Quashed

Katihar Jute Mills Limited and O v. the Bihar State Financial Corp

Patna HC18 Nov 2013CWJC/3578/2012

Case brief

AI extract

What is this about?

The Court held that all eligible categories under the Bihar State Financial Corporation's One Time Settlement Scheme must be treated alike regarding settlement methodology. It ruled that the earlier No Dues Certificate constituted final settlement, quashed the subsequent contradictory certificate, and directed consequences to follow the Scheme's terms.

What did the court decide?

Impugned No Dues Certificate (Annexure-16) quashed; consequences of the earlier No Dues Certificate (Annexure-12) to follow the Scheme.

Katihar Jute Mills Limited and O Vs the Bihar… — Contract and Commercial Disputes | Patna HC (2013)

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IN THE HIGH COURT OF JUDICATURE AT PATNA

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Civil Writ Jurisdiction Case No.3578 of 2012

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====================================================== 1. Katihar Jute Mills Limited, a company incorporated under the provisions of Indian Companies Act, 1913 within the meaning of Companies Act, 1956, through its Director Vinod Kumar Chamria, registered office at No. 178, Mahatma Gandhi Road, 2nd floor, Room No. 114, Kolkata-700007 2. Vinod Kumar Chamria , son of Late Ratan Lal Chamria, Director Katihar Jute Mills Limited, resident of 43, Hara Prasad Sashtri Sarani, Block-E, New Alipore, Kolkata-700053 3. Vijay Kumar Chamria, son of Late Ratan Lal Chamria, Director Katihar Jute Mills Limited, resident of 61/23, Moore Avenue, Kolkata-700048 .... .... Petitioners Versus 1. The Bihar State Financial Corporation, a body corporate constituted under the State Financial Corporation Act, 1951, through its Managing Director, having its office at Fraser Road, Patna-800001 2. The Managing Director, Bihar State Financial Corporation, Fraser Road, Patna-800001 3. The Branch Manager, Bihar State Financial Corporation, Zila School Road, Purnea Branch, District Purnea, Bihar . 4. IFCI Ltd., a Company incorporated and registered under the provisions of the Companies Act, 1956, having its registered office at IFCL Towers, 61, Nehru Place, New Delhi,-110019 and one of its offices, office at Maurya Lok Commercial Complex, Block „C‟ (3^rd Floor), Dak Bungalow Road, Patna 800001 through its Assistant Manager .... .... Respondents ====================================================== Appearance : For the Petitioner : Mr. Hamendra Prasad Singh, Sr. Advocate Mr. Arbind Kumar, Advocate For the Corporation : Mr. Partha Sarthy, Advocate For the IFCL Ltd. : Mr. Jitendra Kumar Roy Mr. Shivendra Kumar Roy, Mrs. Sheela Sharma, Advocates ====================================================== CORAM: HONOURABLE MR. JUSTICE JAYANANDAN SINGH ORAL ORDER

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9 18-11-2013 In view of the stand of learned senior counsel for the petitioner, and agreed upon by learned counsel for the Bihar State Financial Corporation (in short, „the Corporation‟), that this writ application may be disposed of on short issue as to whether account of the petitioner-Company stands settled under BSFC

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Patna High Court CWJC No.3578 of 2012 (9) dt.18-11-2013

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One Time Settlement Scheme, 2009, contained in Circular No.02/2010-11 (Annexure-9), or not, this Court is not required to notice facts of the case in detail.

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In brief, it may only be noticed that petitioner no.1 is a Company and petitioner nos.2 and 3 are Directors of the Company which had taken loan from the Corporation and later on, from IFCI Limited. They could not repay back the loan and petitioner-Company was closed on 13.08.1983. The Corporation initiated action for repayment of its loan and took possession of the property of the petitioner-Company with effect from 13.10.1983. IFCI did not proceed against the Company independently for realization of its loan. Instead, in a joint meeting held between the functionaries of the Corporation and IFCI, Corporation was authorized to take steps for realization of loan of IFCI also under the provisions of Section 29 of the State Financial Corporation Act, 1951 (in short, „the Act‟). The Corporation subsequently put the property on auction and highest bid of one M/s Sun Biotechnology Limited was accepted. Accordingly, the highest bidder deposited first instalment of Rs.67.05 lakhs, out of consideration amount of Rs.4.5 crores, and entered into an agreement with the Corporation for deposit of rest of the bid amount in instalments and entered into possession.

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Thereafter the said bidder did deposit some more instalments, but, admittedly, later on it defaulted. The case of the bidder is that out of a total area of 77 acres of land of the Company they were given possession of only 27 acres. Therefore, they have filed a suit in the court of competent jurisdiction for getting final amount of the auction/sale reduced in view of possession of less area of land given to them.

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Meanwhile, in 2009 Corporation came out with a One Time Settlement Scheme, (in short, „the Scheme‟) a copy whereof is Annexure-9 with the writ application. Clause 5.1 of the Scheme contained a list of eligible categories of persons who were eligible under the OTS Scheme to apply for final settlement of their

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accounts with the Corporation. This Clause reads as under :-

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“The following categories of loanees/ purchasers / promoters / guarantors would be eligible for One Time Settlement under this scheme:-

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(a) All Original Promoters/Guarantors of NPA units categorized in the Doubtful or Loss categories, as per records of BSFC as on 31.03.2010, whose unit has not been sold.

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(b) All such purchasers, who have purchased mortgaged assets on or above or below Balance Outstanding (BOS) amount and are in possession of the mortgaged assets so purchased, on the basis of agreement executed with the Corporation or on the express permission of the Corporation, and consent of the original promoters of the unit, but have subsequently

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become defaulters in payment and the account has become NPA classified as Doubtful or Loss accounts as on 31.03.2010. (c) All promoters / guarantors whose mortgaged assets have been sold below Balance Outstanding Amount and who have not repaid the balance amount of outstanding dues shown as outstanding in the loan ledger of the original unit, which amount remains to be recovered from the original promoter(s) / guarantor(s) of the unit. (d) Lessor of the land and/or building whose leasehold property has been mortgaged to the Corporation to secure loan, if the lessee who has become defaulter, and the unit has been categorized as Doubtful or Loss asset by the Corporation as on 31.3.2010. Such lessor of land would be allowed to redeem mortgage on payment under the scheme if the lessee does not settle under the scheme.”

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Hence, it is clear that in terms of this Clause 5.1, four categories of persons were eligible to apply. The next Clause 5.2

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contains settlement criteria which reads as follows:-

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“Settlement amount would be 110% of the Principal Outstanding amount in all the loan accounts of the concern, excluding funded interest (in rehabilitation account) as on 31.3.2010.”

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Clause 5.3 contains modalities for payment under the scheme. Clause 5.4 contains the manner in which application has to be made. Clause 5.5 contains time limit for filing applications

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Patna High Court CWJC No.3578 of 2012 (9) dt.18-11-2013

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under the Scheme and Clause 5.6 is a clause in respect of waiver

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of balance amount which reads as follows:-

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“Waiver of balance amount

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After full payment of the entire settlement amount under this One Time Settlement (OTS) Scheme by the debtor/loanee concern, as per terms of this OTS scheme, the unpaid Balance Outstanding amount appearing in the loan account/s of the Debtor/loanee concern, in the ledgers of BSFC, shall stand written off and /or waived.”

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Clause 5.9 of the Scheme contains other terms and conditions and its sub-clause (ix) reads as follows:-

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“In case promoters of taken over units apply for settlement of their dues under any of this scheme and make entire payment in terms of this scheme then the Corporation will hand over the assets back to them, on „As is where is basis‟ condition.”

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Thus , from reading of these clauses of the OTS Scheme it appears that four categories of loanees / purchasers / promoters / guarantors, equally, were made eligible to apply under the Scheme. In respect of all of them, the settlement criteria was one as under Clause 5.2; the modalities for payment of settlement amount was one as under Clause 5.3; the manner in which applications were to be made was under Clause 5.4 and waiver of balance amount, to be applied in respect of all the four categories

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was also one as in Clause 5.5. Petitioners claim that they were eligible under Clause 5.1 of the Scheme to apply for settlement of their dues. Hence, they applied with the bank draft of the requisite amount for consideration of their application. The application was considered and the Corporation issued demand notice for deposit of rest of the amount, vide Annexure-11. Accordingly, petitioners deposited rest of the amount with the Corporation and the Corporation vide Annexure-12 issued no dues certificate. Hence, according to them, settlement of their dues with the Corporation under the Scheme was complete and, therefore, they were entitled for handing over possession of the property back to them. However, they are aggrieved by the subsequent letter issued by the Corporation, vide Annexure-16, which is another „No Dues Certificate‟ in supersession of earlier No Dues Certificate (Annexure-12) certifying that after sale of mortgaged/ hypothecated fixed assets of petitioners, residual account of original promoter “has been settled in terms of para 5.1(C) of BSFC One Time Settlement-2009”.

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Learned counsel for the petitioners submits that the manner of settlement laid down under the Scheme was only one and the category of applicant or the present status of the applicant in terms of clause (5.1) did not matter in the matter of settlement.

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If petitioners had deposited money in terms of settlement criteria as contained in Clause 5.2 and in the manner prescribed under Clauses 5.3 and 5.4 and the application was considered and accepted and a demand note was issued and the petitioners deposited the entire amount as per the demand note then the account of the petitioners stands finally settled with the Corporation.

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Learned counsel for the Corporation disputes this stand. He submits that since petitioners fell in the category of sub-clause 5.1 (c) and not under sub-clause 5.1 (a) of the eligible categories, the amount deposited by the petitioners was only in respect of the remaining amount due against the promoter after proceeds received by the Corporation upon sale of the property and same reflects in the demand notice also. Hence even if residual account of the loan against petitioners stands settled under the Scheme they are not entitled for taking back the possession of the property.

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Here, this Court may notice that IFCI has also appeared in this case. The submission of the learned counsel for the IFCI is that there was an agreement between authorities of the two financial institutions authorizing the Corporation to take action against petitioners under Section 29 of the BSFC Act and

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distribute the sale proceeds from the sale of the properties of the Company between them on pro-rata basis. Hence, petitioners may have liquidated the dues of the Corporation, but the dues of the IFCI still stands and unless their dues are also liquidated by the petitioners, they are not entitled to take back possession of the properties of the Company.

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Learned counsel for the petitioners disputes this stand and submits that since the corporation had been authorized by the IFCI for realization of its dues also, their independent claim does not survive against the petitioners.

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Coming to the OTS Scheme, a copy whereof is Annexure9, this Court finds that Clause 5.1 only classifies a loanee / purchaser / promoter / guarantor into different eligible categories as contained under sub-clauses 5.1 (a) (b)(c) and (d). Thereafter OTS does not make any distinction between different categories for settlement of their claim. The settlement criteria contained in clause 5.2 is one; the procedure and modalities for payment as contained in Clauses 5.3 and 5.4 are also one and the Clause in respect of waiver of balance amount under Clause 5.6 is also one. Hence, this Court finds that it is not open to the Corporation to contend that since petitioners fall in the eligible category under Clause 5.1(c) and not clause 5.1 (a), the criteria for settlement of

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their dues with the Corporation will be by a different method. From reading of the relevant clauses of the Scheme, it is clear that all the categories of the applicants, whether they fall under sub-category (a) or sub-category (b) or sub-category (c) or subcategory (d) of Clause 5.1, are to be treated alike and their applications have to be processed and their account has to be settled in the same manner and under one methodology.

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It is not disputed that petitioners‟ application and deposits were in accordance with Clause 5.2 read with Clauses 5.3 and 5.4 of the Scheme. Hence, as per the Scheme, petitioners had deposited the requisite amount for settling their dues with the Corporation finally. In the circumstances, petitioners were entitled and had rightly received certificate from the Corporation, as contained in Annexure-12, declaring that the Corporation had no further dues against petitioners. The distinction made by the Corporation in subsequent impugned „No Dues Certificate‟ as contained in Annexure-16 is, therefore, unwarranted and is not supported from any of the clauses of the OTS Scheme. Hence, this Court holds that „No Dues Certificate‟ issued to the petitioner-Company by the Corporation through Memo No. PRN/393/10-11 dated 19.01.2011, as contained in Annexure-12, amounts to a final settlement of dues of the petitioners with the

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Corporation and its consequences, as per the Scheme, has to follow, and the impugned „No Dues Certificate‟ as contained in Annexure-16 is not in accordance with the OTS Scheme and the same is, accordingly, quashed.

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It may be made clear that since the IFCI as well as the auction-purchaser, M/s Sun Biotechnology Limited has filed independent writ applications in this Court which are pending, this Court has refrained from examining those aspects of the matter, which may be related to their individual cases and claims. 15. As a result, this application is disposed of with the above observations.

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B.T/-

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(Jayanandan Singh, J)

Katihar Jute Mills Limited and O v. the Bihar State Financial Corp

Case brief

What is this about?

What did the court decide?

Katihar Jute Mills Limited and O v. the Bihar State Financial Corp

Case brief

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