Allowed

Anil Kumar v. Haryana Financial Corporation and Ors.

Punjab & Haryana HC31 Oct 2011CWP/18694/2009

Case brief

AI extract

What is this about?

The High Court quashed the Haryana Financial Corporation's order rejecting a settlement application under the 2005 NPA policy due to high security value. The Court held the Managing Director lacked jurisdiction under the Policy, relying on a Trial Court direction and precedent that such schemes must be enforced.

What did the court decide?

Quashed the impugned order and letter rejecting the settlement; directed the Corporation to consider the case for settlement under the 2005 Policy by the competent authority.

Anil Kumar Vs Haryana Financial… — Pension and Retirement Benefits | Punjab & Haryana HC (2011)

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Civil Writ Petition No.18694 of 2009

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

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Civil Writ Petition No.18694 of 2009 Date of decision: 31.10.2011

Anil Kumar

...Petitioner

Versus

Haryana Financial Corporation and others

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...Respondents

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CORAM: HON'BLE MR.JUSTICE HEMANT GUPTA HON'BLE MR.JUSTICE G.S.SANDHAWALIA

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Present: Mr. Harsh Aggarwal, Advocate for the petitioner.

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Mr. Puneet Gupta, Advocate for the respondents No.1 to 3. Mr. B.S.Walia, Advocate

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G.S.SANDHAWALIA, J.

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The petitioner, who is the guarantor of the main loanee M/s Universal Plywood Industry, Tohana Road, Narwana-respondent no.4 is aggrieved against the order dated 16.4.2009 passed by the Managing Director, Haryana Financial Corporation wherein his claim for being considered under the NPA Policy, 2005 has been rejected mainly on the ground that the mortgaged property value is more than the settlement amount as per the NPA Policy. The petitioner is also aggrieved by the subsequent actions of the Haryana Financial Corporation (for short “the Corporation”) wherein it demanded a sum of ` 1,09,28,274/- with further interest at the rate of 20.5% per annum from 1.3.2009 and putting to auction of his mortgaged property.

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Briefly, the facts of the case are that M/s Universal Plywood

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Civil Writ Petition No.18694 of 2009

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Industry, Tohana-respondent no.4 applied for loan to the Corporation and vide agreement dated 15.4.1998 the same was approved for 43.85 lacs. In order to secure the said loan by respondent no.4, the petitioner was made to stand as a guarantor by mortgaging his 7 kanals 5 marlas of land vide a separate mortgage deed dated 29.5.1998. The main loanee M/s Universal Plywood Industry defaulted on the repayment and accordingly, possession of their factory was taken over on 9.4.2003 and sold for 18.25 lacs on 9.4.2004 and loan account was declared as a non performing asset. In the year 2005, the Corporation came out with the settlement scheme for non performing assets (the Policy for Compromise Settlement of Chronic Non-performing Assets of Haryana Financial Corporation, 2005). The Corporation vide a letter dated 12.7.2005 asked the principal borrower to settle the account as per policy which was to remain operative from 1.7.2005 to 30.9.2005 and asked for a deposit of 4,03,200/- being 10% of the principal outstanding in the loan account as on 30.7.2005. The principal borrower, accordingly, deposited a sum of 4,10,000/- on 27.9.2005. However, the request for the settlement was declined and M/s Universal Plywood Industry was communicated letter dated 2.1.2006 (Annexure P-6) informing it that the same had been rejected after consideration by the Corporation. Since the Corporation had also put the property of the petitioner on auction before rejection, he filed a suit along with the principal borrower in which the Corporation was restrained from auctioning the property. Thereafter, the petitioner alongwith the principal borrower filed Civil Suit No.7 of 12.1.2006 challenging the letter dated 2.1.2006 on the ground that the said action was illegal and arbitrary. In the written statement filed in the said suit, the Corporation took the stand that the assessed value of the security available with the Corporation was

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Civil Writ Petition No.18694 of 2009

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more than the amount recoverable from the plaintiffs and, therefore, they had rejected the case of the petitioner under the policy of 2005. Vide judgment and decree dated 16.9.2008, the Additional Civil Judge (Senior Division), Narwana decreed the suit of the petitioner by holding that the action of the Corporation was unfair in rejecting the application under the settlement policy of 2005 on the ground that the value of the security was more than the settlment which was being arrived at under the policy of 2005 and directed the Corporation to reconsider the settlement application of the plaintiffs afresh by applying the parameters of its settlement policy, 2005 after hearing the plaintiffs and passing a well reasoned order. The Corporation was also restrained from auctioning the property of plaintiff no.2/petitioner in the meantime.

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In this background the Managing Director of the Corporation passed the impugned order dated 16.4.2009 in which it has been noticed that the case was processed by the Executive Committee and the Committee decided not to settle the case under the policy of 2005 as the value of the security mortgaged to the Corporation was 109.63 lacs and under the settlement policy the amount worked out to 40.34 lacs and accordingly raised a demand of ` 1,09,28,274/- as on 1.3.2009 which was communicated to the principal borrower on 19.5.2009-Annexure P-10 which is also subject matter of challenge. Thereafter, the property has been put to auction vide advertisement dated 23.11.2009 and the petitioner was also intimated the said fact vide letter dated 24.11.2009 which led to the filing of the writ petition in which relief of Mandamus is also sought that the Corporation should be directed to settle the case under the policy of 2005 and also the additional plea that since the petitioner was a guarantor, therefore, action under Section 29 of the State Financial Corporation Act

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Civil Writ Petition No.18694 of 2009

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(hereinafter referred to as “the Act”) could not be taken against the petitioner.

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The defence taken by the Corporation in its written statement is that a specific mortgage deed had been executed on 29.5.1998 by the petitioner and the settlement was not a right and a mere concession and that a speaking order had been passed in pursuance of the Civil Court direction and the claim had been rightly rejected. Learned counsel for the petitioner has, on the other hand, argued that once the Addl. Civil Judge had directed the Corporation to reconsider the settlement application, the respondent had no right to reject the application on the same ground on the basis of which it has been rejected earlier vide letter dated 2.1.2006 which rejection was the subject matter before the Trial Court.

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The submission made by the petitioner is very valid and liable to be accepted as admittedly the Corporation had firstly vide letter dated 12.7.2005 written to the principal borrower to settle the default by depositing 10% of the principal outstanding amount as on 30.6.2005 and in pursuance of that letter the amount had been deposited within the stipulated period. Inspite of this Corporation had proceeded to auction the property which was then stayed by the Civil Court in the first suit on 30.11.2005. It has only thereafter rejection order was communicated on 2.1.2006 which was the subject matter of challenge in Civil Suit No.7 of 12.1.2006 and the defence again taken in the Civil Suit was that the rejection was on account of the fact that the assessed value of the mortgaged property was more than the outstanding. This reasoning was not appreciated by the Civil Court and the said decision was set aside on the ground that action of the Corporation was unfair and arbitrary and subject to judicial review once they had a policy in place to settle

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outstandng non performing assets. The said decision was accepted by the Corporation and became final between the parties and the Corporation was to apply the parameters of the settlment policy though it was open to reject or accept the settlement application as per the judgment of the Addl. Civil Judge.

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A perusal of the Clause (iv) of the settlement policy, 2005 goes on to show that the policy would cover the cases where the Corporation has initiated action under Section 29 of the Act and that the sanctioning authority was the Executive Committee of the Corporation to take a decision on the compromise settlement and consequent action of waiver or remissions or write off were also to be taken by the Executive Committee of the Corporation. The said clause is reproduced as under:-

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“ SANCTIONING AUTHORITY

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The Executive Committee of the Corporation shall be the competent authority to take decision on the compromise settlement and consequent action of waiver or remissions or write off shall also be taken by the Executive Committee of the Corporation.”

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Thus, in view of the above powers, which was to be exercised by the Executive Committee, as per the terms and conditions of the policy and in view of the direction of the Trial Court, the Managing Director had, thus, no jurisdiction to reject the application of the petitioner on the same ground that the settlement amount as per NPA policy was worked out to 40.34 lacs and the value of the mortgaged property was 109.63 lacs. The Corporation was bound by the principle of estoppel as it itself asked the principal borrower to settle its account under the policy of 2005 and thereafter could not wriggle out from the policy on the ground that it was

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not financially viable for them. The Corporation had to act in an equal manner to all the loanees and there was nothing in the policy which provided that the case of the loanee could be rejected on this ground and the Corporation was, thus, bound to consider the case as per policy of 2005. The submission of the learned counsel for the respondentCorporation that it is only a mere concession and said policy could not be enforced would not stand in view of the judgment of the Hon'ble Supreme Court in Sardar Associates and others Vs. Punjab & Sind Bank and others (2009) 8 Supreme Court Cases 257, wherein a similar issue regarding one time settlement scheme of the Reserve Bank of India was sought to be enforced and the Hon'ble Supreme Court held that a writ of mandamus could be issued in terms of the guidelines issued by the Reserve Bank of India. Once the Corporation itself had issued the scheme for settlment and communicated the same to the principal borrower then it was its bounden duty to settle the same under the said policy and, therefore, rejection of the application on the ground of financially viability was absolutely arbitrary and not justifiable. As noticed above, respondent no.2 was not even authorised to consider the case of the petitioner and it was only the Executive Committee to take a decision and on this account also neither the orders passed by respondent no.2 nor subsequent action of the Corproation in putting the property for auction by advertisement is sustainable. Thus, the order dated 16.4.2009 (Annexure P-9) and letter dated 19.5.2009 (Annexure P-10) alongwith advertisement dated 23.11.2009 (Annexure P-11) are quashed. The Corporation is directed to consider the case of the petitioner for settlement under the Policy of 2005 by the competent authority unfettered by the ground that the value of the mortgaged property is more than the amount due under the settlement

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Accordingly, the writ petition is allowed, however, without going into the question of the second ground that as to whether the respondent-Corporation is entitled to take action against the mortgagor under Section 29 of the Act.

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(G.S.SANDHAWALIA) Judge

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October 31, 2011 Pka

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(HEMANT GUPTA) Judge

Anil Kumar v. Haryana Financial Corporation and Ors.

Case brief

What is this about?

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Anil Kumar v. Haryana Financial Corporation and Ors.

Case brief

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