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Judgment reserved on 7.12.2009
Judgment delivered on 25.1.2010
CIVIL MISC. WRIT PETITION NO. 12864 OF 1975
Standard Nut Manufacturers and another
vs.
The Collector/District Magistrate and others
Hon'ble Sunil Ambwani, J.
Hon’ble Virendra Singh, J.
This writ petition was filed on 2.12.1975, for a writ of mandamus
directing the respondents not to realise any amount from them as arrears of
land revenue and to quash the recovery certificate and citation dated
19.10.1975 for recovery of Rs. 55012.20 as the balance amount to be paid
by the petitioner under a hire purchase agreement dated 26.8.1970 with the
U.P. Small Industries Corporation Limited, Sarvodaya Nagar, Kanpur.
After exchange of affidavits the writ petition was dismissed by a
judgment dated 22.8.1995 for the reason that the U.P. Public Moneys
(Recovery of Dues) Act, 1972 is applicable to the dues recoverable under
the hire purchase agreement. The petitioners filed Civil Appeal No. 7341-
7343 of 1997 on the ground that the writ petition was decided in the
absence of appellant and their advocate. The Supreme Court, by its order
dated October 15, 2003, set aside the judgment and requested the High
Court to decide the matter on merits as expeditiously as possible. The writ
petition was listed on 6.1.2004 and was dismissed for want of prosecution.
The restoration application was allowed on 24.7.2008.
An amendment application filed on 27.7.2008 is still pending. In
paragraph 16 of the amendment application, it is stated that on 13.2.2008
the Sub Divisional Officer, Khurja,District Bulandshahr has issued an
attachment order attaching house No. 272 of petitioner no. 2 situate in
Mohalla Laxmanganj, Khurja, District Bulandshahr for recovering Rs. 1,
86, 121/- and expenses. The Sub Divisional Officer, Khurja has fixed a
public auction of the house to be held on 20.3.2008. It is stated in
paragraph-18 that the house is valued at Rs. 75 lacs. The petitioner no. 2,
under compulsion of the authorities recovering the amount, deposited Rs. 1,
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10, 000/- with Collection Amin on 17.3.2008 vide receipt of the same date
and a further amount of Rs. 1, 66, 022/- vide another receipt of the same
date totalling Rs. 2, 16, 622/-.
The petitioners have prayed for adding grounds Nos. (ix) to (xv)
challenging the recovery and deposit of Rs. 2, 16, 622/- under coercion and
for misusing the government machinery. They have also prayed to add
prayer no. (e) in the prayer clause in the writ petition for a direction to
refund the entire amount with 18% interest, and with exemplary costs of
Rs10 lacs. It is contended that the amendment application only seeks to
bring the subsequent events on the record during the pendency of the
restoration application. The amendment application is consequently
allowed.
Brief facts giving rise to this writ petition are that Shri Govind
Swarup Sharma-petitioner no. 2 applied for financial assistance from U.P.
Small Industries Corporation Limited (the Corporation) to set up a nut
manufacturing factory. The petitioner submitted a guarantee bond and
deposited Rs. 11, 440/- towards earnest money and supervision charges and
Rs. 2400/- as charges for supply of the raw material. The petitioner then
entered into an agreement dated 7.7.1970 with the Corporation. Some
machinery was supplied by the supplier of the Corporation between August
1970 to January 1971. The bench grinder was not supplied until 23.1.1971.
The petitioner informed the Corporation on 25.1.1971 that the machinery
supplied by the supplier is defective and is below standard, and that the
complete plant has not been supplied, and issued reminders on 8.2.1971 and
22.2.1971.
The petitioner once again informed the Corporation on 18.4.1971
that the machines have not been replaced and that the factory is suffering
losses. On 9.6.1971 the Corporation informed the petitioner that the
technical staff of the Corporation will visit the premises. On 16.6.1971 the
technical staff inspected the factory and found the machinery to be
defective, below standard and not workable. The supplier by its letter dated
27.1.1972 informed the Corporation that it is ready to replace the defective
machinery and charge lesser price and wanted approval of the Corporation.
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The supplier did not receive the approval of the Corporation and instead
vide letter dated 7.3.1972, the Corporation asked the petitioner to submit
confirmation of proposal for replacement and charging lesser price for
defective and below standard machinery. The petitioner conveyed the
approval on 27.3.1972. Thereafter nothing was heard from the Corporation.
A notice of demand was received for a sum of Rs. 13, 829.30 on
23.6.1972. The petitioner objected to the notice by his letter dated 3.7.1972
on which he was informed by the Corporation on 24.7.1972 that the matter
is still under consideration. The petitioner was asked to inform the
Corporation whether the bench grinder has been supplied and whether three
defective electric motors have been returned back by the petitioner to the
supplier. The petitioner wrote back to the Corporation on 8.8.1972, that the
bench grinder has not been received and three defective motors have been
sent back to the supplier. Again nothing was heard, and that on 15.11.1972
a notice of demand of Rs. 19, 931.53 was received and that thereafter a
certificate of recovery was sent by the Collector, Bulandshahr to recover
Rs. 34,000/- from the petitioner.
The petitioner wrote to Minister for Industries Department, U.P.
Government on 31.12.1973 and also wrote to the Corporation on 2.1.1974
that it had to suffer losses due to supply of defective and incomplete
machinery. The Corporation asked the petitioner to pay a sum of Rs. 6000/-
for rescheduling the instalments. The petitioner paid Rs. 6000/- but that
accounts were not settled and that again a demand of Rs. 38, 340/- was sent
to the petitioner and the recovery certificate was pressed. The petitioner
requested that the Corporation may dispose of the machinery. The
Corporation by its letter dated 17.11.1975 refused the permission and offer
to sell the machinery.
The recovery has been challenged on the ground that the dispute was
not settled. The petitioner could not enter into production on account of
supply of defective machinery and that if the machinery is sold, which is
valued and at not less than Rs.50,000/- to Rs. 60,000/-, the entire amount
will be recovered for which the petitioner has already deposited Rs.
18,000/-.
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In the counter affidavit of Shri G.A. Khan it is stated that the
petitioner applied for purchase of machinery under a hire purchase
agreement. The supplier was exclusive responsible to the petitioner to
supply proper machinery and that the Corporation was required to pay 90%
of the purchase amount. The balance amount of 10% was to be paid after
satisfactory certificate of working of machines was given by the petitioner.
The supply was made in the year 1970. The first intalment was due on
26.8.1971 and thereafter the amount was to be paid in eight instalments in
five years. Inspite of various demands the petitioner did not pay anything
except for initial deposit and service charges. When the recovery certificate
was issued, the petitioner deposited Rs. 3600/- in Tehsil Khurja and a
request was made that a sum of Rs. 2400/- be credited towards the hire
purchase agreement, out of the price of the raw material for rescheduling
the payment. In paragraph 16 of the counter affidavit, it is stated that the
letter written by the petitioner on 27.3.1972, was to the effect that unless
the difficulties are removed in the machinery or they are replaced, the
Corporation was not entitled to charge interest. As per terms of the
agreement the instalments had fallen due. In para 22 it is stated that the
supplier was the firm of the choice of the petitioner and in accordance with
the agreement, if there was any defect in the machinery, the Corporation
was not responsible. The defect pointed out by the petitioner in the
machines was a dispute between him and the supplier. In para 28 it is stated
that on the information that insptite of the offer made to the Tehsildar or the
District Magistrate or the Corporation the petitioner did not surrender the
possession of the machines.
A copy of the hire purchase agreement was required to be filed by
the Corporation. A supplementary counter affidavit was filed annexing the
agreement dated 26.8.1970. The hire purchase agreement provides in clause
2 (a) that the hirer shall on receipt of the property, inform within 30 days
thereafter to the owner the place where it has been installed or kept, and the
hirer shall not shift or remove the same from such premises without
obtaining prior permission in writing of the owner. Clause 2 (b) provides
that the hirer shall keep the property in his own custody at the address given
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in the agreement in good order, and repair and insured in the name of the
owner against fire, loss, damage or destruction and will not sell, mortgage,
pledge, assign, let or otherwise deal with or part with the possession of the
property. The remaining terms of the hire purchase agreement relate to the
terms of the repayment. The description of the six machines to be financed
by the Corporation was given on page 3 of the agreement. On the same
page in the next paragraph the agreement witnesses as follows:-
“AND WHEREAS the property described in the schedule hereto has
been purchased on the basis of the choice and desire of the Hirer
and has been selected at his instance and is subject to the usual
warranties of the supplier thereof regarding its type, make,
specifications, capacity etc., with which the owner is or shall in no
way be concerned or liable.”
At page 4 Clauses 4 (c) and 5 of the agreement are also relevant and
are quoted as below:-
“4 (c) The Hirer shall not be entitled to claim any
damages/compensation for such termination of the agreement and
taking over of possession of the property by the owner or for any
loss, damage, inconvenience that the hirer may directly or indirectly
incur, as a result of such termination of agreement or taking over the
said property by the owner.
5. The hirer shall be solely responsible for the proper upkeep of
the property as detailed in the schedule. He shall look after the
property by carrying out periodical repairs and normal overhaul.
The owner, shall not be responsible for any repairs, whether major
or minor and the repairs and upkeep expenses shall be borne solely
by the hirer.
The owner will have the right to bring to the notice of the
hirer through its inspecting staff/agents any deficiency in respect of
the above and in the event of the Hirer failing to remedy such
deficiency when called upon to do so the owner shall have the right
to terminate this agreement and retake possession of the said
property without prejudice to any claim of the owner for arrears of
hire-rent or damages for breach of this Agreement, and the hirer
shall not be entitled to claim any damages/compensation.”
Page 7 of the agreement provided in clause 11 (b) as follows:-
“(b) The property having been purchased by the Owner at the
instance of the Hirer and recording to the choice and desire of the
Hirer, if the Hirer shall of his own accord return the property to the
Owner during the period of operation of this agreement the Owner
6reserves the right to sell the same by private auction or by any other
means in its discretion, and if the resale value of the property falls
short of the Hire Purchase Price less the instalments (excluding
interest on instalments) paid by the Hirer, the resultant loss shall be
made good by the Hirer by paying the amount to the Owner within
thirty days of demand.
Clause 12 provides for return of the property, if the agreement is
terminated and clause 15 provides for reference of the disputes or
differences to the arbitration of the nominee of the Director of Industries of
the State of U.P. Clauses 12 and 15 are quoted as below:-
12. In the event of the hiring being determined by the Hirer or by
the owner under the provisions of this agreement, the Hirer shall
forthwith return the said property to the owner, and the owner and
its servants shall be entitled without any notice to enter upon any
premises where the said property may be and seize and take
possession thereof and the determination of the hiring as aforesaid
shall not affect or prejudice any claim the owner may have against
the Hirer for arrears of hire payments or for damages for breach of
this agreement or the owner’s right to enforce such claim by action
or otherwise.
15. That any dispute or difference which may arise between the
parties with regard to the construction, meaning and effect of this
deed or any part thereof or any other matter under this agreement
shall be referred to the arbitration of the nominee of the Director of
Industries of the State of Uttar Pradesh.”
Shri Ajit Kumar, learned counsel for the petitioner submits that the
machines were supplied by the supplier of the Corporation. The machines
were defective and thus the petitioner could not carry on the production. He
submits that the Corporation had carried out inspection and had agreed that
the machinery be returned and new machines be purchased at a lesser price.
The Corporation however illegally without complying with its promise
initiated recovery of the hire purchase amount. The petitioner was all along
ready and willing to return the defective machinery and for supply of the
machinery in accordance with the specification for manufacture.
The terms of the agreement clearly provided that the machinery shall
be supplied by the supplier of the choice of the hirer. The ownership of the
property however shall be with the Corporation. The petitioner has not
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pleaded or brought any material on record to show that no production was
carried out in the factory and that he suffered any losses. The profit and loss
account and the balance sheets of the relevant period have not been brought
on record. The correspondence clearly shows that when the instalments fell
due, the petitioner as a hirer started protesting about the quality of the
machinery. It is no doubt true that inspections were carried out and some
defects were found, but it is difficult for the Court in the Writ Petition to
decide whether the machineries were in such condition, that no production
was possible or that the Corporation was at fault. The terms of the
agreement did not provide for any negligence of the Corporation, in case of
supply of defective machineries by a supplier of the choice of the petitioner
as hirer. At one stage the petitioner offered to surrender the machines but
that there is no further correspondence to show that the offer actually
materialised.
The amount due under the hire purchase agreement to the notified
Corporation can be recovered under the U.P. Public Moneys (Recovery of
Dues) Act, 1972. Section 2 of the Act provides as follows:-
“2. Definitions- In this Act, unless the context otherwise
requires-
(a) “Corporation” means the Uttar Pradesh Financial Corporation
established under the State Financial Corporation Act, 1951, and
includes any other Corporation owned or controlled by the Central
Government or the State Government and specified in a notification
issued in that behalf by the State Government in the Official
Gazette;
(b) “financial assistance” means any financial assistance-
(i) for establishing, expanding, modernising, renovating or running
any industrial undertaking, or
(ii) for purposes of vocational training, or
(iii) for the development of agriculture, horticulture, animal
husbandry or agro-industry, or
(iv) for purposes of any other kind of planned development, or
(v) for relief against distress;
(c) “Government Company” means a Government Company as
defined in Section 617 of the Companies Act, 1956;
(d) “Industrial concern” has the meaning assigned to the
expression in the State Financial Corporation Act, 1951, as
8amended from time to time;
(e) “Industrial undertaking” includes any undertaking for the
manufacture, preservation, storage or processing of goods, or
mining or the hotel industry, or the transport of passengers or
goods, or the generation or distribution of electricity or any other
form of power or for the development of any continuous area of land
as an industrial estate;
Explanation- The expression “processing of goods” includes any
art or process for producing, preparing or making an article by
subjecting any material to a manual, mechanical, chemical,
electrical or any other like operation;
(f) “banking company” means the State Bank of India constituted
under the State Bank of India Act, 1955, a subsidiary bank as
defined in the State Bank of India (Subsidiary Banks) Act, 1959, a
corresponding new bank constituted under the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970, or a banking
company as defined in the Banking Regulation Act, 1949, (or a
financial bank (or Central Bank as defnined in the Uttar Pradesh
Co-operative Societies Act, 1965 not being a land development
bank);
(g) “State-sponsored scheme” means a scheme sponsored by way of
financial assistance by the State Government under which the State
Government either advances money to a banking company or a
Government Company for the purpose of disbursing loans, advances
or grants or for purposes of sale of goods on credit or hire-purchase
or guarantees or agrees to guarantee the repayment of a loan,
advance or grant or the payment of the price of goods sold on credit
or hire purchase (and includes any other scheme of financial
assistance, by a banking company or a Government company, which
is declared to be a State sponsored scheme by the State Government
by notification in the Gazette).”
We further find that if there was any dispute, the same could be
referred to the nominee of the Director of Industries. The petitioner did not
raise any dispute under the agreement to be decided by the Director of
Industries. We do not find it appropriate, in the facts and circumstances of
the case to refer the matter for arbitration or to relegate the petitioner to the
alternative remedies at this stage.
The writ petition is dismissed.
Dt.25.1.2010
RKP