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Delhi Financial Corporation Vs. Ram Pershad - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtDelhi High Court
Decided On
Case NumberF.A.O. 84 of 1971, from order of M.L. Jain, Dist. J., Delhi, D/-12.5.1971
Judge
Reported inAIR1973Delhi28
ActsState Financial Corporation Act, 1951 - Sections 31, 32(7) and 32(9); Code of Civil Procedure (CPC), 1908 - Sections 15, 113 and 115
AppellantDelhi Financial Corporation
RespondentRam Pershad
Appellant Advocate P.D. Ahjua and; Muhindar Singh, Advs
Respondent Advocate B.N. Nayyar, ; Shyamla Pappu, ; Lalit Bhasin and ;
Cases ReferredAsad Ullah Akhan v. Metropolitan Financiers Pvt. Ltd.
Excerpt:
(i) commercial - alternative remedy - sections 31, 32 (7) and 32 (9) of state financial corporation act, 1951 and sections 15, 113 and 115 of code of civil procedure, 1908 - maintainability of appeal in issue - district judge passed order releasing property from attachment and dissolving injunction - order passed under sections 32 (7) (c) and 32 (7) (d) - appeal made from order under section 32 (9) maintainable. (ii) alternative remedy - whether under section 115 court can interfere with order of district judge dismissing application under section 31 holding act as ultra virus constitution - high court can interfere with order of district judge in case he exercised jurisdiction not vested in him by law, failed to exercise jurisdiction so vested or acted illegally or caused material.....1. the appellant is the delhi financial corporation incorporated under the state financial corporations act, 1951 (hereinafter referred to as the act.) the appellant filed an application in the court of district judge, delhi under section 31 of the act for the recovery of rs.1,89,376.92 paise from the respondent herein shri ram prashad, the sole proprietor of delhi steel and foundry works, delhi. according to the averments in this application the punjab financial corporation has advanced a loan of rs. 1,50.000/- to the respondent under a mortgage a deed dated 22nd april 1963 and that the said corporation has advanced a further loan of rs.50,000/- to the respondent under the mortgage deed dated 7th december, 1964.. the respondent has hypothecated certain properties belonging to him by way.....
Judgment:

1. The appellant is the Delhi Financial Corporation incorporated under the State Financial Corporations Act, 1951 (hereinafter referred to as the Act.) The appellant filed an application in the Court of District Judge, Delhi under Section 31 of the Act for the recovery of Rs.1,89,376.92 paise from the respondent herein Shri Ram Prashad, the sole proprietor of Delhi Steel and Foundry Works, Delhi. According to the averments in this application the Punjab Financial Corporation has advanced a loan of Rs. 1,50.000/- to the respondent under a mortgage a deed dated 22nd April 1963 and that the said Corporation has advanced a further loan of Rs.50,000/- to the respondent under the mortgage deed dated 7th December, 1964.. The respondent has hypothecated certain properties belonging to him by way of security for the said loans. The loans were repayable with interest by Installments which were specified in the mortgage deeds. Under the Punjab Reorganisation Act, 1966, the appellant took over all the assets and liabilities of the Punjab Financial Corporation within the Union Territories of Delhi and Chandigarh. The appellant thereforee became entitled to recover the loans advanced to the respondent under the two mortgage deeds. The respondent committed default in the payment of the Installments and under the terms of the mortgage deeds became liable to pay the entire balance of the loans together with interest. The appellant issued a notice to the respondent calling upon the latter to pay the entire balance of the loans amounting to Rs. 1,82,376.92 paise together with interest at 81/2 per cent per annum. In spite of the notice the respondent failed make the payment. The appellant thereforee filed the petition under Section 31 of the Act praying--

(a) that the hypothecated properties of the respondent be sole and the sale proceeds thereof be paid to the appellant towards the loan amount due from the respondent;

(b) that an ad interim injunction be granted restraining the respondent from transferring or removing the mortgaged properties without the permission of the Board of Directors of the appellant Corporation;

(c) that an ad interim attachment of the mortgaged properties be made as required by Section 32 of the Act; and

(d) that nay other relief be granted which the Court may deem just equipment for the protection of the interest of the appellant Corporation.

The respondent resisted the application filed by the appellant on various grounds. On of the grounds was that the Act was ultra virus of the Constitution of India, because the remedy under the ordinary law was open to the appellant for the recovery of the amount of that thereforee the appellant cannot have a double remedy and as such the Act was ultra virus of the Constitution.

2. On the pleadings of the parties, the following issues were framed:--

1. Whether the respondent did not agree to the terms and conditions of the mortgage as stated in the mortgagee deed dated 2-4-1963?

2. Whether the respondent did not agree to the same and conditions of the mortgage as state in the mortgage deed dated 7-12-1964?

3. Whether the petitioner is entitled to recover the suit amount and to take legal proceedings in its won name under the circumstances as stated in paragraph 7 of the petition?

4. Whether the respondent agreed to pay the original loan of Rs. 50,000/- by seven Installment with the terms and condition as stated in paragraph 8 of the petition?

5. Whether the respondent agreed pay the second loan of Rs.50,000/- by 18 half yearly Installments on the terms and conditions as stated in paragraph 9 of the petition?

6. Whether the properties mortgaged with the petitioner by the respondents are other than hose mentioned in the mortgage deeds?

7. Whether the respondent committed default in the payment of Installment of the principle amount and interest?

8. Whether the petitioner is a body corporate established in the manner as stated in para 1 of the petition?

9. Whether Shri K. C. Pandey, I.A.S. is the Managing Director of the Corporation and its principal officer duly authorised to sing and verify all document connected with the legal proceedings for an on behalf of the corporation and to present the application under Section 31 of the Act?

10. To what relief, if the any is the petitioner entitled?

11. Whether the State Financial Corporations Act, 1951 is ultra virus the Constitution of India as alleged by the respondents?

3. Issues Nos. 1 to 9 were decided in favor of the appellant and against the respondent because the appellant has adduced evidence in support of issues Nos. 3, 4,5,7,8 and 9 and the respondent had not adduced any evidence in rebuttal on these issues and because the respondent did not adduce any evidence on issues Nos. 1,2, and 6 the burden of which issues has been cast upon the respondent. On issue No .11 however the learned District Judge held that the Act was ultra virus the constitution. In view of the finding on this issue the learned District Judge dismissed the petition filed by the appellent. The appellant has preferred the present appeal against the said judgment of the learned District Judge.

4. A preliminary objection has been raised by the learned counsel for the respondent against the maintainably of this appeal. Reference has been make to subsection(9) of Section 32 of the Act which is in the following terms:--

'Any party aggrieved by an order under sub-section(5) or sub-section (7) may within thirty days for the date of the order appeal to the High Court and upon the such appeal the High Court may after hearing the parties pass such orders thereon as it thinks proper.'

Sub-section (5) and (7) of section 32 of the Act are as follows:--

'(5) If no cause is shown on or before the date specified in the notice under sub-sections (2) and (4) the District Judge shall forthwith make the ad interim order absolute and direct the sale of the attached properly or transfer the management of the industrial concern to the Financial Corporation or confirm, the injunction.

(7) After making an investigation under sub-section (6) the District Judge may--

(a) confirm the order of attachment and direct the sale of the attached property;

(b) vary the order of attachment so as to release a portion of the property from attachment and direct the sale of the remainder of the attached property;

(c) release the property from attachment;

(d) confirm or dissolve the injunction; or

(e) transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf:

Provided that when making an order under clause (c) the District Judge may make such further orders as he thinks necessary to protect the interest of Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fir:

Provided further that unless the Financial Corporation intimates to the District Judge that it will not appeal against any order releasing any property from attachment such order shall not be given effect to until the expiry of the period fixed under sub-section (9) within which an appeal may be preferred or if an appeal is preferred unless the High Court otherwise direct until the appeal is disposed of.'

According to the learned counsel for the respondent an appeal lies only form an order passed by the learned District Judge either under sub-section (5) or sub-section (7) of Section 32 of the Act and no appeal lies against any other order of the District Judge. Further according to the learned counsel the order passed by the learned District Judge dismissing the petition filed by the appellant is not an order either under sub-section (5) or sub-section (7) of Section 32 of the Act and that thereforee the present appeal is not maintainable.

5. The learned counsel for the Union of India, Mrs. Shyamala pappu on the other hand contends that the order of the learned District Judge against which the present appeal has been filed is in effect an order under sub-section (7) of Section 32 of the Act the that thereforee the present appeal is maintainable. In the alternative it is contended by the learned counsel that the appeal filed by the appellant may be treated as revision petition under Section 115, Civil Procedure and for that purpose an application has also been filed. This application was registered as C.M. No.371/72. This application has been opposed by the learned counsel for the respondent on the following grounds, namely--

(i) that the District Judge while exercising powers under Section 31 and 32 of the Act is not a Court subordinate to the High Court within the meaning of Section 115 of the Civil Procedure Code and

(ii) that the substantive provision of the Code of Civil Procedure like Section 115 are not applicable to the proceedings instituted under Section 31 and 32 of the Act.

6. I shall first consider the question whether the appeal is maintainable. For this purpose it is necessary to the relevant provisions of Section 31 and 32 of the Act and also to the application filed by the appellant under Section 31 of the Act. By an application under Section 31 of the Act.

'Any officer of the Financial Corporation may apply to the District Judge within the limits of whose jurisdiction the industrial concern a carries on the whole or a substantial part of its business for one or more of the following relief, namely,

(a) for an order for the sale of the property pledge mortgaged hypothecated or assigned to the Financial Corporation as security for the loan or advance ; or

(b) for transferring the management of the industrial concern to the Financial Corporation; or

(c) for an ad interim restraining the industrial concern from transferring or removing its machinery or plant or equipment for the premises of the industrial concern without the premission of the Board where such removal is apprehended.'

7. In the application filed by the appellant the following relief were sought namely,

(a) the sale of immovable properties and the plant and machinery described in annexure 'A' and the payment our of the sale proceeds the petitioner-Corporation of its full dues amounting to Rs.1,89,376.92 as detailed in Annexure 'B' with future interest from 16-7-1969 at 81/2 per cent per annum in loan accounts No.1 and loan account No.II until realisation together with incidental and misc. expenses that may hereafter be debited to the loan account of the respondent in terms of the mortgage deed as between attorney and client.

(b) an ad interim injunction restraining the respondent from transferring or removing the machinery plant and equipment mentioned in Annexure 'A' from it premises without the permission of the Board of Directors of the Corporations, and

(c) an ad interim attachment of the mortgaged properties as required by Section 32 of the Act.'

It would thereforee appear that the appellant had by it application under Section 31 of the Act sought the reliefs which are mentioned in clauses (a) and (c) of sub-section (1) of the said section.

8. The procedure to be followed by the District Judge in respect of the application under Section 31 of the Act has been prescribed under Section 32 of the Act provides--

'When the application is for the reliefs mentioned in clauses (a) and (c) of sub-Section (1) of Section 31 the District Judge shall pass an ad interim order attaching the security or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equipment in value to the outstanding liability of the industrial concern to the Financial Corporation, together with the cost of the proceedings taken under Section 31, with or without an ad interim injunction restraining the industrial concern form transferring or removing its machinery, plant or equipment.'

Sub-section (3) of Section 32 requires that--

'Before passing any order under sub-section (1) or sub-section (2) the District Judge may, if he things fit, examine the officer making the application.'

Sub-section (4 ) requires that:-

'At the same time as he passes an order under sub-section (1), the District Judge, shall issue to the industrial concern a notice accompanied by copies of the order the application and the evidence if any recorded by him calling upon it to show cause on a date to be specified in the notice why the ad interim order of attachment should not be made absolute or the injunction confirmed.'

Under sub-section(5)--

'If no cause is shown on or before the date specified in the notice under sub-section (2) and (4) the District Judge shall forthwith make the ad interim order absolute and direct the sale of the attached a property or transfer the management of the industrial concern to the Financial Corporation or confirm the injunction.'

Under sub-section (6)--

'If cause is shown the District Judge shall proceed to investigate the claim of the Financial Corporation in accordance with the provisions contained in the code of Civil Procedure 1908 in so far as such provisions may be applied thereto.'

Stopping at this stage, I shall refer to the proceedings of the learned District Judge after the appellant had filed the application under Section 31 of the Act. The application was filed on 18-7-1969 and on the same date, after hearing the counsel for the appellant -Corporation, the leaned District Judge Passed an order issuing notice of the petition to the respondent for 25-71969 and restraining the respondent until then from transferring or removing from the factory premises he mortgaged property. The respondent appeared before the learned District Judge on 25-7-1969 and wanted time to file his written statement. Time was granted but the interim stay granted on 18-7-1969 was continued until further orders. An objection appears to have been raised by the respondent against the interim stay order passed by the learned District Judge and after hearing the parties, the learned District Judge passed the following order on 2-9-1969:--

'I further attach the property in dispute under Section 32 of the Act in the manner as provided under Order 21, C.P.C.' Thereafter the learned District Judge proceeded to frame the issues and recorded the evidence adduced by both the parties. From these proceedings it would appear that the learned District Judge followed the procedure prescribed under sub-section (1) and (4) of Section 32 of the Act and that he did not invoke the provision of sub-section (5) by making the ad interim order absolute or by directing the sale of the attached properties but a proceeded to investigate the claim of the appellant in the manner provided by sub-section (6) of Section 32 of the Act.

9. After investigation of the appellant's claim the learned District Judge, while upholding the claim of the appellant on merits however dismissed the petition filed by the appellant on the ground that the Act itself was ultra virus the Constitution. While dismissing the petition the learned District Judge did not specifically either release the property from attachment as required under clause (c) of sub-section (7) or dissolve the injunction already granted by him as required under clause (d) if sub-section (7) of Section 32 of the Act. But the effect of the order of the learned District Judge dismissing the appellant's petition was that the property of the respondent which has previously been attached was released from attachment and the ad interim in junction which was granted in favor of the appellant was dissolved. thereforee, in my view the order of the learned District Judge was an order releasing the property from attachment and dissolving the injunction . It was thereforee an order passed under clauses (c) and (d) of sub-section (7) of Section 32 of the Act. thereforee an appeal lay against the said order of the learned District Judge under sub-section (9) of Section 32 of the Act. The present appeal in may view is thereforee maintainable.

10. In view of this funding it may not be necessary to consider the application filed by the appellant for treating the appeal as a revision petition under Section 115, C. P. C. But since arguments were heard on this question also, I shall proceed to consider whether the appeal filed by the appellant could be treated as a revision petition under Section 115, C.P.C. if the appeal itself was not maintainable under sub-section (9) of Section 32 of the Act.

11. Section 115, C.P.C. is in the following terms:

'The High Court may call for the record of any case which has been decided by and Court subordinate to such High Court and in which no appeal lies thereto, and if such subordinate Court appears-

(a) to have exercised a jurisdiction not vested in it by law or

(b) to have failed to exercised a jurisdiction so vested, or

(c) to have acted in the exercise of its jurisdiction illegally or with material irregularity, the High Court may make such order in the case as it thinks fit.'

The learned counsel for the respondent stated by contending that the District Judge while exercising powers under Section 31 and 32 of the Act was not a court but acted as persona designate. When his attention was drawn by the learned counsel for the Union of India to an unreported judgment of the supreme Court in Civil Court appeals Nos.1021-1022 of 1971 and 1852 of 1970 (Asnew Drums Pvt. Ltd. v. Maharashtra State Finance Corporation ) decided on 24-8-1971 = : [1972]1SCR351 the learned counsel did not press this contention. In this judgment a similar contention has been advanced before the Supreme Court namely that the Act confers jurisdiction on a District Judge as persona designate. The Supreme Court repelled this contention and after referring to sub-section (II) of Section 32 of the Act which provided that--

'That functions of a district Judge under this Section shall in a presidency- town, be exercised by the principal Judge of the City Civil Court, if any, having jurisdiction or by the High Court.' observed as follows:--

'These provisions clearly show that the District Judge is not a persona designate.

12. The next contention which has been seriously pressed by the learned counsel of the respondent is that even if the District Judge while exercising powers under Section 31 and 32 of the Act, was be a court and not a persona designate, he is till not a Court governed by the Code of Civil procedure and the procedure the has to follow is the one prescribed under Section 32 of the Act and that thereforee he will not come within the scope of Section 115, C.P.C. I find no substance in this contention. For one thing the scope of Section 115, C.P.C. is not restricts to courts governed by the Civil procedure Code. Its scope extends to all courts which are sub-ordinate to the High Court and undoubtedly the District Judge while exercising powers under Section 31 or Section 31 of the Act is a court subordinate to the High Court not only because as District Judge he is subordinate to the High Court but also in view of the provisions of sub-section (9) of Section 32 of the Act under which an appeal lies to the High Court against the order of the District Judge passed under sub-section (5) and (7) of Section 32 of the Act. Secondly the District Judge while exercising powers under Section 31 and 32 of the Act does not cases to be a Civil Court within the meaning of Section 3, C.P.C. merely because certain special powers are given to him under the Act by virtue of this office as District Judge . Thirdly it cannot be said that while exercising the powers vested in him under Section 31 and 32 of the Act, the District Judge shall proceed to investigate the claim of the financial Corporation in accordance with the provisions contained in the Code of Civil Procedure, 1908 in so far as the said provisions may be applied thereto. Sub-section (8) of Section 32 also be provides that an order of attachment or sale of property under this section shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure 1908 for the attachment of sale of property in execution of a decree as if the Financial Corporation were the decree holder. The only departure from the procedure prescribed by the Civil Procedure Code is the one provided under sub-section (1), (2) and (5) of Section 32 of the Act. Under sub-section (1) the District Judge is bound to pass and interim order attaching the security. No discretion is given to him as under the Civil Procedure Code for passing ad interim attachment orders. Similarly under sub-section (2) the District Judge shall grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery etc. Again under Section 5, if no cause is shown by the Industrial concern on receipt of the notice issued to it under sub-section (2) and (4) the District Judge is bound to make the ad interim order absolute and also direct the sale of the attached property or transfer the management of the industrial concern to the Financial Corporation or confirm the injunction. These special provisions in section 32 of the Act may be relevant for the purpose of considering the question whether the act is ultra virus on the ground that these special provisions are more drastic in natural than the provisions of the Code of Civil Procedure. But these special provisions in my view do not justify the inference that the District Judge while exercising his powers under Section 31 and 32 of the Act is not governed by the provisions of the Civil procedure Code. thereforee, the District Judge is a Court subordinate to the High Court within the meaning of Section 115, C.P.C. and a revision lies to the high Court against his order under Section 115, C.P.C. in cases where no appeal lies against such orders.

13. The next question for consideration is whether in exercise of its power under Section 115, C.P.C. this Court can interfere with the order of the learned District Judge dismissing the application filed by the appellant under Section 31 of the Act on the ground that the Act itself was ultra virus the Constitution. The High Court can interfere with the order of the learned District Judge only if:--

(a) he was exercised a jurisdiction not vested in him by law, or

(b) he had failed to exercise a jurisdiction so vested, or

(c) he has aced in the exercise of his jurisdiction illegally or with material irregularity.

It is contended on behalf of the appellant that the learned District Judge has exercised a jurisdiction not vested in him by law or that he has aced kin the exercise of his jurisdiction illegally or with material irregularity. Reference in this connection is made to the proviso to Section 113, C.P.C. which is in the following terms:--

'Provided that where the Court is satisfied that case pending before it involves a question as to the validity of any Act Ordinance or Regulation or of any provision contained in an Act, Ordinance or Regulation the a determination of which is necessary for the disposal of the case and is of opinion that such Act, Ordinance, Regulation or provision is invalid or inoperative but has not been so declared by the High Court to which that Court is subordinate or by the supreme Court the Court shall state a case setting our its opinion and the reasons thereforee, and refer the same for the opinion the High Court.'

Reference is also made to Article 228 of the Constitution which is in the following terms:

'If the High Court is satisfied that case pending in a court subordinate to is involves a substantial question of law as to the interpretation of this Constitution the determination of which is necessary of the disposal for the case it shall withdraw the case and may--

(a) either dispose of the case itself or

(b) determine the said question of law the case to the Court from which the case has been so withdrawn together with a copy of its judgment on such question and the said Court shall on receipt thereof proceed to dispose of the case in conformity with such judgment.'

On the basis of the above provisions it is contended by the learned counsel for the Union of India that the learned District Judge was not competent to decide the question of virus of Act and that in deciding the question himself he has exercised a jurisdiction which was not vested in him by law or that the had acted in the exercise of his jurisdiction illegally or within material regularity. The learned District Judge in holding that the Act was ultra virus has followed the decision of the Supreme Court in Northern India Caters (Pvt) Ltd. v. State of Punjab, : [1967]3SCR399 . That was not a case under the act a but was a case under the Punjab Premises and Land (Eviction and Rent Recovery) Act 31 of 1959. The Supreme Court has struck done Section 5 of the said Act on the ground that an alternative remedy has been provided to the Government under Section 5 of the said Act in addition to the remedy provided under Section 5 of the said was more drastic in nature than the remedy under ordinary law. The provisions of the each law may have to be examined on the light of the rule laid done by the Supreme Court in that case and if any particular law comes within the rule laid down by the Supreme Court in that vested has to be struck down. But the power to strike down such a law is vested only in the High Court and in the Supreme Court and it is not vested in the subordinate Courts. If there is a decision of the High Court to which such Court is subordinate or of the Supreme Court holding that particular law or a portion of a particular law as ultra virus then it is open to the subordinate Court to follow such decisions. Bur there is no decision of this Court for of the Supreme court holding that the Act or any portion thereof was ultra vires. It was thereforee not competent for the learned District Judge to examine the Act in the light of the decision of the supreme Court under the Punjab Public Premises and Land (Eviction and Rent Recovery) Act 1959 and to hold that the Act came within the rule laid down by the Supreme Court in that case. Under Section 113, C.P.C. a subordinate Court has to refer the case to the High Court if the subordinate Court is of opinion that the Act or any portion thereof was invalid or inoperative. In deciding the question him self and in holding that the whole of the Act was ultra virus the learned District Judge has clearly acted in violation of the provisions of Section 113, C.P.C. and has thus exercised jurisdiction which was not vested in him by law.

14. The learned counsel for the respondent however contends that the provision of Section 113, C.P.C. are not applicable to the learned District Judge and in support of this contention, he has referred to a decision of this Court in Asad Ullah Akhan v. Metropolitan Financiers Pvt. Ltd. : 3(1967)DLT291 . The question for decision before this Civil in that case was whether an application under Section 20(2) of the Arbitration Act, 1940 was a suit and whether Section 10 C.P.C. applied to such an application . It was held by S.N. Andley, J, that the weigh of authority was in favor of the view that an application made under Section 20 of the Arbitration Act and which is registered as a suit is not a suit within the meaning of Section 10 of the Civil Procedure Code. Although the above rule is not directly applicable to the point at issue in this case, the learned counsel for the respondent relied upon the distinction made by the learned Judge between the substantive part of the Civil Procedure Code and the procedural part of the Civil proceeding of the said Code. According to the learned counsel Section 113, C.P.C comes under the substantive part of the Code and does not apply to the proceedings of the learned District Judge under Section 32 of the Act. Even assuming for a moment that Section 113, C.P.C. comes under the substantive part of the Civil procedure Code, I find no justification for the view that the District Judge acting under Section 32 of the Act does not come within the scope of Section 113, C.P.C.

15. Arguments were addressed by the learned counsel on both sides on the question whether the provisions of Section 32 of the Act come within the rule laid done by the Supreme Court in the case of Northern India Caterers Pvt. Ltd., : [1967]3SCR399 . I do not consider it necessary to decide this question as I propose to decide this appeal on the question of the virus was to be decided in this appeal, I would have had the appeal referred to a larger Bench.

16. In the result the finding of the learned District Judge on issue No.11 is set aside and he is directed to state a case on this point and refer of the same to this Court. The parties are directed to appear before the District Judge on 20th April 1972. The appeal will be deemed to have been allowed: bur there shall be no order as to costs.

17. Appeal allowed.


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