M/S. A.P.T. ISPAT PVT. LTD.versusU.P. SMALL INDUSTRIES CORPORATION LTD. & ANR.

                        [2010] 5 S.C.R. 150


A                   M/S. A.P.T. ISPAT PVT. LTD.
                                  v.
      U.P. SMALL INDUSTRIES CORPORATION LTD. & ANR.
                   (Civil Appeal No. 663 of 2003)
                           APRIL 23, 2010
B
         [AFTAB ALAM AND SWATANTER KUMAR, JJ.]

        Uttar Pradesh Public Moneys (Recovery of Dues) Act,
  1972 - ss. 2 and 3 - Non-payment of dues, for the goods
C purchased from the financial Corporatjon - Corpora_tion
  issuing recovery certificates uls. 3 and ajso filing FIR al~eging .
  offences under /PC - Challenge t91recovery certificate, ·
  dismissed by High Court - On appeal, held: The recovery
  certificates are illegal - Such certificates should be based on
D tarigible agreement - Sale of good is not 'financial assistance',
  hence s. 3 not applicable - In view of FIR, goods were ·taken
  away in the course of criminal action - The Act is not intended
  to recover value of goods taken away in the course of criminal ·
  action - After coming into force of Debt Recovery Act,
E recourse cannot be taken to the U.P. Act - Recovery of Debts
  due to Financial Institutions Act, 1993 - s. 34 (2).

       Managing Director of respondent-Corporation issued.
  two recovery certificate in exercise of power uls. 3 of U.P.
  Public Moneys (Recovery of Dues) Act, 1972, alleging
F therein that the directors of the appellant-company had
  not made payments for the goods purchased from one
  of the Depots of the Corporation. It also lodged FIR in this
  regard giving rise to a s-i.ilistantial criminal case, under
  various Sections of the Penal Code, 1860.
G
           Appellant challenged the recovery certificates by
     filing a writ petition, which was dismissed by High Court.
     Hence the present appeal.

'H                               150
 A.P.T. ISPAT PVT.LTD. v. U.P. SMALL INDUSTRIES         151
            CORPORATION LTD. & ANR.

    Allowing the appeal, the Court                             A

     HELD: 1.1. The High Court has stretched the
meaning of "financial assistance" as defined in Section
2 and the scope of Section 3 of U.P. Public Moneys
(Recovery of Dues) Act, 1972 beyond reasonable limits.
                                                               B
From a bare reading of Section 3 it is evident that the
dues must arise from an agreement to which the. person
from whom recovery is to be made is a party. In the
scheme of the Act, there is no provision for any
adjudication. Once there is any default under an
agreement, the designated authority is authorized to           C
issue a recovery certificate and send it to the Collector
who is obliged to recover the certificate, amount together
with interest from the certificate debtor as arrears of land
revenue. At no stage, the certificate debtor is given an
opportunity to put up his case. Such being the legal           D
position, the recovery certificate must be based on a
tangible agreement and it should even prima facie appear
that the dues arise from a breach of the terms of the
agreement. A proceeding u/s. 3 of the Act cannot be
sustained by piling up assumptions in favour of the            E
certificate-holder and against the judgment-debtor. [Para
14) [161-F-H; 162-A]

     1.2. The appellant-company was purchasing wire
rods as raw material from the Corporation. The sale of the     F
goods would not become financial assistance rendered
to the appellant unless it is shown that the supply of the
goods was as a loan or grant or by way of hire purchase
in terms of some agreement. [Para 13) [161-A-B]

    1.3. In the facts of this case the-two impugned            G
recovery certificates are quite illegal and untenable. It is
evident that the dues of which recovery is sought by the
impugned certificates do not pertain to any loan, advance
or grant given to the appellant or to any credit concerning
any hire purchase of goods sold to the appellant by the        H
      152      SUPREME COURT REPORTS              [2010] 5 S.C.R.
 ii

A Corporation under any agreement, express or implied. ·
  The dues do not relate to any financial assistance. [Paras
  15 and 17] [162-E-F; B]

       1.4. ,In the present case, the so called supplies were
B not even made in the normal course of business. A
  reference to the FIR makes it clear that according to the
  Corporation the goods were taken away by the appellant
  in a criminal action constituting a nuiriber of offences
  under the Penal Code. The U.P. Public Moneys (Recovery
  of Dues) Act, 1972 was clearly not intend.ad to recover the
C goods or the monetary value of goods taken away in
  course of theft or dacoify or lost as a result of dishonest
  appropriation or any other alleged criminal action. [Paras
  16) [162-C~DJ
D    . 2. After the coming into force· of the Recovery of
  Debts Due to Banks and Financial Institutions Act, 1993,
  recourse cannot be taken for recovery of dues to ttie
  provisions of U.P. Public Moneys (Recover}' of Dues) Act,
  1972 because the U.P. Act does not find mention in
E Section 34(2) of the Recovery of Debts Due to Banks and
  Financial Institutions Act, 1993. [Par~ 18] [162-G-H; 11>3-
      A]
          Unique Butyle Tube Industries (P) Ltd. vs. UP. Financial
F     Corporation and Ors. (2003) 2 sec 4~5, relied on.

                          Case Law Reference:
            (2003) 2 sec 455 .     Relied on ..         Para 18
       CIVIL APPELLATE JURISDICTION : Civil Appeal No. 663
G of 2003.

           From the Judgment & Order dated 26.4.2001 of the High
      Court of Judicature at Allahabad, Lucknow Bench, Lucknow iri
      Writ petition No. 20 (MB) of 2001.
H
 A.P.T. ISPAT PVT.LTD. v. U.P. SMALL INDUSTRIES               153
            CORPORATION LTD. & ANR.

    Shrish Kumar Misra, Amit Srivastava, Rajesh Goel for the         A
Appellant.

    Nikunj Dayal (for Pramod Dayal) for the Respondents.

    The Judgment of the Court was delivered by
                                                                     B
     AFTAB ALAM, J. 1. The appellant is a private limited
company incorporated and registered under the Companies
Act. It seeks to challenge two recovery certificates issued by
the Managing Director of the U.P. Small Industries Corporation
Ltd. (a government corporation) in purported exercise of power       C
under section 3 of the U. P. Public Moneys (Recovery of Dues)
Act, 1972: Challenging the two recovery certificates, the
appellant filed a writ petition (Civil Misc.20 of 2001) before the
Allahabad High Court which was dismissed by a division bench
of the Court by judgment and order dated April 26, 2001.             D
Against the High Court judgment, the appellant has come in
appeal by grant of special leave.

     2. The Managing Director of the Corporation drew up the
two identical recovery certificates and sent them to the District    E
Magistrate, Lucknow, stating that the Directors of the appellant
company had received from the Corporation's Dadanagar
depot 1027 .15 MT wire rods (iron and steel) worth
Rs.1,54,93,421/- (Rupees one crore fifty four lakhs ninety three
thousand four hundred twenty one only). But the payment of the
goods had not been made to the Corporation and it was to be          F
recovered from the persons (named in the recovery certificates
as the company's Directors) together with interest. Paragraphs
1 and 3 of the recovery certificate are relevant for the present
and are reproduced below:
                                                                     G
     "1. Till 30.11.2000 a sum with interest of
     Rs.1,79,03,848=00 (Rupees one crore seventy nine lakhs
     three thousand eight hundred and forty eight only) has been
     due to the defaulter M/s A.P.T. lspat Pvt. Ltd. and the said
     sum has to be recovered from the defaulter.                     H
      154      SUPREME COURT REPORTS                    [2010] 5 S.C.R.


A·'         3. "In accordance with the Government Order No. 12/3/
            7704/Revenue- 7 dated 13.11. 75 send the amoufift1_,
            recovered from the defaulter by a bank draft drawn in favour
            of the Corporation (U.P. Small.Industries Corporation
            Limited, Kanpur) to his office. "
B
           3. It is significant to note that on the same day the Regional
      Manager of the Corporation, Kanpur region, submitted a
      written report to the Senior Police Officer, Kanpur Nagar,
      Kanpur. On the basis of the written report, a First Information
C     Report was instituted giving rise to a substantive criminal case
      under various sections of the Penal Code against the persons
      named in it. In the written report it was stated that since the year
      1994-95 M/s Anuj Steels whose proprietor was Anuj Tandon
      s/o Shri Durga Prasad Tandon was appointed· by the
      Corporation as its Sales Coordinator for the purposes of selling
D     iron and steel from the Corporation's Dadanagar godown at
      Kanpur as a raw material to small scale industries. According
      to the Memorandum of Understanding, the Coordinator booked
      the demand for iron and steel as might be required by the small
      scale industrial units with the Steel Authority of India Ltd. (SAIL).
E     The SAIL would then dispatch the boo.ked quantity of iron and
      steel either from its stockyard or by railway either on unsecured
      credit or on the deposit of money by the Coordinator. The
      Coordinator lifted the goods, through its Handling Contra~tor,
      either from the SAIL stockyard or from the railway siding and
F     brought it to the UPSIDC godown at Dadanagar. The
      Coordinator was also responsible for selling the iron and steel
      bought from the SAIL to the small scale industrial units after
      depositing its value in the depot or in the regional office of
      Corporation.
G
           4. The written report further stated that Anuj Tandon's
      brother Arun Tandon, the proprietor of Mis Pranay Sales .was
      appointed as the Transporter of the Corporation for lifting the
      iron and steel from the railway siding and the SAIL stock yard
      and bringing the stock to the Dadanagar depot. Arun Tandon
H
 A.P.T. ISPAT PVT.LTD. v. U.P. SMALL INDUSTRIES               155
  CORPORATION LTD. & ANR. [AFTAB ALAM, J.]
extended cooperation to Anuj Tandon in the sale and purchase         A ,
of the raw materials. He also participated in the meetings of
the Corporation and performed several important jobs
connected with the purchase and sale of iron and steel procured
from the SAIL.

    5. It is further stated that the appellant company is a small
                                                                     8
industrial unit whose directors were Ashok Tandon (another
brother of Anuj and Arun), Prateak Tandon (son of Ashok
Tandon) and Anuj Tandon. The appellant company was a
purchaser of wire rods from Dadanagar depot of the
Corporation.                                                         C

     6. From the statements made in the written statement, it
is evident that the running of the day to day affairs of the
Corporation was practically handed over to the members of the
Tandon family. One does not know whether the arrangement,            D
as stated in the written report, was made consciously, in
collusion with the officers of the Corporation, or it came into
being mindlessly and without any proper consideration of the
Corporation's interests. Be that as it may, an arrangement of
this kind was fraught with the risk of grave financial losses to     E
the Corporation. And, as is further alleged in the written report,
the Corporation actually came in for heavy losses. In the written
report it is further alleged as follows:

     "On stock verification of Dadanagar Depot, it has come
     to the light that M/s A.P.T. lspat Pvt. Ltd., Amausi,           F
     Lucknow, has taken away 1027.15 metric tonne wire rod
     worth Rs.1,54,93,421 =00 (iron and steel raw material) from
     Dadanagar Depot which raw material was purchased by
     U.P.S.l.D.C. from Steel Authority of India on unsecured
     credit for supplying to the small industrial units at the       G
     instance of M/s Anuj Steels and the price of the said goods
     have not been deposited in the Depot or the bank account
     of the Corporation. The bills of the aforesaid raw material
     prepared by the employees of the Depot were found while
                                                                     H
           156      SUPREME COURT REPORTS                    [2010] 5 S.C.R.


:-· <:i ~.,.,~": 'no eritry thereof has been made in the account, books of
                 the bills. In this manner, Arun Tandon, Anuj Tandon, Astlor<.~;~:-i ;
                 Tandon, Prateak Tandon, R.N. Sharma, Depot Manager,
                 Raw Materials Depot, Dadanagar, Kanpur, Jagdhari
                 Yadav, Excise clerk, Lalji Yadav, Depot Illegible, Raw
       B         Material Depot, Dadanagar, Kanpur under a conspiracy
                 to cause loss to the Corporation and to get for themselves
                 unlawful gain have taken away iron and steel raw materials
                 worth Rs.1,54,93,421 =00 (Rupees one crore fifty four lakhs
                 ninety three thousand four hundred twenty one only) and
                 the Corporation has suffered a loss of Rs.1,54,93,421 =00
       c         and has been suffering loss of interest@ 21% per annum
                 thereon."

               7. A bare reading of the FIR makes it manifest and clear
         that according to the Corporation the accused persons
       D induding the Directors of the appellant company entered into
         a conspiracy amongst themselves and witt:t the staff of the
         Corporation and committed various offences; e.g. dishonest
         misappropriation of property, criminal breach of trust, cheating,
         theft, etc.
       E
               8. In fairness to the appellant it may be stated here that it
         has its own story to counter the allegations made in the FIR.
         According to the appellant, the Corporation owed it ,a sum of
         Rs.3,83,894 (Rupees three lakhs eighty three thousand and
         eight hundred ninety four only) and on December 1; 2000 the
       F appellant ha~ instituted Original Suit No.1245 of 2000            for
         injunction against the Corporation. The injunction suit was filed,
         when the officers of the Corporation started harassing the
         Directors of the appellant company and tried to subject them
         to undue pressure of government authorities, including the
       G police. Mr. Shirish Kumar Mishra, learned counsel appearing
         for the appellant also invited our attention to the bills raised by
         the Corporation against the appellant company in support of
         its case. Mr. Mishra submitted that a bare glance at the bills
         would show that those were not drawn in the normal course of
       H                                   \
 A.P.T. ISPAT PVT.LTD. v. U.P. SMALL INDUSTRIES               157
  CORPORATION LTD. & ANR. [AFTAB ALAM, J.]
business but were manufactured later as a prop to support the        A
allegations made by the Corporation's officers.

     9. The allegations made in the FIR against the appellant
company and the counter allegations made by the appellant
against the Corporation are of no concern to us for the present.     8
We may assume for the purpose of the present case that the
appellant company "received" from the Corporation the quantity
of wire rods as stated in the two recovery certificates for which
it has not made payment to the Corporation. But the question
for consideration is whether the provisions of the U.P. Public       C
Moneys (Recovery of Dues) Act, 1972 can be pressed into
service for realization of.the dues of the kind indicated above.

      10. Let us now take a look at the various provisions of the
Act. Section 2(a) of the Act defines "Corporation" to include any
corporation owned or controlled by the Central government or         D
the state government or notified by the state government in the
official gazette. Section 2(b) defines financial assistance as
follows:

    "2(b) "financial assistance" means any financial assistance-
                                                                     E
     (i) for establishing, expanding, modernizing, renovating or
     running any industrial undertaking; or

    (ii) for purposes of vocational training; or
                                                                     F
    (iii) for the development of agriculture, horticulture, animal
    husbandry of agro-industry; or

    (iv) for purposes of any other kind of planned development;
    or
                                                                     G
    (v) for relief against distress; "

Section 3 deals with recovery of certain dues as arrears of land
revenue and insofar as relevant it is reproduced below:

                                                                     H
    158       SUPREME COURT REPORTS                  [2010] 5 S.C.R.


A         "3. Recovery of certain dues as arrears of land revenue-(

          1) Where any person is party-

          (a) to any agreement relating to a loan, advance or grant
          given to him or relating to credit in respect of, or relating
B         to hire purchase of, goods, sold to him by the State
          Govern·ment or the· Corporation, by way of financial
          assistance;    ·         ·

          (b) to any agreement.. ........ .
c         (c) to any agreement.. ........ .

          (d) to any agreement.. ........ .

                 (i) makes any default in repayment of the ·loan or
D                advance or any installment thereof; or
                                                '
                 (ii) having become liable under the conditions of the
                 grant to refund the grant o any portion thereof,
                 makes any default in the refund of such grant or
                 portion or any installment thereof; or
E                                        •
                 (iii) otherwise fails to comply with the terms of the
                 agreement;

          then, in the case of the State Government, such officers
F         as may be authorized in that behalf by the State
          Government by notification in the official Gazette, and in
          the case of the Corporation or a Government company the .
          Managing Director or where there is no Managing Director
          then the Chairman of the Corporation, or by whatever
          name called or such officers of the Corporation or
G
          Government company as may be authorized in that behalf
          by the Managing Director or the Chairman thereof, and in
          the case of a banking company, the local agent thereof,
          by whatever name called, may send a certificate to the
          Collector, mentioning the sum due from such person and
H
 A.P.T. ISPAT PVT.LTD. v. U.P. SMALL INDUSTRIES                 159
  CORPORATION LTD. & ANR. [AFTAB ALAM, J.]
    requesting such sum together with costs of the                     A
    proceedings be recovered as if it were an arrear of land
    revenue;

    (2) ................ .

     (3) ................ .                                            B

     (4) ................ .

     (5) ................. "

     11. Mr. Mishra submitted that the appellant company was           C
neither receiving any financial assistance from the Corporation
nor it was party to any agreement with the Corporation relating
to any loan, advance or grant to it or relating to credit in respect
of or relating to hire purchase of goods to it by the Corporation
by way of financial assistance. Hence the provisions of section        D
3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972
could not be invoked for recovery of the alleged dues of the
Corporation.

     12. The same contentions were raised before the High              E
Court, but the High Court rejected the objection raised on behalf
of the appellant observing, in the judgment coming under
appeal, as follows:

     "The term financial assistance thus, means any financial
     assistance provided for running any industrial undertaking.       F
     If the term financial a.ssistance is read along with section
     3 of the Act then it would mean a party to any agreement
     relating to goods sold to him by the Corporation as
     financial assistance for running any industrial unit.
                                                                       G
         Admittedly, in the instant case, the petitioner had
    been purchasing wire rods materials from the respondent
    company for carrying on its business. Thus the raw
     materials, that is, wire rods, were sold, to the petitioner
     by the respondent company by way of financial                     H
    160      SUPREME COURT REPORTS                    [2010] 5 S.C.R.
                                                                 n   .,   -,

A         assistance. Learned counsel for the petitioner has .
          contended that in view of section 3 there should be an
          agreement for sale of goods by the cornoration by way of
          financial assistance to any person and only then the case
          would be covered under section 3 of the Act. As there is
8         no agreement between the petitioner and the respondent
          company for sale of goods by way of financial assistance
          and, therefore, the provisions of section 3 of the Act are
          not applicable.

                There is no dispute about the fact that there is no
c         written agreement between the petitioner and respondent
          Company for supply of raw materials to the petitioner. It
          is, however, admitted that respondent company had been
          supplying raw materials to the petitioner-company for
          carrying all its business. In writ petition no.Nil of 1987, in
D         re: R.K. & Sons, Bhadoi vs. The Collector, Varanasi and
          Others, decided on 12.3.1987, it has been held by a
          Division Bench of this Court that although there was no
          agreement executed in writing as such, an agreement
          may be said to have come into being as a result of
E         mutual contact of the parties accompanied with delivery
          of goods which were admittedly on credit and this. was
          to enable the petitioner to run the industrial unit held by
          him. In this manner his case is covered under Section
          3(1) (a) read with Section 2(b) of the Act. In the instant case
F         also as a result of mutual contract between the parties
          delivery of goods were made to the petitioner by
          respondent company. The petitioner obtained huge quantity
          of raw materials without making payment and thus, the
          respondent company is claiming the price of the goods
          sold to the petitioner by way of financial assistance. The
G
          case of the petitioner is therefore, also covered under
          Section 3(1 )(a) read with Section 2(b) of the Act."

                                                    (emphasis added)

H         13. We are completely unable to accept the view taken by
 A.P.T. ISPAT PVT.LTD. v. U.P. SMALL INDUSTRIES              161
  CORPORATION LTD. & ANR. [AFTAB ALAM, J.]
the High Court. If the appellant company was purchasing wire         A
rods as raw material from the Corporation we fail to see how
the sale of the goods would become financial assistance
rendered to the appellant unless it is shown that the supply of
the goods was as a loan or grant or by way of hire purchase in
terms of some agreement. We are, therefore, unable to follow         B
the observation by the High court that ''Thus the raw materials,
that is, wire rods, were sold, to the petitioner by the respondent
company by way of financial assistance". We also find no
basis for the observation made by the High Court that "it is,
however, admitted that respondent company (sic Corporation)          c
 had been supplying raw materials to the petitioner-company for
carrying all its business" and further that the goods supplied
"were admittedly on credit". There is no such admission by the
 appellant. On the contrary the case of the appellant is that it
 used to purchase wire rods from the Corporation on payment          D
 of price and it made payment for all the purchases from the
 Corporation.

      14. We think that the High Court has stretched the
meaning of "financial assistance" as defined in section 2 and
the scope of section 3 of the Act beyond reasonable limits.          E
From a bare reading of section 3 it is evident that the dues must
arise from an agreement to which the person from whom
recovery is to be made is a party. Sub clause (a) of sub-section
 1 then enumerates the kinds of agreement under which the
transaction should have taken place. It needs also to be borne       F
in mind that in the scheme of the Act there is no provision for
any adjudication. Once there is any default under an agreement,
the designated authority is authorized to issue a recovery
certificate and send it to the Collector who is obliged to recover
the certificate amount together with interest from the certificate   G
debtor as arrears of land revenue. At no stage the certificate
debtor is given an opportunity to put up his case. Such being
the legal position, the recovery certificate must be based on a
tangible agreement and it should even prima facie appear that
the dues arise from a breach of the terms of the agreement. A        H
    162      SUPREME COURT REPORTS                  [2010] 5 S.C.R.

A   proceeding under section 3 of the Act cannot be sustained by
    piling up assumptions in favour of the certificate holder and
    against the judgment debtor.

         15. In the present case it is evident that the dues of which
8   recovery is sought by the impugned certificates do not pertain
    to any loan, advance or grant given to the appellant or to any
    credit concerning any hire pui'chase of goods sold to the
    appellant by the Corporation under any agreement, express or
    implied. The dues do not relate to any financial assistance.

C       16. We also cannot overlook the fact that in this case the
  so called supplies were not even made in the normal course
  of business. A reference to the FIR makes it clear that
  according to the Corporation the goods were taken away by
  the appellant in a criminal action constituting a number of
D offences under the Penal Code. The U.P. Public Mo_neys
  (Recovery of Dues) Act, 1972 was clearly not intended to
  recover the goods or the monetary value of goods taken away
  in course of theft or dacoity or lost as a result of dishonest
  appropriation or any other alleged criminal action.
E
        17. For the reasons discussed above, we are of the view
  that in the facts of this case the two impugned recovery
  certificates are quite illegal and untenable and we are unable
  to sustain the High Court order coming under appeal.

F      18. There is another point and though it was not raised
  before the High Court, we think proper to mention it since it is
  crucial to the proceeding under section 3 of the U.P. Public
  Moneys (Recovery of Dues) Act, 1972. In a decision by this
  court in Unique Butyle Tube Industries (P) Ltd. vs. U.P.
G Financial Corporation and Others, (2003) 2 SCC 455, it was
  held that after the coming into force of the Recovery of Debts
  Due to Banks and Financial Institutions Act, 1993, recourse
  cannot be taken for recovery of dues to the provisions of U.P.
  Public Moneys (Recovery of Dues) Act, 1972 because the U.P.
H Act does not find mention in section 34(2) of the Recovery of
 A.P.T. ISPAT PVT.LTD. v. U.P. SMALL INDUSTRIES              163
  CORPORATION LTD. & ANR. [AFTAB ALAM, J.]
Debts Due to Banks and Financial Institutions Act, 1993.            A

     19. For all these reasons the order of the High Court is
set aside and the impugned recovery certificates are quashed.

     20. It is made clear that this judgment shall not in any way
affect the criminal case instituted against the Directors of the    B
appellant company and it will proceed on its own merits and in
accordance with law. This judgment shall also not stand in the
way of the respondent Corporation in seeking recovery of its
claims from the appellant by any other means duly sanctioned
by law.                                                             C

     21. In the result the appeal is allowed but with no order as
to costs.

K.K.T.                                         Appeal allowed.




                                                                    '·