order approving the scheme and the order was issued in the name of the Governor, authenticated by the Secretary-in-Charge of the Transport Department. It was observed that the State Government gave hearing to the parties filing objections in the manner prescribed by the Rules made by the Government, but such a hearing given by the Secretary, Transport Department, offended the principles of natural justice, that the authority empowered to decide the dispute between the opposing parties must be one without bias, and the proceeding and the hearing given, in violation of that principle are bad. It was further held that while the Act and the Rules framed thereunder impose a duty on the State Government to give a personal hearing, the procedure prescribed by the Rules imposes a
duty on the Secretary to hear and the Chief Minister to decide. This divided responsibility is destructive of the concept of judicial hearing. Such a procedure defeats the object of personal hearing. Personal hearing enables the authority concerned to watch the demeanour of the witnesses and clear up his doubts during the course of the arguments, and the party appearing to persuade the authority by reasoned argument to accept his point of view. If one person hears and another decides, then personal hearing becomes an empty formality. Therefore, the said procedure followed in that case also offended another basic principle of judicial procedure. From the reading of the said judgment it is clear that in that case the parties objecting to the framing of the scheme were heard by the Secretary Transport whereas the decision was taken by the Minister concerned. In Kraipak’s case, AIR 1970 SC 150 their Lordships of the Supreme Court held that one of the members of the selection board constituted under Regulation 3 of the Indian Forest Service (Initial) Recruitment Regulations, 1966, framed under Rule 3 of the Indian Forest Service Recruitment Rules, 1966, was one of the candidates to be considered for selection and it was in the interest of that member to keep out his rivals in order to secure his position from further challenge, though he did not participate in the deliberations of the committee, when his name was considered. But then the very fact that he was a member of the selection board must have had its own impact on the decision of the selection board. He was also a party to the preparation of the list of selected candidates in order of preference. At every stage of his participation in the deliberations of the selection board, there was a conflict between his interest and duty and under those circumstances it was difficult to believe that he could have been impartial. Naturally he was also interested in safe-guarding his position while preparing the list of selected candidates. It was in these circumstances that the selection list prepared by such board was vitiated and the final recommendations made by the U. P. S. C. on its basis was also vitiated. In Mohapatra (J.) and Co. v. State of Orissa, AIR 1984 SC 1572, the question before their Lordships of the Supreme Court was whether selection of books for school and college libraries made by the State Government on the recommendations of a committee constituted by it in which one of the authors submitting books for selection was a member of the committee rendered the selection of the books vitiated on the ground of bias of such member. The judges held that the author-member could subtly influence the minds of the other members against selecting books by other authors in preference to his own and it could also be that books by some of the other members may also have been submitted for selection and there could be between them a quid pro quo or, in other words, “you see that my book is selected and in return I will do the same for you”. In either case, when
a book of an author-member came up for consideration, the other members would feel themselves embarrassed in frankly discussing its merits. Such author-member may also be a person holding a high official position whom the other members may not want to displease. In these circumstances, it was observed that it was not, therefore, the actual bias in favour of the author-member that was the material but the possibility of such bias. On the basis of these facts the selection of the books recommended by the sub-committee to the State Government was vitiated. In Krishna Bus Service Pvt. Ltd. v. State of Haryana, AIR 1985 SC 1651, the State of Haryana appointed the General Manager, Haryana Roadways, a department of the State, who is directly responsible for running its motor vehicle as one of the officers who can exercise the powers of a Deputy Superintendent of Police under the Motor Vehicles Act, 1939, and imposed an unreasonable restriction on the fundamental right of the private motor vehicle operator and was, therefore, violative of Article 19(1)(g) of the Constitution. The judges proceeded to hold that the powers of stopping the motor vehicles and the powers of inspection, search, seizure and detention exercised under the Act are serious restrictions on the fundamental right of the operators of motor vehicles guaranteed under 19(1)(g) of the Constitution and these powers can be considered as reasonable restrictions only when they are exercised properly in the interests of the general public. It was further held that the appointment of the general manager as an officer who can exercise the powers of the Deputy Superintendent of Police under the Act is also not in the interest of the general public since the large number of motor vehicles owned by the Haryana Roadways would not be subject to inspection and checking by an independent agency. The Legislature could not have intended while enacting Section 133A that a person who was himself directly responsible for the proper running of the motor vehicles according to law could be appointed as the Inspecting and Investigating Officer by the State Government for the purpose of enforcing the Act. Consequently, the notification issued by the Haryana State by which the General Manager, Haryana Roadways was conferred the powers exercisable by a Deputy Superintendent of Police under the Act was held to be invalid. In Rajeev Anand v. Union of India [1998] 93 Comp Cas 89 (Delhi), a Division Bench of the Delhi High Court dealing with the appointment of a managing director of the financial corporation as an authority under Section 32G of the State Financial Corporations Act, 1951, held that though Section 32G is not unconstitutional it postulates appointment of an independent person and thus it deserves to be declared that the managing director or any other officer of the Financial Corporation cannot be appointed by the State Government as an authority under Section 32G of the Act.
14. After analysing the ratio of law laid down in the above stated judgments, we are of the view that the reasoning of those cases is of no assistance to the petitioners in these cases. We have held that Section 3 of the principal Act is not unconstitutional and violative of Article 14 of the Constitution. Under Section 3(1)(d)(iv), the managing director of the corporation or the company is authorised without prejudice to any other mode of recovery under any other law for the time being in force to send a certificate to the Collector, mentioning the sum due from such person and requesting that such sum together with the costs of the proceedings be recovered as if it were an arrear of land revenue. This power has been given to the managing director by the statute itself and it is not the authorisation of the State by notification to appoint the managing director of the respondent-corporation for discharging such duties. The Financial Corporation which is an artificial person shall act through the board of directors assisted by an executive committee and a managing director. All the functions, powers and duties under the Act which the State Financial Corporation has to or can perform, exercise and discharge, shall be carried out through the board of directors assisted by the executive committee and the managing director. The board of directors is vested with the management of the financial corporation and the managing director thereof acts on behalf of the board of directors. The managing director is vested with the duties and obligations to realize the loan amount advanced by the respondent-corporation under Section 3(1)(a)(i) of the principal Act and it is in the public interest that he should act in accordance with law and the power to issue recovery certificate is vested in him under Section 3(1)(d)(iv) of the principal Act. While exercising those powers, duties and obligations, the managing director is bound to act fairly, reasonably and without entertaining any personal or departmental bias. The fairness required of the corporation cannot be carried to the extent of disabling it from recovering what is due to it. Fairness is not a one way street, more particularly in matters like the present one. The apex court in U. P. Financial Corporation v. Gem Cap (India) P. Ltd. [1993] 78 Comp Cas 408 (SC), held that in a matter between the corporation and its debtor, a writ court has no say except in two situations : (1) there is a statutory violation on the part of the Corporation, or (2) where the corporation acts unfairly i.e., unreasonably. Acting unfairly or unreasonably does not mean that the High Court exercising its jurisdiction under Article 226 of the Constitution can sit as an appellate authority over the acts and deeds of the corporation and seek to correct them. That is not the function of the High Court under Article 226. The doctrine of fairness, evolved in administrative law was not supposed to convert the writ courts into appellate authorities over administrative authorities. The constraints, self-imposed, undoubtedly, of writ jurisdiction still remain. Ignoring them
would lead to confusion and uncertainty. Since the managing director is authorised to issue the certificate under the principal Act and he has to exercise all the powers or the functions which may be exercised or discharged by the financial corporation under Section 9 of the Act and it is under the doctrine of necessity that the managing director is the authority or judge to decide the issue of effecting recovery of the loan amount by issuing the recovery certificate. It is well settled that the law permits certain things to be done as a matter of necessity which it would otherwise not countenance on the touch stone of judicial propriety. The doctrine of necessity makes it imperative for the authority to decide and considerations of judicial propriety must yield. If the doctrine of necessity is not allowed full play in certain unavoidable situations, it would impede the course of justice itself and the defaulting party would benefit therefrom. Thus, the submission of the learned counsel for the petitioners that the managing director has acted with departmental bias cannot be accepted for these reasons. In support of our view we are backed by well settled law of the apex court in Election Commission of India v. Dr. Subramaniam Swamy [1996] 4 SCC 104.
15. Mr. Rajiv Sharma next contended that the corporation or its managing director is bound to act reasonably and fairly in dealing with the property of the debtor before sending a certificate to the Collector mentioning the sum due asking the Collector to recover the outstanding loan as arrear of land revenue. This action of the respondent-corporation or the managing director entails civil consequences and is not in conformity with the principles of natural justice. The said action is arbitrary, unfair, unreasonable and unjust. To buttress his contention Mr. Sharma relied on State of Orissa v. Binapani Dei, AIR 1967 SC 1269, Kraipak (A.K.) v. Union of India AIR 1970 SC 150, Chairman, Board of Mining Examination and Chief Inspector of Mines v. Ramjee [1977] 2 SCC 256, Mohinder Singh Gill v. Chief Election Commissioner [1978] 1 SCC 405, Kapoor (S.L.) v. Jagmohan, AIR 1981 SC 136, Kamath (M.A.) v. Karnataka State Financial Corporation, AIR 1981 Kar 193, Kumari Shrilekha Vidyarthi v. State of U. P. [1991] 1 SCC 212, Yadav (D.K.) v. J. M. A. Industries Ltd. [1993] 83 FJR 271 (SC); [1993] 3 SCC 259 and a Division Bench judgment of this court rendered in C. W. P. No. 832 of 1992, decided on March 17, 1998– Leela Dutt v. Himachal Pradesh Financial Corporation [1998] 93 Comp Cas 388.
16. Per contra learned counsel for the respondent-corporation contended that the sum due under Section 3(1)(d)(iv) is determined by the managing director of the respondent-corporation based on the documents such as agreement deed, hypothecation deed, guarantee deed and accounts maintained in the official business and that the provisions of the statute do not envisage that before issuing of the certificate, the debtors have to be heard by the managing director of the corporation and the action of the
managing director does not involve any violation of the principles of natural justice.
17. The point in issue whether the petitioners or the parties would be given reasonable opportunity of hearing before any adverse order is passed against them in application of the principles of natural justice is no longer res integra in view of the judgment of the Karnataka High Court in Kamath (M.A.) v. Karnataka State Financial Corporation, AIR 1981 Kar 193, and the decision of this court in Leela Dutt v. Himachal Pradesh Financial Corporation [1998] 93 Comp Cas 388. The learned judges of the Karnataka High Court have held that the certificate issued by the managing director to the Deputy Commissioner for recovery of loans due as arrears of land revenue was violative of the principles of natural justice, as no opportunity was given to the loanee concerned by issuing a show cause notice or by holding enquiry about the actual amount due and payable by him. The same view was taken by a Division Bench of this court in Leela Dutt’s case [1998] 93 Comp Cas 388. We may usefully rely on the judgment of the apex court in Bhargava (S.K.) v. Collector [1998] 92 Comp Cas 791 (SC), which has got a direct bearing on the point and deals with almost identical provisions in ‘the Haryana Public Moneys (Recovery of Dues) Act, 1979. In that case their Lordships while dealing with the provisions of Sections 3(1)(b), (2), (3) and (4) held that from analysing the provisions of Section 3 of the Haryana Public Moneys (Recovery of Dues) Act, 1979, it is clear that before a certificate can be issued by the managing director under Section 3(2), he must determine the “sum due” from the defaulter as enjoined upon him by Section 3(1)(b). It is not possible to accept the contention of the respondent-financial corporation that any such determination can take place without notice to the defaulter. There can be no doubt that any such determination by the managing director will result in civil consequences ensuing. Their Lordships proceeded further to observe that although 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, 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 word “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.
18. It is not necessary to elaborately discuss the various other authorities noticed above on the point of violation of natural justice. To our mind, the view we have expressed above is plainly and squarely covered by the principles of law enunciated by the Karnataka High Court, this court in Leela Dutt’s case [1998] 93 Comp Cas 388 and on the top of it by the apex court in Bhargava (S.K.)’s case [1998] 92 Comp Cas 791 (SC). The summary remedy provided by Section 3 for the recovery of sums due to the State Government or to the respondent-corporation must be restricted to sums legally recoverable, i.e., sums which are admitted or proved to be due and cannot be extended to sums which are alleged or claimed to be due. Without affording opportunity to the petitioners to put their defences against the decision of the managing director of the respondent-corporation before determining the sum due by him, it cannot be presumed and assumed that the sum due determined by him is legally recoverable from the petitioners.
19. For the reasons stated hereinabove, admittedly, the principles of natural justice were not complied with, it must be held that determination of the sum due by the managing director under Section 3(1)(d)(iv) and in consequence the certificates issued under the Act and further proceedings initiated against the petitioners for recovery of loan and interest as arrears of land revenue by the respondent-Collector were vitiated for the only said reason and, therefore, quashed.
20. We, accordingly, allow these petitions in these terms. The managing director of the respondent-corporation will be at liberty to take proceedings afresh for recovery of the amounts due in accordance with law and in the light of the observations made in this judgment.
21. There will be no order as to costs.
C. M. P. Nos. 741, 743 and 1049 of 1998.
22. In view of the disposal of the writ petitions, these applications are also disposed of and the interim orders are vacated.