# Chander v. State of U.P. and others

- **Citation:** (2007) 3 ILRA 707
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2007-09-03
- **Case number:** Civil Misc. Writ petition No. 4177 of 2007
- **Bench:** S.N.Srivastava
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/chander-v-state-of-u-p-and-others-41098
- **Pages:** 13

## Headnote

Constitution
of
India
Art.
226-
Agricultural
loan-recovery
through
private agencies-wholly uncalled for,
illegal-against the soul of Constitutionutter
disregard
to
the
procedure
prescribed under the U.P. Agricultural
Credit Act 1973.

Held: Para 17

If the law does not permit creation of
such agencies for recovering any loan or
seizure of vehicles by any Banks or
Financial Institutions which are doing
business of advancing loan to anybody,
such agencies are wholly incompetent to
take law in their own hands and seize
any vehicles at any time or at any place
or initiate recovery proceedings on their
708 INDIAN LAW REPORTS ALLAHABAD SERIES [2007
own in utter disregard of procedures
prescribed for such seizure or auction.
Such act of the Bank which have
alternative way of approaching the
Prescribed Authority under the U.P.
Agricultural Credit Act which alone can
pass appropriate orders and proceeding
in
accordance
with
law
is
wholly
uncalled for and unwarranted being not
countenanced by any legislation. The
procedure prescribed under the U.P.
Z.A.& L.R. Act i.e. procedure for recovery
as arrears of land revenue could only be
taken recourse to in case any law
permits to recovery any amount as
arrears of land revenue. In the cases in
hand the Banks who have advanced
agricultural
loan
under
the
U.P.
Agricultural Credit Act, 1973, can only
proceed and initiate proceedings under
the provisions of the said Act i.e. by
approaching the Prescribed Authority
under the Act who alone are competent
to initiate proceedings in accordance
with the procedure prescribed under the
Agricultural Credit Act. Any other means
of recovery i.e. by engagement of private
agencies by the Bank is wholly uncalled
for , illegal and unwarranted besides
being one militating against rule of law
which is the soul of the Constitution.
Case law discussed:
AIR 1998 SC 1200

Constitution of India Art. 226 Recovery
of
Agricultural
loan-
Principle
of
"Damdupat" applicable to agricultural
loan also- Bank cannot recover the
amount of interest excess to principal
amount- any agreement contrary to the
legislation- unenforceable.

Held: Para 25

As
held
above,
since
principles
of
Damdupat are applicable to agricultural
loans as well, the Bank cannot recover
the amount of interest in excess of
principal amount. It is further held that
any agreement militating against the
provisions of Transfer of Property Act or
Contract Act or in case there is violation
of the principles of any legislation, the
same shall be unenforceable and cannot
give any right to the Banks to initiate
such proceedings with the help of
recovery
agents
or
any
extra
constitutional authority. The recovery
shall be made strictly in accordance with
the provisions of the U.P. Agricultural
Credit Act.

## Text

_Characters 0–39,903 of 44,029. This is a partial read: ask again with offset=39903 for what follows._

3 All] Chander V. State of U.P. and others
707
not join under the scheme formulated by
the State Government. The Nagar Nigam
did not have any power to create the post
and in the circumstances the petitioners
had no legal right to be appointed on a
post which did not exist.

25.

The
appointment
letters
appended as Annexures 1 and 2 to the
writ petition being issued by Nagar
Swasthya Adhikari who is not appointing
authority of the petitioners are illegal.
Moreover, there is no document on record
showing approval of the Administrator to
the appointment of the petitioners on the
post of vaccinator. In Annexure 3 to the
writ petition it is only mentioned that
there was approval of the Administrator
but there is no document on record to
establish the averment made in Annexure
3 aforesaid. Similarly the existence of any
valid selection committee consisting of
the Administrator has also not been
proved on record. The alleged selection
committee
was
not
consisting
of
competent
persons,
i.e.,
Administrator/Mukhya Nagar Adhikari as
per the G.O. dated 10.3.1978. The Nagar
Swasthya Adhikari is a member of Public
Health Department sent on deputation
under proviso to Section 107 (1) of the
U.P. Municipal Corporation Act and is
directly under control of the Chief
Medical Officer. The Nagar Swasthya
Adhikari is not the appointing authority of
the petitioners, hence the appointment
letters appended as Annexures 1 and 2 to
the writ petition cannot be read in aid of
the petitioners. It also appears from para
14 of the counter affidavit that no record
was available in the Nagar Mahapalika or
on
the
file
of
the
case
showing
constitution of selection committee and
approval of the Administrator.

26. For the reasons stated above and
in view of the law laid down by the apex
court relied upon by the learned counsel
for the respondents which aptly apply to
the instant case in the facts stated above,
the writ petition is dismissed. No order as
to costs.

 Petition Dismissed.
---------
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 03.09.2007

BEFORE
THE HON'BLE S.N.SRIVASTAVA, J.

Civil Misc. Writ petition No. 4177 of 2007

Chander

...Petitioner
Versus
State of U.P. and others ...Respondents

Counsel for Petitioner:
Sri. S.R. Verma
Sri A.K. Verma

Counsel for the Respondents:
Sri. Jai Singh
Sri. R.B. Sahai
S.C.

Constitution
of
India
Art.
226-
Agricultural
loan-recovery
through
private agencies-wholly uncalled for,
illegal-against the soul of Constitutionutter
disregard
to
the
procedure
prescribed under the U.P. Agricultural
Credit Act 1973.

Held: Para 17

If the law does not permit creation of
such agencies for recovering any loan or
seizure of vehicles by any Banks or
Financial Institutions which are doing
business of advancing loan to anybody,
such agencies are wholly incompetent to
take law in their own hands and seize
any vehicles at any time or at any place
or initiate recovery proceedings on their
708 INDIAN LAW REPORTS ALLAHABAD SERIES [2007
own in utter disregard of procedures
prescribed for such seizure or auction.
Such act of the Bank which have
alternative way of approaching the
Prescribed Authority under the U.P.
Agricultural Credit Act which alone can
pass appropriate orders and proceeding
in
accordance
with
law
is
wholly
uncalled for and unwarranted being not
countenanced by any legislation. The
procedure prescribed under the U.P.
Z.A.& L.R. Act i.e. procedure for recovery
as arrears of land revenue could only be
taken recourse to in case any law
permits to recovery any amount as
arrears of land revenue. In the cases in
hand the Banks who have advanced
agricultural
loan
under
the
U.P.
Agricultural Credit Act, 1973, can only
proceed and initiate proceedings under
the provisions of the said Act i.e. by
approaching the Prescribed Authority
under the Act who alone are competent
to initiate proceedings in accordance
with the procedure prescribed under the
Agricultural Credit Act. Any other means
of recovery i.e. by engagement of private
agencies by the Bank is wholly uncalled
for , illegal and unwarranted besides
being one militating against rule of law
which is the soul of the Constitution.
Case law discussed:
AIR 1998 SC 1200

Constitution of India Art. 226 Recovery
of
Agricultural
loan-
Principle
of
"Damdupat" applicable to agricultural
loan also- Bank cannot recover the
amount of interest excess to principal
amount- any agreement contrary to the
legislation- unenforceable.

Held: Para 25

As
held
above,
since
principles
of
Damdupat are applicable to agricultural
loans as well, the Bank cannot recover
the amount of interest in excess of
principal amount. It is further held that
any agreement militating against the
provisions of Transfer of Property Act or
Contract Act or in case there is violation
of the principles of any legislation, the
same shall be unenforceable and cannot
give any right to the Banks to initiate
such proceedings with the help of
recovery
agents
or
any
extra
constitutional authority. The recovery
shall be made strictly in accordance with
the provisions of the U.P. Agricultural
Credit Act.

(Delivered by Hon'ble S.N. Srivastava, J.)

1. The common question mooted in
the above batch of writ petitions relates to
agricultural loan advanced by different
Banks and therefore, all the petitions have
been heard and are disposed of by a
composite judgment.

2. Civil Misc. Writ Petition No. 4177
of 2007: A brief resume of necessary facts
in this writ petition is that the State Bank
of India Meja Branch District Allahabad
sanctioned a sum of Rs.2,98000/- to the
petitioner against purchase of Tractor on
30.7.2004 and in connection with the
aforesaid
loan,
agricultural
land
admeasuring 1.232 hectares situated in
village Banwari Khas Post Shukulpur
P.S.Manda
Tahsil
Koraon
District
Allahabad and also land admeasuring .560
sitauted in village Unchdah was pledged
to the Bank. The total land pledged to the
Bank admeasures 1.792 hectares. It would
appear from the record that the petitioner
repaid certain amount details of which are
enumerated in the writ petition. It would
further appear that Bhola Singh Patel and
Dharmendra Singh arrayed as Opp.
parties 3 and 4 who claimed themselves to
be Recovery Agent appointed by the
Bank, forcibly took away the Tractor on
26.10.2005. Thereafter, a notice was
served to the petitioner cautioning that in
case, petitioner failed to repay the loan,
the tractor seized by the Bank will be put
3 All] Chander V. State of U.P. and others
709
to auction on 24.12.2006 followed by
publication
of
auction
sale
notice
appearing in news paper on 15.12.2006
and 16.12.2006.

3. Civil Misc. Writ Petition No.
4052 of 2007: In this case, the petitioner
was sanctioned loan to the tune of Rs. 3
lac against purchase of tractor on
13.3.2004. He paid certain amount and
thereafter, there occurred default in
payment on account of natural calamities.
It would further appear that one R.B.S.
Associates arrayed as Opp. party no.4
claiming himself to be recovery Agent
appointed by the Bank forcibly took away
tractor on 4.1.2007.

4. Civil Misc. Writ Petition No.
4758 of 2007: In this case, loan granted to
the petitioner was to the tune of
Rs.3,25000/- against purchase a tractor
payable in 7 years. It would appear that
the
petitioner
deposited
the
Ist
installment, and thereafter, unforeseen
calamity befell him and his entire house
and crops were engulfed in the raging fire.
In this case, M/S Gorakhpur Financial
services Gorakhpur which was appointed
as recovery agent by the Bank took
forcible possession of the Tractor to force
recovery of the loaned amount.

5. Civil Misc. Writ Petition No.
4584 of 2007: In this case, the petitioner
was granted loan to the extent of
Rs.1,65,000/- to purchase tractor by U.P.
Sahkari Gram Vikas Bank Ltd Etawah in
the month of Jan 1996 and as a security,
the land admeasuring 1.109 hectare was
mortgaged. It is urged that petitioner
repaid a sum to the tune of Rs.2,70,536/-
and still notice was issued for recovery of
Rs.1,58,225/-.
6. Civil Misc. Writ Petition No. 3463
of 2007: In this Case it would appear that
the petitioner was sanctioned loan of
Rs.2,50,000/- on 31.12.2000 for purchase
of a tractor and to secure the loaned
amount, agricultural land belonging to the
petitioner was pledged to the Bank. It
would further appear that the amount was
agreed to be payable in nine year and the
first
installment
of
Rs.80000/-
was
deposited in August 2003 while second
installment of Rs.13, 490/- was paid on
18.12.2000. Again, it would appear, a
third installment of Rs.95000/- was paid
in
June
2004.
A
total
sum
of
Rs.1,88,000/- is indicated to have been
paid and yet the Bank issued citation
demanding Rs.2,50,000/- failing which it
was postulated, the amount would be
recovered as arrears of land revenue.

7. In writ petition no. 3463 of 2007
and also in writ petition no. 4585 of 2007,
Reserve Bank of India was impleaded and
notices were issued. Sri Yashwant Verma,
learned counsel appearing for Reserve
Bank of India, assisted the court by
placing certain material facts relating to
agricultural land. It has been submitted by
Sri Yashwant Verma that so far as rate of
interest is concerned, the same is covered
by the guidelines in the matter of loan
upto the extent of Rs. 2 lac in the priority
sector issued by the Reserve Bank of
India and the same cannot exceed Bench
Mark Prime Lending Rate (B.P.L.R.) and
for the loaned amount above Rs. 2 lacs, it
is stated, the Banks are free to determine
rate of interest. In the matter of short term
production Credit to farmers upto Rs. 3
lac, it is stated that rate of interest was
fixed at 7% with 2% interest subvention
to be provided by the Government of
India. He has also placed graphs by which
it is sought to be indicated that so far as
710 INDIAN LAW REPORTS ALLAHABAD SERIES [2007
State Bank and other Associates are
concerned,
the
agricultural
land
is
provided at the rate of Rs.11.7%,
Regional Rural Bank at the rate of 50.4%,
Foreign Bank at the rate of 0.7%,
Nationalised Bank at the rate of 12%, and
other Scheduled Commercial Banks at the
rate
of
4.5%
and
all
scheduled
commercial Banks 10.8%. So far as
agricultural sector is concerned, it is
submitted that so far as agricultural sector
is concerned, except the Banks mentioned
above, the Banks are free to fix their
respective interest rate.

8. In the matter of recovery, the
question involved is whether the Bank
could
get
the
recovery
made
of
agricultural could vehicles seized and
possession of vehicles taken through
persons within the legitimate parameters
or by engaging private individuals or
agencies not recognized by any provision
of law as the agency for recovery and
further whether such persons could seize
the property at any time and Bank could
fixed for auction privately without taking
recourse to the law as envisaged under the
U.P. Agricultural Credit Act. The second
question is whether any recovery of
interest could be made beyond the
principal amount and whether principle of
Damdupat will be applicable to loans in
which certain immovable properties are
mortgaged. The third question that begs
consideration is whether in case mortgage
of agricultural property against loaned
amount what would be the effect of such
mortgage regard being had to prohibition
contained in section 155 of the U.P.Z.A.
& L.R. Act if any such mortgage is
impermissible and if agreement is entered
between the Bank and tenure holder after
mortgaging land to secure loaned amount.

9. This Court in the light of the
above questions had already issued
notices to the Banks for being heard on
the questions as to what will be the effect
of such agreement mortgaging property in
the light of provisions of section 155 of
the Act prohibiting mortgage of land and
further what will be the effect in case
agreement relating to mortgage is not
registered
and
also
whether
such
agreement would be enforceable by virtue
of U.P. Agricultural Credit Act as
envisaged in section 4 of the Act.

10. In all cases, which are before the
Court, it appears that a printed form is
being used by the Banks on which
signatures of Agriculturists have been
obtained and further that the details in the
form have not been filled in by the
agriculturist but the same have been filled
in English language by some other
persons and still further, most of the
columns have been left blank. It is wholly
undeniable that in majority of cases, the
agriculturists are unlettered and illiterate
and their thumb impressions have been
obtained and virtually speaking, they are
often not aware of the contents of the
agreement
or
terms
and
conditions
enumerated in the agreement and in the
circumstances, a question of pivotal
importance arises whether such agreement
or terms and conditions embodied therein
can be considered to be valid agreement
within the definition of Contract Act. This
Court while issuing notice has already
framed certain questions vide order dated
12.2.2007 passed in writ petition no. 4177
of 2007 which are excepted below.
1. Whether a loanee applying for
agricultural loan is supplied copy of
the proposed terms and conditions
before granting agricultural loan by
3 All] Chander V. State of U.P. and others
711
the
Nationalized
Banks,
private
Banks and other financial bodies,
2. Whether in the agreement, loanee has
any
say
in
fixing
terms
and
conditions of the agreement,
3. Whether copy of the agreement duly
signed by both the parties is supplied
to loanee after loan is sanctioned,
4. Whether there is any procedure
prescribed under any relevant rules,
or circulars to explain the terms and
conditions to rustic village person
who is illiterate and has approached
the Bank for loan whose thumb
impressions are any how obtained on
the agreement the contents of which
are in printed form describing terms
and conditions either in English
language or any vernacular language,
5. What is the basis of fixing terms and
conditions in the agreement.
6. Whether loaned amount if sanctioned
is paid to loanee or is directly
transferred
to
Agent
or
dealer
nominated by the Bank and is shown
in the account of loanee or loanee
has any choice to purchase any
agricultural
instrument
which
includes tractor, trolley etc from
dealer or shop of his own choice.
7. What is the rationale of mortgaging
agricultural property in so far as
agricultural loan is concerned apart
from pledging tractor or trolley
purchased through loaned amount
though in case of other loans like car
loan etc purchased properly alone is
pledged without any mortgage of
other property."

11. In writ petition no. 3463 of
2007, petitioner was sanctioned loan of
Rs.2,50,000/- for purchase of a tractor. A
total sum of Rs.1,88,000/- was deposited
by the petitioner and yet the Bank issued
citation demanding Rs. 2,50,000/- failing
which it was postulated in the citation that
amount would be recovered as arrears of
land revenue. From a further scrutiny of
the record it would appear that the Bank
has credited only a sum of Rs,17355/-
against principal amount, Rs.28,882.10 p.
was adjusted towards administrative fee,
Rs.2,221 was charged as penal interest,
Rs.47485/- as interest and Rs.9025/- as
Misc. expenses. In view of the above, this
Court by a detailed order dated 1.2.2007
issued notice to the Bank to satisfy the
recovery proceeding and justification of
deducting all such charges from the
petitioners to the extent of Rs.95000/- and
further
to
justify
whether
it
was
permissible in law. The detailed order
dated 1.2.2007 passed by this Court is
quoted below.

"This writ petition has been preferred
against the citation/demand notice dated
18.12.2006 (Annexure 1 to the writ
petition)
issued
by
Bhumi
Vikrey
Adhikari, U.P. Sahkari Gram Vikas Bank
Ltd. demanding deposit of Rs.2,50,000/-.
From a perusal of the record, it
would appear that the petitioner was
sanctioned a loan of Rs.2,50,000/- on
31.12.2000 for purchase of a tractor. To
secure the loaned amount, the petitioner
pledged his agricultural land to the Bank.
It brooks no dispute that it was agreed at
the time of sanction of loan that the entire
amount would be payable within a period
of nine years. It would further appear
from the record that the first instalement
of Rs.80000/- was deposited in August
2003 while the second instalement of
Rs.13490/- was deposited on 18.12.2000.
Again the third instalement of Rs.95000/-
was deposited in June 2004. Thus a total
sum
deposited
by
the
petitioner
approximates to Rs.1,88000/- and yet the
712 INDIAN LAW REPORTS ALLAHABAD SERIES [2007
Bank aforesaid issued citation demanding
Rs.2,50,000/-
failing
which
it
was
postulated in the said citation/demand
notice, the amount would be recovered as
arrears of land revenue.
I have heard learned counsel for the
parties at a prolix length.
The learned counsel for the petitioner
canvassed that the total amount deposited
by the petitioner that aggregates to a sum
of Rs.1,88,000/- has not been reckoned
into consideration while issuing citation
dated 18.12.2006 in which a sum of Rs.
2,50,000/- is displayed to be due against
the petitioner. It is further submitted that
it is postulated in the citation that in case
the amount demanded is not deposited by
the due date, the land mortgaged against
the loaned amount would be put to
auction attended with further postulate
therein to recover the additional interest at
the rate of 22% besides penal interest and
recovery charges. The learned counsel
also submitted that despite deposit of a
sum of Rs.1,88,000/- uptil now, a meagre
amount in the amount of Rs.7000/- has
been debited vis-a-vis the principal
amount which is not only iniquitous but
runs counter to all canons of law and
settled position in law. The learned also
canvassed that the petitioner is a poor
agriculturalist and due to vagaries of time
and mercurial weather condition and also
that the area has been repeatedly hit by
drought, the manner in which interest
has been charged, is comparable to a
practice employed by money lenders
trapping poor fellow in the iron vice of
interest payment converting his crisis
into an opportunity to exploit him. The
learned counsel also canvassed that the
entire recovery proceeding including rate
of
interest
being
charged
vis-a-vis
agricultural loan which is more than the
rate of interest in other agricultural sector,
is
highly
discriminatory
and
is
unsustainable in law.
On
being
asked
to
produce
agreement entered into between the Bank
and the petitioner, the learned counsel
submitted that copy of agreement has not
been made available by the Bank though
it is mandatory on the part of the Bank to
make available copy of the agreement so
that calculation in all fairness may be
made on the basis of the terms of the said
agreement and also to enable its challenge
in the court of law in case it militates
against the provisions of the relevant law.
Sri
Jai
Singh
learned
counsel
appearing for the Opp. party no.3 and also
learned Standing counsel appearing on
behalf of respondents 1 and 2 pray for and
are granted one month's time to file
counter affidavit. Rejoinder affidavit, if
any may be filed within two weeks next
thereafter.
In view of the nature of controversy
involved in this petition, learned counsel
for the petitioner is permitted to implead
Reserve Bank of India. Let a copy of this
writ petition be also served on Sri
Yashwant
Verma
representing
the
Reserve Bank of India.

In the facts and circumstances of the
case it is directed that till further orders of
the Court, recovery proceeding pursuant
to
citation/demand
notice
dated
18.12.2006 (Annexure 1 to the writ
petition) shall remain stayed. In the
meanwhile,
it
is
directed
that
the
petitioner shall move application within
two weeks to the Bank concerned and in
case any such application is received
within the aforesaid period, it would be
incumbent upon the Bank to calculate the
entire amount afresh charging simple
interest and furnish the statement within a
month next thereafter. Upon receipt of
statement of account, it is directed, the
3 All] Chander V. State of U.P. and others
713
petitioner shall pay 1/4th of the amount
displayed in the statement of accounts
within a period not exceeding three
months.
List this matte for further hearing
immediately after expiry of the aforesaid
period."

12. Considering the matter in
entirety relating to agricultural loan, and
from a perusal of materials on record, it
would appear that tractor in all the cases
in hand were seized by the persons who
were engaged privately by the Bank. All
the matters relates to recovery of
agricultural loan and recovery in the
matter of such loans could only be made
according to the provisions contained in
U.P. Agricultural Credit Act 1973 which
has the flavour of a Special Act so far as
recovery of agricultural loan is concerned.
A detailed procedure has been envisaged
for
recovery
of
loan
under
the
Agricultural Credit Act. This Act, it
brooks no dispute, is applicable to all the
Banks including the State Bank, the
Subsidiary Banks, and all the Banks
defined under the Bank Regulations Act
and
Cooperative
Land
Development
Bank. According to Section 11 of the U.P.
Agricultural
Credit
Act,
the
State
Government by notification in the Gazette
made on the application of Bank by an
order directed that any amount due to the
Bank given to an agriculturalist be
recovered by sale of the land or by other
immovable property and for this purpose,
the Bank will approach the Prescribed
Authority and Prescribed Authority will
issue notice and pass appropriate orders
which shall be subject to appeal under
section 12. By notification dated 7.1.94,
the Sub Divisional Officer and Additional
Sub Divisional Officer were declared
Prescribed Authority. This procedure has
been prescribed and enforced by Special
Act.

13. In writ petition No. 4177 of
2007, after seizing the tractor, the
recovery agent appointed by Bank R.G.B.
Associates published notice for auction of
the Tractor to be made on 24.12.2006
without there being any indicia of
interference or involvement of Prescribed
Authority or any authority competent to
proceed with the recovery proceedings.

14. In writ Petition No. 4584 of
2007, notice was issued on Form no. 74
i.e.
Z.A.
form
for
auction
fixing
18.12.2006
at
Tahsil
Etawah.
The
property in the said case is situated in
village Pratapner. There is nothing on
record to show that proceedings were
initiated in strict compliance of the U.P.
Agricultural Credit Act or the Prescribed
Authority passed any such order under the
U.P.Z.A.& L.R. Act. The Agricultural
Credit Act 1973 is a Special Act for
recovery
and
in
the
circumstances,
U.P.Z.A. & L.R. Act will not have any
application to the cases in hand and
therefore, the provisions of U.P.Z.A. &
L.R. Act cannot be called in aid for being
applied
to
the
proceedings
directly
without
any
order
passed
by
the
Prescribed Authority at the instance of the
Bank.

15. So far as U.P. Sahkari Land
Development Bank is concerned, it would
appear, the Bank itself has issued notice
for auction mentioning therein a sum of
Rs.2,50,000/- for recovery together with
expenses to the extent of 22%.

16. In writ petition no. 4758 of
2002, M/S Gorakhpur Financial Services
were appointed by State Bank of India as
714 INDIAN LAW REPORTS ALLAHABAD SERIES [2007
Agent for recovery who seized the tractor
of the petitioner.

17. The question whether private
agents can be engaged by the Bank, was
considered by the Apex court in Crl.
Appeal No. 267 of 2007 Manager, ICICI
Bank Ltd. V. Prakash Kaur and others
vide judgment dated 26.2.2007. Though
I.C.I.C.I Bank is not covered by the U.P.
Agricultural
Credit
Act,
1973,
but
considering the matter in its expanse, the
Apex Court in last paragraph observed
that " In conclusion, we say that we are
governed by a rule of law in the country.
The Recovery of loans or seizure of
vehicles could be done only through legal
means.
The
Banks
cannot
employ
goondas to take possession by force."
Thee is no indicia on the record to show
whether
these
agencies
have
any
legitimate trapping of authority under any
legislation to make any recovery of loan.
If the law does not permit creation of such
agencies for recovering any loan or
seizure of vehicles by any Banks or
Financial Institutions which are doing
business of advancing loan to anybody,
such agencies are wholly incompetent to
take law in their own hands and seize any
vehicles at any time or at any place or
initiate recovery proceedings on their own
in utter disregard of procedures prescribed
for such seizure or auction. Such act of
the Bank which have alternative way of
approaching the Prescribed Authority
under the U.P. Agricultural Credit Act
which alone can pass appropriate orders
and proceeding in accordance with law is
wholly uncalled for and unwarranted
being
not
countenanced
by
any
legislation. The procedure prescribed
under the U.P. Z.A.& L.R. Act i.e.
procedure for recovery as arrears of land
revenue could only be taken recourse to in
case any law permits to recovery any
amount as arrears of land revenue. In the
cases in hand the Banks who have
advanced agricultural loan under the U.P.
Agricultural Credit Act, 1973, can only
proceed and initiate proceedings under the
provisions of the said Act i.e. by
approaching the Prescribed Authority
under the Act who alone are competent to
initiate proceedings in accordance with
the procedure prescribed under the
Agricultural Credit Act. Any other means
of recovery i.e. by engagement of private
agencies by the Bank is wholly uncalled
for, illegal and unwarranted besides being
one militating against rule of law which is
the soul of the Constitution. In case any
specific legislation is there, the Banks or
such
authority
advancing
loan
are
competent to approach and proceeding in
accordance with law and but in no way,
they are authorized to engage any private
Agencies who may proceed like the
musclemen of a feudal lord to harass, and
bludgeon the gullible village people into
their submissions by taking law in their
own hands and seize any property as
agent of the lending authority and auction
at their own sweet will. My view finds
reinforcement from a judgment of this
Court in Ram Sajeevan Shukla v. The
Collector District Faizabad and others
(2002 (46) ALR 820).

"A conjoint reading of sections 11
and 12 of U.P. Agricultural Credit Act,
1973, reveals that the respondent-Bank
instead of sending recovery certificate to
Collector,
Faizabad
to
recover
the
financial
assistance
granted
to
the
petitioner and co-loanee for purchase of a
Tractor as arrears of land revenue under
U.P.Z.A. and L.R. Act read with Rules
framed thereunder ought to have moved
an
application
before
Prescribed
3 All] Chander V. State of U.P. and others
715
Authority and an order passed by
Prescribed Authority after hearing both
the parties, subject to the result of appeal
under section 12 of the said Act would
have become final and binding between
them.
It
is
held
that
expression
"notwithstanding anything contained in
any law used under section 11 of the U.P.
Agricultural
Credit
Act,
1973
has
overriding effect upon any other law
including U.P. Z.A. & L.R. Act and Rules
framed
thereunder.
The
entire
proceedings initiated by respondent Bank
by issuing recovery certificate to recover
financial assistance granted for purchase
of a Tractor to the petitioner and coloanee,
who
are
indisputably
agriculturists, is without jurisdiction being
in breach of Sections 11 and 12 of U.P.
Agricultural Credit Act, 1973."

18. The second question which begs
consideration is whether mortgage of
agricultural land to secure loaned amount
is permissible vis a vis section 155 of the
U.P.Z.A. & L.R. Act which envisages that
no Bhumidhar shall have the right to
mortgage any land belonging to him as
such where possession of the mortgaged
land is transferred or is agreed to be
transferred in future to the mortgagee as
security for the money advanced or to be
advanced. Under the U.P. Agricultural
Credit Act, section 3 makes it clear that
State Government may by notification in
Gazette vest, subject to such restriction as
may be specified in notification, all
bhumidhars, asamis and Government
lessees with rights of alienation in land
held under their tenure or any interest in
such land including the right to create a
charge or mortgage on such land or
interest in favour of banks generally or
any specified class of banks for the
purpose of obtaining financial assistance
from such banks and upon issue of such
notification,, such bhumidhar, asamis and
Government
lessees
shall,
notwithstanding anything contained in
any law for the time being in force or in
any contract, grant or other instrument to
the contrary, or any custom or tradition,
have a right or alienation in accordance
with the terms of the notification. By
notification dated 3rd May 1975, the State
Government has vested all Bhumidhars,
Sirdar, Asami Government lessee the
right of alienation in the land or any
interest in such land including to create
charge or mortgage of such land in favour
of Bank generally purposes of obtaining
financial
assistance.
The
right
of
alienation to a Bhumidhar or a tenure
holder is governed by the U.P.Z.A. &
L.R. Act and right to mortgage is
prohibited under that Government and
this right has been issued by a notification
dated 3rd May 1975 (supra) issued under
section 3 which is in the nature of
subordinate legislation as the petitioners
wants to take loan against these properties
for creating charge or mortgage against
that land in future no such mortgage could
be entered into. The U.P.Z.A. & L.R. Act
is very clear which envisages in section
167 of the Act that any transfer made in
contravention of such chapter will be void
and property shall vest in the State. But
the same was permitted by the Special
Act called U.P. Agricultural Credit Act
1973 according to which mortgage/charge
could be made to secure the loaned
amount.

19. The third question that arises for
consideration is whether any recovery
could be made more than the principal
amount? In this connection, paragraph 16
of the decision in Mhadagonda Ramgonda
Patil and others v. Shripal Balwant
716 INDIAN LAW REPORTS ALLAHABAD SERIES [2007
Rainade and others AIR 1988 SC 1200,
being relevant is quoted below.

"We may now consider the second
question as to whether the rule of
Damdupat is applicable to a mortgage
transaction. Admittedly, it is an equitable
rule debarring the creditor to recover at
any given time the amount of interest,
which is in excess of the principal amount
due at that time. It is urged by the learned
counsel appearing on behalf of the
appellants that the rule is applicable only
to a simple loan transaction and not to a
transaction of mortgage. we are unable to
appreciate this contention. In every
mortgage there are two aspects, namely,
(i) loan, and (ii) transfer of interest in
immovable property. As mortgage is
principally a loan transaction we do not
find any reason why the rule of Damdupat
which is an equitable rule should not
apply also to mortgage."

20. The quintessence of what has
been held is that Damdupat is an equitable
rule debarring the creditor to recover at
any given time the amount of interest
which is in excess of the principal amount
due at that time. What is further held by
the Apex Court in the said decision is that
by virtue of amendment by Act 20 of
1929 of Transfer of Property Act, the rule
of Damdupat was made applicable to
Transfer of property Act and to all the
transaction relating to loan and mortgage
of Hindu Law.

21. Learned counsel for the
petitioner urged that there are cases in
which a farmer has paid more than five
times of actual amount and still he is
trapped in debt. Any transaction by which
any right is transferred whether by sale,
gift or mortgage or otherwise is governed
by Transfer of Property Act and any
equitable principal of Transfer of Property
Act so far as loan or mortgage are
concerned, will also apply in case of loan
advanced by Bank. Any contract made by
the Bank with the farmer is always
governed by the Transfer of Property act
or Contract Act. From a perusal of the
Contract filed by the Bank in some of the
cases in seisine of the court it transpires
that the agreement whatsoever is in the
printed form which is not duly filled in by
the loanee or the Bank but in the hand
writing by some other persons and most
of the columns are blank. It further
appears that this cannot be a valid
agreement in view of the fact that farmer
who has taken loan has not seen the
contents thereof. He has simply signed
and therefore he cannot be said to have
fully understood the terms and conditions
on which contract is settled. In number of
cases, there is nothing in the agreement
that 22% shall be charged as recovery
charges and more than 50% will be
adjusted towards administrative charges
and various other charges. All such
charges are ex facie against the public
policy. The financial assistance or loan is
sanctioned to help the agriculturist to
promote
and
facilitate
agricultural
farming.

22. The main vocation of majority of
the people of India is farming. Most of the
people engaged in farming are small
farmers with small holding and are hardly
able to arrange two square meals for their
families.
Their
entire
hopes
and
expectations are pinned on good yield of
harvest and in case harvest fails them one
year or two years, it brings them to the
brink of starvation and one can well
visualize their predicament. On one hand,
they are unable to arrange a square meal
3 All] Chander V. State of U.P. and others
717
for their family and on the other hand,
they suffer persecution at the hands of
recovery staff or agents who add to their
woes by seizing of whatever remains in
their impoverished family. In most of the
cases, it has been seen that when once, the
poor fellow has borrowed, he is trapped in
the iron vice of interest payment and
ultimately he is trapped in penury
inasmuch as his entire land the only
source of livelihood is auctioned at throw
away price besides suffering civil prison.
The agricultural sector is considered to be
the most fragile sector and good or bad
yield depends upon good or bad weather.
In case there is drought or any natural
calamity the agriculturist is affected by
the same and in some cases it is very
difficult for him to arrange meal for his
family members. In case crop is destroyed
by the drought or flood or due to any
natural calamities. In most of the cases as
in the present case also, due to unforeseen
reason either due to fire destroying the
entire crop or due to drought or other
natural calamities, if loanee is unable to
pay any one of the installments, the
default clause is often invoked and
proceedings are initiated by employing
private agents (often anti social elements)
or by resorting to procedure of auctioning
the property. In a welfare and democratic
State ruled by rule of law, we decry
money lending because it is immoral to
convert
crisis
of
another
into
an
opportunity
to
exploit
him.
Such
exploitation of poor people by our
banking sectors in the welfare state was
never
visualized
by
Constitutional
framers. The agricultural loan has to be
taken to be one for assisting and helping
the agricultural sector to improve their lot
and not as a stranglehold to push them to
penury. The Banking sector has to be
liberal and not impatient so as to rigidly
apply the rules meant of recovery. In the
above conspectus, this court is of the view
that in case of default, where the drop is
hit by natural calamities like flood or
drought or fire, beyond the control of
farmer,
the
bank
shall
take
accommodative attitude of employing
coercive tactics and must explore measure
like postponing recovery or re-scheduling
recovery rather than preying upon farmers
in the modernized version of Shylock's
pound of flesh for failure to repay one or
two installments.

23. In connection with the argument
that in most of the cases, printed form is
used and the loanee is often compelled to
affix signatures or thumb impressions on
every page of the printed form, which is
subsequently filled in by person other
than the petitioner. It is shocking to
conscience that the poor agriculturists
who are either illiterate or semi-literate
are compelled to sign on dotted line
without
having
any
opportunity
of
understanding the terms of the agreement.
In case of agricultural loan most of the
agriculturist who get loan for the purpose
of development of their agricultural land,
copy of agreement was never given to any
agriculturist. The copy of agreement filed
alongwith counter and some of the writ
petitions makes it clear that signatures has
been affixed thereon at the bottom of
every page. Most of the columns are also
left blank and entries have been made by
some person other than petitioner who
according to learned counsel for the
petitioner was made at a subsequent date.
It has come on record that in the event of
loan for more than 2 lacs, Banks are free
to charge rate of interest. In such a
situation in order to execute a valid
agreement
both
the
parties
to
the
agreement must arrive at an agreement by
718 INDIAN LAW REPORTS ALLAHABAD SERIES [2007
actual consent out of free will and without
any coercion or undue influence. In case
of agricultural loan as most of the parties
are illiterate and are made to affix their
signatures, in order to get a valid
agreement, it is necessary that loanee
must get copy of the agreement proposed
by the Bank at least one week prior to
entering into agreement and only after the
loanee gets acquainted with the terms of
agreement fully, the agreement may take
place and every column must be filled and
every page must be signed by all the
parties to the agreement. It is clear from
the U.P. Agricultural Credit Act 1973,
that though under the U.P.Z.A. & L.R.
Act thee is a bar on any mortgage but
under the said Act, charge or mortgage
has been permitted subject to registration
under section 17 of the Registration Act.
In case any agreement is unregistered, the
same cannot be enforced in obedience and
no recovery will be referred to the
Prescribed authority or collector for being
given effect to.

24. It has come from the letter
(Annexure 1 to the writ petition No. 3463)
that the loanee deposited Rs.95000/- and
only Rs.17355/- was credited in the
principal amount and rest of the amount
was not credited against the remaining
loan. This Court is of the view that any
amount deposited by the loanee may be
credited towards principal and interest if
any due may be recovered subsequently.
The
Banks
are
however,
wholly
incompetent to charge administrative,
Misc. and other charges. There is nothing
on record to show that in cases where
Opp. parties are charging 23% as
recovery
charges
such
charges
as
mentioned in the notices are wholly
arbitrary and exorbitant. The recovery
charges cannot be more than 10% by any
reckoning particularly by a statutory
body. In case of U.P. Land Development
Bank, before the recovery is embarked
upon as mentioned in the Act, the matter
is required to be placed before the
Registrar and only by the order of the
Registrar, recovery proceedings can be
embarked upon. The Registrar may after
giving opportunity of hearing to the
loanee and may pass order for recovery of
the amount.

25.