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PETITIONER: S.K. BHARGAVA

       Vs.

RESPONDENT: THE COLLECTOR, CHANDIGARH & ORS.

DATE OF JUDGMENT:       23/04/1998

BENCH: B.N. KIRPAL, SYED SHAH MOHAMMED QUADRI

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T KIRPAL, J.      The short  question which  arises for  consideration in this appeal  by special  leave is  whether the Collector was justified in  proceeding against  the appellant,  who was  a Director of  a company which is alleged to have defaulted in repayment of  loan to  the  Haryana  Financial  Corporation, without affording  the appellant  an  opportunity  of  being heard under  the provisions  of the  Haryana  Public  Moneys (Recovery of Dues) Act, 1979.      Briefly stated  the facts  are that  the appellant  was appointed as  one of  the Directors of M/s. Depro Foods Pvt. Ltd., which was subsequently converted into a public limited company. In  1971 and in 1973 the said company took loans on two occasions  from the  Financial Corporation.  According t the appellant,  he resiged  as a  Director of the company on 35th February,  1974 and  the factum  of his resignation was communicated to  the Registrar  of Companies  on 11th March, 1974. It  is further the case of the appellant that after he ceased to be a Director of the company, anther loan of a sum of Rs.  3 lakhs  on the  basis of  a registered mortgage was taken by the company on 12th November, 1974.      It appears  that default  was committed by t he company in repayment  of the  loan and interest thereon. This led to the filing  of the  winding up  petition  in  the  Punjab  & Haryana High  Court. On  18th September,  1978, the  Haryana Financial Corporation  filed an application under Section 31 of the  State Financial  Corporation Act,  1951 for an order for the  recovery of Rs. 52,78,227,48 (Rs. 30,07,621,86 plus interest thereon)  being the  outstanding amount against the loans taken  by the company on three different occasions. It may here  be stated  that by  order dated 21st August, 1980, the company  was ordered  to be  would up.  Thereupon in  an application which  was filed,  the Company  Judge  by  order dated  3rd   December,  1981   held  the  Haryana  Financial Corporation to  be a preferential creditor in respect of the amounts which  were due to it. Thereafter, the assets of the company were  sold and from the proceeds thereof some amount was  paid   t  the   Haryana  Financial  Corporation.  After adjusting the  amount so paid, there remained a shortfall of

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Rs. 18,22,178,05 plus interest thereon.      In order  to recover the shortfall of Rs. 18,22,178,05, the Corporation  took recourse  to proceedings under Section 3(3) of  the Haryana  Public Moneys  (Recovery of Dues) Act, 1979 and  a Recovery Certificate was thereupon issued to the Collector, Chandigarh  for realisation  of the  said  amount from  various   persons  including   the   appellant.   This certificate was  transferred to  the  Collector,  Delhi  for effecting recovery.  Thereupon, to  cut a  long story short, when  the  appellant  did  not  get  any  redress  from  the Collector’s office,  he filled a writ petition in the Punjab & Haryana  High Court, inter alia, contending that as he had resigned as  a Director,  no recovery could be effected from him. It  was also  stated therein  that he  had  never  been informed or  made party to any of the proceedings before any authority whatsoever  and no liability could be fixed on him merely by  issuing a  recovery notice.  By a  short judgment dated 26th  July, 1985,  a Division  Bench of the High Court came  to   t  he  conclusion  that  as  the  amount  of  Rs. 18,22,178,05 had  been found  to be  recoverable in judicial proceedings,  it  did  not  think  that  the  guarantor  was entitled to  any other  notice before  the amount  which was sought to  be realised,  could  be  recovered.  It  is  this decision which has been challenged in this appeal.      The Haryana  Public Money  (Recovery of Dues) Act, 1979 was enacted  too provide  for  speedy  recovery  of  certain classes of  dues. Assuming  that the  appellant, who  was  a Director of the defaulting company at least at the time when loans were  taken on  two occasions,  can be  regarded as  a ‘defaulter’ with in the meaning of that expression occurring in Section 2(c) of the said Act, the question arises whether any determination  of the  amount  due  is  required  before recovery is effected under Section 3 of the Said Act.      Section 3  of the  said Act  deals with the recovery of the dues as arrears of land revenue and reads as under :-           "3  (1)   Where  any   sum  is      recoverable from a defaulter -           (a) by  the State  Government,      such  officer   as   it   may,   by      notification,   appoint   in   this      behalf;           (b)  by  a  Corporation  or  a      Government  company,  the  Managing      Director thereof,           shall determine  the  sum  due      from the defaulter.           (2)   The   Officer   or   the      Managing Director, as t he case may      be, referred to in sub-section (1),      shall send  a  certificate  to  the      Collector mentioning  the  sum  due      from the  defaulter and  requesting      that such  sum  together  with  the      cost or proceedings be recovered as      if  it   were  an  arrear  of  land      revenue.           (3)   A certificate sent under      sub-section   (2)    shall       be      conclusive  proof  of  the  matters      stated therein  and the  Collector,      on  receipt  of  such  certificate,      shall proceed to recover the amount      stated therein  as arrear  of  land      revenue.           (4)  No civil court shall have

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    jurisdiction -           (a) to entertain or adjudicate      upon any case; or           (b)  to   adjudicate  upon  or      proceed with any pending case,           Relating to  the  recovery  of      any sum  due as  aforesaid from the      defaulter. The proceedings relating      to the  Recovery of  the  sums  due      from the defaulters, pending at the      commencement of  this  Act  in  any      civil curt, shall abate."      It is not in dispute that before a certificate was sent by the Managing Director to the Collector for recovering the amount of  Rs. 18,22,178,05,  on notice  was  given  to  the appellant. Section  3(1) provides  a procedure where any sum is recoverable  from a  defaulter. Section  3(1)(b) requires the Managing  Director  of    Corporation  or  a  Government company to  whom amount is due to determine the sea due from the defaulter.  It is  that sum  so  found  due  in  respect whereof certificate  is sent  by the Managing Director under sub-section (2)  of Section 3. The certificate so sent is by sub-section (3) regarded as conclusive prf of matters stated therein  and   the  Collector,   on  receipt   of  the  said certificate, is  required too  proceed to recover the amount stated therein  as arrear  of land  revenue. Sub-section (4) ousts the  jurisdiction of  the civil  court to entertain or adjudicate upon  any case  or proceedings  relating  to  the recovery of any sum due from the defaulter.      It is  clear from  the  perusal  of  the  above  quoted Section that  before a  certificate can  be  issued  by  the Managing Director  under sub-section  (2) of  Section 3,  he must determine  the ‘sum due’ from the defaulter as enjoined upon him  by Section  3(1)(b). It  is difficult t appreciate the contention  of the  learned counsel  for the  respondent Financial Corporation  that any  such determination can take place without  notice to  the defaulter. The jurisdiction of the civil  courts to  go into the questions as t what is the amount due is expressly ousted by sub-section (4) of Section 3. In  its place,  the power  has been given to the Managing Director under Section 3(1)(b) to determine as t what is the amount due  from the  defaulter. There  can be no doubt that any such  determination by the Managing Director will result in civil consequences ensuing. The determination being final and conclusive,  would have  the result  of the passing of a final decree,  inasmuch as  t he  defaulters from  whom  any amount is  fund to  be due,  would become  liable to pay the amount so  determined  and the Collector will have the right to recover the same as arrears of land revenue.      In  our   opinion,  even  though  Section  3  does  not expressly provide  for an  opportunity being  given  to  the alleged defaulter to explain as to whether any amount is due or not  but in view of the nature of the said provision, the principles of  natural justice  must be  read into  it.  The requirement of  determination of the sum due by the Managing Director must  be regarded  as providing  for  the  Managing Director hearing  the alleged defaulter before coming to the conclusion as  to what  is the  sum due. The very use of the words ‘determine’  and ‘sum due’ implies that there may be a lis between  the parties  and they have to be heard before a final conclusion  is arrived at by the Managing Director. It is not a mere claim of the Corporation which is forwarded to the Collector  for realisation,  but it  is the ‘sum due’ as determined  by   the  Managing   Director  which   alone  is recoverable. As  already observed, this determination cannot

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be done without notice to the alleged defaulter.      Ms. S.  Janani,  learned  counsel  for  the  respondent Financial Corporation  sought to  rely upon  the decision of this Court  in Director  of Industries,  U.P & Ors. vs. Deep Chand Aggarwal,  1980  (2)  SCR  1015.  In  that  case,  the validity of  Section 3  of the  Public Moneys  (Recovery  of Dues) Act, 1965 of U.P. was challenged. That Section enabled the State Government to recover the sums advanced as arrears of land  revenue and  it was sought to be contended that the said provision  was discriminatory  and violative of Article 14 of  the Constitution.  The validity of the said Section 3 was upheld,  but we  find that the court was not called upon to deal  with a  question as  to whether  the principles  of natural  justice  were  implicitly  enshrined  in  the  said Section. In  any case,  this decision is of no assistance to the respondent  for the  simple reason that Section 3 of the U.P. Act  is not  residential with  Section 3 of the Haryana Act, inasmuch  as the  U.P. Act  did not contain a provision similar to  Section  3  (1)(b)  of  the  Haryana  Act  which requires determination  by the  Managing Director of the sum due from  the defaulter.  We, however,  do not  express  any opinion that  where a  provision like Section 3(1)(b) of the Haryana Act  is not  incorporated in  a statute, whether the principles of  natural justice  would require a notice being given before any amount is sought to be recovered as arrears of land  revenue.      For the  reasons hereinabove as, admittedly, principles of natural  justice were  not complied with, it must be held that determination  of the  Managing Director  under Section 3(1)(b) and  the consequent certificate issued under Section 3(2) of the Haryana Act, both were vitiated.      We, accordingly,  allow  this  appeal,  set  aside  the judgment of the High Court as well as the certificate issued to respondent  No. 1  and the  determination by the Managing Director under  Section 3(1)(b).  The Managing Director will be at liberty to take proceedings afresh for recovery of the amounts due  in accordance  with law and in the light of the observations made in this judgment.      There will be no order as to costs.