Delhi High Court

Suresh Jindal & Ors. vs Delhi Financial Corporation & ... on 8 January, 2010

Author: S. Muralidhar

      IN THE HIGH COURT OF DELHI AT NEW DELHI

                             W.P.(C) 199/2004

      SURESH JINDAL & ORS                    ..... Petitioners
                    Through: Mr. Ashim Vachher, Advocate

                    versus


      DELHI FINANCIAL CORPORATION
      & ANR                                 ..... Respondents
                    Through: Mr. Rajesh Mahajan, Advocate

      CORAM:
      HON'BLE DR. JUSTICE S.MURALIDHAR

      1. Whether reporters of local paper may be allowed
         to see the judgment?                                      No

      2. To be referred to the report or not?                      Yes

      3. Whether the judgment should be referred in the digest? Yes


                              ORDER

08.01.2010

S. Muralidhar, J.(open court)

1. The prayer in this writ petition originally filed by three Petitioners

is for a direction to the Respondent No.1, Delhi Financial

Corporation (DFC) not to arrest and detain the Petitioners 1 and 2 for

the recovery of the amounts due to the DFC in proceedings under

Section 32 (G) of the State Financial Corporations Act, 1951 (SFC

Act) and the Punjab Land Reforms Act, 1887 (PLR Act). A further

prayer is for the declaration that the PLR Act does not apply to Delhi

and for quashing the proceedings taken thereunder. The Petitioners

also seek a complete statement of accounts of the amounts due and

recovered by the DFC.

2. On account of the failure of the Petitioner No.3 Aar Em Alloys

Pvt. Ltd., to repay the loan borrowed by it from the DFC, the latter

invoked Section 32 (G) of the SFC Act, and a recovery certificate

dated 18th February 1998 was issued by the competent authority

appointed in terms of the said provision. This certificate addressed to

the Collector (Recovery), Govt. of National Capital Territory of

Delhi (GNCTD) required him to recover a sum of Rs.57,87,145.70

along with pendente lite and future interest with effect from 1st

November 1997. The direction was that the said sum should be

recovered as arrears of land revenue from the Petitioner No.3

Company as well as Petitioner Nos. 1 and 2 who were both Directors

of the Company and guarantors for the loan borrowed by it. The

Petitioner No.1 Suresh Jindal is the son of the Petitioner No.3 R.C.

Jindal.

3. The immediate cause of action for the present petition is that a

final notice dated 29th October 2003 was issued by the DFC to the

Petitioners stating that they had failed to pay the arrears of Rs.

86,98,745/- and were, therefore, required to appear before the

Assistant Collector (R), DFC (Respondent No.2 herein) on 28 th

November 2003. The notice stated that if the Petitioners 1 and 2 did

not appear before the Respondent No.2 "further action for realization

of dues will be taken......including the warrant of arrest or/and

attachment of your movable and immovable property". This was

followed by a warrant of attachment dated 5th November 2003 issued

by Respondent No.2 under Section 77 of the PLR Act, attaching the

immoveable properties of the Petitioner No.2 Shri R.C. Jindal being a

shop at 25-B Lal Kuan, M.B. Road, Badarpur, Delhi. The said

warrant of attachment mentioned the amount due as Rs.2,31,16,123/-.

4. The Petitioners state that the properties of the Petitioner No.2

Company, i.e., the plant and machinery for manufacture of stainless

steel wires and a 180 sq. yds. industrial building at 1/342, Friends

Colony Industrial Area, Gali No.1, G.T. Road, Shahdara, Delhi were

available with the DFC for recovery of the dues and therefore, there

was no occasion for issuing a warrant for arrest and detention of the

Petitioners 1 and 2.

5. On the first hearing of the present case on 12th January 2004, the

following order was passed by this Court:-

"WP(C). Nos.199-200/2004

Petitioner's case is that the properties which have been offered as security are already under attachment and respondents have issued notice for public auction and advertised the same in the issue of Hindustan Times dated 04.01.2004. Learned counsel for the petitioner submits that a sum of Rs. 86, 96, 745/- was demanded vide notice dated 29.10.2003, as shown in Annexure P-

5. However, vide notice dated 05.12.2003, respondents are claiming Rs. 2,31,16,123/- for which amount recovery certificate had been issued (Annexure P-6). Learned counsel for the petitioner prays for a direction to the respondents to provide a computation showing the

basis on which the figure of Rs. 2,31,16,123/- has been arrived at. The petitioners do not question the auction or sale of the properties. However, they only submit that they have no means even of sustenance and in these circumstances their arrest is not called for.

Notice to the respondents to show cause as to why rule nisi be not issued returnable on 14th April, 2004, confined to the above submission.

Mr. Rajesh Mahajan accepts notice on behalf of the respondents and seeks time to file counter affidavit. Let the same be filed within six weeks. He further submits that as per instructions, petitioners own a bungalow in Saket. However, no particulars are forthcoming.

I consider it appropriate to direct petitioner nos. 1 and 2 to file an affidavit disclosing their assets. Petitioners would also disclose in the affidavit the movable and immovable properties owned by them. Petitioners shall further disclose whether they own any automobile or other vehicle as well as whether they have membership with any Club and subscription & charges paid therefore. Let the affidavit be filed within six weeks.

Respondents to file computation within six weeks showing the basis on which amount of Rs. 2,31,16,123/- has been arrived at.

CM No. 248/2004

Notice for 14th April, 2004.

Mr Rajesh Mahajan accepts notice on behalf of the respondents.

In the meantime, petitioners 1 and 2 be not arrested."

6. Thereafter on 15th April 2004, the court recorded the undertaking

of the Petitioners that they would not dispose of or part with any of

the immovable properties, as disclosed in their affidavits dated 26th

February 2004. In his affidavit dated 26th February 2004, Suresh

Jindal, the Petitioner No.1 stated that he did not have any movable

and immovable properties. He had a nominal amount in the savings

account held in Canara Bank. He also did not own any automobile or

vehicle or any membership of a club. The Petitioner No.2 Shri R.C.

Jindal in his affidavit disclosed that he owned the following

immovable properties:

1. IInd Floor, D-172, Saket, New Delhi-7

2. Shop No.25-B, Lal Kuan, Badarpur, M.B . Road,

New Delhi.

Shri R.C. Jindal further disclosed that the property at Saket was a

residential house and stood mortgaged with Central Bank, Janpath,

New Delhi. The property No.2 at Badarpur was also mortgaged with

the Punjab National Bank, Patparganj, Delhi. Shri R.C. Jindal also

stated that he did not own any automobile or other vehicle nor did he

have any membership of any club.

7. It is stated by the DFC that on 26th February 2004 the machinery

was auctioned for a sum of Rs.5 lakhs and on 18th March 2004 the

property belonging to Petitioner No.3 which was mortgaged with it,

admeasuring 180 sq. yds. at Friends Colony, Shahdara was auctioned

for Rs.17.75 lakhs. This in any event did not cover the entire amount

due to the DFC.

8. DFC seeks to defend its action in issuing a final notice requiring

the Petitioners to appear before the Respondent No.2 failing which

they would be arrested on the ground that the Petitioners 1 and 2 had

dishonestly alienated their respective properties to certain other

financial institutions by way of mortgage much after the issuance of

the certificate under Section 32 (G) of the SFC Act.

9. One other important development requires to be noticed at this

stage. Shri R.C. Jindal filed a separate petition being Civil Writ

No.2370 of 2005 pertaining to the property at Badarpur. The prayer

in that petition was that the decision of the DFC to put the said

property to public auction after attachment should be quashed.

10. During the pendency of both the writ petitions Shri R.C. Jindal

expired. While he was substituted by his legal representatives by an

order dated 9th February 2007 in Writ Petition (Civil) No.2370 of

2005, the prayer for substitution in Writ Petition (Civil) No.199-200

of 2004 was declined by a separate order which reads thus:-

"These are applications, one under Section 5 of the Limitation Act for condonation of delay and the other under Order 22 Rule 3 read with Section 151 of the Code of Civil Procedure, 1908 for substitution of the legal heirs of the petitioner No.2, who has passed away. The learned counsel appearing on behalf of the

respondent submits that this petition involves the question of arrest of the petitioner nos. 1 and 2. Since the petitioner No.2 has passed away, there would be no question of substituting the legal heirs of the petitioner No.2 as they cannot be arrested in place of the deceased petitioner No.2. I am in agreement with the submission made by the learned counsel for the respondent and accordingly, the application for substitution would not be necessary as the cause of action does not survive to the legal heirs of the petitioner No.2. The petition will now proceed in respect of the petitioner No.1. An amended memo of parties be filed in terms of this order within one week.

These applications stand disposed of."

11. On 10th July 2009 the Writ Petition (Civil) No.2370 of 2005 was

disposed of by an order, the operative portion of which reads as

under:-

"It is clarified that the present Writ Petition only pertains to property no. 25-B, Lal Quan, M.B.Road, Badarpur, Delhi and in case Mr. R.C.Jindal or any other debtor have any other property, it is open to the respondent no.1 to press for attachment and sale of the said property. It is also clarified that in case the property is not mortgaged with the Punjab National Bank, the respondent no.1 will be at liberty to attach the property and sell the same for recovery of their dues.

The Writ Petition is accordingly disposed of."

12. Shri Suresh Jindal also filed an affidavit dated 4th March 2008 in

Writ Petition (Civil) No.199-200 of 2004 stating that during the

pendency of the present petition he had filed an insolvency petition

before the Insolvency Court, Delhi and that the same was still

pending. It is pleaded that the Petitioner No.1 simply does not have

the means to pay the dues demanded by the DFC. Relying on the

judgments of the Supreme Court in Jolly George Varghese v. The

Bank of Cochin AIR 1980 SC 470 and Ram Narayan Agarwal v.

State of Uttar Pradesh (1983) 4 SCC 276, it is submitted by the

learned counsel for the Petitioner, Mr. Aman Vachher that there was

no justification whatsoever for the DFC to issue any warrant of

attachment for the recovery of the loan. It is submitted that unless it

is shown that the Petitioner No.1 had dishonestly alienated the

moveable and immoveable properties belonging to him during the

pendency of the proceedings, the recovery of the amounts from him

in his capacity as guarantor and consequently the issuance of a

warrant for his arrest was not justified.

13. Mr. Rajesh Mahajan, the learned counsel, appearing for the DFC

submitted that the observations in Jolly George Varghese v. The

Bank of Cochin have to be read in the context of the subsequent

judgment of the larger Bench of the Supreme Court in Ram Narayan

Agarwal v. State of Uttar Pradesh. He submits that the Petitioner

No.1 would have all along known about the properties owned by the

Petitioner No.2 as he was in the full know of the fact that the

Petitioner No.2 had already mortgaged his properties to other

financial institutions. It is accordingly submitted that the issuance of

a warrant of arrest against the Petitioner No.1 is fully justified.

14. On behalf of the Petitioner No.1, it is pointed out that after the

death of the Petitioner No.2, there was no occasion for continuing

with the warrant of arrest vis-à-vis the Petitioner No.1 since in any

event the Petitioner No.1 has nothing to do with the properties which

were mortgaged by the Petitioner No.2 to certain other financial

institutions.

15. Mr. Rajesh Mahajan, submits that the issuance of the warrant of

arrest and attachment for recovery of the statutory dues is traceable to

Section 138 of the Delhi Land Reforms Act, 1954 (DLRA) which has

been incorporated by reference into the Delhi Land Revenue Act,

1954 which has in turn substituted the PLR Act 1887. It is submitted

that the bar against the attachment of residential premises in terms of

Section 60 CPC would not be attracted. A reference is made to the

judgment of the Supreme Court in State of Punjab v. Dina Nath

(1984) 1 SCR 844.

16. Having considered the submissions of the counsel for the parties,

this Court is of the view that the Petitioners should succeed in the

petition. It has been very candidly stated by the learned counsel

appearing for the DFC that apart from the fact that the Petitioner

No.1 is the son of the Petitioner No.2 and would have known the

creation of the mortgage by Petitioner No.2 of his properties in

favour of the banks, there is nothing to show that the Petitioner No.1

has any right, title or interest to the property of Shri R.C. Jindal either

at Saket or at Badarpur.

17. It is true that in Jolly George Varghese v. The Bank of Cochin,

the Supreme Court was concerned with the recovery of the

contractual dues by using the coercive process of arrest and

detention. Therefore, as rightly pointed in Ram Narayan Agarwal

that decision may not apply to a case where the dues are statutory. To

that extent there will be no doubt that as far as the present case is

concerned the dues owed by the Petitioner No.2 to the DFC are

statutory dues. Nevertheless in Ram Narayan Agarwal, the Supreme

Court while distinguishing the Jolly George Varghese, explained in

paras 9 and 10 as under (SCC @ p. 284-85):

"The Law Commission in its 54th Report submitted in the year 1973 after examining in detail the provisions for arrest and detention of a judgment-debtor in execution of a decree passed by a civil court contained in Section 51 of the Code of Civil Procedure in the light of the international covenant referred to above observed that this mode of recovery should not be given up. In its Report, the Law Commission observed:

Situation in Section 51 (b) 1-E-12. Perhaps, it could be argued that imprisonment of the judgment-debtor in the situation in Section 51, proviso, clause (b) causes hardship. That clause applies where the judgment- debtor (i) has the means and refuses or neglects to

pay or (ii) has had the means and has refused or neglected to pay. The essential condition in either case is the possession of means, coupled with contemporaneous failure or neglect to pay. Imprisonment, if it follows in such cases, is not based on mere non-payment, nor on mere inability to pay, but is confined to cases where a person is able to pay and dishonestly makes default in payment.

1-E-13. It will, thus, be seen that the provisions as to arrest do not violate the provision in the International Covenant, as they are not based on mere non-fulfilment of a contract. Further, even apart from their consistency with the Covenant, they are justifiable on principle because the conduct which attracts their operation is dishonest. Technically, no crime is committed, as there is no bodily harm to the decree-holder or direct harm to society. But, to deprive another person of his lawful dues when one has the means to pay is, in the special situations to which Section 51, proviso, is confined ultimately causing harm to society, which suffers if an individual member suffers by reason of the dishonest conduct of another member. Present law sufficiently restrictive. 1-E-14. We are, therefore, of the view that so far as the cases in which arrest may be ordered are concerned the law in India is sufficiently restrictive, except in two respects, which we shall presently discuss. This mode of execution should not, therefore, be totally abolished.

The situations mentioned in the proviso to Section 51-which is the section dealing with arrest in execution of decrees for payment of money - are those which indicate fraud or clandestine designs on the part of the judgment-debtor. Mere inability to perform the obligation to repay a loan (or other monetary obligation) does not result in imprisonment.

10. The foregoing shows that in the contemporary Indian conditions the process of arrest and detention of a judgment-debtor or a defaulter to enforce payment of the amount due from him is not altogether unreasonable. It cannot be held to be unconstitutional if there are

sufficient safeguards which make the process conform to reasonable standards." (emphasis supplied)

18. The law emerging from the above decisions is that the extreme

coercive process of arrest and detention of a defaulter will be resorted

to not on account of mere non-payment or inability to pay but only

where "a person is liable to pay and dishonestly makes default in

payment". The Supreme Court has in Ram Narayan Agarwal

emphasized that it is only the dishonest conduct of a borrower that

will attract the coercive step of arrest and detention.

19. As far as the present case is concerned, the burden is on the

Respondent No.1 DFC to show that the Petitioner No.1 acted

dishonestly in creating mortgage of his movable and immovable

properties in favour of certain other financial institutions much after

the issuance of the recovery certificate against him well as well as