Punjab & Haryana High Court Upholds Recovery of Industrial Subsidy Adjusted Against Loan After Early Closure of Unit
Case Name: M/s Guargum India Pvt. Ltd. & Others v. Haryana Financial Corporation & Others
Date of Judgment: January 7, 2015
Citation: CWP No. 15040 of 1997
Bench: Hon’ble Mr. Justice K. Kannan
Held: The Punjab & Haryana High Court dismissed a writ petition filed by M/s Guargum India Pvt. Ltd. and its directors challenging recovery proceedings initiated by the Haryana Financial Corporation (HFC) under the Revenue Recovery Act. Justice K. Kannan held that once an industrial unit fails to remain in production for the mandatory period of five years as required under the subsidy agreement, the subsidy amount is liable to be recovered along with interest. The Court observed that the petitioners failed to produce credible evidence to prove that the unit continued operations beyond the stipulated period. Mere reliance on audit statements, without corroborating proof such as electricity bills, salary disbursements, or PF contributions, was held insufficient to establish continued production.
Summary: The petitioner-company had availed loans of ₹9.38 lakh and ₹3.80 lakh from the Haryana Financial Corporation (HFC) in 1978 and 1981 respectively. It was also sanctioned an industrial subsidy of ₹1,81,797 by the Government of Haryana under a 1971 scheme, which was disbursed through HFC acting as the State’s agent. Under the terms of the indenture dated January 13, 1982, the company was obligated to remain in production for at least five years, failing which the subsidy would be recoverable with 10% interest.
The company ceased operations in 1986, less than five years after the subsidy was granted. HFC issued recovery notices in May and August 1986 after the factory was found closed during inspection. The petitioners argued that the unit had not shut down but had temporarily curtailed production due to drought conditions affecting the supply of guar raw material. They contended that the subsidy had been wrongly adjusted against loan repayment and that all dues were settled through a 1996 letter of settlement.
Rejecting these arguments, the Court noted that the company had neither challenged the 1982 agreement nor proved continued operations with verifiable industrial activity. It found that the factory had been attached and sold for loan recovery prior to filing the writ petition, thereby confirming cessation of operations. Justice Kannan held that the recovery of subsidy was legally justified, as the petitioner’s default triggered the contractual clause for refund of the subsidy amount with interest.
Decision: The High Court upheld the recovery initiated by the Haryana Financial Corporation, holding that the subsidy was rightfully reclaimed upon premature closure of the unit. The writ petition was dismissed, affirming that the petitioners failed to demonstrate continued production for the mandatory five-year period, and that recovery under the Revenue Recovery Act was valid and enforceable.