REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.663 OF 2003

M/s. A.P.T. Ispat Pvt. Ltd.       … Appellant

Versus

U.P. Small Industrial Corporation Ltd. & Anr.      … Respondents

J U D G M E N T

AFTAB ALAM, J.

1. The  appellant  is  a  private  limited  company  incorporated  and  

registered  under  the  Companies  Act.  It  seeks  to  challenge  two  recovery  

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certificates issued by the Managing Director of the U.P. Small  Industries  

Corporation Ltd. (a government corporation) in purported exercise of power  

under section 3 of the U. P. Public Moneys (Recovery of Dues) Act, 1972.  

Challenging the two recovery certificates, the appellant filed a writ petition  

(Civil  Misc.20  of  2001)  before  the  Allahabad  High  Court  which  was  

dismissed by a division bench of the Court by judgment and order dated  

April 26, 2001. Against the High Court judgment, the appellant has come in  

appeal by grant of special leave.  

2. The Managing Director of the Corporation drew up the two identical  

recovery  certificates  and  sent  them to  the  District  Magistrate,  Lucknow,  

stating that the Directors of the appellant company had received from the  

Corporation’s Dadanagar depot 1027.15 MT wire rods (iron and steel) worth  

Rs.1,54,93,421/-  (Rupees one crore fifty four lakhs ninety three thousand  

four hundred twenty one only). But the payment of the goods had not been  

made to the Corporation and it was to be recovered from the persons (named  

in  the  recovery  certificates  as  the  company’s  Directors)  together  with  

interest. Paragraphs 1 and 3 of the recovery certificate are relevant for the  

present and are reproduced below:

“1. Till  30.11.2000 a sum with interest of Rs.1,79,03,848=00  (Rupees  one  crore  seventy  nine  lakhs  three  thousand  eight  hundred and forty eight only) has been due to the defaulter M/s  

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A.P.T. Ispat Pvt. Ltd. and the said sum has to be recovered from  the defaulter.

3.  In  accordance  with  the  Government  Order  No.  12/3/7704/Revenue-7  dated  13.11.75  send  the  amount  recovered from the defaulter by a bank draft drawn in favour of  the  Corporation  (U.P.  Small  Industries  Corporation  Limited,  Kanpur) to his office. ”

3. It is significant to note that on the same day the Regional Manager of  

the  Corporation,  Kanpur  region,  submitted  a  written  report  to  the  Senior  

Police Officer, Kanpur Nagar, Kanpur. On the basis of the written report, a  

First Information Report was instituted giving rise to a substantive criminal  

case under various sections of the Penal Code against the persons named in  

it. In the written report it was stated that since the year 1994-95 M/s Anuj  

Steels  whose proprietor was Anuj Tandon s/o Shri  Durga Prasad Tandon  

was appointed by the Corporation as its Sales Coordinator for the purposes  

of  selling  iron  and  steel  from  the  Corporation’s  Dadanagar  godown  at  

Kanpur  as  a  raw  material  to  small  scale  industries.  According  to  the  

Memorandum of  Understanding,  the  Coordinator  booked the  demand for  

iron and steel as might be required by the small scale industrial units with  

the Steel Authority of India Ltd. (SAIL). The SAIL would then dispatch the  

booked quantity of iron and steel either from its stockyard or by railway  

either on unsecured credit or on the deposit of money by the Coordinator.  

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The Coordinator  lifted the goods,  through its  Handling Contractor,  either  

from the SAIL stockyard or from the railway siding and brought it to the  

UPSIDC godown at Dadanagar. The Coordinator was also responsible for  

selling the iron and steel bought from the SAIL to the small scale industrial  

units  after  depositing  its  value  in  the  depot  or  in  the  regional  office  of  

Corporation.

4. The  written  report  further  stated  that  Anuj  Tandon’s  brother  Arun  

Tandon, the proprietor of M/s Pranay Sales was appointed as the Transporter  

of the Corporation for lifting the iron and steel from the railway siding and  

the SAIL stock yard and bringing the stock to the Dadanagar depot. Arun  

Tandon extended cooperation to Anuj Tandon in the sale and purchase of the  

raw materials. He also participated in the meetings of the Corporation and  

performed several important jobs connected with the purchase and sale of  

iron and steel procured from the SAIL.

5. It is further stated that the appellant company is a small industrial unit  

whose directors were Ashok Tandon (another brother of Anuj and Arun),  

Prateak Tandon (son of Ashok Tandon) and Anuj Tandon. The appellant  

company  was  a  purchaser  of  wire  rods  from  Dadanagar  depot  of  the  

Corporation.

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6. From the statements made in the written statement, it is evident that  

the  running  of  the  day  to  day  affairs  of  the  Corporation  was practically  

handed over  to  the  members  of  the  Tandon family.  One does  not  know  

whether  the  arrangement,  as  stated  in  the  written  report,  was  made  

consciously, in collusion with the officers of the Corporation, or it came into  

being mindlessly and without any proper consideration of the Corporation’s  

interests. Be that as it may, an arrangement of this kind was fraught with the  

risk of grave financial losses to the Corporation. And, as is further alleged in  

the written report, the Corporation actually came in for heavy losses. In the  

written report it is further alleged as follows:

“On stock verification of Dadanagar Depot, it has come to the  light  that  M/s  A.P.T.  Ispat  Pvt.  Ltd.,  Amausi,  Lucknow,  has  taken  away  1027.15  metric  tonne  wire  rod  worth  Rs.1,54,93,421=00  (iron  and  steel  raw  material)  from  Dadanagar  Depot  which  raw  material  was  purchased  by  U.P.S.I.D.C. from Steel Authority of India on unsecured credit  for supplying to the small industrial units at the instance of M/s  Anuj  Steels  and  the  price  of  the  said  goods  have  not  been  deposited in the Depot or the bank account of the Corporation.  The  bills  of  the  aforesaid  raw  material  prepared  by  the  employees of the Depot were found while no entry thereof has  been made in the account books of the bills.  In this manner,  Arun Tandon, Anuj Tandon, Ashok Tandon, Prateak Tandon,  R.N.  Sharma,  Depot  Manager,  Raw  Materials  Depot,  Dadanagar, Kanpur, Jagdhari Yadav, Excise clerk, Lalji Yadav,  Depot Illegible, Raw Material Depot, Dadanagar, Kanpur under  a  conspiracy  to cause  loss to  the Corporation and to get  for  themselves unlawful gain have taken away iron and steel raw  materials worth Rs.1,54,93,421=00 (Rupees one crore fifty four  lakhs ninety three thousand four hundred twenty one only) and  

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the Corporation has suffered a loss of Rs.1,54,93,421=00 and  has been suffering loss of interest @ 21% per annum thereon. ”

7. A bare reading of the FIR makes it manifest and clear that according  

to  the  Corporation  the  accused  persons  including  the  Directors  of  the  

appellant company entered  into a conspiracy amongst themselves and with  

the staff of the Corporation and committed various offences, e.g. dishonest  

misappropriation of property, criminal breach of trust, cheating, theft, etc.  

8. In fairness to the appellant it may be stated here that it has its own  

story to counter the allegations made in the FIR. According to the appellant,  

the Corporation owed it a sum of Rs.3,83,894 (Rupees three lakhs eighty  

three  thousand and eight  hundred  ninety  four  only)  and on December  7,  

2000  the  appellant  had  instituted  Original  Suit  No.1245  of  2000  for  

injunction against the Corporation. The injunction suit was filed, when the  

officers of the Corporation started harassing the Directors of the appellant  

company  and  tried  to  subject  them  to  undue  pressure  of  government  

authorities, including the police. Mr. Shirish Kumar Mishra, learned counsel  

appearing for the appellant also invited our attention to the bills raised by the  

Corporation against the appellant company in support of its case. Mr. Mishra  

submitted that a bare glance at the bills would show that those were not  

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drawn in the normal course of business but were manufactured later as a  

prop to support the allegations made by the Corporation’s officers.

9. The allegations made in the FIR against the appellant company and  

the counter allegations made by the appellant against the Corporation are of  

no concern to us for the present.  We may assume for the purpose of the  

present case that the appellant company “received” from the Corporation the  

quantity of wire rods as stated in the two recovery certificates for which it  

has not made payment to the Corporation. But the question for consideration  

is whether the provisions of the U.P. Public Moneys (Recovery of Dues)  

Act, 1972 can be pressed into service for realization of the dues of the kind  

indicated above.  

10. Let us now take a look at the various provisions of the Act. Section  

2(a) of the Act defines “Corporation” to include any corporation owned or  

controlled by the Central government or the state government or notified by  

the state government in the official gazette. Section 2(b) defines financial  

assistance as follows:

“2(b) "financial assistance" means any financial assistance-

(i)  for  establishing,  expanding,  modernizing,  renovating  or  running any industrial undertaking; or (ii) for purposes of vocational training; or (iii)  for  the  development  of  agriculture,  horticulture,  animal  husbandry of agro-industry; or (iv) for purposes of any other kind of planned development; or

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(v) for relief against distress; ”

Section 3 deals with recovery of certain dues as arrears of land revenue and  

insofar as relevant it is reproduced below:  

“3. Recovery of certain dues as arrears of land revenue- (1) Where any person is party-

(a) to any agreement relating to a loan, advance or grant  given to him or relating to credit in respect of, or relating  to  hire  purchase  of,  goods,  sold  to  him  by  the  State  Government  or  the  Corporation,  by  way  of  financial  assistance; (b) to any agreement………..  (c) to any agreement……….. (d) to any agreement………..

(i) makes any default in repayment of the loan or  advance or any installment thereof; or (ii) having become liable under the conditions of  the grant to refund the grant o any portion thereof,  makes any default in the refund of such grant or  portion or any installment thereof; or (iii) otherwise fails to comply with the terms of the  agreement;

then, in the case of the State Government, such officers as may  be  authorized  in  that  behalf  by  the  State  Government  by  notification  in  the  official  Gazette,  and  in  the  case  of  the  Corporation or a Government company the Managing Director  or where there is no Managing Director then the Chairman of  the Corporation, or by whatever name called or such officers of  the Corporation or Government company as may be authorized  in  that  behalf  by  the  Managing  Director  or  the  Chairman  thereof, and in the case of a banking company, the local agent  thereof, by whatever name called, may send a certificate to the  Collector,  mentioning  the  sum  due  from  such  person  and  requesting such sum together with costs of the proceedings be  recovered as if it were an arrear of land revenue; (2)……………..  (3).……………. (4)……………..  

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(5)……………..”

11. Mr.  Mishra  submitted  that  the  appellant  company  was  neither  

receiving any financial assistance from the Corporation nor it was party to  

any agreement with the Corporation relating to any loan, advance or grant to  

it or relating to credit in respect of or relating to hire purchase of goods to it  

by the Corporation by way of financial assistance. Hence the provisions of  

section 3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972 could not  

be invoked for recovery of the alleged dues of the Corporation.  

12. The same contentions were raised before the High Court, but the High  

Court rejected the objection raised on behalf of the appellant observing, in  

the judgment coming under appeal, as follows:

“The  term  financial  assistance  thus,  means  any  financial  assistance provided for running any industrial  undertaking.  If  the term financial assistance is read along with section 3 of the  Act then it  would mean a party to any agreement relating to  goods sold to him by the Corporation as financial assistance for  running any industrial unit.  

Admittedly, in the instant case, the petitioner had been  purchasing wire rods materials  from the respondent company  for carrying on its  business.  Thus the raw materials,  that is,   wire  rods,  were  sold,  to  the  petitioner  by  the  respondent   company by way of financial  assistance. Learned counsel for  the  petitioner  has  contended  that  in  view of  section  3  there  should be an agreement for sale of goods by the corporation by  way of financial assistance to any person and only then the case  would be covered under section 3 of the Act. As there is no  agreement between the petitioner and the respondent company  

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for sale of goods by way of financial assistance and, therefore,  the provisions of section 3 of the Act are not applicable.  

There is no dispute about the fact that there is no written  agreement between the petitioner and respondent Company for  supply  of  raw  materials  to  the  petitioner. It  is,  however,   admitted  that  respondent  company  had  been  supplying  raw  materials  to  the  petitioner-company  for  carrying  all  its   business.  In writ petition no.Nil of 1987, in re: R.K. & Sons,  Bhadoi  vs.  The  Collector,  Varanasi  and  Others,  decided  on  12.3.1987, it has been held by a Division Bench of this Court  that  although there was no agreement executed in writing as   such, an agreement may be said to have come into being as a   result  of  mutual  contact  of  the  parties  accompanied  with   delivery of goods which were admittedly on credit and this was  to enable the petitioner to run the industrial unit held by him.  In this manner his case is covered under Section 3(1) (a) read  with Section 2(b) of the Act. In the instant case also as a result  of mutual contract between the parties delivery of goods were  made to the petitioner by respondent company. The petitioner  obtained  huge  quantity  of  raw  materials  without  making  payment  and  thus,  the  respondent  company  is  claiming  the  price of the goods sold to the petitioner by way of financial  assistance. The case of the petitioner is therefore, also covered  under Section 3(1)(a) read with Section 2(b) of the Act.”

                                                              (emphasis added)

13. We are completely unable to accept the view taken by the High Court.  

If the appellant company was purchasing wire rods as raw material from the  

Corporation we fail to see how the sale of the goods would become financial  

assistance rendered to the appellant unless it is shown that the supply of the  

goods was as a loan or grant or by way of hire purchase in terms of some  

agreement. We are, therefore, unable to follow the observation by the High  

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court  that  “Thus  the  raw materials,  that  is,  wire  rods,  were  sold,  to  the  

petitioner by the respondent company by way of financial assistance”.  We  

also find no basis for the observation made by the High Court that “it is,  

however,  admitted that  respondent  company (sic  Corporation)  had  been  

supplying  raw  materials  to  the  petitioner-company  for  carrying  all  its  

business” and further that the goods supplied “were admittedly on credit”.  

There is no such admission by the appellant. On the contrary the case of the  

appellant  is  that  it  used  to  purchase  wire  rods  from the  Corporation  on  

payment  of  price  and  it  made  payment  for  all  the  purchases  from  the  

Corporation.

14. We think that the High Court has stretched the meaning of “financial  

assistance” as defined in section 2 and the scope of section 3 of the Act  

beyond reasonable limits. From a bare reading of section 3 it is evident that  

the  dues must  arise  from an agreement  to  which the person from whom  

recovery  is  to  be  made  is  a  party.  Sub clause  (a)  of  sub-section  1  then  

enumerates the kinds of agreement under which the transaction should have  

taken place. It needs also to be borne in mind that in the scheme of the Act  

there is no provision for any adjudication. Once there is any default under an  

agreement,  the  designated  authority  is  authorized  to  issue  a  recovery  

certificate  and  send  it  to  the  Collector  who  is  obliged  to  recover  the  

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certificate amount together with interest from the certificate debtor as arrears  

of land revenue. At no stage the certificate debtor is given an opportunity to  

put up his case. Such being the legal position, the recovery certificate must  

be based on a tangible agreement and it should even prima facie appear that  

the dues arise from a breach of the terms of the agreement. A proceeding  

under section 3 of the Act cannot be sustained by piling up assumptions in  

favour of the certificate holder and against the judgment debtor.  

15. In the present case it  is evident that the dues of which recovery is  

sought by the impugned certificates do not pertain to any loan, advance or  

grant given to the appellant or to any credit concerning any hire purchase of  

goods sold to the appellant by the Corporation under any agreement, express  

or implied. The dues do not relate to any financial assistance.  

16. We  also  cannot  overlook  the  fact  that  in  this  case  the  so  called  

supplies were not even made in the normal course of business. A reference  

to the FIR makes it clear that according to the Corporation the goods were  

taken away by the appellant in a criminal action constituting a number of  

offences under the Penal Code. The U.P. Public Moneys (Recovery of Dues)  

Act, 1972 was clearly not intended to recover the goods or the monetary  

value of goods taken away in course of theft or dacoity or lost as a result of  

dishonest appropriation or any other alleged criminal action.

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17. For the reasons discussed above, we are of the view that in the facts of  

this  case  the  two  impugned  recovery  certificates  are  quite  illegal  and  

untenable and we are unable to sustain the High Court order coming under  

appeal.

18. There is another point and though it was not raised before the High  

Court,  we think proper to mention it  since it  is crucial  to the proceeding  

under section 3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972. In  

a decision by this court in Unique Butyle Tube Industries (P) Ltd. vs. U.P.   

Financial Corporation and Others, (2003) 2 SCC 455, it was held that after  

the coming into force of the Recovery of Debts Due to Banks and Financial  

Institutions Act, 1993, recourse cannot be taken for recovery of dues to the  

provisions of U.P. Public Moneys (Recovery of Dues) Act, 1972 because the  

U.P. Act does not find mention in section 34(2) of the Recovery of Debts  

Due to Banks and Financial Institutions Act, 1993.

19. For all these reasons the order of the High Court is set aside and the  

impugned recovery certificates are quashed.

20. It  is  made clear that  this  judgment shall  not  in any way affect  the  

criminal case instituted against the Directors of the appellant company and it  

will proceed on its own merits and in accordance with law. This judgment  

shall  also not  stand in the way of the respondent Corporation in seeking  

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recovery of its claims from the appellant by any other means duly sanctioned  

by law.

21. In the result the appeal is allowed but with no order as to costs.    

.……….……...................J.                                                     (AFTAB ALAM)          

………..……...................J.  (SWATANTER KUMAR)         

New Delhi April 23, 2010.

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