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2015 DIGILAW 895 (GUJ)

Kanva Finance Ltd. v. Gujarat State Finance Corporation

2015-09-09

ABHILASHA KUMARI

body2015
JUDGMENT : Abhilasha Kumari, J. 1. By way of the present petition under Article-226 of the Constitution of India the petitioner has, inter-alia, prayed for the issuance of a Writ of Mandamus or any other appropriate Writ or direction to respondent No. 1-Gujarat State Financial Corporation ("the respondent-Corporation", for short) to open the seal of the offices of the petitioner, being offices Nos. 303 and 304, Kalash, Behind Navrangpura Jain Temple, Navrangpura, Ahmedabad and to hold that the sealing of the said premises is illegal, arbitrary and unconstitutional. A further prayer has been made to direct the respondent-Corporation not to proceed further with either the sale, or auction, of the said offices or to transfer, alienate and/or create equities over them. 2. The petitioner is a limited company. Its case, as set out in the petition, is that office No. 303 is of the ownership of the petitioner, having been purchased from one Harishbhai Manibhai Patel and Ushaben Chandrakantbhai Patel, by way of a registered Sale Deed dated 04.07.1995. Insofar as office No. 304 is concerned, it is the case of the petitioner that it was jointly owned by Mr. Umesh Chokshi and Mrs. Nitaben Chokshi, in their personal capacity. The petitioner asserts that it had taken office No. 304 on rent and continued to be a tenant of Mr. Umesh Chokshi and Mrs. Nitaben Chokshi, who were also on the Board of Directors of the petitioner Company, at that point of time. According to the petitioner, both the offices Nos. 303 and 304 had been combined and were functioning as the registered office of the petitioner, since about 13.04.1994. The change in the address of the registered office of the petitioner was made on 15.11.1995 and registered on 02.05.1996, as "303/304". Respondent No. 2, M/s. Disha Agro Industries Limited (now under liquidation and represented through the Official Liquidator) in which Mrs. Nitaben Chokshi was a Director, took a loan from the respondent-Corporation and office No. 304 was given as collateral security for the loan sanctioned by the respondent-Corporation, to the tune of Rs. 2.40 Crores, on 30.05.1996 and 29.03.1997, respectively. Apart from office No. 304, admeasuring 460 sq.yards, other properties were also given as collateral security to the respondent-Corporation by Mr. Umesh Chokshi and Mrs. Nitaben Chokshi, by a Memorandum of Entry dated 18.07.1996. 3. 2.40 Crores, on 30.05.1996 and 29.03.1997, respectively. Apart from office No. 304, admeasuring 460 sq.yards, other properties were also given as collateral security to the respondent-Corporation by Mr. Umesh Chokshi and Mrs. Nitaben Chokshi, by a Memorandum of Entry dated 18.07.1996. 3. Respondent No. 2-Company committed default in the repayment of dues payable to the respondent-Corporation which, therefore, invoked the provisions of Section-29 of the State Financial Corporations Act, 1951 ("the SFC Act", for short) and issued a notice dated 20.06.1998 to the owners of the property and respondent No. 2, in respect of the collateral security. Ultimately, the respondent-Corporation took over the possession of the primary security property of the factory premises on 25.01.2000. Likewise, the possession of the offices Nos. 303 and 304 was also taken over on 12.09.2000, by serving a legal notice upon the borrowers. As both offices Nos. 303 and 304 had been combined by the petitioner, by pulling down the intervening wall and making a single entry, office No. 303, of which the petitioner is the owner, was also taken over by the respondent-Corporation. Though efforts were made by the respondent-Corporation to sell the office premises by giving advertisements in the newspaper, however, the offices have not been sold so far. 4. It is the specific case of the petitioner that insofar as office No. 303 is concerned, it is the owner of the said office; therefore, the possession of the said premises could not have been taken by the respondent-Corporation. As far as office No. 304 is concerned, the petitioner asserts that it has been inducted as a tenant in the said premises and has been using the office as a tenant and no notice of the proceedings initiated by the respondent-Corporation under Section-29 of the SFC Act has been served upon the petitioner. 5. The petitioner had earlier preferred a petition, being Special Civil Application No. 9860/2000, before this Court, for the very relief prayed for in the present petition. However, said petition was not entertained at that point of time, mainly on the ground that no documents or material were produced in support of the averments made in the petition. For this reason, the possession of the property in question could not be directed to be entrusted to the petitioner. However, said petition was not entertained at that point of time, mainly on the ground that no documents or material were produced in support of the averments made in the petition. For this reason, the possession of the property in question could not be directed to be entrusted to the petitioner. The petitioner claims in the present petition, that though it could not produce certain documents at that point of time as most of the documents pertaining to the properties in question were within the premises of the offices that are sealed, however, some documents could be traced out by the petitioner from Government records and other sources. In this regard, the petitioner filed Misc. Civil Application No. 1226/2010 in Special Civil Application No. 9860/2000, placing the said documents on record and praying for the recall of the order dated 27.01.2010, passed in Special Civil Application No. 9860/2000, whereby the said petition was disposed of. Vide the order dated 26.08.2010, this Court, after hearing the parties, passed an order permitting the petitioner to withdraw Special Civil Application No. 9860/2000, with liberty to file a fresh petition producing all necessary documents. The earlier order dated 27.01.2010, passed in Special Civil Application No. 9860/2000, was recalled, and the petition was disposed of, accordingly. Pursuant to the liberty granted by this Court, the petitioner has preferred the present petition, and placed on record certain documents such as the Tax Bill of the Ahmedabad Municipal Corporation (Annexure-E, collectively), the receipt dated 31.03.1999 for the tax paid to the Ahmedabad Municipal Corporation (Annexure-F), the Valuation Report of the immovable property being office No. 303 and certain other documents showing the registered office of the petitioner as 303/304, Kalash, Navrangpura, Ahmedabad. Documents such as Income Tax Challans and a TDS Certificate are annexed in order to bolster the assertion of the petitioner that its registered office was functioning from both the offices, that is, offices Nos. 303 and 304, in the capacity as the owner of the former and a tenant of the latter. 6. In the above background, the case of the petitioner is to the effect that, the power under Section-29 of the SFC Act cannot be exercised by the respondent-Corporation against any surety or guarantor, but can only be exercised against the defaulting industrial concern. 6. In the above background, the case of the petitioner is to the effect that, the power under Section-29 of the SFC Act cannot be exercised by the respondent-Corporation against any surety or guarantor, but can only be exercised against the defaulting industrial concern. According to the petitioner, being the owner of office No. 303 and a tenant of office No. 304, the possession of both offices could not have been taken over by the respondent-Corporation, in exercise of power under Section-29 of the SFC Act. More so, when no notice was given or served to the petitioner and no opportunity of hearing had been granted. 7. Mr. Anshin H. Desai, learned advocate for the petitioner has submitted that the dispute has arisen due to the default of respondent No. 2 in making the payment of the loan installments to the respondent-Corporation. Due to the said default, both the premises used as the registered office of the petitioner have been sealed by the respondent-Corporation on 12.09.2000, and symbolic possession has been taken as of that date. 8. It is further submitted that there is no dispute regarding the fact that office No. 303 is owned by the petitioner, having been purchased by a registered Sale Deed. This fact is also acknowledged by the respondent-Corporation in the affidavit-in-reply filed by it. Insofar as office No. 304 is concerned, it is contended that the petitioner is a tenant of the said office. Ample material has been produced on record to show that the petitioner was functioning from both the offices Nos. 303 and 304 which is the registered address of the petitioner. For the sake of convenience, the petitioner has combined both the offices by breaking down the wall in between and making a single entry. Due to the sealing of the office premises, the petitioner is unable to obtain any documents as all the documents are within the office premises. However, the documents produced on record of the petition clearly show that the petitioner was in possession of both the offices and its registered office was functioning from there. These documents have not been denied or disputed by the respondent-Corporation. However, the documents produced on record of the petition clearly show that the petitioner was in possession of both the offices and its registered office was functioning from there. These documents have not been denied or disputed by the respondent-Corporation. That, in respect of office No. 303, the respondent-Corporation has stated in the affidavit-in-reply that it does not claim the said premises, whereas in respect of office No. 304, it has moved an application before the District Court under Section-31of the SFC Act, which is pending. 9. It is next submitted that the petitioner became a tenant of office No. 304, which was the property of one of its Directors, before the loan amount was sanctioned by the respondent-Corporation to respondent No. 2; therefore, the possession and occupation of the petitioner in the said premises is prior to the sanctioning of the loan. In this view of the matter, according to the learned advocate for the petitioner, the principles of law enunciated by the Supreme Court in the cited judgments would be applicable to the case of the petitioner. 10. The judgments cited by the learned advocate for the petitioner are as below : "(i) Karnataka State Financial Corporation v. N. Narasimhaiah and others, reported in (2008) 5 SCC 176 . (ii) Subhransu Sekhar Padhi v. Gunamani Swain and others, reported in (2014) 12 SCC 368 ." 11. Opposing the prayers made in the petition, Mr. R.D. Dave, learned advocate for the respondent-Corporation, has submitted that the petitioner has no locus standi to challenge the action of the respondent-Corporation, insofar as office No. 304 is concerned. The petitioner is merely stating that it is the tenant in the said office, but no Rent Agreement or Rent Note has been produced by it to support this claim. That, the earlier petition was disposed of by this Court as the petitioner had failed to place on record any document showing its right or interest in the property in question. Certain documents were produced by the petitioner by filing a Misc. Civil Application and the earlier petition was permitted to be withdrawn, with liberty to file a fresh petition. The documents produced by the petitioner in the present petition, as well, do not support its claim of being a tenant in office No. 304. Certain documents were produced by the petitioner by filing a Misc. Civil Application and the earlier petition was permitted to be withdrawn, with liberty to file a fresh petition. The documents produced by the petitioner in the present petition, as well, do not support its claim of being a tenant in office No. 304. Learned advocate for the respondent-Corporation submits that insofar as office No. 303 is concerned, the respondent-Corporation does not lay any claim thereupon. The situation has arisen as the petitioner has combined both the offices that now have a single entry. The respondent-Corporation has no objection if office No. 304, admeasuring 406 sq. yards (clear area), is separated from office No. 303, which is owned by the petitioner. 12. It is further submitted that as regards office No. 304, the respondent-Corporation has preferred an application under Section-31 of the SFC Act before the District Judge. Any grievance that the petitioner may have in respect of the said premises can be ventilated before that Court. That, in the present petition, nothing has been produced on record to show that the petitioner is either the owner, or tenant, of office No. 304. That, it is the admitted fact that the said office has been mortgaged to the respondent-Corporation by the original owners, therefore, in this view of the matter, the petition deserves to be rejected, as it is nothing but a camouflage to prevent the recovery of dues. 13. This Court has heard the learned counsel for the respective parties at length, perused the averments made in the petition and the documents on record. 14. There does not appear to be any dispute regarding the fact that office No. 303 is of the ownership of the petitioner. The respondent-Corporation has made it clear in the affidavit-in-reply filed by it, that insofar as office No. 303 is concerned, it has no claim over the said premises, and it has been sealed as the petitioner has clubbed together both the offices Nos. 303 and 304 and made a single entry. 15. The main dispute before this Court is regarding the status of the petitioner as regards No. 304 is concerned. It is the assertion of the petitioner that it has taken office No. 304 on rent from Mr. Umesh Chokshi and Mrs. Nitaben Chokshi, who have mortgaged the said office premises to the respondent-Corporation. 15. The main dispute before this Court is regarding the status of the petitioner as regards No. 304 is concerned. It is the assertion of the petitioner that it has taken office No. 304 on rent from Mr. Umesh Chokshi and Mrs. Nitaben Chokshi, who have mortgaged the said office premises to the respondent-Corporation. It is stated in the petition that Mr. Umesh Chokshi and Mrs. Nitaben Chokshi were on the Board of Directors of the petitioner Company at the relevant point of time. The petitioner has produced several documents showing that its registered office was functioning from offices Nos. 303 and 304. The said documents include a Tax Bill of the Ahmedabad Municipal Corporation (Annexure-E), a receipt dated 31.03.1999 (Annexure-F), a Valuation Report dated 21.05.1998 (Annexure-G), communication dated 12.01.1995, Bank Statement dated 03.05.1996 (Annexure-H) and Income Tax Challans and a TDS Certificate (Annexure-I, collectively). In the said documents, the address of the petitioner is reflected either as office No. 303 or office No. 303/304; meaning thereby, that from the said documents it can be deduced that the petitioner was using both the offices Nos. 303 and 304 as its registered office. 16. The question, then, would arise in what capacity the petitioner was using both the offices. There is no dispute regarding the fact that office No. 303 is owned by the petitioner. The dispute arises regarding the status of the petitioner in relation to office No. 304. For the petitioner, to use the premises of office No. 304 is one thing. However, the capacity in which the petitioner is using the said premises is another. The premises could be used or occupied even without there being any legal or contractual relationship between the parties, but that would not give rise to any legal right. The petitioner has made a categorical statement in the petition and during oral submissions that it was a tenant of Mr. Umesh Chokshi and Mrs. Nitaben Chokshi in office No. 304. However, the petitioner has failed to produce any Rent Note, Rent Agreement or Rent receipts in support of this assertion. In the absence of material on record indicating that the petitioner was a tenant in the said premises, this Court cannot be expected to presume that it is so, merely because it is stated in the petition and during oral arguments on behalf of the petitioner. In the absence of material on record indicating that the petitioner was a tenant in the said premises, this Court cannot be expected to presume that it is so, merely because it is stated in the petition and during oral arguments on behalf of the petitioner. The petitioner claims to be the tenant of the borrower/guarantor, and in that capacity is claiming relief as per the principle of law enunciated by the Supreme Court in Karnataka State Financial Corporation v. N. Narasimhaiah and others (Supra). 17. The learned advocate for the petitioner has taken this Court through the entire judgment, especially emphasizing paragraphs-15 to 24 and 30 to 42, thereof. The legal proposition propounded by the Supreme Court in the above judgment is to the effect that the right under Section-29 of the SFC Act can be exercised only against the defaulting industrial concern and not against a surety or a guarantor. The surety can be proceeded against only in terms of Section-31 and not under Section-29, as both the said sections are distinct. 18. In Subhransu Sekhar Padhi v. Gunamani Swain and others (Supra.), the same principle of law has been propounded by the Apex Court and it has been held that Section-29 can only be invoked by the State Financial Corporation against the property of a defaulter and not against the property of third parties like guarantor/surety. According to the petitioner, as it is a tenant of the guarantor, the protection granted to the guarantor by the Supreme Court in the above judgments ought to be extended to it, as well. 19. The principles of law enunciated by the Supreme Court in the above judgments cannot be disputed. However, the point in issue in the present petition is whether the petitioner, who claims to be a tenant of the guarantor (but has failed to place on record any material in support of the tenancy), is entitled to derive any benefit from the above pronouncements of law. The answer, unfortunately, is in the negative, insofar as office No. 304 is concerned. Had the guarantor come to this Court with the same proposition regarding office No. 304, he/she may have derived some benefit from the settled position of law. The answer, unfortunately, is in the negative, insofar as office No. 304 is concerned. Had the guarantor come to this Court with the same proposition regarding office No. 304, he/she may have derived some benefit from the settled position of law. However, in the present case, it is not the guarantor who has invoked the jurisdiction of this Court under Article-226 of the Constitution of India, but is the so-called tenant of the guarantor. The claim of tenancy has not been supported by producing any material in support of the said tenancy. Merely by occupying the premises and functioning therefrom does not confer the legal and contractual status of a tenant upon the petitioner. There is a jural relationship between the landlord and tenant. However, in the case of an occupier or a person who has a permissive possession thereof, which appears to be the case with the petitioner as office No. 304 belonged to Mr. Umesh Chokshi and Mrs. Nitaben Chokshi, the then Directors of the petitioner Company, no jural or legal relationship would arise. 20. Taking into consideration all the above aspects, this Court has no hesitation in holding that, insofar as office No. 303 is concerned, the petitioner, being the owner thereof, has every right to claim its possession. The respondent-Corporation had no right to take over the possession of the said property, or to seal it. The reason given for doing so is stated to be the clubbing together of both the offices by the petitioner and the making of a single entrance. Hence, office No. 303 has been sealed along with office No. 304. 21. In the view of this Court, this reason advanced by the respondent-Corporation is a very weak one that does not hold good, at all. Knowing that the petitioner is the owner of office No. 303, nothing prevented the respondent-Corporation from approaching the petitioner and asking it to partition the two offices and separate them. It has been submitted by the learned advocate for the petitioner that the guarantors were informed but not the petitioner. It is not denied by the learned advocate for the respondent -Corporation that the petitioner was not informed at all. It has been submitted by the learned advocate for the petitioner that the guarantors were informed but not the petitioner. It is not denied by the learned advocate for the respondent -Corporation that the petitioner was not informed at all. When the respondent-Corporation was very well aware that office No. 303 is owned by the petitioner, it ought to have intimated the petitioner and asked it to separate both the office premises and subsequently released office No. 303 from its possession and seal. 22. The petitioner has been unable to make use of office No. 303 ever since the possession was taken over and it was sealed by the respondent-Corporation, on 12.09.2000. About fifteen years have elapsed since then. The action of the respondent-Corporation in taking possession and sealing the property owned by the petitioner, who is neither the borrower nor the guarantor, and who has not mortgaged the said premises, is highly arbitrary, unfair and unjustified. 23. On the other hand, the claim of the petitioner for handing over the possession of office No. 304 in the capacity of a tenant cannot be accepted, as no material has been produced on record to support the claim of tenancy. Even otherwise, the question whether the tenant of a guarantor can claim relief against the action under Section-29 of the SFC Act is a question that remains to be answered. As the status of the petitioner as a tenant has not been established in the present case, this Court is not required to enter into this issue. 24. The cumulative effect of the above discussion would, therefore, lead to the following order, for the reasons stated hereinabove : Insofar as office No. 303 is concerned, the Gujarat State Financial Corporation is directed to immediately release the possession of the said premises and hand it over to the petitioner. However, as the petitioner has clubbed both the premises, the respondent-Corporation shall open the common door of the combined premises and hand over the possession of office No. 303 only, to the petitioner. The petitioner is directed to partition both the offices and make a separate entry for office No. 303, as it existed earlier, as per the actual measurement, leaving the mortgaged area of office No. 304 to the respondent-Corporation. The petitioner is directed to partition both the offices and make a separate entry for office No. 303, as it existed earlier, as per the actual measurement, leaving the mortgaged area of office No. 304 to the respondent-Corporation. As the action of the respondent-Corporation in sealing the office premises No. 303, owned by the petitioner, ever since 12.09.2000, is arbitrary and unjustified, having been done without any legitimate right, the respondent-Corporation shall pay costs of Rs. 50,000/- (Rupees Fifty Thousand only) to the petitioner, within a period of fifteen days from the date of the receipt of a copy of this order. The respondent Corporation shall hand over all the documents and movables belonging to the petitioner to the petitioner upon the opening of the premises. The entire exercise be completed by the respondent-Corporation within a period of four weeks from the date of the receipt of a copy of this order. Insofar as office No. 304 is concerned, this Court is unable to accept the claim of the petitioner, therefore, no relief can be granted to the petitioner in respect of these premises. The petition is partly-allowed, in the above terms. Rule is made absolute, to the extent indicated hereinabove.