2004 (3) TMI 749 - SC - Indian Laws

Whether the Managing Director of a Corporation can be appointed by the State Government as the authority contemplated under Section 32G of the State Financial Corporations Act? Whether the Judgment of the Delhi High Court is to be set aside to the extent that it holds that the Managing Director could not have been appointed and to the extent it quashes the Certificates of Recovery?

Issues Involved:
1. Appointment of Managing Director as the authority under Section 32G of the State Financial Corporations Act.
2. Applicability of Section 32G to sureties.
3. Nature and procedural requirements of Section 32G.
4. Validity of Recovery Certificates issued under Section 32G.
5. Procedural fairness and natural justice under Section 32G.
6. Disputed facts regarding the liability of a surety.

Issue-wise Detailed Analysis:

1. Appointment of Managing Director as the Authority under Section 32G:
The primary issue was whether the Managing Director of a Financial Corporation could be appointed by the State Government as the authority under Section 32G of the State Financial Corporations Act. The Delhi High Court held that this appointment violated the principle that "no man can be a judge in his own cause," and struck down the appointment and the Recovery Certificates issued. Conversely, the Punjab and Haryana High Court upheld the appointment, stating that the function of the authority under Section 32G was not akin to adjudicating a dispute but merely involved mathematical calculations of amounts due.

2. Applicability of Section 32G to Sureties:
The judgment addressed whether Section 32G could be applied to sureties. It was argued that the Legislature did not explicitly include sureties in Section 32G, unlike Sections 31 and 32, which were amended to include sureties. The Court held that Section 32G's language, "when any amount is due," includes amounts due from both the principal debtor and sureties. The absence of specific exclusion indicated that the Legislature intended Section 32G to apply to sureties as well.

3. Nature and Procedural Requirements of Section 32G:
The Court examined whether Section 32G was akin to an execution proceeding and whether it required prior adjudication. It was argued that Section 32G should be invoked only after a civil court's adjudication. The Court held that Section 32G did not contemplate a lis or adjudication but was intended for a summary recovery based on simple arithmetical calculations or verifications. The legislative intent was to provide a speedy remedy for Financial Corporations to recover dues.

4. Validity of Recovery Certificates Issued under Section 32G:
The validity of Recovery Certificates issued by the Managing Directors under Section 32G was challenged. The Court upheld the validity, stating that the Managing Director, being a high-ranking official with no personal interest in the transactions, did not violate the principle of natural justice. The Court found no conflict of interest or bias in the Managing Director's role.

5. Procedural Fairness and Natural Justice under Section 32G:
The Court addressed concerns about the absence of a prescribed procedure under Section 32G and the potential for arbitrary action. It was held that the principles of natural justice must be followed, including issuing notices and providing a hearing before issuing Recovery Certificates. The Court noted that the requirement for a speaking order or detailed reasons did not apply to Section 32G, given its nature of simple verification and calculation.

6. Disputed Facts Regarding the Liability of a Surety:
A specific respondent argued that she had only stood as a surety for certain loans and not for the entire amount due from the principal debtor. The Court found this to be a disputed question of fact unsuitable for resolution in a writ petition and noted that the respondent had not filed a suit to contest the liability.

Conclusion:
The Supreme Court set aside the Delhi High Court's judgment to the extent it invalidated the Managing Director's appointment and quashed the Recovery Certificates. The Court upheld the Punjab and Haryana High Court's judgment, confirming that the Managing Director could be appointed as the authority under Section 32G and that Section 32G could be applied to sureties. The Court emphasized that Section 32G provided a summary procedure for recovery based on arithmetical calculations, ensuring compliance with natural justice principles. The appeals were partly allowed, and there was no order as to costs.

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