1. Recovery of loan shortfall from a company director under the Haryana Public Moneys (Recovery of Dues) Act, 1979, following a default in repayment. (Para 2 , 3 , 4 )
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1998 Supreme(SC) 523
1998(4) Supreme 370
Supreme Court of India
(From Punjab & Haryana High Court)
B.N. Kirpal & S.S. Mohammed Quadri, JJ.
S.K. Bhargava -Appellant
versus
The Collector, Chandigarh & Ors. -Respondents
Civil Appeal No. 599 of 1986
Decided on 23-4-1998
Counsel for the Parties :
For the Appellant : N.N. Goswami, Sr. Advocate, Ms. Renu George and D.K. Garg, Advocates.
For the Respondent No. 3 : Ms. S. Janani, Ms. Rukhsana Choudhary, Advocates.
For the Respondent No. 5 : Pawan Kumar Bahl, Advocate for P.K. Jain, Advocate.
For the Respondent No. 6 : Ms. Kamini Jaiswal, Advocate.
Important Points
Important Point
The Collector was not justified in proceeding against the appellant, who was a director of a company which is alleged to have defaulted in repayment of loans to the Haryana Financial Corporation, without affording the appellant an opportunity of being heard u/s. 3 of Haryana Public Moneys (Recovery of Dues) Act, 1979.
The Collector was not justified in proceeding against the appellant, who was a director of a company which is alleged to have defaulted in repayment of loans to the Haryana Financial Corporation, without affording the appellant an opportunity of being heard u/s. 3 of Haryana Public Moneys (Recovery of Dues) Act, 1979.
Subject
Administrative Law - Natural Justice
Act Referred
Headnote
Haryana Public Moneys (Recovery of Dues) Act, 1979-Section 3-Recovery-Section 2(c)-Meaning of “defaulter”-Loan taken by company from Haryana Financial Corporation at three occasions-On two occasions appellant was a director of the company-Company defaulting-Appellant regarded as “defaulter” for two occasions-Whether any determination of amount due is required before recovery is effected u/s. 3 of the Act? (Yes, on principles of natural justice)-Appellant not afforded an opportunity of being heard under the provisions of the Act-Collector not justified in proceeding against appellant-Appeal allowed. (Para 9)
Held : 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 be done without notice to the alleged defaulter. (Para 9)
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. (Para 11)
Held finally : 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. (Para 12)
Legal Category Hierarchy
Table of Contents
2. Whether recovery proceedings can be initiated against a director without prior notice or opportunity to be heard, especially after resignation from the company. (Para 1 , 4 )
3. The power to determine the sum due under Section 3(1)(b) involves civil consequences and ousts civil court jurisdiction, necessitating a fair hearing. (Para 5 , 7 , 8 , 10 )
4. Principles of natural justice must be read into statutory provisions requiring the determination of dues where such determination results in civil consequences. (Para 9 )
5. Appeal allowed; recovery certificate and determination set aside; Managing Director permitted to initiate fresh proceedings in compliance with natural justice. (Para 11 , 12 )
6. Does the power to determine a sum due under the Haryana Public Moneys (Recovery of Dues) Act, 1979, require notice to the defaulter?
Yes. Although the Act does not expressly provide for it, the principles of natural justice must be read into the provision. The terms determine and sum due imply a potential dispute that requires the alleged defaulter to be heard before a final conclusion is reached. (Para 8 , 9 )
7. What is the legal impact of ousting civil court jurisdiction in statutory recovery proceedings?
When the jurisdiction of civil courts is expressly ousted, the authority empowered to determine the amount due performs a function that results in civil consequences, making it necessary to adhere to the principles of natural justice to ensure fairness. (Para 8 )
8. Does every statute providing for recovery of dues as arrears of land revenue implicitly require a notice?
Not necessarily. The requirement for notice depends on whether the statute contains a specific provision requiring the authority to determine the sum due, which implies a quasi-judicial process, as opposed to a mere claim for recovery. (Para 10 )
9. What is the effect of failing to provide an opportunity to be heard during the determination of dues?
If the principles of natural justice are not complied with during the determination of the sum due, both the determination and the consequent recovery certificate issued based on that determination are vitiated. (Para 11 )
Judgment
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.
2. 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 to the appellant, he resigned as a Director of the company on 25th 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, another loan of a sum of Rs. 3 lakhs on the basis of a registered mortgage was taken by the company on 12th November, 1974.
3. It appears that default was committed by the company in repayment of the loan and the 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 wound 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 to the Haryana Financial Corporation. After adjusting the amount so paid, there remained a shortfall of Rs. 18,22,178.05 plus interest thereon.
4. 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 filed 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 the 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.
5. The Haryana Public Moneys (Recovery of Dues) Act, 1979 was enacted to 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’ within 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 effe
