P.V.CHANDRAN v. THE KERALA FINANCIAL CORPORATION

WA No.58 of 2008 - 2 -Corporation, Kannur, stating that the property purchased by the petitioneroriginally belonged to the 3rd respondent, who was the proprietor of anindustrial concern by name M/s Anjaneya Industries and the 3rd respondenthad availed a loan from the 1st respondent-Kerala Financial Corporation andthere was default in the repayment of the said loan, and that notices inForm Nos. 1 and 10 of the Revenue Recovery Act were served on the3rd respondent on 28.2.1994 and that the alienation in favour of 5th respondentand thereafter in the name of the petitioner took place subsequent to theservice of RR notice and, therefore, proceedings are liable to be taken againstthe property in question in terms of Section 44(2) of the RR Act. Ext.P7 is thecopy of the notice. By Ext.P8 petitioner had sent a detailed reply to the noticenarrating the circumstances leading to his purchase of the property from5th respondent and that the encumbrance certificate issued did not show anykind of encumbrance over the property. Regarding the loan availed of by3rd respondent, it is the contention of the petitioner that the 3rd respondent hadmortgaged a property having an extent of 50 cents worth more thanRs.30 lakhs to the KFC. The loan was to the tune of Rs. 9 lakhs only.Therefore, the KFC could have proceeded on the property mortgaged and thatthey need not have to proceed against the property purchased by the petitionerand that too from the 5th respondent. According to the petitioner, thetransaction effected in his favour cannot be deemed to be in violation ofSection 44(2) of the Revenue Recovery Act, as it was not a case of alienation WA No.58 of 2008 - 3 -by 3rd respondent-defaulter in favour of a close relative. In reply,2nd respondent has stated that a notice under Section 34 had been issued torespondents 3 and 4 and instead of clearing off the dues, they had maliciouslyassigned the property to the 5th respondent. Ext.P11 dated 11.3.1998 is anotice stating that the property in question was attached in terms of Section 36of the Revenue Recovery Act. Ext.P12 dated 21.8.1998 is another noticeunder Section 49(2) stating that the property with building thereon will be putto sale in revenue action. Ext.P13 dated 22.2.1994 is the notice in Form No. 1issued in the name of respondents 3 and 4. Since 2nd respondent wasproceeding against the property in question on the basis of Exts.P13 and P14,petitioner by filing original petition had requested this court to quashExts.P11 and P13 by issuing a Writ in the nature of Certiorari and secondly,for a direction to the respondents 1 and 2 not to proceed against the propertypurchased by the petitioner for recovery of loan amount allegedly availed ofand defaulted by respondents 3 and 4.4. 1st respondent-Corporation has filed its counter affidavit in theWrit Petition. The essence of its contentions is that, the respondents 3 and 4had availed of a loan from the 1st respondent by mortgaging the machineries,land and the building thereon in favour of the 1st respondent. Since theycommitted default in repayment of the loan, the Corporation had initiatedrevenue recovery proceedings after complying with the proceduralrequirements as provided under the Kerala Revenue Recovery Act, 1968. WA No.58 of 2008 - 4 -They have further stated the transactions evidenced by Exts.P1 and P3 are notgenuine ones and they were intended only to defeat the revenue recoveryproceedings initiated by the Corporation. 5. The 2nd respondent has also filed a counter affidavit detailing thecircumstances which led to the initiation of the revenue recovery proceedingsand the procedures followed in that regard.6.The learned single Judge by judgment dated 4.10.2006 hasdisposed of the Writ Petition by granting One Time Settlement benefit to thepetitioner. The relevant portion of the judgment reads as under:“Section 44 of the Revenue Recovery Act serves as acharge on the property of the defaulter. So much so, saleof property effected by respondents 3 and 4 on20.11.1994 after receipt of revenue recovery notice issubject to liability due to the first respondent. Since thesame property purchased by the petitioner is also subjectto charge, respondents 1 and 2 are entitled to proceed forrecovery by attachment and sale of the property afterignoring the sale deeds both in favour of 5th respondentand the petitioner However, on account of escalation ofvalue of land, I feel petitioner can be given OTS benefitfor settlement of liability and in that event, he is entitledto retain the property. If petitioner so desires, petitioneris directed to file application before Managing Directorof KFC after making payment of 15% of the liability as ofnow for OTS benefit and if such an application is filedalong with payment of 15% of the arrears within three WA No.58 of 2008 - 5 -weeks from the date of receipt of copy of this judgment,then there will be direction to the Managing Director togrant OTS benefit to the petitioner and if payment ismade accordingly, to allow the petitioner to retain theproperty. Recovery proceedings will remain stayed forpayment as above and recovery will be restarted only ifpetitioner does not settle liability. In the absence of anysettlement of liability as above, respondents 1 and 2 willignore the sale transactions involved and proceed forsale of the property.”7. Aggrieved by the directions issued by the learned Single Judge, thepetitioner has come up in appeal.8.According to the appellant-petitioner, Section 44(2) of theRevenue Recovery Act does not come to the aid of therespondent-Corporation. According to the appellant, the said provision comesinto operation only when a transfer of immovable property is made by adefaulter after the public revenue due on a land from him has fallen in arrears.The said transfer should be with an intent to defeat the revenue recoveryproceedings. The appellant has mortgaged the property to a nationalizedBank for availing of a loan. The mortgage will create a charge over theproperty whereas the attachment will not create any charge. Any attachmentafter the creation of the mortgage has to be ignored. It is further stated thatattachment of the property was effected only on 11.3.1998 whereas Ext.P1title deed is dated 24.10.1996, much earlier to the attachment. So also, Ext.P3 WA No.58 of 2008 - 6 -is dated 20.11.1995 whereby 5th respondent had purchased the property fromrespondents 3 and 4. The learned Single Judge failed to notice the fact thatrespondents 1 and 2 ought to have proceeded against the property mortgagedby the borrowers instead of proceeding against the property already sold bythem to the 5th respondent. The appellant further asserts that, in view of thedecision rendered by the Apex Court in Unique Butyle Tube Industries (P) Ltdv. U.P. Financial Corporation and others ({2003} 2 SCC 455), any recoveryof the loans exceeding Rs. 10 lakhs by the State Financial Corporation has tobe made before the Debt Recovery Tribunal and recourse to other modes ofrecovery under the Revenue Recovery Act is impermissible.Appellant-petitioner contends that requisition for revenue recoveryproceedings against his predecessor was made on 24.9.1993 and by that timethe Recovery of Debts Due to Banks and Financial Institutions Act had comeinto force. Therefore, the present recovery proceedings should lie onlybefore the Debt Recovery Tribunal and the proceedings initiated by the2nd respondent is liable to be quashed.9. The learned Senior Counsel, Sri. R.D.Shenoy, while reiterating theassertions made in the Memorandum of Appeal, would contend, that,Section 44(2) of the Revenue Recovery Act comes into operation only when atransfer of immovable property is made by a defaulter after the public revenuedue on the land from him has fallen in arrears and secondly, the transfershould be with the intent to defeat the revenue recovery proceedings. The WA No.58 of 2008 - 7 -learned Senior Counsel would further contend, that, the action of therespondent-Corporation is against the dictum of the Apex Court in UniqueButyle Tube Industries (P) Ltd v. U.P. Financial Corporation and Others({2003} 2 SCC 455). While elaborating his contentions, the learned SeniorCounsel would contend, that, this Court in Usman v. K.F.C. (2007 (2) KLT604), while considering the action of the respondent corporation for realisingthe debts due to it by resorting to revenue recovery proceedings had reliedupon Unique Butyle Tube Industries' case, but has not analyzed the dictumlaid down by the Apex Court in the proper perspective and therefore, the saidjudgment requires reconsideration. It is further contended that the revenuerecovery proceedings by the respondent-Corporation was initiated against theappellant's predecessor was made on 24.9.1993 and the Recovery of DebtsDue to Banks and Financial Institutions Act, came into force on 24.6.1993even before requisition and therefore, the proceedings for any recovery ofdues to the Corporation would lie only before the Debt Recovery Tribunal andtherefore, revenue recovery proceedings initiated by the Corporation requiresto be set aside, since the same is without jurisdiction and illegal.10.The learned Senior Counsel in support of his contention hasrelied on the observations made by Apex Court in the case of Mohanalal Jainv. His Holiness Maharaja Shri. Sawai Man Singhji (AIR 1962 SC 73),M/s. Unique Butyle Tube Industries Pvt Ltd. v. U.P. Financial Corporationand Others (AIR 2003 SC 2103), Karnataka State Financial Corporation v. WA No.58 of 2008 - 8 -N. Narasimhaiah and Others ({2008} 5 SCC 176), State of Kerala v.V.R. Kalliyanikutty (1999 (2) KLT 146 {SC}).11.Mr. V.B. Unniraj, learned counsel for the Corporation, relyingon the judgment of this Court in Usman v. Kerala Financial Corporation(2007 (2) KLT 604) and Indian Bank v. Ernakulam District Harijan GirijanMotor Transport, justifies the action of the Corporation in resorting torevenue recovery proceedings for realisation of debts due to the Corporationfrom a defaulter.12.Admittedly, respondents 3 and 4 had availed loan fromrespondent-Corporation by entering into a loan agreement dated 14.3.1990.They had committed default in settling the amounts due to the Corporation.The Corporation had initiated revenue recovery proceedings againstrespondents 3 and 4 by serving revenue recovery notice dated 20.8.1994.Even after receiving the notice, respondents 3 and 4 have transferred theproperty in question to 5th respondent on 20.11.1995. In turn, 5th respondenthas sold the property to the petitioner-appellant on 24.10.1996 and therevenue recovery proceedings are initiated against the petitioner by issuingnotice under Section 44(2) of the Kerala Revenue Recovery Act, 1968 dated18.8.1997 and thereafter the property is brought to sale by public auction.These are the facts in nutshell.13.The Kerala Revenue Recovery Act,1968 is an Act to consolidateand amend the laws relating to recovery of arrears of public revenue in the WA No.58 of 2008 - 9 -State of Kerala. It extends to the whole of State of Kerala. It has come intoforce on 15.12.1968. For the purpose of this case, we need to notice onlySection 5, Section 44, Section 68 and Section 71 of the Act. Section 5 of theAct provides, that, whenever public revenue due on land is in arrears, sucharrears together with interest, if any, and cost of the process may be recoveredby one or more of the modes so prescribed by attachment and sale of thedefaulters movable or immovable property. Section 44 of the Act, providesfor effect of engagements and transfers by the defaulter. The provisioncontemplates that any engagement entered into by the defaulter with any onein respect of any immovable property after service of written demand on himshall not be binding on the Government. Sub-section (2) of Section 44 of theAct, provides that any transfer of immovable property made by the defaulterafter public revenue due on any land has fallen in arrears, with an intent todefeat or delay the recovery of such arrears shall not be binding on theGovernment. Sub-section (3) is not relevant for the purpose of this case andtherefore it is not noticed. Section 68 of the Act speaks of application of theKerala Revenue Recovery Act for the recovery of certain other dues to theGovernment. Apart from others, it provides for recovery of all sums declaredby any other law for the time being in force to be recoverable as arrears ofpublic revenue due on land or land revenue. Section 71 of the Act authorisesthe State Government in public interest to declare the Kerala RevenueRecovery Act is applicable to certain institutions by issuing notification in the WA No.58 of 2008 - 10 -Official Gazette, for the recovery of amounts due from any person or class ofpersons to any specified institution or any class or classes of institutions andafter issuance of such notification by the State Government all the provisionsof Revenue Recovery Act is applicable to such recovery. It is not in disputenor it can be disputed that the State Government has issued notificationunder Section 71 of the Act bearing SRO No.851 of 1979 making theRevenue Recovery Act, 1968 applicable for recovery of dues from thedefaulter under the provisions of State Financial Corporation Act. Thus inpublic interest, the State Government has made applicable the speedy recoveryof loans given by a bank for agricultural purposes as well as for speedyrecovery of loans given by the Financial Corporation by invoking theprovisions of Revenue Recovery Act. The Supreme Court while commentingon Revenue Recovery Act in U.R.Kalliyanikutty's case,1992 (2) KLT 146(SC) has observed, that, the overall scheme of the Act is to provide for speedyrecovery , not merely of public revenue but also of certain kinds of loanswhich are required to be recovered speedily in public interest. Agriculturalloans and loans by the State Financial Corporation are also loans given inpublic interest for the purpose of economic advancement of the people of theState, to help them in agricultural operations or establishment of industries.For this reason, the Kerala Revenue Recovery Act has been made applicableto such loans, so that, there can be a speedy recovery of such loans and theamounts can be utilised for similar objects again. WA No.58 of 2008 - 11 -14.Section 34 of the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993, provides that the provisions in that Act, “shall haveeffect notwithstanding anything inconsistent therewith contained in any otherlaw for the time being in force or any instrument having effect by virtue oflaw other than this Act”. Necessarily this Act will have an overriding effectover any other law. The saving clause provided under Section 34(2) makes itclear that the provisions have been made in the Debt Recovery Act is inaddition to the provisions provided in the five Acts mentioned therein.Therefore, the jurisdiction vested in the authorities named in the SpecialStatute, namely, the Industrial Finance Corporation Act, 1948, the StateFinancial Corporation Act, 1951, the Unit Trust of India Act, 1963, theIndustrial Reconstruction Bank of India Act, 1984 and the Sick IndustrialCompanies (Special Provisions) Act, 1985 can be invoked notwithstandingthe jurisdiction in the Debts Recovery Tribunal under Section 19 of the Act.In short, sub-section 34 of the Act, 1993 consists of two parts. Sub section (1)deals with the overriding effect of the Act and the sub-section itself makes anexception as regards matters covered by sub-section (2). Such being thescheme of the Act, the Apex Court in Unique Butyle Tube Industries Pvt.Ltd. vs. U.P.Financial Corporation, AIR 2003 SC 104, has observed, that “theU.P. Public Monies (Recovery of Dues) Act, 1972 has not been placed in thesaving clause of Section 34(2) of the Recovery of Debts Due to Banks andFinancial Institutions Act, 1993. The mode of recovery of debt under the U.P. WA No.58 of 2008 - 12 -Act is not saved under the said provision i.e. sub-section (2). Even a barereading therein makes it clear that it is intended to be in addition to and not inderogation of certain statutes, one of which is the State Financial CorporationAct, 1951. In other words, a bank or a financial institution has the option orthe choice to proceed either under Recovery of Debts Due to Banks andFinancial Institutions Act, 1993, or under the modes of recovery prescribedunder the State Financial Corporation Act, 1951. The U.P.Act deals withseparate modes of recovery and such proceedings are not relatable toproceedings under the State Financial Corporation Act, 1951”.15. Keeping in view what has been said in Unique Butyle TubeIndustries case, the learned Senior Counsel Sri.R.D.Shenoy would contendthat the Financial Corporation can only resort to two modes of recovery torecover debts due to it and it is further argued that the Financial Corporationfor realisation of debts due to it may initiate proceedings under Section 32 Gof the Financial Corporation Act or the Corporation may approach the DebtsRecovery Tribunal and at any rate they cannot resort to proceedings underRevenue Recovery Act. In support of this argument, the learned counselagain relies on the observations made by the Apex Court in the aforesaid citeddecision, wherein the court has observed that Section 32G of the StateFinancial Corporation Act which is additional to the mode of recoveryprovided in Section 19 of the Recovery of Debts Due to Banks and FinancialInstitutions Act, but exception was taken particularly and only to the WA No.58 of 2008 - 13 -U.P.Public Monies (Recovery of Dues)Act,1972, because the procedure forrecovery therein was different rather inconsistent with the provisions ofSection 32G of that Act, whereunder a certificate of recovery can be issuedonly after determining whether any amount is due, but under the U.P.Act of1972 there is no such procedure for determining the amount due. Loan oradvance or grant or credit given by a banking company to the borrower undera State sponsored scheme alone can be recovered by taking recourse toSection 3 of the U.P.Public Monies (Recovery of Dues) Act, 1972.16. In our view, what fell for consideration before the Apex Court inUnique Butyle Tube Industries case was, whether the proceedings forrecovery initiated by U.P.Financial Corporation under the Uttar PradeshPublic Monies (Recovery of Dues) Act, 1972 are maintainable in view ofSection 34(2) of the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993. The facts in that case was, a certificate was issuedunder U.P.Public Monies (Recovery of Dues) Act, for recovery of certaindues from a defaulter by a competent authority under the Act as arrears ofland revenue. The said proceedings was questioned on the ground that, inview of Section 32 G of the State Financial Corporation Act, no otherproceedings is permissible under the Act. In that scenario, the Apex Courtafter referring to Section 34 of the Recovery of Debts Due to Banks andFinancial Institutions Act, 1993, Section 32 G of U.P.Financial CorporationAct and Section 3 of U.P.Public Monies (Recovery of Dues) Act, 1972 at WA No.58 of 2008 - 14 -Para 9 of the judgment has stated as under:-“Section 34 of the Act consists of two parts.Sub-section (1) deals with the overriding effect of the Actnotwithstanding anything anything inconsistent therewithcontained in any other law for the time being in force or inany instrument having effect by virtue of any law other thanthe Act. Sub-section (1) itself makes an exception as regardsmatters covered by sub-section (2). The U.P. Act is notmentioned therein. The mode of recovery of debt under theU.P.Act is not saved under the said provision, i.e.,sub-section (2) which is of considerable importance so far asthe present case is concerned. Even a bare reading thereinmakes it clear that it is intended to be in addition to and notin derogation of certain statutes; one of which is theFinancial Act. In other words, a Bank or FinancialInstitution has the option or choice to proceed either underthe Act or under the modes of recovery permissible under theFinancial Act. To that extent, the High Court's conclusionsquoted above were correct. Where the High Court wentwrong is by holding that proceedings under the U.P.Act werepermissible. U.P.Act deals with separate modes of recoveryand such proceedings are not relatable to proceedings underthe Financial Act.”. 17. The State Financial Corporation Act, when it was enacted, itprovided for the purpose of enforcing a liability of industrial concern onlyunder Sections 29 and 32 of the Act. Section 32 G of the Act, which wasinserted by Act 43 of 1985, provides for yet another remedy to a Financial WA No.58 of 2008 - 15 -Corporation for enforcing the liability due to it from an industrial concern.The said provision is as under”-“32 G. Recovery of amounts due to the FinancialCorporation as an arrear of land revenue.- Where anyamount is due to the Financial Corporation in respect of anyaccommodation granted by it to any industrial concern, theFinancial Corporation or any person authorised by it inwriting in this behalf, may, without prejudice to any othermode of recovery, make an application to the StateGovernment for the recovery of the amount due to it, and ifthe State Government or such authority, as that Governmentmay specific in this behalf, is satisfied, after following suchprocedure as may be prescribed, that any amount is so due, itmay issue a certificate for that amount to the Collector, andthe Collector shall proceed to recover the amount in the samemanner as an arrear of land revenue.”.18. As observed by the Apex Court in Narasimhaiah's case(2008) 5 SCC 176, the Corporation under the State Financial CorporationsAct, 1951, after coming into force of Section 32G of the Act has fourremedies, for the purpose of enforcing a liability of an industrial concern; i.e.to file a suit; to take recourse to Section 29 of the Act; to take recourse toSection 31 of the Act; and to take recourse to Section 32G of the Act.19. Section 32G of the Act provides for recovery of amounts due tothe financial corporation as an arrear of land revenue. This provision is inaddition to and not in derogation of any other modes of recovery provided in WA No.58 of 2008 - 16 -the Act, by making an application to the State Government for the recovery ofamounts due to it and if the State Government or any other officer authorisedin that behalf, if he is satisfied that any amount is due to the financialcorporation, may issue a certificate for that amount to the Collector and theCollector shall proceed to recover the amount in the same manner as an arrearof land revenue.20. In our considered view, the learned senior counsel would havebeen fully justified in his submission that in view of Section 32G of theFinancial Corporation Act and Section 32(2) of the Debt Recovery TribunalsAct, the Financial Corporation can enforce its liability only as provided underthose provisions and not by resorting to the provisions of the Kerala RevenueRecovery Act. But, in view of the notification issued by the StateGovernment, in exercise of its power under Section 71 of the Act, wherein theprovisions of the Revenue Recovery Act are also made applicable to therecovery of amounts due from any person or class of persons to KeralaFinancial Corporations Act, it is difficult to accept the submissions made bythe learned Senior Counsel Sri.R.D.Shenoy. Keeping in view this aspect, aDivision Bench of this Court in the case of Usman vs. Kerala FinancialCorporation, 2007(2) KLT 604 has observed, that, “Government of Keralahas issued notification under S.71 of the Revenue Recovery Act making theprovisions of the Act applicable to recovery of amounts due to the KeralaFinancial Corporation, on finding that the amount recovered by proceeding WA No.58 of 2008 - 17 -under S.29 of the SFC Act is not sufficient to satisfy the debt due from theCompany, the KFC was perfectly justified in proceeding against the personalguarantors for the loan given to the Company by resorting to proceedingsunder the Revenue Recovery Act. Mode of recovery under the SFC Act is inaddition to and not in derogation of other modes of recovery and therefore itis perfectly within the powers of the KFC to invoke the Kerala RevenueRecovery Act to realize the amounts due to them despite the provisions of theSFC Act”.21. We are in full agreement with the reasoning and conclusionsreached by the Division Bench in the aforesaid decision. We should noticehere that the judicial decorum and certainty of law require a Division Benchto follow the decision of another Division Bench. The binding effect of adecision does not depend upon whether a particular argument was consideredtherein or not, provided the point with reference to which an argument wassubsequently advanced was actually decided. We hasten to add, where alearned Judge or a Division Bench does not agree with the decision of a benchof co-ordinate jurisdiction, the matter shall be referred to a larger bench.22. The learned Senior Counsel has also referred to the decision of theApex Court in the case of Mohanlal Jain, AIR 1962 SC 73. In our view, theprinciples laid down in that decision has no relevance for deciding the issuesraised in this appeal. WA No.58 of 2008 - 18 -23. Before we part with the case, we make it clear, if for any reason,the appellant is aggrieved by the procedure adopted by the authorities underthe Revenue Recovery Act, he is at liberty to question the same as providedunder the Act, subject to limitation provided under the Act itself.24. In view of the above discussion, we do not find any merit in thiswrit appeal. Accordingly, the appeal requires to be rejected and it is rejected.Consequently, all pending interlocutory applications are closed. In the factsand circumstances of the case, parties are directed to bear their own costs. Sd/- H.L.DATTU, CHIEF JUSTICE. Sd/- A.K. BASHEER, JUDGEDK. (True copy)