These two writ petitions can be disposed of by a common order as they came to be filed with a similar factual background and raise similar questions for consideration. In 1988 Andhra Pradesh State Financial Corporation Limited (SFC) sanctioned term loan and soft loan in a sum of Rs. 11,60,000/- to M/s. Nagarjuna Cable Industries Private Limited. Petitioners are sureties for the due payment of the loan. As there was default on the part of the borrower to pay the loan amount, in 1992 assets of the company were seized and sold in accordance with Section 29 of the State Financial Corporations Act, 1951 (the Act, for brevity). It is alleged that the sale-cum-re-call notice under Section 29 of the Act was not issued to the petitioners. In August 2005 third respondent sent a communication dated 08.08.2005 to the second petitioner in W.P No. 26014 of 2005 informing that an amount of Rs. 87.20 lakhs is due from the borrower. The petitioners were asked to pay the said amount failing which action under the Andhra Pradesh Revenue Recovery Act, 1864 (RR Act, for brevity) would be initiated against them. Aggrieved by the said notice/letter these writ petitions are filed. The petitioners seek a direction to respondents to forbear from enforcing the debt of the borrower against them.
1. The Branch Manager of SFC, Ranga Reddy (West) Branch, filed counter-affidavit opposing the writ petition. It is stated that the loan sanctioned by SFC was duly secured by equitable mortgage of land to an extent of 1483.03 square metres and the building bearing shed No. B/58 situated at IDA, Phase IV, Jeedimetla, that the petitioners executed personal guaranties jointly and severally guarantying repayment of loan availed by the company, and that as the borrower failed to discharge the loan, after completing formalities under Section 29 of the Act, the Unit was sold in auction to M/s. S.S Industries. Unit was duly handed over on 11.01.1995 Even after realizing the sale proceeds the debt could not be discharged. Therefore, SFC made efforts to locate petitioners for recovering balance dues payable by petitioners. They failed to respond to the notices issued by the Corporation, and therefore, SFC initiated action by resorting to the provisions of the RR Act.
2. The main contention of the petitioners’ Counsel is that in purported exercise of power under Section 52-A of RR Act SFC cannot enforce a time barred debt. Reliance is placed on the leading decision on the point in State of Kerala v. V.R Kalliyanikutty, AIR 1999 SC 1305 and a decision of this Court in N.A Radha v. State of Andhra Pradesh, 2000 (2) ALD 560. Opposing the case, the learned Standing Counsel for SFC made two submissions. First, he contends that the debt sought to be enforced in accordance with Section 52-A of RR Act is not time barred debt. According to the learned Counsel on 05.10.1999 SFC issued notices to the petitioners calling upon them to pay a sum of Rs. 7,20,000/- failing which action was proposed under Section 52-A of RR Act. Secondly, he submits that when action is initiated subsequent to the enforcement of debt under Section 29 of the Act for recovery of balance dues, the ratio in Kalliyanikutty (supra) has no application. He placed reliance on a recent judgment of this Court in Kumar Chemicals and Fertilizers (P) Limited v. Andhra Pradesh Industrial Development Corporation Limited, AIR 2008 AP 101.
3. The short point that arises for consideration is whether the action impugned is not sustainable. The Act is a legislation for establishment of State Financial Corporations. It regulates the sanction of loans to Small and Medium Scale Industries/Enterprises (SMEs). Before 1985 the Act contained two different procedures for recovery of loans advanced to SMEs. First procedure is contained in Section 29 of the Act, which enables SFC to take over the management or possession of industrial units of the borrower and lease/sell the property for realizing loan. This provision has been interpreted by the Courts in a number of judgments as conferring power on the SFC to sell the assets of the borrower Industry by adopting a fair and unarbitrary procedure keeping in view the objects of the Act (See U.P Financial Corporation v. Naini Oxygen & Acetylene Gas Limited (1995) 2 SCC 754 : 1995 AIR SCW 254, Chairman and Managing Director, SIPCOT v. Contromix (P) Limited (1995) 4 SCC 595 : (1995) 6 JT (SC) 283 : AIR 1995 SC 1632, Karnataka State Financial Corporation v. Micro Cast Rubber & Allied Products (P) Limited (1996) 5 SCC 65 : (1996) 6 JT (SC) 37 and Jagdamba Oil Mills v. Haryana Financial Corporation (2002) 3 SCC 496 : AIR 2002 SC 834. The other procedure for recovery is contained in Sections 31 and 32 of the Act. When a SME fails to comply with loan agreement, without prejudice to the provisions of Section 29 of the Act, SFC may apply to the jurisdictional District Judge for an order for sale of mortgaged property for enforcing liability of surety for transferring management to financial corporation and/or for ad interim injunction restraining Industrial Concern from transferring or moving machinery from the premises. The procedure to be adopted by the District Judge in respect of such applications is contained in Section 32 of the Act. Sub-section (9) thereof provides for an appeal to the High Court against order of District Judge passed under Section 32(7) of the Act. In 1985 the Act was amended. In addition to making amendments to various other provisions, Section 32G was added, which reads as under:
32G. Recovery of amounts due to the Financial Corporation as an arrear of land revenue.
Where any amount is due to the Financial Corporation in respect of any accommodation granted by it to any industrial concern, the Financial Corporation or any person authorized by it in writing in this behalf, may, without prejudice to any other mode of recovery, make an application to the State Government for the recovery of the amount due to it. and if the State Government or such authority, as that Government may specify in this behalf, is satisfied, after following such procedure as may be prescribed, that any amount is so due, it may issue a certificate for that amount to the Collector, and the Collector shall proceed to recover that amount in the same manner as an arrear of land revenue.
(Emphasis supplied)
4. A plain reading of Section 32G of the Act would show that without prejudice to any other mode of recovery (as noticed hereinabove) SFC may make an application to the State Government for recovery of the amount due to it and if satisfied, the State Government or designated authority may follow such procedure as may be prescribed, that any amount is so due and issue a certificate for that amount for recovery of the amount as arrear of land revenue.
5. In addition to this, by A.P Act No. 18 of 1977, Section 52-A was added in RR Act. This provision enables recovery of all loans as arrears of land revenue under RR Act, subject to a notification by the State Government. In exercise of the powers conferred on them under Section 52A(1) of RR Act, the State Government issued notification vide G.O.Ms No. 287, dated 03.02.1978 As per this notification rupee loans and foreign exchange loans (term loans) granted to Industries for land, buildings, plant and machinery, sanctioned by SFC are recoverable in the same manner as arrears of land revenue under provisions of Section 52A of RR Act. Thus, reading Section 32G of the Act and Section 52A of RR Act makes it clear that SFC may recover the loan amount due to it as arrears of land revenue under RR Act. It is no doubt true that Section 52A of RR Act does not specifically contemplate recovery of amounts due to SFC under sub-section (1) of Section 52A of RR Act. But, notification in G.O.Ms No. 287, dated 03.02.1978, referred to hereinabove specifically lays down that SFC may recover the loans and advances together with interest to them under RR Act. When the period of limitation expires, can it be said that’ the loans and advances sanctioned by SFC are “due” to them.
6. The question directly fell for consideration in Kalliyanikutty (supra) with reference to Section 71 of the Kerala Revenue Recovery Act, 1968. The purport of Section 71 of the said Act is same as that of Section 52A of RR Act. It enabled - as in the case of proviso to Section 52A(1) of A.P Act, the public authorities to recover “amounts due” as land revenue. But, the Supreme Court observed that the amount “due” normally refers to the amounts, which a creditor has right to recover. When such amount or debt amount is time barred, the same cannot be described as the amount due which a creditor can recover. In view of this, while holding that under Section 71 of the Kerala Revenue Recovery Act, the claims, which are time barred on the date of requisition is issued, are not “amounts due”. The Supreme Court observed as under.
There is no question, however, in the present case of any payment voluntarily made by a debtor being adjusted by his creditor against a time-barred debt. The provisions in the present case are statutory provisions for coercive recovery of “amounts due”. Although the necessity of filing a suit by a creditor is avoided, the extent of the claim which is legally recoverable is not thereby enlarged. Under Section 70(2) of the Kerala Revenue Recovery Act the right of a debtor to file a suit for refund is expressly preserved. Instead of the bank or the financial institution filing a suit which is defended by the debtor, the creditor first recovers and then defends his recovery in a suit filed by the debtor. The rights of the parties are not thereby enlarged. The process of recovery is different. An Act must expressly provide for such enlargement of claims which are legally recoverable, before it can be interpreted as extending to the recovery of those amounts which have ceased to be legally recoverable on the date when recovery proceedings are undertaken. Under the Kerala Revenue Recovery Act such process of recovery would start with a written requisition issued in the prescribed form by the creditor to the collector of the District as prescribed under Section 69(2) of the said Act. Therefore, all claims which are legally recoverable and are not time-barred on that date can be recovered under the Kerala Revenue Recovery Act.
7. In N.A Radha (supra) the action of the SFC to enforce its dues by notices under Section 52A of RR Act was challenged. This Court following Kalliyanikutty (supra) held as under.
The only question that survives and has been urged at the hearing of this writ petition is that the demand by the Corporation of the amounts due from the petitioners is barred by limitation and as such unenforceable per se or under the provisions of the Act.
In view of the decision of the Supreme Court in State of Kerala v. Kaliyani Kutty, AIR 1999 SC 1305, proceedings under the Act cannot lie for recovery of amounts that are barred by limitation. The question that arises is whether the claim of the respondent - Corporation is barred by limitation and whether this question would be adjudicated in these proceedings.
8. In Kumar Chemicals (supra) on which strong reliance is placed by the learned Standing Counsel for SFC also does not deviate from the ratio of Supreme Court's decision. It is observed therein that when Section 32G of the Act is invoked the ratio in Kalliyanikutty (supra) may get attracted because a similar expression “amounts due” is also contained in the said section. This Court also held that when the action was initiated under Section 29 of the Act for sale of assets of the borrower, the period of limitation would not apply, and it is only in cases where SFC invokes Section 52A of RR Act read with Section 32G of the Act, period of limitation applies. To get over this aspect of the matter learned Standing Counsel has placed before this Court Xerox copy of the notice dated 05.10.1999 issued by the third respondent to the petitioners in both the writ petitions calling upon them to pay an amount of Rs. 7,20,000/-, failing which action was proposed under RR Act. This Court is not able to comprehend as to how a notice demanding payment by the creditor to the debtor extends period of limitation as per Section 18 of the Limitation Act, 1963. Secondly, there is not even a whisper about issue of such notices in the counter-affidavit filed by SFC. For the first time copy is produced before this Court without any evidence of service of such notices on petitioners. Therefore, importance cannot be attached to this aspect of the matter. SFC sanctioned loans to the borrower on 23.02.1988, and therefore, notice proposing to initiate action under Section 52A of RR Act issued on 08.08.2005 Hence recovery of debt is wholly time barred, and same cannot be recovered under said provision.
9. In the result, for the above reasons, the writ petitions must succeed, and they are allowed accordingly. But, in the circumstances of the case, there shall be no order as to costs.
10. Petitions allowed.
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