Dismissed

P. Parameshwar Reddy v. A.P.S.F.C. Mbnr Branch and 2 Ors.

Telangana HC8 Feb 2008WP/659/2002

Case brief

AI extract

What is this about?

Single judge court disposed of five writ petitions challenging a financial corporation's tender-cum-bid notices for sale of collateral security without first realizing dues from principal borrowers. The court held that under Section 29 of the Act, creditors can proceed against sureties or debtors interchangeably and dismissed the petitions on merits and grounds of unclean hands.

What did the court decide?

The writ petitions were dismissed with exemplary costs of Rs.2,500/-, including a deposit of Rs.500/- from each petitioner to the Chief Justice Relief Fund.

P. Parameshwar Reddy Vs A.P.S.F.C. Mbnr… — Pension and Retirement Benefits | Telangana HC (2008)

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THE HON’BLE SRI JUSTICE C.Y.SOMAYAJULU

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WRIT PETITION Nos.657, 658, 659, 665 and 668 of 2002 Dated:08.02.2008

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Between:

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M.Dharma Reddy and others.

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…Petitioners

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and

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The Andhra Pradesh State Financial Corporation, Mahaboobnagar Branch, and others.

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…Respondents

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THE HON’BLE SRI JUSTICE C.Y.SOMAYAJULU WRIT PETITION Nos.657, 658, 659, 665 and 668 of 2002

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COMMON ORDER:

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As the common questions of fact and law arise in these writ petitions, they are being disposed of by a common order.

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(2) W.P.No.657 of 2002 is filed by M.Darma Reddy seeking declaration that the action of the Andhra Pradesh State Finance Corporation (for short “the Corporation”) in issuing tender-cum-bid notice dated 01.01.2002, published on 03.01.2002 in Eenadu Telugu Daily, for sale of the collateral security offered by him without proceeding against the primary security and the principal borrower, is illegal and void and for a consequential relief of setting aside the said tender-cum-bid for the sale of his property bearing House Nos.38-20, 38-58 and 38-59 situated at Vallabhanagar, Wanaparthy, Mahaboobnagar. (3) W.P.No.659 of 2002 is filed by P.Parameshwar Reddy against the Corporation, P.Padmavathi and S.Srinivasa Rao for declaration that the action of the Corporation in issuing tender-cum-bid notice dated 01.01.2002 which was published on 03.01.2002 in Eenadu Telugu Daily for sale of collateral security belonging to him, without proceeding against the primary security and recovering the same from the principal borrowers i.e. P.Padmavathi and S.Srinivasa Rao is illegal and void and consequently to set aside the tender-cum-bid notice for sale of his property to an extent of Acs.37.21 guntas in S.Nos.55, 56, 57, 68, 67/2, 69, 110, 111 and 40/1 situated at

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Mahammadapur Vilalge, Pangal Mandal, Mahaboobnagar District, with almost same averments as in W.P.No.657 of 2002. Significantly, in para 6 of the affidavit filed by him, the petitioner therein alleged “it appears that the 1^st , 2^nd and 3^rd respondents colluded among themselves and are trying to sell my property even though I am not due any amount to the 1^st respondent except furnishing security for the loan obtained”. (4) W.P.No.665 of 2002 is filed by S.Narayanamma against the Corporation, B.Nagavenkata Murali Mohan and B.Chandra Rekha for a declaration that the action of the Corporation in issuing tender-cumbid notice, dated 01.01.2002 published on 03.01.2002 in Eenadu Telugu Daily for sale of collateral security of property bearing H.No.3381, Bandarunagar, Wanaparthy, Mahaboobnagar District, belonging to her without proceeding against the primary security and the principal borrower is illegal and void.

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(5) W.P.No.668 of 2002 is filed by M/s.Parameswar Industries represented by Managing Director Parameswar Reddy for a declaration that the action of the Corporation in issuing tender-cum-bid notice, dated 01.01.2002 which was published on 03.01.2002 in Eenadu Telugu Daily for sale of the collateral security i.e. Land and Buildings of Rice Mill in Sy.Nos.22 and 23, situated at Pangal Village and Mandal, Mahaboobnagar District, without proceeding against the principal debtor and primary security offered by S.Vanaja Kumari D/o

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S.Nooka Raju and S.Nagasaraswathi W/o S.Nooka Raju is illegal and void, with almost identical allegations made in W.P.No.657 of 2002. In paragraph 6 of the affidavit filed in support of the writ petition, the deponent alleged “it appears that the 1^st , 2^nd and 3^rd respondents colluded among themselves and are trying to sell my property even though I am not due any amount to the 1^st respondent except furnishing security for the loan obtained”.

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(6) W.P.No.658 of 2002 is filed by P.Lakshmi Devamma, the mother of P.Parameswar Reddy for a declaration that tender-cum-bid notice, dated 01.01.2002 published on 03.01.2002 in Eenadu Telugu Daily for sale of her agricultural land to an extent of Acs.13.18 guntas in S.Nos.38/AA, 39/AA, 41/A, 49, 48, 52/2EE, 62, 75 and 43/1 situated at Mahammadapur Village, Pangal Mandal, Mahaboobnagar District offered as collateral security without proceeding against the primary security and principal borrower is illegal and void.

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(7) The case of the petitioner in all the petitions, in brief, is that for the loan obtained by the non-official respondents from the Corporation, for purchasing vehicles, they offered their properties as collateral security and though the principal debtor was paying the loan instalments regularly without default, their properties given as collateral security are being brought to sale without first proceeding against the property of the principal debtor, and without giving any notice, intimation or opportunity, to them by invoking Section 29 of the

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State Finance Corporations Act 1951 (for short “the Act”), which is against all the cannons of the principles of natural justice; As the Corporation can proceed against the collateral Security only when it fails to realize the amount from the principal debtor, it is clear that the Corporation is bringing their property to sale in collusion with the unofficial respondents in the petition filed by them and so the proceedings impugned are liable to be quashed.

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(8) The Branch Manager of the Corporation, filed her counteraffidavit on behalf of the Corporation in all the writ petitions, inter alia, contending that the Corporation sanctioned loans, in 1996, to 13 individuals belonging to Parameshwar Reddy group i.e, M/s.Parameshwar Reddy & Co., A.Venkateswar Reddy, S.Nooka Raju, S.Madavi Latha, S.Naga Saraswathi, B.N.V.Murali Mohan, S.Chandra Rekha, S.Vanaja Kumari, S.Ratnavathi, A.Vanisree, P.Ravikumar Reddy, P.Padmavathi and S.Srinivasa Rao, to enable the loanees to acquire two JCB excavators, proclainer and ten tipper lorries. Out of those 13 loans sanctioned, 9 loans were duly secured by execution of collateral security and by equitable mortgage by deposit of title deeds. The other four loans were secured by the properties offered as security by S.Nooka Raju. In fact all the loanees are the family members of Paremeswar Reddy and S.Nooka Raju, who are the principal borrowers. The loanees, after availing the loans, failed to repay the loan, in spite of several notices being issued to

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them. On 21.10.11998, Parameswar Reddy and S.Nooka Raju gave an undertaking that in the event of their failure to handover the vehicles financed by the Corporation, it is at liberty to proceed with auction under Section 29 of the Act. As the loanees failed to discharge the loan, the Corporation, by virtue of the power vested in it by Section 29 of the Act, seized two JCB excavators and six tippers on 11.01.2000 at Rajeev Sagar Dam Project near Madhya Pradesh. Thereafter, it released five tippers and one excavator belonging to S.Chandra Rekha, P.Padmavathi, B.N.V.Murali Mohan, S.Vanaja Kumari and another, after receiving part payment of the dues from them and sold one excavator and one tipper belonging to P.Parameswar Reddy and P.Ravi Kumar Reddy. The loanees failed to furnish information about the whereabouts of nine tipper lorries financed by the Corporation. Petitioners in all these petitions are the family members of Parameswar Reddy. The petitioner in W.P.No.658 of 2002 is the mother of Parameswar Reddy, P.Padmavathi, second respondent in W.P.No.659 of 2002, P.Ravi Kumar Reddy, third respondent in W.P.No.658 of 2002 are the wife and son respectively of Parameswar Reddy. P.Parameswar Reddy, who is the managing partner of Parameswara Industries, is the petitioner in W.P.No.668 of 2002 and all of them approached the Court with unclean hands by making false statements. As the amounts borrowed were not repaid, the Corporation issued recall-cum-sale notices on 05.05.1997, 07.08.1997

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and 27.11.1997. As those notices remained unresponded, recallcum-sale notice dated 18.09.1999 was issued and the excavator was seized at the Rajeev Sagar Dam Project site at Madhya Pradesh on 11.01.2000 and was advertised for sale in Eenadu Telugu Daily on 04.02.2000, and was sold to D.Narasimha Reddy for a consideration of Rs.7,20,000/- on loan basis, only after affording a final opportunity for payment to the borrower. The borrowers still owe an amount of Rs.4,15,986/- to the Corporation. The averment that the borrowers repaid the amount, due to the Corporation is incorrect. The Corporation is entitled to proceed against the collateral for seeking recovery of the arrears due to it. Hence, the writ petitions are liable to be dismissed.

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(9) Writ petitioners filed is replay-affidavits contending that the Corporation is trying to mix up and confuse the issue by bringing the name of Parameswar Reddy group and S.Nooka Raju group, even though the loans were obtained and sanctioned individually. Parameswar Reddy and his family members obtained loan of Rs.48,72,000/- for purchase of one JCB and eight tippers individually. The Corporation did not credit the amounts received to the loan account of the principal borrowers and wrongly calculated the amount at higher rates of interest and claimed higher amounts. The then Branch Manager of the Corporation in collusion with S.Nooka Raju misused the amount and credited the amounts deposited to the

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account of S.Nooka Raju in stead of crediting it to the account of Parameswar Reddy. In fact, S.Nooka Raju who is a native of Tadepalligudem has nothing to do with the borrowers. Though, Parameswar Reddy paid Rs.39 lakhs to the Corporation and as per the statement furnished by the first respondent, only an amount of Rs.8,36,883/- was credited as sale proceeds for sale of one JCB and one tipper, though eight tippers and one JCB belonging to Parameswar Reddy and his family members was sold. The sale amount of seven tippers which came to Rs.10,22,000/- was not given credit to. Out of Rs.10 lakhs paid by Parameswar Reddy, only Rs.19,142/- is accounted for and credited to the account of P.Ravi Kumar Reddy and the remaining amount of Rs.9,61,711/- was not credited to any of the accounts of borrowers. On verification, it came to light that Rs.5,24,000/- was deposited in the name of M/s.Nagarjuna Modern Rice Mills, Wanaparthy, which is connected with any of the above loan transactions, and with regard to the balance amount of Rs.4,39,716/- no particulars are available. When Parameswar Reddy paid Rs.5 lakhs on 29.02.000, Rs.1,50,000/- therefrom was credited to the account of P.Padmavathi, Rs.1,50,000/- was credited to the account of B.Chandrarekha and Rs.50,000/- was credited to the account of Vanajakumari and the remaining amount of Rs.1,50,000/- is not credited to any of the accounts. If proper account is given by the Corporation by crediting all the amounts received, there would not be

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any liability on the part of the principal borrowers. So there is no cause of action for issuing the tender-cum-bid notice, dated 01.01.2002. (10) On behalf of the Corporation, an additional counter-affidavit was filed stating that all the amounts paid were duly credited to the loan accounts. Six tippers and two excavators were seized during the year 2000 and one JCB excavator was sold for a consideration of Rs.7,20,000/-. One tipper belonging P.Ravi Kumar Reddy was sold for a consideration of Rs.1,46,000/- and the sale proceeds were duly adjusted to the loan account. The remaining tippers and one excavator were released in favour of the borrower after receiving a part of the dues after they assured that they would clear the dues. The averment that the Corporation sold away seven tippers and that a sum of Rs.57,58,883/- was realized by sale of those seven tippers is not true. Amounts covered by two demand drafts for Rs.8,00,000/- and Rs.2,00,000/- were adjusted to the account of Parameswar Reddy and S.Nooka Raju group. A sum of Rs.5,24,048/- no doubt was adjusted to M/s.Nagarjuna Modern Rice Mill account, but when an objection was raised by S.Nooka Raju, the same was rectified and that amount was adjusted to the group account on 29.09.2000 with effect from 08.08.1997. Drafts for Rs.49,000/-, 49,900/-, 49,800/- and 49,000/given by A.Venkateswara Reddy were duly accounted for. Demand draft, dated 19.06.1998 for Rs.4 lakhs received from A.Venkateswara Reddy was duly credited to his loan account. All the amounts received

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were duly credited to the loan accounts. The allegation that a sum of Rs.1,50,000/- is not duly credited in the accounts is not true.

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(11) The main contention of the learned counsel for the petitioners is that the Corporation without proceeding against the principal debtor cannot proceed against the sureties concerned, and in any event, as the Corporation did not properly account for the amounts realized by it by way of sale of vehicles, which were financed by it and which were mortgaged to it, it cannot proceed against the sureties to the transactions straight away. It is his contention that in as much as the Corporation failed to account for the tippers that were sold by it after seizure, it is clear that the Corporation did not properly account for all the money and so, a direction may be given to the Corporation to furnish a correct account of the petitioners to them showing the actual amount due from them and contended that as there is a lot of variation in the amounts mentioned in the impugned tender-cum-bid notice and the amounts mentioned in the counter-affidavits filed on behalf of the Corporation, if reasonable time is granted to the petitioners for payment of the amounts actually due from them after giving proper credit to all the amounts paid, they would try to pay the amount due to the Corporation. It is his contention that S.Nooka Raju has nothing to do with Parameswar Reddy and group and the very fact that amounts paid by Parameswar Reddy were credited to the account of Nooka

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Raju as disclosed from the counter-affidavit filed on behalf of the Corporation, clearly shows the improper and irregular maintenance of accounts.

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(12) The contention of the learned standing counsel for the Corporation is that inasmuch as the Corporation, by virtue of the power vested in it by Section 29 of the Act has a right to proceed against the sureties also when the principal debtors do not respond to the notices issued for repayment of the loan. It is his contention that the Corporation sold one tipper and one JCB in the auction, and the amounts realized therefrom were duly credited to the account of the borrowers and as some of the borrowers requested for release of the tippers that were seized, those tippers were released and those released tippers are secreted by the borrowers, and so there is no scope for the Corporation to proceed against those tippers financed by it, and as a last resort the Corporation after issuing notices to them, is proceeding against the sureties. It is his contention that in as much as the petitioners did not come to the Court with clean hands and have misrepresented facts and mislead the Court and obtained orders of stay of sale, the Corporation had to file petitions to vacate the stay and contended that though the petitioners are closely related to each other and are business partners made allegations against each other ostensibly to show to Court that one is trying to cheat other clearly shows want of bona fides on the part of petitioners. It is his contention

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that even after obtaining stay petitioners did not pay any amount and as the counter-affidavits and additional counter-affidavits filed on behalf of the Corporation clearly explain as to how the amounts were credited, and how a wrong entry was rectified giving benefit from the date from which it ought to have been credited, there is no substance in the contention of the petitioners that the accounts maintained by the Corporation are not correct. It is his contention that in any event as the question of maintenance of accounts by the Corporation is not the subject matter of adjudication in these writ petitions, because the point for consideration in these petitions is whether the Corporation can proceed against the sureties without proceeding against the principal debtor or not, question of going into the correctness of the maintenance of accounts by the Corporation does not arise. It is his contention that in as much as Section 29 of the Act empowers the Corporation to proceed against the sureties also even without proceeding against the principal debtor, petitioners are not entitled to any relief.

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(13) As rightly contended by the learned standing counsel for the Corporation, the only point for consideration in these petitions is whether the Corporation is entitled to proceed against the sureties before exhausting the remedies against the principal debtor, which is not res integra because a Division Bench of this Court in Grandhi

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Kamaraj v. Government of Andhra Pradesh^[1] , clearly held that in

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as much as the liability of surety is co-existence with that of debtor, it is open to the creditor to proceed against either the surety or the debtor or both. So, the contention of the petitioners that the Corporation, without proceeding against the principal debtor, cannot proceed against the sureties cannot be countenanced. For that reason only, all these writ petitions are liable to be dismissed.

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(14) The contention of the learned counsel for the petitioners is that the Corporation without issuing notice to the petitioners proceeded under Section 29 of the Act cannot be accepted, because along with counter-affidavits filed on behalf of the Corporation, the Corporation produced the copies of the notices sent to the petitioners prior to the issuance of the impugned tender-cum-bid notice. In the counteraffidavits filed on behalf of the Corporation, the dates on which these notices were issued to the petitioners are specifically mentioned. In the writ petitions, in which reply affidavits are filed, there is no denial of the fact that the Corporation sent notices to the petitioners prior to the issuance of impugned notice, calling upon the petitioners to pay the amount due. So it is clear that only after issuing notices to the petitioners, demanding them to pay the amounts mentioned therein, did the Corporation think of proceeding to sell the properties of the petitioners who stood as sureties to the transaction.

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(15) The other contention of the learned counsel for petitioners relates to improper maintenance of the accounts. In the counter and

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additional counter-affidavits filed on behalf of the Corporation an explanation as to how the amounts paid were given credit to is mentioned in detail. As the scope of these writ petitions is limited, and as this Court acting under Article 226 of the Constitution of India would not go into the appropriation of the payments etc., and as the petitioners if they feel that the Corporation did not properly account for the amounts paid have an effective alternative remedy of suit, their contention relating to maintenance of accounts on appropriation of payments cannot be gone into in these petitions. Petitioners, who obtained interim orders of stay in 2002, did not deny the contention of the Corporation that they did not make any payment after the Court passed interim orders, even though the Corporation filed petitions for vacating the stay in 2002 itself.

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(16) The averments in para 6 of the affidavits filed in support of the applications are common in all the writ petitions. So it is clear that the petitioners did not come to Court with clean hands. In Ibiza Industries

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Limited v. Union of India^[2] , a Division Bench of this Court held that the doctrine of Uberrima fides has its fullest application in a petition under Article 226 of the Constitution of India and the Court is not to use a discretion in the event of there being any attempt on the part of the petitioners to mislead the Court.

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(17) In these circumstances, the writ petitions deserve to be dismissed with exemplary costs. In fact, on 28.01.2008, the petitions

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were adjourned on payment of Rs.500/- to be deposited to the credit of Chief Justice Relief Fund, but the amount has not been deposited. (18) In these circumstances, the Writ Petitions are dismissed with costs of Rs.2,500/-(rupees two thousand five hundred only). Out of which, a sum of Rs.500/- (rupees five hundred only) shall be deposited in each petition to the credit of the Chief Justice Relief Fund. The Registrar (Judicial) shall take steps for recovery of Rs.500/- from each of the petitioners and deposit the same into the credit of Chief Justice Relief Fund.

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__________________ C.Y.SOMAYAJULU, J

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Dated:08.02.2008.

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[1] 1996 (2) ALD 1193

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[2] 1998 (5) ALT 259 (D.B.)

P. Parameshwar Reddy v. A.P.S.F.C. Mbnr Branch and 2 Ors.

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P. Parameshwar Reddy v. A.P.S.F.C. Mbnr Branch and 2 Ors.

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