{"id":207203,"date":"2006-09-26T00:00:00","date_gmt":"2006-09-25T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ashok-mahajan-vs-state-of-u-p-ors-on-26-september-2006"},"modified":"2015-05-14T09:45:38","modified_gmt":"2015-05-14T04:15:38","slug":"ashok-mahajan-vs-state-of-u-p-ors-on-26-september-2006","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ashok-mahajan-vs-state-of-u-p-ors-on-26-september-2006","title":{"rendered":"Ashok Mahajan vs State Of U.P. &amp; Ors on 26 September, 2006"},"content":{"rendered":"<div class=\"docsource_main\">Supreme Court of India<\/div>\n<div class=\"doc_title\">Ashok Mahajan vs State Of U.P. &amp; Ors on 26 September, 2006<\/div>\n<div class=\"doc_author\">Author: A Pasayat<\/div>\n<div class=\"doc_bench\">Bench: Arijit Pasayat, Lokeshwar Singh Panta<\/div>\n<pre>           CASE NO.:\nAppeal (civil)  4257 of 2006\n\nPETITIONER:\nAshok Mahajan\n\nRESPONDENT:\nState of U.P. &amp; Ors\n\nDATE OF JUDGMENT: 26\/09\/2006\n\nBENCH:\nARIJIT PASAYAT &amp; LOKESHWAR SINGH PANTA\n\nJUDGMENT:\n<\/pre>\n<p>J U D G M E N T<br \/>\n(Arising out of S.L.P. (C) No. 21243-245 of 2004)<\/p>\n<p>ARIJIT PASAYAT, J.\n<\/p>\n<p>Leave granted.\n<\/p>\n<p>Appellant calls in question legality of the judgment<br \/>\nrendered by a Division Bench of the Allahabad High Court<br \/>\ndismissing the writ petition filed by the appellant. The said<br \/>\nwrit petition was filed under Article 226 of the Constitution of<br \/>\nIndia, 1950 (in short &#8216;the Constitution&#8217;) for quashing the<br \/>\nrecovery certificate dated 24.4.2002 issued by the respondents<br \/>\n1 and 2.\n<\/p>\n<p>Background facts as projected by appellant in a nutshell<br \/>\nare as follows:\n<\/p>\n<p>One M\/s Denin Leathers Limited (hereinafter referred to<br \/>\nas the &#8216;borrower&#8217;) had taken term loan of Rs.40 lacs from<br \/>\nPradeshiya Industrial and Investment Corporation, Uttar<br \/>\nPradesh Limited (in short &#8216;PICUP&#8217;) and had mortgaged its<br \/>\nimmovable properties to secure the loan.  Initially the<br \/>\nborrower had commenced its business as a private limited<br \/>\ncompany in 1979 but subsequently in the year 1995 it was<br \/>\nconverted to a Public Limited Company. While the borrower<br \/>\nbecomes a public limited company, appellant&#8217;s name was<br \/>\nincluded as a Director.  On 7.7.1998 a recovery certificate was<br \/>\nissued in respect of one Sanjay Mahajan who was one of the<br \/>\nguarantors in respect of the loan.  According to the appellant<br \/>\ndue to continued losses the financial condition of the company<br \/>\nwas bad and added to the financial problems in the year 1999<br \/>\nbecause of a devastating fire, assets of the company were<br \/>\ndestroyed. On 2.2.2002 recovery certificate was issued against<br \/>\nthe guarantors, namely, Keshav Ram Mahajan, Sanjay<br \/>\nMahajan and Smt. Juli Mahajan. On 25.7.2002 the house and<br \/>\nhousehold articles of the appellant were attached by the<br \/>\nDistrict Authorities by an order to the effect that dues<br \/>\namounted to nearly Rs.1.24 crores plus interest plus 10%<br \/>\ncollection charges. Appellant made a representation to the<br \/>\nauthorities stating that he was not a guarantor though<br \/>\ncoercive steps were taken against him. The appellant was<br \/>\narrested on 24.11.2002.  The recovery certificate was issued<br \/>\non 24.4.2002, as the appellant subsequently learnt in the<br \/>\nname of the appellant as well as Keshav Mahajan, Ajay<br \/>\nMahajan and Sanjay Mahajan. Auction proceedings in respect<br \/>\nof property took place on 21.4.2003 under the Uttar Pradesh<br \/>\nPublic Moneys (Recovery of Dues Act) 1972 (in short the &#8216;Act&#8217;).<br \/>\nThe date for fresh auction was fixed on 22.5.2003 under<br \/>\nSection 4 of the Act as well as under several other statutes.<br \/>\nAppellant filed the writ petition on the ground that under the<br \/>\nAct the recovery could not have been made.  The High Court<br \/>\nwith reference to terms of guarantee rejected the stand and<br \/>\nheld that the Collector was entitled to recover the amount as<br \/>\narrears of land revenue under Section 279(1)(b) of the Uttar<br \/>\nPradesh Zamindari Abolition Act, 1950 (in short the<br \/>\n&#8216;Zamindari Act&#8217;).\n<\/p>\n<p>Learned counsel for the appellant submitted that even if<br \/>\nit is conceded that the appellant had any liability, the<br \/>\nproperties of the principal borrower had to be dealt with first.\n<\/p>\n<p>In response, learned counsel for the respondent<br \/>\nsubmitted that as borrower has no property, as is accepted in<br \/>\nvarious documents, therefore, the properties of the appellant<br \/>\nhave been rightly dealt with. It is submitted that the appellant<br \/>\nhas been changing his stand.  Initially he stated that he was<br \/>\nnot a guarantor and subsequently says that even if he is a<br \/>\nguarantor properties of the borrower have to be dealt with<br \/>\nfirst.\n<\/p>\n<p>At this juncture it would be appropriate to take note of<br \/>\nthe following observations of this Court in <a href=\"\/doc\/1457326\/\">Pawan Kumar Jain<br \/>\nv. Pradeshiya Industrial and Investment Corpn. of U.P.<br \/>\nLimited<\/a> (2004 (6) SCC 758).\n<\/p>\n<p>&#8220;5. Mr. Mohta then relied upon Sections 3<br \/>\nand 4 of the U. P. Act, which read as follows:-\n<\/p>\n<p>3. Recovery of certain dues as arrears of<br \/>\nland revenue.&#8211;(1) Where any person is party-\n<\/p>\n<p>(a) to any agreement relating to a loan,<br \/>\nadvance or grant given to him or relating to<br \/>\ncredit in respect of, or relating to hire-<br \/>\npurchase of goods sold to him by the State<br \/>\nGovernment or the Corporation, by way of<br \/>\nfinancial assistance; or\n<\/p>\n<p>(b) to any agreement relating to a loan,<br \/>\nadvance or grant given to him or relating to<br \/>\ncredit in respect of, or relating to hire-<br \/>\npurchase of goods sold to him, by a banking<br \/>\ncompany or a Government company, as the<br \/>\ncase may be, under a State-sponsored<br \/>\nscheme; or\n<\/p>\n<p>(c) to any agreement relating to a guarantee<br \/>\ngiven by the State Government or the<br \/>\nCorporation in respect of a loan raised by an<br \/>\nindustrial concern; or\n<\/p>\n<p>(d) to any agreement providing that any<br \/>\nmoney payable thereunder to the State<br \/>\nGovernment shall be recoverable as arrears of<br \/>\nland revenue; and such person-\n<\/p>\n<p>(i) makes any default in repayment of the loan<br \/>\nor advance or any instalment thereof; or\n<\/p>\n<p>(ii) having become liable under the conditions<br \/>\nof the grant to refund the grant or any portion<br \/>\nthereof, makes any default in the refund of<br \/>\nsuch grant or portion or any instalment<br \/>\nthereof; or\n<\/p>\n<p>(iii) otherwise fails to comply with the terms of<br \/>\nthe agreement,- then, in the case of State<br \/>\nGovernment, such officer as may be<br \/>\nauthorized in that behalf by the State<br \/>\nGovernment by notification in the official<br \/>\nGazette, and in the case of the Corporation or<br \/>\na Government company the Managing<br \/>\nDirector thereof, and in the case of a banking<br \/>\ncompany, the local agent thereof, by whatever<br \/>\nname called, may send a certificate to the<br \/>\nCollector, mentioning the sum due from such<br \/>\nperson and requesting that such sum<br \/>\ntogether with costs of the proceedings be<br \/>\nrecovered as if it were an arrear of land<br \/>\nrevenue.\n<\/p>\n<p>(2) The Collector on receiving the certificate<br \/>\nshall proceed to recover the amount stated<br \/>\ntherein as an arrear of land revenue.<br \/>\n(3) No suit for the recovery of any sum due as<br \/>\naforesaid shall lie in the civil court against<br \/>\nany person referred to in sub-section (1).\n<\/p>\n<p>4. Savings. &#8212; (1) Nothing in section 3, shall &#8211;\n<\/p>\n<p>(a) affect any interest of the State<br \/>\nGovernment, the Corporation, a Government<br \/>\ncompany or any banking company, in any<br \/>\nproperty created by any mortgage, charge,<br \/>\npledge or other encumbrance; or\n<\/p>\n<p>(b) bar a suit or affect any other right or<br \/>\nremedy against any person other than a<br \/>\nperson referred to in that section, in respect<br \/>\nof a contract of indemnity or guarantee<br \/>\nentered into a relation to an agreement<br \/>\nreferred to in that section or in respect of any<br \/>\ninterest referred to in clause (a).<br \/>\n(2) Where the property of any person referred<br \/>\nto in Section 3 is subject to any mortgage,<br \/>\ncharge, pledge or other encumbrance in<br \/>\nfavour of the State Government, the<br \/>\nCorporation, a Government company or<br \/>\nbanking company, then &#8212;\n<\/p>\n<p>(a) in every case of a pledge of goods,<br \/>\nproceedings shall first be taken for sale of the<br \/>\nthing pledged, and if the proceeds of such sale<br \/>\nare less than the sum due, then proceedings<br \/>\nshall be taken for recovery of the balance as if<br \/>\nit were an arrear of land revenue :\n<\/p>\n<p>Provided that where the State Government is<br \/>\nof opinion that it is necessary so to do for<br \/>\nsafeguarding the recovery of the sum due to it<br \/>\nor to the Corporation, Government company<br \/>\nor banking company, as the case may be, it<br \/>\nmay for reasons to be recorded, direct<br \/>\nproceedings to be taken for recovery of the<br \/>\nsum due, as if it were an arrear of land<br \/>\nrevenue before or at the same time as<br \/>\nproceedings are taken for sale of the thing<br \/>\npledged;\n<\/p>\n<p>(b) in every case of a mortgage, charge or<br \/>\nother encumbrance on immovable property,<br \/>\nsuch property or, as the case may be, the<br \/>\ninterest of the defaulter therein, shall first be<br \/>\nsold in proceedings for recovery of the sum<br \/>\ndue from that person as if it were an arrear of<br \/>\nland revenue, and any other proceeding may<br \/>\nbe taken thereafter only if the Collector<br \/>\ncertifies that there is no prospect of<br \/>\nrealization of the entire sum due through the<br \/>\nfirst mentioned process within a reasonable<br \/>\ntime.&#8221;\n<\/p>\n<p>6. He submitted that by virtue of these<br \/>\nprovisions, the 1st Respondent cannot proceed<br \/>\nagainst the Appellant\/guarantor until the 1st<br \/>\nRespondent has first sold the property of the<br \/>\nprincipal-debtor which had been mortgaged in<br \/>\ntheir favour. He points out that on 22nd July,<br \/>\n1996 action under Section 29 of the State<br \/>\nFinancial Corporation Act, 1951 had been<br \/>\ninitiated and physical possession taken. He<br \/>\npoints out that thereafter on 12.02.1996 a<br \/>\nOne Time Settlement was arrived at by the 1st<br \/>\nRespondent with the 4th Respondent. He<br \/>\npoints out that thereafter the property was<br \/>\nhanded back to the 1st Respondent. He<br \/>\nsubmits that, therefore, the 1st Respondent is<br \/>\nnot entitled to proceed against the Appellant.\n<\/p>\n<p>7. Mr. Bhalla admits the above mentioned<br \/>\nfacts. He, however, submits that the company<br \/>\ncommitted defaults and, therefore, the One<br \/>\nTime Settlement failed. He submitted that<br \/>\nearlier attempts to sell the properties of the<br \/>\n4th Respondent Company yielded no result as<br \/>\nno offers were received. He submitted that<br \/>\naction under Section 29 has again been<br \/>\ninitiated against the 4th Respondent<br \/>\nCompany. He submitted that as the 4th<br \/>\nRespondent Company has committed defaults<br \/>\nand it has not been possible to recovery by<br \/>\nsale of property, action has been taken<br \/>\nagainst the guarantor for recovery of the<br \/>\namount.\n<\/p>\n<p>8. In our view, the above set out provisions of<br \/>\nthe U.P. Act are very clear.  Action against the<br \/>\nguarantor cannot be taken until the property<br \/>\nof the principal-debtor is firs sold off. As the<br \/>\nAppellant has not sold the property of the<br \/>\nprincipal-debtor, the action against the<br \/>\nAppellant cannot be sustained.  We, therefore,<br \/>\nset aside the Recovery Notice.&#8221;\n<\/p>\n<p>It would be appropriate to direct the High Court to re-<br \/>\nconsider the matter in the light of the observations quoted<br \/>\nabove, keeping in view the factual scenario of the present<br \/>\ncase.\n<\/p>\n<p>The appeals are allowed to the aforesaid extent without<br \/>\nany order as to costs.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Supreme Court of India Ashok Mahajan vs State Of U.P. &amp; Ors on 26 September, 2006 Author: A Pasayat Bench: Arijit Pasayat, Lokeshwar Singh Panta CASE NO.: Appeal (civil) 4257 of 2006 PETITIONER: Ashok Mahajan RESPONDENT: State of U.P. &amp; Ors DATE OF JUDGMENT: 26\/09\/2006 BENCH: ARIJIT PASAYAT &amp; LOKESHWAR SINGH PANTA JUDGMENT: J U [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-207203","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Ashok Mahajan vs State Of U.P. &amp; 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