High Court of KeralaSingle Judge2019-12-05Petition allowed; revenue recovery against peti...

Jose Thomas K. and Others v. District Collector, Ernakulam and Others

Case / Petition Number:OP.No.4791 OF 1998(U)

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: Hon. Justice Anu Sivaraman
Judgment Date: 2019-12-05
Court Decision / Holding: The petition is allowed; the revenue recovery proceedings against the petitioners stand quashed. The liabilities of the Company have been assumed by the 5th respondent, and the respondents may take appropriate action against the Company or the 5th respondent’s properties as permissible in law.
Final Disposition: Petition allowed; revenue recovery against petitioners quashed; liability to be pursued against the company or 5th respondent as permissible in law.

Parties to the Case

Appellants / Petitioners

Jose Thomas K.
Xavier Parakkal Desom.P.O, Aluva-3
Mrs. Ethamma Xavier
George Xavier
Siby Xavier
Paul Xavier
Dr. Cyril Xavier
Joseph Xavier

Respondents

The District Collector, Ernakulam
The Deputy Tahasildar (RR) Kanayannur Taluk, Ernakulam
The Kerala Financial Corporation represented by its Managing Director
M/S. Pearlite Wire Products Pvt. Ltd. represented by its Managing Director
H.M. Periwal, K-6, Hauzk, New Delhi

Legal Representation & Advocates

Counsels for Petitioners

• Adv. Mathew John (K)
• Adv. Ajeesh K. SasI

Counsels for Respondents

• Adv. K. Moni
• Adv. Satish Murti
• Adv. A.A. Abdul Hassan
• Adv. K. Jaju Babu
• Adv. S. Sreekumar
• Adv. Basant Balaji
• Adv. Uma Murti

Case Synopsis & Summary

This writ petition challenges revenue recovery proceedings initiated against the petitioners, who were directors of the 4th respondent company (Pearlite Wire Products Pvt. Ltd.). The petitioners contend that they signed a personal guarantee on 22.06.1977 for the company’s loan but had no connection with the company after 1980, having sold their shares and resigned as directors. They point out that the revenue recovery notice (Ext.P1) was issued decades later (1997/1998), and that the principal amount and substantial interest recoverable are time-barred, since the guarantee was executed in 1977 and the loan terms culminated around 1988. They rely on a line of authorities, notably Annamma Jose v. Kerala Financial Corporation (2002 (2) KLT 834) to argue that actions against guarantors under the Revenue Recovery Act must be within the period of limitation. The respondents counter that the petitioners remained guarantors, with the 5th respondent’s subsequent deed (Ext.P3) and other security arrangements linking the petitioners to the debt; the loans were originally sanctioned in 1977–78 and the company’s status, including BIFR reference, is noted in counter affidavits. The court, after noting the long delay and the lack of timely action, accepts that the debt appears time-barred and allows the petition, quashing the revenue recovery proceedings against the petitioners. It permits action, if any, against the company or the 5th respondent directly.

Provisions of Law Cited

Revenue Recovery Act

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioners contend that they stood only as guarantors for the loan in 1977; they had dissociated from the company by 1980 and thus cannot be subjected to revenue recovery decades later. They emphasize that the original guarantee was in 1977 and that the liability should have terminated or been extinguished by 1988; Ext.P1 is beyond any reasonable period of limitation. Relying on Annamma Jose v. Kerala Financial Corporation, they submit that action against guarantors under the Revenue Recovery Act is confined to the period of limitation, and that the proceedings against them are legally untenable as time-barred. They also argue that the liability has been taken over by the 5th respondent, so recovery should be pursued against the company or the 5th respondent rather than the petitioners. The prolonged delay and the lack of a timely, enforceable interest to the guarantors form the core of their submissions.

Contentions of Respondents

The respondents assert that the petitioners personally guaranteed repayment of the loan, and thus remain liable notwithstanding the sale of shares or cessation of direct involvement with the company. They submit that theCompany’s sick status and subsequent BIFR proceedings do not extinguish the personal guarantees, and reference is made to the deed of guarantee (R3(a)) and related loan documents (R3(b)–R3(f)). They argue that Ext.P1 was issued to recover legitimate liabilities arising from the guarantees; the period of limitation might be extended by the security functions and additional covenants as stated in the counter affidavits and exhibits, and that the matter should be decided on merits and the petitioners cannot claim a blanket quashment merely on time-bar grounds. They rely on the overall debt and the attachments to secure payment from the petitioners as guarantors.

Cited Precedents (2)

Case Name	Citation	Treatment	Explanation
Annamma Jose v. Kerala Financial Corporation	2002 (2) KLT 834	Positive	Court relied on this decision to hold that guarantor actions under the Revenue Recovery Act must occur within the period of limitation; proceedings beyond that period are untenable.
Kerala State Financial Enterprises v. Syamala	2018(3) KLT SN 59	Positive	Legal position reiterated by later decisions; supports time-bar reasoning in the case.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN** ## **THURSDAY, THE 05TH DAY OF DECEMBER 2019 / 14TH AGRAHAYANA, 1941** ## **OP.No.4791 OF 1998(U)** ## **PETITIONERS:** - **1 JOSE THOMAS K. 245, PANAMPILLY NAGAR, KOCHI-36** - **2 XAVIER PARAKKAL DESOM.P.O, ALUVA -3** - **3 ADDL.3 MRS. ETHAMMA XAVIER, W/O. LATE XAVIER, PARACKAL HOUSE, DESOM POST, ALUVA 683 103.** - **4 ADDL.4 GEORGE XAVIER, S/O. LATE XAVIER, PARACKAL HOUSE, DESOM POST, ALUVA 683 103.** - **5 ADDL.5. SIBY XAVIER, S/O. LATE XAVIER, PARACKAL HOUSE, DESOM POST, ALUVA 683 103.** - **6 ADDL.6 PAUL XAVIER, S/O. LATE XAVIER, PARACKAL HOUSE, DESOM POST, ALUVA 683 103.** - **7 ADDL.7. DR.CYRIL XAVIER, S/O. LATE XAVIER, PARACKAL HOUSE, DESOM POST, ALUVA 683 103.** - **8 ADDL.8 JOSEPH XAVIER, S/O. LATE XAVIER, PARACKAL HOUSE,G.C.D.A. ROAD, PERIYAR GARDENS, ALUVA 683 108.** **ADDL. P3 TO P8 ARE IMPLEADED AS PER ORDER DATED 05/12/2019 IN I.A. NO. 15628/2012.** **BY ADVS. SRI.MATHEW JOHN (K) SRI.AJEESH K.SASI** ## **RESPONDENTS:** - **1 THE DISTRICT COLLECTOR, ERNAKULAM** - **2 THE DEPUTY TAHASILDAR(RR) KANAYANNUR TALUK, ERNAKULAM** 2 OP.No.4791 OF 1998(U) **3 THE KERALA FINANCIAL CORPORATION REPRESENTED BY ITS MANAGING DIRECTOR, VELLAYAMBALAM ,TRIVANDRUM.** - **4 M/S. PEARLITE WIRE PRODUCTS PVT.LTD. 35/360-1, M.G.ROAD, COCHIN-19 REPRESENTED BY ITS MANAGING DIRECTOR** **5 H.M.PERIWAL K-6, HAUZKAR, NEW DELHI-110 016.** **R1 BY GOVERNMENT PLEADER R1 BY ADV. SRI.K.MONI R1 BY ADV. SRI.SATISH MURTI R1 BY SRI.A.A.ABUL HASSAN, SC, KFC** **R1 BY ADV. SRI.K.JAJU BABUSCKERALA FINANCIAL COR R1 BY ADV. SRI.S.SREEKUMARSCKERALA FINANCIAL COR R1 BY SRI.BASANT BALAJI, SC, KERALA FINANCIAL CORPORATION R1 BY ADV. SMT.UMA MURTI** ## **GP. SHRI. RON BASTIAN** **THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 05.12.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** OP.No.4791 OF 1998(U) 3 ## JUDGMENT This writ petition is filed challenging the revenue recovery proceedings initiated against the petitioners, who were Directors of the 4[th] respondent Company. 2. Heard the learned counsel for the petitioners and the learned Standing Counsel appearing for the Kerala Financial Corporation and the learned Government Pleader. 3. It is submitted by the learned counsel for the petitioners that the original petitioners were Directors of the 4[th] respondent Company for the period from 1974-1980. It is submitted that both the petitioners had passed away during the pendency of the original petition and their legal heirs have come on record as additional petitioners. It is stated that, on 22.06.1977, the petitioners had executed a deed of guarantee in favour of the 3[rd] respondent Financial Corporation for the grant of a loan to the 4[th] respondent Company. It is submitted that, on 30.07.1980, the petitioners sold their shares in the 4[th] respondent Company to the 5[th] respondent. It is stated that their resignation from the Company was accepted by the OP.No.4791 OF 1998(U) 4 Registrar of Companies and that the petitioners had absolutely no connection with the 4[th] respondent from the year 1980. It is stated that, thereafter, Ext.P2 counter guarantee had been executed by the 5[th] respondent infavour of the petitioners and that further agreements had also been entered into by the 5[th] respondent and the other newly inducted directors of the Company in favour of the Financial Corporation. It is submitted that long thereafter, Ext.P1 revenue recovery notice was issued to the petitioners in the year 1998. It is submitted that steps have been taken on the strength of Ext.P1 to attach the immovable properties belonging to the 1[st] petitioner's wife and her movables. At that stage, this original petition was filed and this Court had stayed the recovery proceedings initiated against the petitioners. 4. It is submitted by the learned counsel for the petitioners that the only deed of guarantee executed by the original petitioners was in the year 1977. It is submitted that the petitioners had sold all their shares in the Company to the 5[th] respondent in the year 1980 and had resigned from the OP.No.4791 OF 1998(U) 5 directorship of the Company. It is submitted that the revenue recovery proceedings initiated more than two decades after the execution of the deed by the petitioners is hopelessly belated and that the respondents could not have issued a notice in the nature of Ext.P1 against persons, who had no connection with the Company. It is submitted that Ext.P1 would show that the principle amount demanded is only Rs.24,20,000/- and the further amount of Rs.2,55,54,833/- is demanded as interest which would support the contention of the petitioners that the debt is hopelessly time barred. The learned counsel for the petitioner relies on a decision of this Court reported in Annamma Jose vs. Kerala Financial Corporation (2002 (2) KLT 834) to contend that an action against a guarantor could be initiated under the Revenue Recovery Act only within the period of limitation and that the proceedings initiated against the guarantors beyond the period of limitation is incompetent. The legal position stands reiterated by later decisions including Kerala State Financial Enterprises v. Syamala (2018(3) KLT SN 59) OP.No.4791 OF 1998(U) 6 5. A counter affidavit has been placed on record by the respondents stating that the petitioners had executed a deed of guarantee with respect to the loan in question and that therefore they are liable to repay the amounts found due. It is stated that the petitioners had executed a deed of guarantee on 22.06.1977 personally guaranteed the repayment of all amounts due to the Corporation from the said Company. It stated that the Company had, thereafter been declared as sick Company and reference was made to the BIFR. It is stated that subsequently winding up proceedings have been initiated against the company. Apparently, on the basis of the directions issued by this Court requiring further details, an additional counter affidavit has also been placed on record. It is stated in the additional counter affidavit filed by the respondents that the Company had initially availed a loan of Rs.10 lakhs in two instalments of Rs.5 lakhs each on 13.07.1977 and 19.07.1977. It is stated that the petitioners had executed a deed of guarantee in favour of the Corporation by which they had personally guaranteed the repayment of the loan. The said deed of guarantee is produced as Ext.R3(a). It is stated that OP.No.4791 OF 1998(U) 7 additional loan was also sanctioned on 12.10.1977. It is stated that, towards security for repayment of the additional loan, the 1[st] petitioner had executed an agreement on 28.10.1978 on behalf of the borrower company. It is stated that the loan was to be repaid in half yearly instalments commencing from 10.07.1980 and ending on 10.07.1988. It is stated that the borrower company had again executed another agreement on 18.07.1978 undertaking to repay an amount of Rs.1,32,000/- in 17 half yearly instalments commencing from 10.07.1980 and ending on 10.07.1988. The borrower company had also availed of additional loan to be repaid in 7 instalments from 27.11.1978 to 02.07.1979. 6. It is, therefore, evident that going by the counter affidavit and additional counter affidavit filed on behalf of the respondents that the revenue recovery proceedings have been initiated in respect of the loans availed by the Company. Ext.R3(a) produced by the respondents along with counter affidavit is purportedly a deed of guarantee. The deed was executed in respect of the loan initially availed by the company. OP.No.4791 OF 1998(U) 8 Going by the averments in the additional counter affidavit, it appears that the period during which the loan ought to have been repaid had ended on 10.07.1988. There is no averment with regard to any extension of the period of loan to which the original petitioners had stood guarantee in the counter affidavit or the additional counter affidavit. The contentions raised by the petitioners that the period of limitation during which the recovery proceedings could have been initiated against the petitioners on the basis of deed of guarantee stood long expired when Ext.P1 proceedings had been initiated appears to be completely justified. If the term of the loan had ended in July, 1988, the respondents could not have initiated the revenue recovery proceedings against the petitioners in the year 1998 on the basis of a requisition in the year 1997. In the factual situations, the decision of this Court relied on by the petitioners squarely applies to the facts of this cases. In the above factual situation, I am of the opinion that the revenue recovery proceedings initiated against the petitioners were completely unsustainable since they were hopelessly time barred. This original petition is, therefore, allowed. The revenue OP.No.4791 OF 1998(U) 9 recovery proceedings initiated against the petitioners or their properties stand quashed. It is make it clear that since the liabilities of the Company have been taken over in its entirety by the 5[th] respondent, the respondents could take appropriate action as permissible in law, in accordance with law, against the Company or the properties of the 5[th] respondent, as the case may be. **Sd/-** ANU SIVARAMAN JUDGE Bng/10.12.19 OP.No.4791 OF 1998(U) 10 ## **APPENDIX** ## **PETITIONERS EXHIBITS:** - **EXHIBIT P1 TRUE COPY OF THE REVENUE RECOVERY NOTICE ISSUED BY THE 2ND RESPONDENT DATED** - **EXHIBIT P2 TRUE COPY OF THE AGREEMENT DATED 03.07.1980. EXHIBIT P3 TRUE COPY OF THE DEED EXECUTED BY THE 5TH RESPONDENT IN FAVOUR OF THE PETITIONERS DATED 14.07.1980.** - **EXHIBIT P4 TRUE COPY OF THE LETTER DATED 07.07.1980 ADDRESSED TO THE 3RD RESPONDENT CORPORATION.** - **EXHIBIT P5 TRUE COPIES OF THE CERTIFIED COPIES OF FORM NO.29 ISSUED BY THE REGISTRAR OF COMPANIES KEERALA SHOWING THE DIRECTORS OF THE 4TH RESPONDENT COMPANY SINCE 23.07.1980 ALONG WITH THE COVERING LETTER DATED 31.05.96.** - **EXHIBIT P6 TRUE COPY OF THE LETTER DATED 9.3.1998 TO THE 2ND RESPONDENT.** - **EXHIBIT P7 TRUE COPY OF THE ANNUAL RETURN DATED 30.11.1993.** - **RESPONDENTS EXHIBITS:** **EXHIBIT R3(A) A TRUE COPY OF THE DEED OF GUARANTEE DATED 22.06.77 EXHIBIT R3(B) A TRUE COPY OF THE SANCTION LETTER DATED 12.10.77 EXHIBIT R3(C) A TRUE COPY OF THE AGREEMENT DATED 28.08.78 EXHIBIT R3(D) A TRUE COPY OF THE ORDER OF BIFR DATED 08.12.93 EXHIBIT R3(E) A TRUE COPY OF THE FORWARDING LETTER DATED 06.01.94 EXHIBIT R3(F) A TRUE COPY OF THE ORDER DATED 04.11.96**