Nafees Ahmad and Others vs Tehsildar/Magistrate and Others

G.P. Mathur, J.—This petition under Article 226 of the Constitution has been filed praying that a writ of certiorari be issued for quashing the citation dated 13.3.97 issued by the Tehsildar directing the Petitioner to pay Rs. 61,37,076 and also a writ of mandamus be issued commanding the Respondents to recalculate the amount liable to be repaid by the Petitioners on the basis of simple interest at the rate of 13 per cent per annum.

The case of the Petitioners is that they formed a company which was registered under the Companies Act as Nafis Cold Storage Pvt. Limited and the U.P. Financial Corporation (for short U.P. F. C.) sanctioned a loan of Rs. 11 lacs in the year 1978 and further a loan of Rs. 4 lacs was sanctioned to the Company in the year 1980. Due to certain problems, the financial condition of the company became precarious and it could not repay the entire amount of loan taken from the U.P. F. C. A notice u/s 29 of the State Financial Corporation Act (hereinafter referred to as the Act) was issued on 10.10.94 and possession of the unit was taken over. The unit was also sold thereafter. The U.P. F. C. illegally sent recovery notice for recovering Rs. 61.37,076.

The Principal submission of Sri Yogesh Agarwal, learned Counsel for the Petitioner, is that the loan given to the cold storage was for agricultural purpose and therefore the U.P. F. C. cannot charge compound interest. In support of the preposition that a cold storage activity is ''agricultural'' in nature reliance has been placed on a Division Bench decision dated 2.9.93 in Special Appeal No. 166 of 1993 Pawan Cold Storage v. State of U.P. It is further urged that in Bank of India v. Karnam Ranga Rao AIR 1986 Kar 242, it was held that since farmers do not have regular source in income other than the sale proceeds of their crops and receive the sale proceeds annually, they cannot be accepted to have agreed to pay interest with periodical rests and this decision was affirmed by the Supreme Court in Corporation Bank v. D.S. Gowda 1995 (3) AWC 1760 : 1995 ACJ 746 and therefore, the Petitioner is not liable to pay compound interest.

We have given our careful consideration to the submission made by the learned Counsel and in our opinion, it is wholly misconceived. In the case of Pawan Cold Storage (supra), it has not been held as a general proposition of law that the activity of cold storage is ''agricultural''. In the said case, the loan has been advanced by a Bank to a cold storage and the recovery proceedings which had been initiated under U.P. Agricultural Credit Act, 1973 (U.P. Act No. 19 of 1973) had been challenged on the ground that the business carried on by a cold storage did not amount to "agriculture" and, therefore, Section 11A of the said Act had no application. This contention was repelled in view of the special definition of the word ''agriculture'' and ''agricultural purpose'' as contained in Section 2(a) of the aforesaid Act which lays down that agriculture'' and agricultural purpose'' include raising and harvesting crops, horticulture and such other activities as are generally carried on by persons engaged in any of the aforesaid activities including marketing of agricultural products and their storage. Therefore, in view of special definition of ''agricultural'' and ''agricultural purpose'' in the aforesaid Act, it was held that Section 11A of U.P. Agricultural Credit Act would apply to a loan given to a cold storage and the money advanced could be recovered in accordance with the procedure in the said Act. It has no where been held by the Division Bench that the activity carried on by a cold storage is ''agriculture'' as it is understood in common parlance. The Reserve Bank of India has issued circulars clarifying in that the loans given to the farmers do not carry compound interest with quarterly rests and it was on the basis of these circulars that the Supreme Court held that the farmers are not liable to pay compound interest. This will be evident from the following observation made in Para 25 of the reports:

... In the case of agricultural loans/advances, the position has been made amply clear by the circulars referred to earlier which do not permit banks to charge compound interest with quarterly rests. In such cases, as observed earlier, the interest can be fixed with annual rests coinciding with the time when the farmer is fluid and if thereafter the farmer fails to pay the interest, it would be open to compound the interest on the crop loan or instalments upon the term loans becoming overdue. In view of the above, we do not see any flaw in the reasoning of the High Court so far as this appeal is concerned. We, therefore, must dismiss the appeal.

It is not the case of the Petitioner that the Reserve Bank of India has issued any circular to the effect that the loans paid to a cold storage would carry simple interest. Those who run a cold storage cannot be said to be farmers and, therefore, the principle laid down in the case of Corporation Bank has no application to them.

There is another aspect of the matter. The Petitioners had not taken loan from a bank for agricultural purpose. On the contrary, they had taken loan from the U.P. F. C. which has been constituted under the State Financial Act, 1951. Section 25(1)(d) of the Act provides that the Financial Corporation may carry on and transact any business, namely, acting as agent of the State Government in respect of any matter connected with or arising out of the grant of loans of advances to an industrial concern. The word ''industrial concern'' has been defined in Section 2 (c) of the Act and it means apart from others any concern engaged in preservation of goods. Therefore, cold storage is an industrial concern''. The loan was advanced by he U.P. F. C. to the Petitioners in exercise of powers conferred u/s 25 (c) of the Act. Section 25 of the Act will show that a loan cannot be advanced by the Financial Corporation to a farmer. Therefore, the contention raised by the learned Counsel that the Petitioners being agriculturists are not liable to pay compound interest cannot be accepted. The Petitioners have to pay interest in accordance with the terms of the agreement executed by them.

The learned Counsel has next submitted that the unit of the Petitioner was sold without any notice to the Petitioners and on wholly inadequate price and, therefore, the sale is liable to be set aside. The contention raised does not appear to be correct. The record shows that the U.P. F. C. had sent notice dated. 4.9.95 to the Petitioners wherein it was mentioned that an advertisement was issued in the newspapers inviting offers for sale of the assets of the units and after negotiations, the Corporation had decided to accept the highest offer of Rs. 20 lacs. It was further mentioned that in case the Petitioners were willing to purchase the unit, they were at liberty to bring third person with higher offer than the offer already accepted by the Corporation. The Petitioners gave a reply on 13.9.95 that their unit should not be sold but they should be given six months time to deposit the amount. Copies of these letters have been filed as Annexures 2 and 4 to writ petition. These documents clearly show that the U.P. F. C. gave notice to the Petitioners of the proposed sale. It has been held by a Division Bench in Ram Bharose Lal v. U.P.F.C. 1996 ALJ 1187, that the sale made by the U.P. F. G. without public auction cannot be set aside if the owners of the unit were fully aware of the same being held and they failed to establish that there was a higher offer than the one accepted by the Corporation. In the present case, a notice was given to the Petitioners to bring a buyer but instead of doing that, they merely asked for six months'' time. In these circumstances, it cannot be held that the sale conducted by the Respondent-Corporation was improper or illegal.

No other point was urged. The writ petition lack merit and is dismissed summarily at the admission stage.