Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8
CASE NO.:
Appeal (civil) 607 of 2002
PETITIONER:
HARYANA FINANCIAL CORPORATION & ANR.
Vs.
RESPONDENT:
M/S JAGDAMBA OIL MILLS & ANR.
DATE OF JUDGMENT: 28/01/2002
BENCH:
B.N. Kirpal, K.G. Balakrishnan & Arijit Pasayat
JUDGMENT:
ARIJIT PASAYAT, J.
Haryana Financial Corporation (hereinafter referred to as
’Corporation’) assails judgment dated 6.10.2000 of the Punjab and
Haryana High Court in regular second appeal No. 3801/2000
whereby judgment and decree in Civil Suit no. 86 of 1995 instituted
before the Civil Judge (Senior Division), Ambala and judgment and
decree in Civil Appeal no.37 of 1998 before the Addl. District Judge,
Ambala affirming them were upheld. Respondents filed the suit
seeking a decree for permanent injunction restraining the
Corporation and its functionaries from auctioning the unit of the
respondents which was seized by the Corporation.
The factual background of the case in a nutshell is as under:
Respondent no.1 a concern represented by its proprietor
(respondent No.2) applied to the Corporation for grant of loan and
in terms of the sanction letter dated 16.10.1992 a sum of
Rs.7,48,000/- was sanctioned. The loan was to be repaid in 8 years,
to be counted from the date of execution of the mortgage deed.
The repayment of the loan was to be made in 15 half yearly
instalments. Said repayment was to commence within 13 months
from the first disbursement of the loan. The first 13 instalments of
payment were to be of Rs.50,000/- each and the last two
instalments were to be of Rs.49,000/-each, towards principal. Apart
from the repayment of principal amount, the respondents were
required to pay, inter alia, interest which became due along with
the respective instalment towards the principal amount.
Respondent no.1 mortgaged its land, building and machinery in
favour of the Corporation. In the mortgage deed it was
categorically mentioned that loan instalments were to be disbursed
on the basis of securities created by the borrowers and as and
when enough securities were created, the loan amount was to be
disbursed. According to the Corporation, the said method was
adopted so as to safeguard the interest of the Corporation and also
to ensure that the money taken as a loan from the Corporation is
being utilized for the purpose for which it was sanctioned as per the
loan agreement. The Corporation disbursed the first instalment of
loan on 25.2.1993 upon creation of the mortgage. The last
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8
instalment was disbursed on 26.2.1994. The total loan availed by the
respondent no.1 was Rs.7.45 lacs. As per the terms and conditions
stipulated in the loan agreement, respondent no.1 was required to
deposit a sum of Rs.1,29,551/- on 1.3.1994. But there was failure to
deposit the same. Respondent no.1, however, requested the
Corporation to reschedule the repayment schedule. The request
was accepted and reschedulement was done. Thereafter on
1.9.1994 Rs.1,24,409/- fell due. There was again default in making
the deposit. Respondent no.1 again requested to reschedule the
instalment. The request was again accepted. Notwithstanding such
change in the schedule of payments, respondent did not make any
payment. Thereafter on 1.3.1995 an instalment of Rs.1,31,046/- fell
due. As in the past, the respondent defaulted in making the
payment of the said instalment. As the respondent no.1 was a
chronic defaulter in making payment of the instalments action
under Section 29 of The State Financial Corporation Act, 1951 (in
short ’the Act’) was taken, after recalling the loan under Section 30
of the Act. Possession of the unit of the respondents was taken by
the Corporation. Respondents instituted Civil Suit no.86 of 1995 in
the court of the Civil Judge (Senior Division), Ambala seeking a
decree for permanent injunction restraining the Corporation and its
functionaries from auctioning the unit which was seized. The said
suit was decreed by the trial court. It was, inter alia, observed that
since the defendants (meaning the Corporation and its
functionaries) did not give breathing time to the unit and its
possession was taken within the period of one year from the date of
last instalment, the action cannot be sustained. Reliance was
placed on the decision of this Court in Mahesh Chandra vs.
Regional Manager, U.P. Financial Corporation and Ors. (1993 (2)
SCC 279). The matter was carried in appeal. The Addl. District
Judge, Ambala in Civil Appeal No. 37 of 1998 upheld the view of
the trial court. Reliance was also placed by the first Appellate Court
on the decision in Mahesh Chandra’s case (supra). The matter was
again carried in Second appeal before the Punjab & Haryana High
Court. In the said appeal, by the impugned judgment, the
challenge was negatived. It was held that there was no merit in the
appeal in view of what has been stated by this Court in Mahesh
Chandra’s case (supra).
In support of the appeal, learned counsel for the Corporation
submitted that the courts below erred in placing reliance on the
decision in Mahesh Chandra’s case (supra) without noticing the
distinguishing factual backgrounds. It was submitted that the courts
below did not apply the decision of this Court in U.P. Financial
Corporation vs. Gem Cap (India) Pvt. Ltd. & Ors. (1993 (2) SCC 299)
which was squarely applicable. The principles to be applied in a
case where action under Section 29 of the Act is sought to be taken
by the Corporation have been elaborately dealt with in the said
case. It is also submitted that the decision in Mahesh Chandra’s
case (supra) requires reconsideration in view of what has been
stated in latter decisions, more particularly, in Gem Cap’s case
(supra). It is submitted that on the facts as noted by the courts
below, ample opportunity was granted to the respondents to make
payment. Requests for rescheduling the instalments were
accepted. Notwithstanding such adjustments, respondents did not
bother to make payment, and till date, not even a minor fraction of
the principal amount has been paid.
Learned counsel for the respondents submitted the
Corporation and the borrower unit have a fiduciary relationship and
are really partners in a business enterprise. Corporation stands in
the position of a trustee and is not expected to act like any other
individual moneylender. Keeping in view the object for which the
statute in question was enacted, any other interpretation would be
against the legislative intent.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8
The object for which the Act was enacted needs to be
noted. Central Industrial Financial Corporation was originally set up
under the Industrial Financial Corporation Act, 1948 with a view to
provide medium and long term credit to industrial undertakings
which fall outside the normal activity of commercial banks. Several
State Governments desired to set up in the States similar
Corporations with a view to supplement the work of Industrial
Financial Corporation. The intention was that the State Financial
Corporations shall confine to the medium and small industrial units
and as far as possible to such cases as are outside the scope of the
Industrial Financial Corporation. Since the incorporation, regulation
and winding up of such Corporations fall within the purview of
Parliament by Entry No.43 of the Union List, request was made to the
Government of India to enact necessary enabling legislation, and
that is how the Act was enacted.
The Corporation as an instrumentality of the State deals with
public money. There can be no doubt that the approach has to be
public oriented. It can operate effectively if there is regular
realization of the instalments. While the Corporation is expected to
act fairly in the matter of disbursement of the loans, there is
corresponding duty cast upon the borrowers to repay the
instalments in time, unless prevented by unsurmountable difficulties.
Regular payment is the rule and non-payment due to extenuating
circumstances is the exception. If the repayments are not received
as per the scheduled time frame, it will disturb the equilibrium of the
financial arrangements of the Corporations. They do not have at
their disposal unlimited funds. They have to cater to the needs of
the intended borrowers with the available finance. Non-payment
of the instalment by a defaulter may stand on the way of a
deserving borrower getting financial assistance.
As was observed by this Court in Gem Cap’s case (supra),
the legislative intent in enacting the statute in question was to
promote industrialization of the States by encouraging small and
medium industries by giving financial assistance in the shape of
loans and advances, repayable within a stipulated period. Though
the Corporation is not like an ordinary moneylender or a bank
which lends money, there is purpose in its lending i.e. to promote
small and medium industries. The relationship between the
Corporation and the borrower is that of creditor and debtor. That
basic feature cannot be lost sight of. A Corporation is not supposed
to give loan and then to write if off as a bad debt and ultimately to
go out of business. As noted above, it has to recover the amounts
due so that fresh loans can be given. In that way industrialization
which is the intended object can be promoted. It certainly is not
and cannot be called upon to pump in more money to revive and
resurrect each and every sick industrial unit irrespective of the cost
involved. That would be throwing good money after bad money.
As was rightly observed in Gem Cap’s case (supra), promoting
industrialization does not serve public interest if it is at the cost of
public funds. It may amount to transferring public money to private
account. In Mahesh Chandra’s case (supra), this Court issued
directions which were required to be observed by the Financial
Corporation while exercising power under Section 29. In this regard,
it was observed at pages 297 and 298 as follows:
"Every endeavour should be made, to make the unit
viable and be put in working condition. If it becomes
unworkable:
(1) Sale of a unit should always be made by public
auction.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8
(2) Valuation of a unit for purposes of determining
adequacy of offer or for determining if bid offered
was adequate, should always be intimated to the
unit holder to enable him to file objection if any as
he is vitally interested in getting the maximum price.
(3) If tenders are invited then the highest price on
which tender is to be accepted must be intimated
to the unit holder.
(4) (a) If unit holder is willing to offer the sale price, as
the tenderer, then he should be offered same
facility and unit should be transferred to him. And
the arrears remaining thereafter should be
rescheduled to be recovered in instalments with
interest after the payment of last instalment fixed
under the agreement entered into as a result of
tendered amount.
(b)If he brings third parties with higher offer it would
be tested and may be accepted.
(5) Sale by private negotiation should be permitted
only in very large concerns where investments runs
in very huge amount for which ordinary buyer may
not be available or the industry itself may be of such
nature that by (sic many) normal buyers may not be
available. But before taking such steps there should
be advertisements not only in daily newspapers but
business magazines and papers.
(6) Request of the unit holder to release any part of the
property on which the concern is not standing of
which he is the owner should normally be granted
on condition that sale proceeds shall be deposited
in loan account."
The guidelines were stated to be necessary to ensure fair
play. That decision, as the factual position would go to show was
rendered in a case where the borrower intended to repay the debt
and was anxious to do so. While not insisting upon the borrower to
honour the commitments undertaking by him, the Corporation
alone cannot be shackled hand and foot in the name of fairness.
In matters like the present one, fairness cannot be a one-
way street. Corporations borrow money from the Government or
other financial corporations and are required to pay interest
thereon. Where the borrower has no genuine intention to repay
and adopts pretexts and ploys to avoid payment, he cannot make
the grievance that Corporation was not acting fairly, even if
requisite procedures have been followed.
The obligation to act fairly on the part of the administrative
authorities was evolved to ensure the rule of law and to prevent
failure of justice. This doctrine is complementary to the principles of
natural justice which the quasi-judicial authorities are bound to
observe. It is true that the distinction between a quasi-judicial and
the administrative action has become thin, as pointed out by this
Court as far back as 1970 in A.K. Kraipak V. Union of India [1969 (2)
SCC 262]. Even so the extent of judicial scrutiny/judicial review in
the case of administrative action cannot be larger than in the case
of quasi-judicial action. If the High Court cannot sit as an appellate
authority over the decisions and orders of quasi-judicial authorities, it
follows equally that it cannot do so in the case of administrative
authorities. In the matter of administrative action, it is well known,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8
more than one choice is available to the administrative authorities;
they have a certain amount of discretion available to them. They
have "a right to choose between more than one possible course of
action upon which there is room for reasonable people to hold
differing opinions as to which is to be preferred". [As per Lord
Diplock in Secretary of State for Education and Science v.
Metropolitan Borough Counsel of Tameside (1977 AC 1014)]. The
Court cannot substitute its judgment for the judgment of
administrative authorities in such cases. Only when the action of the
administrative authority is so unfair or unreasonable that no
reasonable person would have taken that action, can the Court
intervene. To quote the classic passage from the judgment of Lord
Greene M.R. in Associated Provincial Picture Houses Ltd. v.
Wednesbury Corporation [1947 (2) ALL ER 680]:
"It is true the discretion must be exercised reasonably. Now
what does that mean? Lawyers familiar with the phraseology
commonly used in relation to exercise of statutory discretions often
use the word ’unreasonable’ in a rather comprehensive sense. It
has frequently been used and is frequently used as a general
description of the things that must not be done. For instance, a
person entrusted with the discretion must, so to speak, direct himself
properly in law. He must call his own attention to the matters which
he is bound to consider. He must exclude from his consideration
matters which are irrelevant to what he has to consider. If he does
not obey those rules, he may truly be said, and often is said, to be
acting ’unreasonably’. Similarly, there may be something so absurd
that no sensible person could ever dream that it lay within the
powers of the authority."
While this is not the occasion to examine the content and
contours of the doctrine of fairness, it is enough to reiterate for the
purpose of this case that the power of the Courts while reviewing
the administrative action is not that of an appellate court.
The aforesaid position was succinctly stated in Gem Cap’s
case (supra).
The fairness required of the Corporations cannot be carried to
the extent of disabling them from recovering what is due to them.
The matter can be looked at from another angle. The Corporation
is an independent autonomous statutory body having its own
constitution and rules to abide by, and functions and obligations to
discharge. As such in the discharge of its functions, it is free to act
according to its own light. The views it forms and decisions it takes
are on the basis of the information in its possession and the advice it
receives and according to its own perspective and calculations.
Unless its action is mala fide, even a wrong decision by it is not open
to challenge. It is not for the courts or a third party to substitute its
decision, however, more prudent, commercial or businesslike it
may, for the decision of the Corporation. As was observed by this
Court in U.P. Financial Corporation and Ors. vs. Naini Oxygen &
Acetylene Gas Ltd. and Anr. (1995 (2) SCC 754), in commercial
matters the courts should not risk their judgments for the judgments
of the bodies to whom that task is assigned. As was rightly observed
by this Court in Karnataka State Financial Corporation vs. Micro
Cast Rubber & Allied Products (P) Ltd. & Ors. (JT 1996 (6) SC 37), in
the matter of action by the Corporation in exercise of the powers
conferred on it under Section 29 of the Act, the scope of judicial
review is confined to two circumstances i.e. (a) where there is
statutory violation on the part of the State Financial Corporation, or,
(b) where the State Financial Corporation acts unfairly i.e.
unreasonably. While exercising its jurisdiction under Article 226 of
the Constitution of India, 1950 (in short ’the Constitution’), the High
Court does not sit as an appellate authority over the acts and
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8
deeds of the Corporation. Similarly, the courts other than the High
Courts are not to interfere with action under Section 29 of the Act
unless the aforesaid two situations exist.
As was observed in The Chairman and Managing Director,
SIPCOT, Madras 8 and Ors. vs. Contromix Pvt. Ltd. by its Director
(Finance) Seetharaman, Madras and Anr. (JT 1995 (6) SC 283) in the
matter of sale of public property, the dominant consideration is to
secure the best price for the property to be sold. This can be
achieved only when there is maximum public participation in the
process of sale and everybody has an opportunity of making an
offer. Public auction after adequate publicity ensures participation
of every person who is interested in purchasing the property and
generally secures the best price. But many times it may not be
possible to secure the best price by public auction when the
bidders join together so as to depress the bid or the nature of the
property to be sold is such that suitable bid may not be received at
public auction. In that event, any other suitable mode for selling of
property can be by inviting tenders. In order to ensure that such
sale by calling tenders does not escape attention of an intending
participant, it is essential that every endeavour should be made to
give wide publicity so as to get the maximum price. These are
aspects which Corporations have to keep in view while dealing with
disposal of seized units.
The view in Mahesh Chandra’s case (supra) appears to have
been too widely expressed without taking note of ground realities
and the intended objects of the statute. If the guidelines as
indicated are to be strictly followed, it would be giving premium to
a dishonest borrower. It would not further interest of any
Corporation and consequently of the industrial undertakings
intending to avail financial assistance. It would only provide an
unwarranted opportunity to the defaulter (in most cases chronic
and deliberate) to stall recovery proceedings. It is not to be
understood that in every case the Corporations shall take recourse
to action under Section 29. Procedure to be followed, needless to
say, has to be observed. If any reason is indicated or cause shown
for the default, same has to be considered in its proper perspective
and a conscious decision has to be taken as to whether action
under Section 29 of the Act is called for. Thereafter, the modalities
for disposal of seized unit have to be worked out. The view
expressed in Gem Cap’s case (supra) appears to be more in line
with the legislative intent. Indulgence shown to chronic defaulter
would amount to flogging a dead horse without any conceivable
result being expected. As the facts in the present case show not
even a minimal portion of the principal amount has been repaid.
That is a factor which should not have been lost sight by the courts
below. It is one thing to assist the borrower who has intention to
repay, but is prevented by unsurmountable difficulties in meeting
the commitments. That has to be established by adducing
material. In the case at hand factual aspects have not even been
dealt with, and solely relying on the decision in Mahesh Chandra’s
cases (supra), the matter has been decided.
Section 29 gives a right to the Financial Corporation inter alia
to sell the assets of the industrial concern and realize the property
pledged, mortgaged, hypothecated or assigned to the Financial
Corporation. This right accrues when the industrial concern, which is
under a liability to the Financial Corporation under an agreement,
makes any default in repayment of any loan or advance or any
instalment thereof or in meeting its obligations as envisaged in
Section 29 of the Act. Section 29(1) gives the Financial Corporation
in the event of default the right to take over the management or
possession or both and thereafter deal with the property.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8
The aforesaid guidelines issued in Mahesh Chandra’s case
place unnecessary restrictions on the exercise of power by the
Financial Corporation contained in Section 29 of the Act by
requiring the defaulting unit holder to be associated or consulted at
every stage in the sale of the property. A person who has defaulted
is hardly ever likely to cooperate in the sale of his assets. The
procedure indicated in Mahesh Chandra’s case will only lead to
further delay in realization of the dues by the Corporation by sale of
assets. It is always expected that the Corporation will try and realize
the maximum sale price by selling the assets by following a
procedure which is transparent and acceptable, after due
publicity, wherever possible.
The subsequent decisions of this Court in Gem Cap’s (supra),
Naini Oxygen (supra) and Micro Cast Rubber (supra) run counter to
the view expressed in Mahesh Chandra’s case. In our opinion, the
issuance of the said guidelines in Mahesh Chandra’s case are
contrary to the letter and the intent of Section 29. In our view, the
said observations in Mahesh Chandra’s case do not lay down the
correct law and the said decision is overruled.
Courts should not place reliance on decisions without
discussing as to how the factual situation fits in with the fact situation
of the decision on which reliance is placed. Observations of Courts
are not to be read as Euclid’s theorems nor as provisions of the
statute. These observations must be read in the context in which
they appear. Judgments of courts are not to be construed as
statutes. To interpret words, phrases and provisions of a statute, it
may become necessary for judges to embark into lengthy
discussions but the discussion is meant to explain and not to define.
Judges interpret statues, they do not interpret judgments. They
interpret words of statutes, their words are not to be interpreted as
statutes. In London Graving Dock Co. Ltd. v. Horton (1951 AC 737 at
P. 761), Lord Mac Dermot observed:
"The matter cannot, of course, be settled merely by treating
the ipsissima vertra of Willes, J. as though they were part of an Act
of Parliament and applying the rules of interpretation appropriate
thereto. This is not to detract from the great weight to be given to
the language actually used by that most distinguished judge."
In Home Office v. Dorset Yacht Co. (1970 (2) All ER 294) Lord
Reid said, "Lord Atkin’s speech..is not to be treated as if it was
a statute definition. It will require qualification in new
circumstances." Megarry, J. in (1971) 1 WLR 1062 observed: "One
must not, of course, construe even a reserved judgment of even
Russell L.J. as if it were an Act of Parliament." And, in Herrington v.
British Railways Board, (1972) 2 WLR 537 Lord Morris said:
"There is always peril in treating the words of a speech or
judgment as though they are words in a legislative enactment, and
it is to be remembered that judicial utterances made in the setting
of the facts of a particular case."
Circumstantial flexibility, one additional or different fact may
make a world of difference between conclusions in two cases.
Disposal of cases by blindly placing reliance on a decision is not
proper.
The following words of Lord Denning in the matter of applying
precedents have become locus classicks:
"Each case depends on its own facts and
a close similarity between one case and another
is not enough because even a single significant
detail may alter the entire aspect. In deciding
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8
such cases, one should avoid the temptation to
decide cases (as said by Cordozo) by matching
the colour of one case against the colour of
another. To decide, therefore, on which side of
the line a case falls, the broad resemblance to
another case is not at all decisive."
xxx xxx xxx
"Precedent should be followed only so far
as it marks the path of justice, but you must cut
the dead wood and trim off the side branches
else you will find yourself lost in thickets and
branches. My plea is to keep the path to justice
clear of obstructions which could impede it."
Learned counsel for the respondents during the course of
hearing submitted that unit is in the possession of the Corporation.
They will make effort to make payment of the amount due to the
Corporation, if a reasonable time is granted. Though their stand has
always been different, and the Corporation opposes the prayer, we
grant the prayer in the peculiar circumstances of the case. To test
the bona fides of the respondents, we direct that the Corporation
shall intimate the respondents within a month from to-day upto
date amount due. Within six months from the date of such
intimation, the respondents shall repay the amount in full. In case of
failure to make the payment, it shall be open to the Corporation to
dispose of the seized unit in accordance with law in such manner as
would bring in the highest price. The appeal is allowed to the
extent indicated above.
....J.
(B.N. Kirpal)
...J.
(K.G. Balakrishnan)
..J.
(Arijit Pasayat)
January 28, 2002