KANWALJIT SINGH Vs. PUNJAB FINANCIAL CORPORATION

JUDGEMENT

(1.) Through the instant petition filed under Articles 226/227 of the Constitution of India, the petitioners pray for quashing the impugned order dtd. 3/10/2017, Annexure P.10 passed by respondent No.3 - Punjab Financial Corporation, vide which the objections filed by them under Sec. 13(3A) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, "the SARFAESI Act") have been rejected. Further prayer has been made for a direction to respondent No.1 to withdraw their notice dtd. 25/8/2014, Annexure P.4 issued under Sec. 13(2) of the SARFAESI Act, being ultravires, illegal, arbitrary and violative of Article 14 of the Constitution of India. Direction has also been sought for quashing the letter dtd. 28/11/2013 and notice dtd. 25/8/2014, Annexures P.3 and P.4 respectively, issued by the respondents.

(2.) A few facts relevant for the decision of the controversy involved as narrated in the petition may be noticed. One Swaran Singh son of Nirmal Singh and Ravinder Singh, residents of Amritsar were Managing Directors of M/s Dashmesh Lamination Private Limited. It was a company registered and incorporated in the year 1990. It had set up its factory at Village Vallah, District Amritsar. It was engaged in the manufacturing/production of DPC strips/wires which are used for the winding of transformers. The said Swaran Singh and other shareholders had invested huge amount of Rs.25.00 lacs in setting up of the above said project. Swaran Singh, Ravinder Singh and Surjit Kaur had applied for a loan from respondent No.1 for completing their project and for setting up certain additional machinery. M/s Dashmesh Lamination Private Limited was sanctioned a loan of Rs.66.70 lacs including financial assistance from the State subsidy of Rs.10.20 lacs, out of which less than Rs.42.00 lacs was disbursed by the respondent Corporation. In lieu of repayment of the said loan amount, late Shri Bhagwan Singh, father of the petitioners agreed to mortgage his property as collateral security with reference to the above said mortgage deed. On 22/4/1994, M/s Dashmesh Lamination started its production unit. However, there was delay in disbursement of the loan amount by respondent No.2 on account of which the said unit could not properly function. Moreover, even before the entire loan amount could be disbursed, the respondent-Corporation exercised its power under Sec. 29 of the State Financial Corporation Act, 1951 (in short, "the 1951 Act") and took over the unit forcibly in March 1996. Even though the complete loan amount had not been disbursed as per the terms of mortgage deed, the respondents had proceeded against the petitioners. On 10/6/1996, Default Review Committee of Punjab Financial Corporation decided to restore the said unit and on 17/7/1996, additional subsidy of Rs.16,13,000.00 was sanctioned by the Punjab Industries department which was to be disbursed subject to availability of funds and as per seniority. On completion of all the formalities in July 1996, the petitioners requested the respondents to release the said amount but of no use. On 9/12/1998, the respondents put the unit on sale after valuing it for Rs.54.00 lacs. Auction of the said unit was held on 17/12/1998 and only three days' notice was given to the Directors to get a buyer for the said unit. According to the petitioners, the auction was unsuccessful. However, it came to the knowledge of the petitioners that in May 2001, the respondent Corporation sold the said unit at the price of Rs.32.00 lacs. Thereafter, Directors of the said company filed CWP No.7961 of 2001 in this Court which was dismissed vide order dtd. 24/10/2013, Annexure P.2. On 28/11/2013, late Shri Bhagwan Singh received a registered notice stating that he had furnished collateral security in the said mortgage deed and that he had agreed to repay the loan to the Corporation in case of default committed by the concerned principal borrower. It was further stated that the concerned principal borrower had failed to repay the loan of the Corporation and that the Corporation had acquired the prime property under Sec. 29 of the 1951 Act and sold off the unit for Rs.32.00 lacs. The Corporation had thus decided to initiate proceedings under Sec. 32G of the said Act for recovery of its balance outstanding against the collateral security. On 25/8/2014, the respondents issued notice under Sec. 13(2) of the SARFAESI Act to late Shri Bhagwan Singh stating that he being the collateral security was liable to pay the total outstanding amount of Rs.46,34,60,046.00. The said notice was challenged by late Shri Bhagwan Singh in CWP No.20259 of 2015 in this Court in which notice was issued. The reply was submitted by the respondent Corporation. During the pendency of the said writ petition, Bhagwan Singh died on 27/1/2017. The said writ petition was disposed of vide order dtd. 6/2/2017 without expressing any opinion on the merits of the case granting liberty to the legal representatives of Shri Bhagwan Singh to raise all the pleas as raised in the writ petition by way of filing objections under Sec. 13(3A) of the SARFAESI Act before the concerned authority within one month from the date of receipt of the copy of the order. Direction was given to decide the objections within next two months in accordance with law. The petitioners filed the objections under Sec. 13(3A) of the SARFAESI Act (Annexure P.8). The petitioners contended that out of total sanctioned amount of Rs.66.70 lacs, only an amount of less than Rs.42.00 lacs was disbursed. Secondly, the respondents had the right to proceed under Sec. 32G of the 1951 Act. The petitioners even appeared before the respondents. On 3/10/2017, respondent No.3 passed the order rejecting the objections raised by the petitioners. According to the petitioners, the objections raised by them have not been objectively dealt with. No cogent reasons have been given. Hence the instant petition by the petitioners.

(3.) A written statement has been filed on behalf of the respondent Corporation wherein it has been inter alia stated that the loan taken by M/s Dashmesh Laminations Private Limited was secured by way of mortgage of property of late Bhagwan Singh, father of the petitioners. Due to default in the repayment of the loan, the security was taken over by the respondents in March, 1996. On request of the borrowers for additional loan, it was restored by the Default Review Committee in the month of July 1996. Thereafter, again the borrowers defaulted in repayment and the unit was taken over under Sec. 29 of the 1951 Act on 11/3/1999 and sold vide sale agreement dtd. 30/3/2001 at Rs.32.00 lacs. Before finalizing the sale, the same was published in the newspapers and the borrowers were duly informed about the proceedings by issuing the letters. After the sale of the unit, the outstanding dues were not fully recovered. Thereafter, the respondents initiated action under Sec. 32G of the 1951 Act against the collateral security. A certificate was issued on 24/10/2001 to the Collector, Amritsar to recover the balance dues. After inability of the Tehsildar to attach the said property, the respondents decided to initiate action against the petitioners under the SARFAESI Act and issued notice under Sec. 13(2) of the said Act on 25/8/2014 mentioning the complete details of the outstanding amounts. According to the respondents, as per the terms of the mortgage deed, the outstanding amount is Rs.52,28,02,501.00 till 15/9/2014 with further interest till realization. Every detail is mentioned in the notice under Sec. 13(2) of the SARFAESI Act which was finalized on the basis of the account statement and record of the Corporation. On these premises, prayer for dismissal of the petition has been made.