- (1.) THIS writ petition has been filed for quashing the recovery citation d- ed 20-9-2000 is sued by respondent No. 3, Annexure-1 to the writ petition. Further prayer is for issuing a writ in the nature of mandamus commanding the respondent-Corpora tion to act in accordance with the terms of the agreement and either to disburse the remaining term loan to the petitioner or to dispose of the unit of the petitioners.
(2.) THE facts arising out of the writ petition are that the petitioners No. 1 and 2 promoted a private limited company in the name of Jai Santoshi Chemical Industries Private limited which was incorporated under the Companies Act ,1956 with the Registrar of Companies, Kanpur and it was registered. THE land belongs to U. P state Industrial Development Corpora tion and was leased out to the company set up by the petitioners for a period of 90 years. Respondent No. 4 sanctioned a term loan of Rs. 65 lacs to the unit of the petitioners for the purpose of setting up an unit to manufacture I. P. Great Menthol Crystal, Menthol Flags and D. Menthol Oil. THE petitioners in pur suance of the aforesaid agreement had brought in the entire promoters quota of Rs. 55 lacs in January 1994. THE respondents disbursed an amount of Rs. 20 lacs out of the total sanction of Rs. 65 lacs. THE second installment of 4 Rs. 25 lacs was made to the petitioner on 8-8-1995. THE balance amount of Rs. 20 lacs was never disbursed to the petitioner by respondent No. 4. THE company to which the loan was granted specifically informed respondent No. 4 to either disburse the balance term loan or to dispose of the unit after adjusting the loan amount. But respondent No. 4 invokes the personal guarantee given by the petitioners. A copy of the same has been filed as Annexure-9 to the writ petition. THE petitioners submitted a reply requesting therein for releasing of the plots in favour of the company for the purpose of purchasing 18 machines but the request of the petitioners WE:, not acceded and on 20-9-2000 a recovery certificate was issued invoking the provisions of U. P Public Money (Recovery of Dues) Act, 1972. The petitioners submit that the recovery certificate which has been is sued under the aforesaid Act is not valid. The second question for con sideration raised on behalf of the petitioners is that the guarantee ex ecuted by the petitioners in favour of the respondent No. 4 has the effect of over riding the statutory provisions of U. P Public Money (Recovery of Dues) Act, 1972. The third submission made on behalf of the petitioners is whether the recovery certificate, which has been is sued, is based on non- application of mind and as such cannot be enforced The nature of transaction in respect of which the recovery certificate has been issued shows that the loan was granted on security of the proper ties which stands mortgaged in favour of respondent No. 4. Sub-Section (3) of Section 3 empowers the Collector to proceed to recover the amount as ar rears of land revenue state d in the cer tificate and in the circumstances, the said certificate can be issued as have been enumerated in Clauses (a) (b) (c) and (d) of Sub-section (1) of Section 3. Section 4 contains in saving clause which inter alia provides that where the property of any person referred to in Section 3 is subjected to any mortgage, charge, pledge or other encumbrances in favour of the state Government, Cor poration, a Government company or Banking Company, then the property so mortgaged, charged of the interest of the defaulter therein shall be first to be sold in the proceeding for recovery of the sum due from that person as if it was an arrear of land revenue and any fur ther proceeding can be taken thereafter only if the Collector is satisfied or cer tified that there is no prospects realiza tion of the entire sum due through the first mentioned process with in the reasonable time. For ready reference Section 4 (2) is being quoted below: "4. Savings.- (2) Where the property of any person referred to in Section 3 is subject to any mortgage, charge, pledge or other en cumbrance in favour of the state Govern ment, the Corporation, a Government Com pany or Banking Company, that- (b) in every case of a mortgage, charge or other encumbrance on immovable property, such property or, as the case may be, the interest of the defaulter therein, shall first be sold in proceedings for recovery of the sum due from that person of if it were an arrear of land revenue and any other proceedings may be taker thereafter only if the Collector certifies that there is no prospect of realization of the entire sum due through, the first mentioned process with in a reasonable time. "
(3.) IT has further been submitted on behalf of the petitioners that from the aforesaid provisions it is evident that the Collector cannot be permitted to proceed against the defaulter without first realizing the mortgaged property and, therefore, the Collector has to apply his mind for undertaking the proceeding against the mortgaged property. And if the amount realized is not sufficient then he is permitted to adopt the other modes available for the purpose of recovery as arrears of land revenue. In the facts of the present case it is clear from the record that no effort has been made by the Collector to proceed against the mortgaged assets. The Collector has also not issued any certificate to this effect that the sum due to the Corporation can be realized from the personal assets of the petitioners. However, till date the state. Govern ment, who is a relevant party, has not filed any counter-affidavit. In view of the aforesaid, it has been submitted that the recovery proceedings against the petitioners are contrary to the provisions contained under Section 4 of the U. P Public Money (Recovery of Dues) Act and as such the same is li able to be quashed. Reliance has been placed upon a judgment of the Apex Court reported in 2004 Vol. 6 Judgment today 305, Pawan Kumar Jain v. Pradeshiya Industrial and Investment Corporation of-U. P. Ltd and Ors. and reliance has been placed upon para 8 of the judgment which is quoted below: " (8) In our view, the above set out provisions of the U. P Act are very clear. Ac tion against the guarantor cannot be taken until the property of the principal-debtor is first sold off. As the appellant has not sold the property of the principal-debtor, the action against the appellant cannot be sustained. We, therefore, set aside the recovery notice. " Another judgment is 1992 (88) A. LJ. Page 111, Gyan Singh and Ors. v. Kanpur Development Authoirty and Ors. and reliance has been placed upon paras 4,6 and 7 of the judgment which are reproduced below: " (4) It is urged by the learned Counsel for the petitioners that the loan advanced to the petitioners did not fall with in the purview of Section 40 of the Act in as much as it was neither fees or charges nor an amount due on account of disposal of land, building or other properties. In the alternative, it is urged that in any case sub-section (2) of Section 4 of the U. P Public Moneys (Recovery of Dues) Act, 1972, clearly enjoins that where a public loan is secured by mortgage or charge or other encumbrance on immovable property such property shall be proceeded against first before the Collector proceeds to recover the dues in any other manner prescribed by law. (6) That takes us to the second point. Section 4 (2) (b) of the U. P Public Moneys (Recovery of Dues) Act, 1972 provides: "in every case of a mortgage, charge or other encumbrances on immovable proper ty, such property or as the case may be, the interest of the defaulter therein, shall first be sold in proceedings for recovery of the sum due from the person as if it were an arrear of land revenue and any other proceeding may be taken thereafter only of the Collector cer tifies that there is no prospect of realize ;ion of the entire sum due through the first men tioned process with in a reasonable time. " The scheme of the Act is clear and un ambiguous. It provides that where dues sought to be recovered are secured by a mortgage, charge or other encumbrance on immovable property the authority should first proceed to recover the dues from mortgaged property before re-storing to any other mode of recovery. We re-fortified on this point by a decision of this Court in the case of Udai Pratap v. U. P state Financial Corporation, Varanasi, 1978 Allahabad civil Nirnaya 6: (1978 All LJ NOG 10 ). Interpreting this provision the Bench ruled: "the import of this section clearly is that normally proceedings for recovery of loan advanced by the U. P state Financial Cor poration by attachment or sale of properties other than those which have been pledged or mortgaged for raising the loan, cannot be akin without first making an attempt to recover the same by attachment and sale of the mortgaged or pledged properties. (7) Respondents were, therefore, whol ly unjustified in proceeding to recover the land from the petitioners straightway without having taken recourse to the remedy avail able to them under the Mortgaged Deed by the sale of the mortgaged property. The respondents can adopt other modes of recovery only after exhausting the remedy available to them by sale of the mortgaged property. ";