MAHALAXMI HOUSING AND FINSTOCKPVT. LTD v. RECOVERY OFFICER & 3

CORAM : HONOURABLE MS. JUSTICE R.M.DOSHIT HONOURABLE MR.JUSTICE SHARAD D.DAVE 25th August, 2008 ORAL JUDGMENT (Per : HONOURABLE MS. JUSTICE R.M. DOSHIT) Heard the learned advocates. LPA/1924/2007 JUDGMENT This Appeal preferred under clause 15 of the Letters Patent arises from the judgment and order dated 17th September, 2007 passed by the learned Single Judge in above Special Civil Application No. 16180 of 2007. The appellant-judgment debtor- Mahalaxmi Housing & Finstock Private Limited filed above Special Civil Application No. 16180 of 2007 under Articles 226 & 227 of the Constitution against the respondent-Bank of Maharashtra [hereinafter referred to as, “the Bank”] to challenge its action in disposing of the properties of the judgment debtor by public auction. It is not in dispute that the appellant is the judgment-debtor. A decree has been passed against the appellant by the Debts Recovery Tribunal, Ahmedabad.

After the date of the decree, one Bholabhai Patel, a director in the appellant-Mahalaxmi Housing & Finstock Private Limited and also in Mangal Krupa Construction Private Limited, and the Bank entered into a compromise. By settlement dated 28th December, 2005, the Bank agreed to accept a sum of Rs. 109.00 Lakhs in full and final settlement of the Bank's outstanding dues in respect of the two accounts – one LPA/1924/2007 JUDGMENT of Messrs. Mahalaxmi Housing & Finstock Private Limited and another of Mangalkrupa Construction Private Limited. The settlement stipulates certain terms and the mode of payments to be made by the said Bholabhai Patel. The said Bholabhai Patel was also required to give collateral security by way of registered mortgage of property. Clause [5] of the said settlement provided that,

In case of non payment of any two instalments, Bank will revive recovery proceedings for entire dues as per judgment/decree of DRT, Ahmedabad without any concession whatsoever and in that case, compromise would stand withdrawn and the recovery proceeding will not be withdrawn till the entire payment of comprise amount, with interest.

It is also not in dispute that the said Bholabhai Patel failed to act in conformation with the terms and conditions of the said settlement.

In view of breach of the terms and conditions of the settlement, the Bank invoked its authority to execute the decree under the above referred clause [5] of the settlement. In execution of the decree, two properties of the appellant have been sold by public auction. The challenge to the LPA/1924/2007 JUDGMENT action of the Bank in disposing of the properties in execution of the decree has failed before the learned Single Judge. Therefore, the present Appeal. Mr. Gandhi has assailed the judgment of the learned Single Judge. He has submitted that after the Bank acknowledged the breach of terms and conditions of the settlement, the Bank did accept part payment made in furtherance of the settlement. Thus, the Bank has waived its right to execute the decree. In support of this submission, Mr. Gandhi has relied upon the judgments of the Hon'ble Supreme Court in the matters of Madesmsetty Satyanarayana v.

G. Yelloji Rao & Ors. [AIR 1965 SC 1405]; and of Associated Hotels of India Limited v. S.B Sardar Ranjit Singh [AIR 1968 SC 933]. He has next submitted that the Bank having accepted part payment towards the installment is estopped from invoking clause [5] and in executing the decree passed against the appellant. In support thereof, he has relied upon the judgments in the matters of Smt. Sova Ray & Anr. vs. Gostha Gopal Dey & Ors. [AIR 1988 SC 981] and of Provash Chandra Dalui & Anr. v. Biswanath Banerjee & Anr. [AIR 1989 SC 1834]. He has submitted that clause LPA/1924/2007 JUDGMENT [5] of the settlement is a penal clause and is not enforceable as envisaged by Section 74 of the Indian Contracts Act, 1872. In support thereof, he has relied upon the judgment of the Punjab & Haryana High Court in the matter of Mehru vs. Mohanlal [AIR 1985 P&H 143]. He has also read out paragraph 1269 from Halsbury's Laws of England [Fourth Edition] Vol.45.