Case Background
The petitioner is a private company registered under the Companies Act, 1956, having its registered office at Digha Ghat, Patna. It had taken term loan finance from Bihar State Credit & Investment Corporation Ltd. (BICICO), a state-level financial institution.
In 2006, BICICO introduced a One Time Settlement (OTS) Scheme, 2006 for settlement of dues from borrowers. Under this scheme, one category was “non commissioned” industrial units. As per the scheme, a “non commissioned” unit was defined as a unit which, though complete in many respects and even gone in for trial run, could never go into commercial production.
The petitioner applied under this OTS Scheme, 2006 in the “non commissioned” category for settlement of its term loan liability of Rs. 20 lakh.
What the Court Examined and Decided
The Patna High Court, presided over by Hon’ble Mr. Justice Anil Kumar Sinha, heard the writ petition filed in Civil Writ Jurisdiction Case No. 3369 of 2011. The main relief sought was a direction to BICICO to issue a “No Dues” certificate in favour of the petitioner company.
After the petitioner applied under the OTS Scheme 2006, BICICO issued a letter dated 09.06.2006. In this letter, BICICO informed the petitioner that its unit had been tentatively found to fall under the “non commissioned” category of the OTS Scheme 2006. Based on this classification, BICICO worked out the estimated OTS amount at Rs. 23.52 lakh.
The petitioner accepted this offer. It deposited Rs. 21.52 lakh out of the settled amount of Rs. 23.52 lakh. According to the petitioner, it had already deposited Rs. 2 lakh earlier under OTS Scheme 2004, and requested that this amount be adjusted against the total OTS liability of Rs. 23.52 lakh under the 2006 scheme.
BICICO did not accept this adjustment request. Instead, by letter dated 15.10.2008, BICICO required the petitioner to deposit a further sum of Rs. 2 lakh. The petitioner complied and paid Rs. 2 lakh on 16.10.2008 through bank draft no. 845736 dated 16.10.2008.
Thus, the entire OTS amount of Rs. 23.52 lakh, as determined by BICICO for the “non commissioned” category, stood fully paid by the petitioner and was accepted by BICICO without objection. On this basis, the petitioner claimed that the OTS Scheme 2006 under the “non commissioned” category had been accepted and concluded by BICICO.
After clearing the full settled amount, the petitioner asked BICICO to issue a “No Dues” certificate. This certificate is vital for any borrower, as it confirms that no loan amount is outstanding and allows the borrower to close dealings with the lender and clear its records before other authorities.
BICICO, however, refused to issue the “No Dues” certificate. The reason given was that, along with the OTS application form, the petitioner had not submitted a certificate from the District Industries Centre (D.I.C.) or the Industrial Area Development Authority (I.A.D.A.) declaring its unit as a “non commissioned” unit.
The petitioner’s counsel placed on record information from D.I.C., Patna (Annexure-6) stating that the D.I.C. does not issue any certificate declaring an industrial unit as a “non commissioned” unit. In other words, the type of certificate that BICICO was insisting upon was not available from D.I.C. at all.
The record further showed that BICICO itself attempted to obtain such a certificate from D.I.C. BICICO sent a request letter to D.I.C. on 13.01.2010, followed by letters on different dates. Despite these attempts, D.I.C. did not issue any certificate regarding the petitioner’s unit being “non commissioned”, either in favour of the petitioner or in favour of BICICO.
The petitioner relied on earlier judgments of the Patna High Court reported in 2006(4) PLJR 92, namely Eastern Food Industries Pvt. Ltd. vs. The Bihar State Credit and Investment Corporation Ltd.; M/s Chandawat Udyog (Cylinder) Ltd. vs. The Bihar State Credit & Investment Corporation & Ors. (C.W.J.C. No. 104 of 2006), and M/s Hotel Nanaksons Pvt. Ltd. vs. The Bihar State Credit & Investment Corporation Ltd. & Ors. (C.W.J.C. No. 11244 of 2006). These decisions, according to the petitioner, supported the position that once BICICO settled and received the agreed amount, it could not later deny the benefit of the scheme on such technicalities.
BICICO’s counsel argued that under the OTS Scheme 2006, the petitioner was required to furnish a certificate of “non commissioned” unit from D.I.C. or I.A.D.A. Since the petitioner’s request had only been allowed tentatively under that category, and the certificate had never been produced, BICICO contended it was not in a position to issue the “No Dues” certificate.
The Court examined the materials and the submissions from both sides. It first noted that there was no dispute that BICICO had indeed introduced OTS Scheme 2006 and that the petitioner had applied under the “non commissioned” category. The petitioner’s case, not contradicted by BICICO, was that its unit never went into commercial production.
The Court recorded that BICICO, after verifying and examining the petitioner’s request, agreed to settle the term loan under the OTS Scheme, putting the petitioner in the “non commissioned” category. There was no allegation by BICICO that the petitioner had misrepresented its status or category.
Importantly, the Court found that the full settled amount of Rs. 23.52 lakh had been paid by the petitioner and accepted by BICICO without any objection or demur. After accepting the entire OTS amount, BICICO’s only objection was the absence of a “non commissioned” certificate from D.I.C. or I.A.D.A.
The Court also noted that D.I.C. had refused to issue any certificate declaring a unit as “non commissioned”. Regarding I.A.D.A., the petitioner’s stand was that such certificate is issued by I.A.D.A. only when the unit is running on land allotted by I.A.D.A. There was no material that such a certificate could in fact be obtained in the petitioner’s case.
On these facts, the Patna High Court held that once BICICO had accepted the entire settled amount of Rs. 23.52 lakh, it could not refuse to issue the “No Dues” certificate on the ground that the category under which the petitioner was placed was not supported by a certificate. By its own conduct of classification, demand and acceptance of the full OTS amount, BICICO had already treated the petitioner as a “non commissioned” unit for the purposes of settlement.
The Court held that the earlier judgments cited by the petitioner applied fully to the present case. Without re-quoting them, the Court followed the principle that a financial corporation which settles dues under an OTS and receives full payment cannot, thereafter, deny the consequential benefits on a ground like non-production of a certificate that in practice could not be obtained.
Accordingly, the Court issued a clear direction. It ordered BICICO to issue the “No Dues” certificate in favour of the petitioner within one month from the date of receipt or production of a copy of the Court’s order.
With this observation and direction, the writ application was disposed of.
Why This Judgment Matters
This judgment is important for borrowers in Bihar who have settled their loans under an OTS scheme with institutions like BICICO. Many small industrial units struggle to get certificates and clearances from government bodies, even after paying what is demanded.
The Patna High Court has made it clear that once a financial corporation assesses a borrower under a particular category, fixes an OTS amount, and accepts the entire sum without objection, it cannot later block a “No Dues” certificate on the ground of a missing certificate that the government office itself refuses to issue.
For industrial units that never went into commercial production but were still financed and later settled under “non commissioned” categories, this decision offers reassurance. It shows that technical conditions which cannot practically be fulfilled cannot be used to keep borrowers trapped, especially when the lender has already taken all its money.
Practically, the ruling helps ensure that borrowers who have honoured their side of an OTS will get closure. A “No Dues” certificate affects their ability to prove they are not defaulters, to deal with property and assets, and to move on with fresh business or loans.
Legal Issues and Answers
- Issue: Can BICICO refuse to issue a “No Dues” certificate after receiving the full OTS amount, on the ground that the borrower has not produced a “non commissioned” unit certificate from D.I.C. / I.A.D.A.?
Answer: No. Once BICICO has classified the unit as “non commissioned”, settled the dues accordingly, and accepted the entire settled amount without objection, it cannot deny a “No Dues” certificate merely because such a certificate from D.I.C. / I.A.D.A. is not produced, particularly when D.I.C. itself does not issue such certificates.
Cases Cited by the Court
- 2006(4) PLJR 92 Eastern Food Industries Pvt. Ltd. vs. The Bihar State Credit and Investment Corporation Ltd.
- M/s Chandawat Udyog (Cylinder) Ltd. vs. The Bihar State Credit & Investment Corporation & Ors., C.W.J.C. No. 104 of 2006.
- M/s Hotel Nanaksons Pvt. Ltd. vs. The Bihar State Credit & Investment Corporation Ltd. & Ors., C.W.J.C. No. 11244 of 2006.
Case Details
Case Number: Civil Writ Jurisdiction Case No. 3369 of 2011
Case Title: M/s Patna Polson Private Limited vs. The State of Bihar & Ors.
Citation: 2024 (2) PLJR 805
Coram: Hon’ble Mr. Justice Anil Kumar Sinha
Date of Judgment: 06-03-2024
Advocates:
For the petitioner: Mr. Saket Tiwary, Advocate
For the State-respondents: Mr. Sanjay Kumar, AC to GP 17
For respondent BICICO: Mr. Kumar Abhimany Pratap, Advocate
Nature of the Case: Civil writ petition seeking mandamus to BICICO to issue “No Dues” certificate under OTS Scheme 2006 after full payment of settled dues.
Link to Judgment: Patna High Court Judgment
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