M/S Sark Spice Products Pvt. Ltd. & M/S K.S.V. Exports Pvt. Ltd. v. Kerala Financial Corporation and others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC** ## **FRIDAY, THE 1ST DAY OF FEBRUARY 2013/12TH MAGHA 1934** **WP(C).No. 25827 of 2009 (W) ---------------------------** **PETITIONER(S):** **--------------** ## **1. M/S.SARK SPICE PRODUCTS PVT.LTD., ERA** - **NORTH P.O.,NEELAMPEROOR,ALAPPUZHA DISTRICT REPRESENTED BY ITS MANAGING DIRECTOR,T.A.KURUVILLA S/O.LATE ABRAHAM,AGED 55 YEARS,THURITHITHARA HOUSE NEELAMPEROOR,ERA NORTH P.O.,ALAPPUZHA DT.** **2. M/S.K.S.V.EXPORTS PVT.LTD.,** - **ERA NORTH P.O.,NEELAMPEROOR,ALAPPUZHA DISTRICT REPRESENTED BY ITS MANAGING DIRECTOR SUSAN KURUVILLA,AGED 50 YEARS,W/O.T.A.KURUVILLA THURUTHITHARA HOUSE,NEELAMPEROOR,ERA NORTH P.O. ALAPPUZHA DISTRICT.** **BY ADVS.SRI.K.S.HARIHARAPUTHRAN SRI.M.D.SASIKUMARAN SRI.GEORGE MATHEW** **RESPONDENT(S):** - **---------------** **1. KERALA FINANCIAL CORPORATION, THIRUVANANTHAPURAM,REP.BY ITS MANAGING DIRECTOR.** **2. THE DISTRICT MANAGER,** - **KERALA FINANCIAL CORPORATION,BRANCH OFFICE KUMARANASAN SMARAKA,MANDIRAM,COURT ROAD ALAPPUZHA-1.** - ***ADDL.R3. STATE OF KERALA, REP. BY ITS SECRETARY REVENUE, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM.** - ***ADDL.R4. THE DEPUTY TAHSILDAR (RR), KERALA FINANCIAL CORPORATION, BRANCH OFFICE, KUMARANASAN SMARAKA MANDIRAM, COURT ROAD, ALAPPUZHA – 1.** **(*ADDL.R3 & R4 IMPLEADED VIDE ORDER DATED 12.10.2009 IN IA.NO.11702/2009)** **WP(C) No. 25827/2009** **-2-** ****ADDL.R5. STATE BANK OF TRAVANCORE, KOTTAYAM MAIN BRANCH, REPRESENTED BY ASSISTANT GENERAL MANAGER, KOTTAYAM-1.** **(**ADDL.R5 IS IMPLEADED VIDE ORDER DATED 22/6/11 IN I.A.9574/11 IN WP (C) No. 25827/09W)** **R1-2 BY ADV. SRI.A.A.ABUL HASSAN, SC, KFC** **R-4 BY SR GOVERNMENT PLEADER SRI.JOSEPH GEORGE ADDL.R5 BY ADV. SRI.SATHISH NINAN BY ADV. SRI.MOLLY JACOB, SC, KERALA FINANCIAL CORPORATION BY SRI.S.SREEKUMAR,SC,KFC** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 01-** **02-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **WPC NO.25827/09** ## **APPENDIX** ## **PETITIONERS' EXHIBITS** **EXT.P1: TRUE COPY OF THE LETTER NO.KFC 21/02(A) DTD 17/11/2008 ISSUED BY THE DEPUTY TAHSILDAR (RR) K.F.C. ALAPPUZHA.** **EXT.P2: TRUE COPY OF NOTICE DTD 10.9.98 ISSUED BY 2ND RESPONDENT. EXT.P3: TRUE COPY OF LETTER DATED 31/3/11. EXT.P4: TRUE COPY OF LETTER DATED 13/4/2009.** ## **//True Copy//** **PA to Judge** **Rp** ## **ANTONY DOMINIC, J. ================ W.P.(C) NO. 25827 OF 2009 ===================** ## **Dated this the 1[st] day of February, 2013** ## **J U D G M E N T** Petitioners were defaulters to the Kerala Financial Corporation. KFC therefore initiated recovery proceedings for realising `1,68,19,168. It appears that on 20/5/2002, a revenue recovery certificate was issued and based on the said certificate, notices under Sections 7 and 34 were also issued. Petitioners did not pay the amount. Therefore, a notice under Section 36 was issued on 16/7/2002. 2. Subsequently, yet another revenue recovery certificate was issued on 5/4/2005 for the recovery of `34,00,133/- due to the KFC from the petitioners. In pursuance to this certificate also, notices under Sections 7 and 34 were issued. Payment was not made and as a result, the properties were attached and were put to sale. At that stage, petitioners availed of the benefit of a One Time Settlement Scheme introduced by the KFC and settled the liability due. 3. Inspite of having settled the liability, they were issued Ext.P1 notice from the office of the additional 4[th] respondent **WPC.No.25827/09** **:2 :** stating that though they have remitted an amount of `1,68,19,168 to the KFC under the One Time Settlement Scheme, they have to remit `12,61,438/- towards collection charges and `12 as demand notice fee and notice charge for withdrawing the recovery proceedings. On account of the above demand, documents of title were not released despite the petitioners having settled the liability. It was in those circumstances, the writ petition was filed. 4. Subsequently, in view of the principles laid down by the Division Bench of this Court in Malabar Organics Ltd. v. State of Kerala (2009(4) KLT 328), this Court passed order dated 24/10/11 directing that on the petitioners furnishing bank guarantee for the 1% towards collection charges, documents of title deposited by the petitioners will be released. Accordingly, bank guarantee was furnished and the documents were also released. 5. When the writ petition was taken up for hearing, relying on the principles laid down by this Court in the judgment in Village I.D. Centre v. Khadi & Village I. Board (1996(2) KLT S.N Case No.49) and Bhaskaran v. Sub Registrar (2005(3) KLT 150), **WPC.No.25827/09** **:3 :** counsel for the petitioners contended that since the liability was settled availing of the benefit of the One Time Settlement Scheme, the settlement of the liability was not on account of any recovery effected under the provisions of the Revenue Recovery Act. Therefore, according to him, collection charges as provided under Rule 5 of the Revenue Recovery Rules was not payable. 6. However, pointing out the fact that the petitioners settled the liability after the properties were put for sale, learned Government Pleader contended that the respondents are entitled to collection charges. He also placed reliance on the Division Bench judgment of this Court in Malabar Organics Ltd. v. State of Kerala (2009(4) KLT 328) which upheld the entitlement of the respondents to realise collection charges. He also informed that aggrieved by this judgment to the extent it directed that only 1% of the collection charges can be realised, respondents have filed an SLP, which is pending consideration of the Apex Court. 7. It is true that in the judgments in Village I.D. Centre v. Khadi & Village I. Board (1996(2) KLT S.N.Case No.49) and Bhaskaran v. Sub Registrar (2005(3) KLT 150), it has been held by this Court that even after the initiation of revenue recovery **WPC.No.25827/09** **:4 :** proceedings, if the liability is settled directly by the defaulter with the requisitioning authority, defaulter is relieved of the liability to pay collection charges. However, after referring to these judgments, the Division Bench in Malabar Organics Ltd. (supra) held that the defaulter is relieved of the liability to pay collection charges only if the liability is settled immediately after the issuance of the notices under Sections 7 and 34 of the Act and that if liability is settled after further actions taken, the defaulter is liable for collection charges. In this context, the relevant observations of the Division Bench reads thus; “We have made it clear in several judgments (WP(C) No. 22509/08 and other connected cases) that there is no liability to pay collection or service charges in case the defaulters pay the arrears directly to the institution pursuant only to a notice under S. 7 or 34. In other words, the liability to pay such charges arises only in cases where further steps towards attachment or sale are taken.” 8. In so far as this case is concerned, as already seen, there were two revenue recovery certificates. In relation to both the certificates, after issuing notices under Section 34, notices under Section 36 were issued and the properties were also kept for sale. It was only thereafter that the petitioners settled the liability. In such a case, if the principles laid down by the Division **WPC.No.25827/09** **:5 :** Bench are applied, I must necessarily uphold the entitlement of the respondents to realise collection charges payable under Rule 5 of the Revenue Recovery Rules. 9. However, in Ext.P1 notice issued, collection charges is demanded from the petitioner @7.5% of the amount due. This rate is prescribed in Rule 4(viii) and Rule 5(1) of the Revenue Recovery Rules, 1968. The reasonableness of the rate prescribed in the Rules was considered by the Division Bench in its judgment in Malabar Organics Limited (supra) and in para 5, the Division Bench held thus: _5. The tabled Item (viii) under R.4 and Rr.5(1) have been challenged as ultra vires the Act. What is provided under S.5 is only cost of process. But, as already noted by us, the cost would include other charges also. Such a view is also possible in terms of the wide power given to the Government under S.86 to make rules to carry out all or any of the purposes of the Act. One of the purposes of the Act is to realize the collection charges from the defaulters. If so, the question is only whether the provision is unreasonable and discriminatory. When the defaulters remit the dues directly to the institutions on exhausting all the steps taken by the revenue recovery authorities, all that the institutions have to bear is only 1% of the amount collected from the defaulters. If that be so, the levy of 5% is certainly unreasonable when the amount is collected in the process of recovery by the revenue recovery authorities. After all such proceedings are initiated only in situations of distress. As observed by learned Single Judge of this Court in Bhaskaran v. Sub Registrar (2005 (3) KLT 150) “Making the poor, poorer is not what is intended by the Revenue Recovery Act and the Rules thereunder”. Even otherwise, cost of involvement of the Government machinery cannot_ **WPC.No.25827/09** **:6 :** _depend on the amounts collected in the process of coercive steps taken under the Revenue Recovery Act. Whether it is ten thousand rupees or ten crores of rupees, the process is the same.Therefore the levy of collection charges for utilizing the Government machinery, apart from the interest and cost as permitted under R.4, proportionate to the amount collected is nothing but an extortion and thus unreasonable and not permitted or warranted under the Statute or the Constitution. The process of revenue recovery cannot be used as a source of revenue for the State. That is plainly beyond the legislative competence under the Constitution of India. Therefore, we hold that Item (viii) under R.4 and R.5(1) are unreasonable and discriminatory and ultra vires the parent Act and the Constitution of India. The duty of the court normally is to leave the matter at that stage. But, that would certainly be against public interest. The court has also the duty in such circumstances to construct, if situation so warrants. This is a case warranting the exercise of such a duty. Since we have already held that collection of 1% towards collection charges from institutions is permissible, we hold that in the process of recovery under the provisions of the Revenue Recovery Act by taking recourse to coercive steps, only 1% of the amount in addition to the cost of process and other charges as permitted under R.4, is permissible as collection charges._ 10. Therefore, in the light of the Division Bench judgment, the respondents cannot recover collection charges @7.5% and can recover collection charges only @1%. 11. In so far as the submission made by the learned Government Pleader that the judgment has been appealed against and that the appeal is pending in the Apex Court, Division Bench of this Court in Abdu Rahiman v. District Collector, Malappuram (2009(4) KLT 485) held that even if a judgment of **:7 :** ## **WPC.No.25827/09** the Division Bench has been stayed by the Apex Court, the Single Judges are bound to follow the Division Bench judgment. In the light of the Division Bench judgment noticed above, I am bound by the principle laid down by this Court in the judgment in Malabar Organics Limited (supra) and if that be so, this Court can only approve recovery of collection charges @1%. In the light of the above, this writ petition is disposed of leaving it open to the respondents to realise the amount due under the bank guarantee furnished by the petitioner and directing that once that amount is realised, the liability of the petitioner for collection charges mentioned in Ext.P1 will stand discharged. Sd/- **ANTONY DOMINIC, JUDGE** Rp