RAM KRIPAL SINGHversusSTATE OF U.P. AND ORS.

                                RAM KRIPAL SINGH
                                                                                     A
'                                         v.
                             STATE OF U.P. AND ORS.

                                   MAY 16, 2007

          [DR. ARIJIT PASA YAT AND LOKESHWAR SINGH PANTA, JJ.]                       B


          State Financial Corporation Act, 1951-s.29-Debtor-Company wound
    up-Recovery citation against the guarantor-Citation challenged by the
    guarantor in Writ Petition, on the ground thal he could not be proceeded
    against, unless and until property of the debtor was not sold-Writ Petition      C
    dismissed by High Court-On appeal, held: Recovery proceedings against
    the guarantor was correct-If a company-debtor is wound up, ~late Financial
    Corporation has no right to unilaterally exercise its power to realize the
    mortg~d property without consent of Official Liquidator-Uttar Pradesh
    Public Money's Recovery of Dues Act, 1972.                                       D
           Recovery proceedings were initiated against the debtor-company. The
    same was under challenge in another Writ Petition. The Company was wound
    up. Thereafter recovery proceedings were initiated against the appellant-
    Guarantor under Uttar Pradesh Public Money's Recovery of Dues Act, 1972.
    The recovery citation was challenged by the appellant in Writ Petition on the    E
    ground that the proceedings were without jurisdiction as the guarantor could
    not be proceeded against unless and until the property of the principal debtor
    is sold. High Court dismissed the petition holding that proceedings against
    the guarantor was right as the debtor-company had been wound up. Hence
    the present appeal.
                                                                                     F
          Dismissing the appeal, the Court

          HELD: 1. In the present case, the principal debtors-Company has already
    been wound up and official liquidator has been appointed. The position would
    be different ifthe company is under liquidation. The right of State Financial
    Corporation (SFC) unilaterally exercisable under Section 29 of the State         G
    Financial Corporation Act, 1951 is available against a debtor, ifa company,
    only so long as there is no order of winding up. SFCs cannot unilaterally act
    to realize the mortgaged properties without the consent of the official
    liquidator. [Paras 6, 7, 9 and 10111189-D, G; ll90-A, BJ
                                        1187                                         H
    1188                   SUPREME COURT REPORTS                   [2007] 6 S.C.R.

A        International Coach Builders Ltd. v. Karnataka State Financial
    Corporation, (20031 10 SCC 482, relied on.

         Pawan Kumar Jain v. Pradeshiya Industrial and Investment
    Corporation of U.P., (2004) 6 SCC 758, distinguished.

B        2. It appears to be a classic case where the efforts for recovery of the
    amounts have been frustrated on some pretext or other. A recalcitrant
    defaulters' case deserves to be dealt with sternly.
                                                    (Para 81 (1189-G, H; 1190-AI

           Orissa State Financial Corporation and Anr. v. Hotel Jogendra, 119961
c 5 sec 357, relied on.
           CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2675 of2007.

          From the final Judgment and Order dated 05.05.2005 of the High Court
    of Judicature at Allahabad in Writ Petition No. I I 12 of 2005.
D
           Satya Mitra, Dhirendra Pandey and Sanjay R. Hedge for the Appellant.

         T.N. Singh, Rajeev Dubey, Kamlendra Mishra, Aarohi Bhalla, Sunil Kumar
    Singh and Sujata Kurdukar for the Respondents.                                   '
           The Judgment of the Court was delivered by
E
           DR. ARIJIT PASA YAT, J. I. Leave granted.

        2. Challenge in this appeal is to the order passed by a Division Bench
  of the Allahabad High Court dismissing the writ petition filed by the appellant.
  Challenge in the writ petition was to the recovery proceedings initiated
F against him under Uttar Pradesh Public Money's recovery of Dues Act, 1972
  (in short the 'Act'). Prayer was to quash the citation ·issued by the Tehsildar
  principally on the ground that the proceedings are without jurisdiction as the
  respondent cannot proceed against the appellant as a guarantor unless and
  until the property of the principal debtor is sold. Since the recovery
G proceedings were initiated in the year 1993, recovery citation during the
  pendency of the earlier writ petition was illegal and therefore the appellant
  was entitled to get protection in view of what has been stated by this Court
  in Pawan Kumar Jain v. Pradeshiya Industrial and Investment Corporation                )'

  of U.P., (2004] 6 sec 758.

H          3. Respondents on the other hand supported the action taken relying
             RAMKRIPALSINGHv. STATEOFU.P.[PASAYAT,J.J                      1189
on a decision of this Court in Kai/ash Nath Agrawal v. Pradeshiya Industrial        A
and Investment Corporation of U.P., [2003] 4 SCC 305. It was also pointed
out that the decision in Pawan Kumar's case (supra) is not applicable as the
company had been wound up and the official liquidator has been appointed.

      4. Accordingly the High Court dismissed the writ petition holding that
since that the company has been wound up and the proceedings against the            B
guarantor i.e. appellant were perfectly in order.

      5. Stands taken before the High Court were reiterated by the parties in
this appeal. At first glance the appellants stand appears to be in terra firma
because of what has been stated by this court in Pawan Kumar's case
(supra).                                                                            C
       6. On a closer scrutiny the finding of the High Court appears to be in
order. Though it was urged that the recovery citation was issued after
24.1.2004 i.e. on 18th Septw ber, 2004, it is to be noted that the first recovery
citation was issued on 3.9.1993. It is true that the same was under challenge       D
in another writ petition. But the basic features are distinguishable. The
present case is different from that of Pawan Kumar's case (supra) as principal
debtors Company has already been wound up and official liquidator has been
appointed. The company was declared as sick industry on 17.11.1994 by the
Board for Industrial and Financial Reconstruction (in short the 'BIFR') where
after the company has undergone winding up proceedings before the High              E
Court. The BIFR submitted its recommendation for winding up and against
the order of BIFR appellant had preferred an appeal before the appellate
authority which was rejected on 9.1.1997. The company had filed a writ
petition questioning orders of the BIFR and the appellate authority. By order
dated 26.2.2003 the Writ Petition No. 14172of1997 was dismissed and in the          F
winding up proceedings, Company Court has permitted official liquidator to
proceed with the winding up.

       7. It appears that proposal for one time settlement was made and
nothing concrete has been done by the appellant. In International Coach
Builders Ltd. v. Karnataka State Financial Corporation, [2003] 10 SCC 482           G
it has been held that the position would be different if the company is under
liquidation.

     8. It appears to be a classic case where the efforts for recovery of the
amounts have beer. frustrated on some pretext or other. In Orissa State
Financial Corporation and Anr. v. Hotel Jogendra, [ 1996] 5 sec 357 it was          H
    1190                   SUPREME COURT REPORTS                   [2007] 6 S.C.R.

A held that a recalcitrant defaulters' case deserves to be dealt with sternly.
          9. The right of State Financial Corporation (in short 'SFC') unilaterally
    exercisable under Section 29 of the State Financial Corporation Act, 1951 (in
    short 'SFC Act') is available against a debtor, if a company, only so long as
    there is no order of winding up.
B
          I0. SF Cs cannot unilaterally act to realize the mortgaged properties
    without the consent of the official liquidator.
                                                                                      r
          11. If the official liquidator does not consent, SFCs have to move the
    Company Court for appropriate directions to the official liquidator. In any
C   event, the official liquidator cannot act without seeking directions from the
    Company Court and under its supervision.

          12. The inevitable result is that the appeal is without merit deserves
    dismissal, which we direct. Costs made easy.

D K.K.T.                                                       Appeal dismissed.