Full Judgment Text
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7910 OF 2009
(Arising out of S.L.P. (C) No.2600 of 2009)
Punjab Financial Corporation ....Appellant
Versus
M/s. Surya Auto Industries ....Respondent
J U D G M E N T
G.S. Singhvi, J.
1. Leave granted.
2. This is an appeal for setting aside order dated 21.11.2008 passed by
the Punjab and Haryana High Court whereby it allowed the writ petition
filed by the respondent, quashed the action taken by the appellant-
Corporation under Section 29 of the State Financial Corporations Act, 1951
(for short, ‘the Act’) for recovery of its dues and also directed review of all
pending cases in which penal interest has been compounded.
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3. On an application made by the respondent for grant of loan for setting
up an industrial unit in District Gurdaspur (Punjab), the appellant-
Corporation sanctioned a term loan of Rs.24.25 lacs. For securing repayment
of the loan, the respondent mortgaged immovable properties in favour of the
appellant-Corporation. As per the terms of agreement executed between the
parties, the respondent was required to repay the loan together with interest
on specified dates but it failed to adhere to the time schedule and a sum of
Rs.2.70 lacs only was deposited till 2002. Therefore, after issuing notice
under Section 29 of the Act, the appellant-Corporation took possession of
the unit. This action was followed by notices dated 2.12.2002, 3.3.2003,
30.5.2003 and 29.8.2003, whereby the respondent was repeatedly called
upon to pay the outstanding dues. The respondent not only ignored the
notices but also failed to avail the concession offered by the appellant-
Corporation vide letter dated 10.9.2004 to reduce the rate of interest and
reschedule the payment of the outstanding dues. The attitude of non-
cooperation adopted by the respondent in the matter of repayment of loan
and interest forced the appellant-Corporation to issue notice dated 26.6.2007
under Section 29 of the Act for taking over collateral security.
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4. The respondent challenged the threatened take over of collateral
security in W.P. No.11932/2007 by contending that action taken by the
appellant-Corporation is contrary to the provisions of the Act, rules of
natural justice and the law laid down in Central Bank of India v. Ravindra
( 2002) 1 SCC 367 and Aravali Pipes v. Haryana Financial Corporation
(2001) 2 All India Banking Law Judgments 516. The respondent also made
a grievance that the officers of the appellant-Corporation had deliberately
disposed of the machinery for a paltry sum of Rs.5 lacs and this had the
effect of destroying the unit. In the counter affidavit filed on behalf of the
appellant-Corporation, it was pleaded that action under Section 29 of the Act
was necessitated because the writ petitioner failed to abide by the terms of
the loan agreement and mortgage. It was further pleaded that even though
the appellant-Corporation offered to reduce the rate of interest and
reschedule the payment of outstanding dues, the respondent did not avail the
same. Not only this, the respondent failed to take benefit of the schemes
notified on 3.1.2005 and 18.3.2005 for restoration of the unit on payment of
the principal amount along with 10% of the outstanding interest.
5. On the pleadings of the parties, the High Court formulated the
following question:
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“Whether after invoking power under Section 29 of the Act, the
respondent Corporation has absolute power of retaining the
property without taking any steps and to continue to charge the
interest and penal interest, without any limit.”
6. The Division Bench of the High Court then stated the principle that as
per the contract between the parties, the debtor is liable to pay interest till the
principal amount is repaid and there is statutory power to take over the
mortgaged property and thereafter also, interest continues to run, but
observed that being a public authority, the Corporation is duty bound to act
fairly; that the power to take possession of the mortgaged property cannot be
exercised without any responsibility and that the Corporation is bound to
take further steps within reasonable time and if it does not do so, the debtor
will not only stand deprived of mortgaged property without any purpose
resulting in loss of earning and possibility of repayment by raising money
against the property. The Division Bench then held that as the appellant-
Corporation is not shown to have taken any steps for a period of six years
after taking over the unit and no explanation has been offered for this, it
neither charge interest at the contractual rate nor can it proceed against any
other property till the earlier taken over property is disposed of. The
Division Bench also referred to the judgment of this Court in Central Bank
of India v. Ravindra (supra) and held that the Corporation is not entitled to
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compound penal interest. The conclusions recorded by the High Court and
operative part of the impugned order read as under:
“23. In view of above discussion, our conclusions are as
under:-
(i) Taking over of unit under Section 29 of the Act casts an
obligation on the Financial Corporation to proceed against the
property taken over within reasonable time. Failure to do so,
will be violation of concept of fair procedure under Articles 14
and 21 of the Constitution.
(ii) If the Court reaches a conclusion that action of the
Corporation is unfair, the Court may, to effectuate the right of
the borrower, set aside the demand for contractual rate of
interest and substitute the same for a reasonable rate of interest,
without prejudice to the remedy of the borrower to claim
damages in appropriate proceedings. The Court may also direct
giving of a fresh opportunity to the borrower to pay the
recalculated amount and restrain the Corporation from
proceeding against other assets of the borrower.
24. Accordingly, we allow this petition and apart from
setting aside compounding of penal interest, declare that from
1.4.2003 i.e. after expiry of period of six months from the date
of taking over of unit of the petitioner, the Corporation will be
entitled to simple interest @ 10%. The Corporation is directed
to make fresh calculation accordingly within one month from
the date of receipt of a copy of this order. We further direct the
Corporation to allow the petitioner to pay the amount as per
fresh demand, if necessary, by selling the mortgaged property
which has been taken over, subject to the payment being made
directly to the Corporation to the extent of its dues. We also
restrain the Corporation from giving effect to its notice
Annexure P-8 of taking over other properties till the unit
already taken over is disposed of. The Corporation may also
review all pending cases where penal interest has been
compounded in violation of law laid down by the Hon’ble
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Supreme Court and where no steps are being taken after taking
over of the unit.”
7. We have heard Shri T.S. Doabia, learned senior counsel appearing
for the appellant and scrutinized the records. The appellant-Corporation was
established under Section 3 of the Act. Section 24 of the Act mandates that
in discharging its functions under the Act, the Board [as defined in Section
2(a)] shall act on business principles due regard being had by it to the
interests of industry, commerce and the general public. Section 25 provides
that the Financial Corporation may, subject to the provisions of this Act,
carry on and transact any of the kinds of business enumerated in Clauses (a)
to (v). These include guaranteeing, on such terms and conditions as may be
agreed upon, (i) loans raised by industrial concerns which are repayable
within a period not exceeding twenty years, and are floated in the public
market; (ii) loans raised by industrial concerns from scheduled banks or
State cooperative banks or other financial institutions; transferring for
consideration any instruments relating to loans and advances granted by it to
industrial concerns; granting loans or advances to, or subscribing to
debentures of, an industrial concern, repayable within a period not exceeding
twenty years from the date on which they are granted or subscribed to, as the
case may be; planning and assisting in the promotion and development of
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industries; providing export related credit and services; undertaking money
market related activities. Section 29 (1) lays down that where any 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
installment thereof or in meeting its obligations in relation to any guarantee
given by the Corporation or otherwise fails to comply with the terms of its
agreement with the Financial Corporation, the latter shall have the right to
take over the management or both of the industrial concerns, as well as the
right to transfer by way lease or sale and realize the property pledged,
mortgaged, hypothecated or assigned to the Financial Corporation.
8. Section 29 of the Act has become subject matter of consideration in
several cases. In Mahesh Chandra v. Regional Manager, U.P. Financial
Corporation (1993) 2 SCC 279, a two-Judge Bench of this Court
considered whether the respondent-Corporation could take possession of the
mortgaged property even before disbursement of the sanctioned loan and sell
the same without giving opportunity to the borrower to pay off debts or
bring a better offer and observed that the corporations deal with public
money for public benefit and, therefore, their approach has to be public
oriented and helpful to the loanee. A helping attitude on the part of the
8
Corporation to constantly monitor the working of the industrial concern or
units (it may even charge the overhead expenses on this account) would sub-
serve the purpose of the loan, object of the Act, and the constitutional
objective of economic justice to the needy.
9. The two-Judge Bench then adverted to the scope of Section 29 of the
Act and observed:
“Section 29 confers very wide power on the Corporation to
ensure prompt payment by arming it with effective measures to
realise the arrears. But the simplicity of the language is not an
index of the enormous power stored in it. From notice to pay
the arrears, it extends to taking over management and even
possession with a right to transfer it by sale………… Power
under Section 29 of the Act to take possession of a defaulting
unit and transfer it by sale requires the authority to act
cautiously, honestly, fairly and reasonably. Default in payment
of loan may attract Section 29. But that alone is insufficient
either to assume possession or to sell the property. Neither
should be resorted to unless it is imperative. Even though no
rules appear to have been framed nor any guideline framed by
the Corporation was placed, yet the basic philosophy enshrined
in Section 24 has to be kept in mind. Rationale of action and
motive in exercise of it has to be judged in the light of it. Lack
of reasonableness or even fairness at either of the two stages
renders the take over and transfer invalid. Unfortunately the
Corporation was guilty of not acting in accordance with law
either at the stage of take over or in transferring the unit.
Admittedly the entire loan was not disbursed. Need of the
capital in the last stages cannot be doubted. If the Corporation
refused to release the amount at a time when the unit is nearing
completion or is ready to start functioning, then it falls short of
capital and it is bound to land itself in trouble. This is what
happened in this case. The partners did not cooperate and the
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Corporation without any explanation refused to release the full
amount. Result was that the appellant stood pressed on one
hand from absence of capital and on the other by recovery
proceedings. The Corporation, therefore, should honour their
commitments of releasing entire loan timely except for very
good reasons which should be intimated beforehand to enable
the unit holder to comply with shortcomings if any. In its
absence of its completion, the proceedings for recovery under
Section 29 may not be justified. Similarly various situations
may arise which may hamper start of the unit — delay in
electric supply or delayed delivery of machinery vital for the
functioning of the unit. Such difficulties do require
rescheduling of payment of instalment because, if the unit, for
reasons beyond the control of unit holder, could not start, then
how will the amount be repaid. Endeavour should be to adjust
and accommodate as business considerations require the unit to
function for benefit, both, of the general public and the
Corporation. It is not mandatory, as a matter of law, to observe
the process of taking over strictly. But if there is no option left
and the unit is taken over then its transfer requires not only
sincere effort but to act reasonably and fairly.”
In paragraph 22 of the judgment, the Court laid down guidelines to be
followed by the Corporation while exercising power under Section 29 of the
Act.
10. A substantially different view was expressed by another two-Judge
Bench in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd (1993)
2 SCC 299. While indicating that the Corporation established under the
1951 Act is not like an ordinary money-lender or a bank which lends money
10
and it is a lender with a purpose that is promoting the small and medium
industries, the Court observed:-
“…………At the same time, it is necessary to keep certain
basic facts in view. The relationship between the corporation
and the borrower is that of creditor and debtor. The corporation
is not supposed to give loans once and go out of business. It has
also to recover them so that it can give fresh loans to others.
The corporation no doubt has to act within the four corners of
the Act and in furtherance of the object underlying the Act. But
this factor cannot be carried to the extent of obligating the
corporation to revive and resurrect every sick industry
irrespective of the cost involved. Promoting industrialisation at
the cost of public funds does not serve the public interest; it
merely amounts to transferring public money to private
account. The fairness required of the corporation cannot be
carried to the extent of disabling it from recovering what is due
to it. While not insisting upon the borrower to honour the
commitments undertaken by him, the corporation alone cannot
be shackled hand and foot in the name of fairness. Fairness is
not a one way street, more particularly in matters like the
present one …………. These corporations are not sitting on
King Solomon’s mines. They too borrow monies from
Government or other financial corporations. They too have to
pay interest thereon. The fairness required of it must be
tempered — nay, determined, in the light of all these
circumstances. Indeed, in a matter between the corporation and
its debtor, a writ court has no say except in two situations: (1)
there is a statutory violation on the part of the corporation or (2)
where the corporation acts unfairly i.e., unreasonably. While
the former does not present any difficulty, the latter needs a
little reiteration of its precise meaning. What does acting
unfairly or unreasonably mean? Does it mean that the High
Court exercising its jurisdiction under Article 226 of the
Constitution can sit as an appellate authority over the acts and
deeds of the corporation and seek to correct them? Surely, it
cannot be. That is not the function of the High Court under
Article 226. Doctrine of fairness, evolved in administrative law
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was not supposed to convert the writ courts into appellate
authorities over administrative authorities. The constraints —
self-imposed undoubtedly — of writ jurisdiction still remain.
Ignoring them would lead to confusion and uncertainty. The
jurisdiction may become rudderless.”
(emphasis added)
11. In U.P. Financial Corporation v. Naini Oxygen & Acetylene Gas
Ltd. (1995) 2 SCC 754, the Court considered whether the State Financial
Corporation was bound to accept the report of Industrial Reconstruction
Bank of India which contained recommendation for resurrection of the
defaulter company and whether the High Court was justified in commanding
the Corporation to hand over possession of the unit to the company without
any adjustment and observed:
“However, we cannot lose sight of the fact that 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 the
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 taken 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 be, for the
decision of the Corporation. Hence, whatever the wisdom (or
the lack of it) of the conduct of the Corporation, the same
cannot be assailed for making the Corporation liable.
12
We are, therefore, of the view that this is not a matter where the
High Court should have stepped in and substituted its judgment
for the judgment of the Corporation which should be deemed to
know its interests better whatever the sympathies the Court had
for the prosperity of the Company. In matters commercial, the
courts should not risk their judgments for the judgments of the
bodies to whom that task is assigned.”
12. In Karnataka State Financial Corporation v. Micro Cast Rubber
& Allied Products (P) Ltd. (1996) 5 SCC 65, the Court referred to the
earlier judgments in Mahesh Chandra v. Regional Manager, U.P.
Financial Corporation (supra) and U.P. Financial Corporation v. Gem
Cap (India) Pvt. Ltd (supra), adverted to the factual matrix of the case and
held that in the absence of any violation of the statutory provisions by the
appellant-Corporation, its decision to accept the offer made by the particular
bidder for rational reasons cannot be interfered with by the High Court in
exercise of powers under Article 226 of the Constitution.
13. In Haryana Financial Corporation v. Jagdamba Oil Mills (2002)
3 SCC 496, a three-Judge Bench disapproved the view expressed by two-
Judge Bench in Mahesh Chandra v. Regional Manager, U.P. Financial
Corporation (supra) and approved the one expressed by another two-Judge
Bench in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd
(supra). The facts of that case were that the appellant-Corporation had
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sanctioned a term loan of Rs.7,48,000/- to the respondent. The loan was to
be repaid in 8 years in 15 half-yearly installments. After disbursement of the
last installment, the respondent made a request to reschedule repayment of
the loan. The said request was accepted by the appellant-Corporation.
Despite this, the respondent continued to commit default in repayment of
loan. Therefore, after issuing notice under Section 29 of the Act, the
appellant-Corporation took possession of the unit. The respondent filed suit
for permanent injunction, which was decreed by the trial Court. The first
and second appeals preferred by the appellant-Corporation were dismissed
by the District Judge and High Court respectively. The three-Judge Bench
of this Court noticed the background in which the Act was enacted and
proceeded to observe:
“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 insurmountable
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
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instalment by a defaulter may stand in the way of a deserving
borrower getting financial assistance.”
The three-Judge Bench then referred to the judgments in Mahesh Chandra
v. Regional Manager, U.P. Financial Corporation (supra) and U.P.
Financial Corporation v. Gem Cap (India) Pvt. Ltd (supra), approved the
view taken in the later decision by recording the following observations:
“As was observed by this Court in Gem Cap case 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 a creditor
and debtor. That basic feature cannot be lost sight of. A
Corporation is not supposed to give loan and then to write it 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 case 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.”
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
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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 be, for the decision of the Corporation. As was observed
by this Court in U.P. Financial Corpn. v. Naini Oxygen &
Acetylene Gas Ltd 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 Corpn. v. Micro Cast Rubber &
Allied Products (P) Ltd. 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 State Financial Corporation, or ( b ) where 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 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.”
(emphasis added)
Commenting upon the judgment in Mahesh Chandra v. Regional
Manager, U.P. Financial Corporation (supra), the three-Judge Bench
observed:
“The view in Mahesh Chandra case appears to have been too
widely expressed without taking note of the ground realities and
the intended objects of the statute. If the guidelines as indicated
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are to be strictly followed, it would be giving premium to a
dishonest borrower. It would not further the 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, the 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 case 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 of by the courts below. It is one thing to
assist the borrower who has intention to repay, but is prevented
by insurmountable 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 case the matter has
been decided………..
The aforesaid guidelines issued in Mahesh Chandra case
place unnecessary restrictions on the exercise of power by
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 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.
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The subsequent decisions of this Court in Gem Cap ,
Naini Oxygen and Micro Cast Rubber run counter to the view
expressed in Mahesh Chandra case . In our opinion, the
issuance of the said guidelines in Mahesh Chandra case are
contrary to the letter and the intent of Section 29. In our view,
the said observations in Mahesh Chandra case do not lay down
the correct law and the said decision is overruled.”
14. The proposition of law which can be culled out from the decisions
noted above is that even though the primary function of a corporation
established under Section 3 of the Act is to promote small and medium
industries in the State, but it is not obliged to revive and resurrect every sick
industrial unit de hors the financial implications of such exercise. The
corporation is not supposed to give loans and refrain from taking action for
recovery thereof. Being an instrumentality of the State, the corporation is
expected to act fairly and reasonably qua its borrowers/debtors, but it is not
expected to flounder public money for promoting private interests. The
relationship between the corporation and borrower is that of creditor and
debtor. The corporation is expected to recover the loans already given so
that it can give fresh loans/financial assistance to others. The proceedings
initiated by the corporation and action taken for recovery of the outstanding
dues cannot be nullified by the courts except when such action is found to be
in violation of any statutory provision resulting in prejudice to the borrower
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or where such proceeding/action is shown to be wholly arbitrary,
unreasonable and unfair. The court cannot sit as an appellate authority over
the action of the corporation and substitute its decision for the one taken by
the corporation.
15. If the order impugned in this appeal is examined in the light of the
principles laid down in U.P. Financial Corporation v. Gem Cap (India)
Pvt. Ltd (supra) and Haryana Financial Corporation v. Jagdamba Oil
Mills (supra), we do not find any difficulty in holding that the High Court
committed an error in declaring that the action taken by the Corporation was
unfair and unreasonable and the direction issued for review of all pending
cases where penal interest has been compounded is legally unsustainable.
While decrying the appellant-Corporation for allegedly going into slumber
after taking over the unit of the respondent in furtherance of the first notice
issued under Section 29 of the Act, the High Court overlooked many
important factors, which are enumerated below:
(i) The respondent miserably failed to discharge its obligation to
repay the loan together with interest and as against the outstanding
dues of more than Rs.36 lacs in 2002, a paltry sum of Rs.2.70 lacs
was deposited.
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(ii) The appellant-Corporation issued notices dated 2.12.2002,
3.3.3003, 30.5.2003 and 29.8.2003 to the respondent requiring it to
pay the amount specified therein, but the latter did not respond to
either of the notices.
(iii) Vide letter dated 10.9.2004, the appellant-Corporation offered to
reduce the rate of interest and reschedule the payment of dues, but
the respondent did not avail the same.
(iv) The respondent did not take benefit of the schemes notified on
3.1.2005 and 18.3.2005 for restoration of the unit by paying the
principal amount along with 10% of the outstanding interest.
16. In our view, the appellant-Corporation had acted in a most reasonable
and fair manner and the High Court was not justified in nullifying the
second notice issued under Section 29 of the Act by assuming that the
appellant-Corporation had not taken effective steps for realization of its dues
in furtherance of first notice. Unfortunately, the High Court ignored that the
respondent had not only adopted a recalcitrant attitude in the matter of
payment of the outstanding dues, but also failed to avail the concessions
offered by the appellant-Corporation by reducing the rate of interest and
rescheduling the payment of outstanding dues and did not take benefit of the
20
schemes notified by the appellant-Corporation for restoration of unit on
payment of the principal amount with a 10% outstanding interest.
17. The High Court also committed serious error in declaring that he
appellant-Corporation will be entitled to charge simple interest at the rate of
10% w.e.f. 1.4.2003 i.e., after expiry of six months from the date of taking
over of the unit. Undisputedly, the respondent had not challenged the terms
of loan agreement. Therefore, the High Court could not have suo motu
altered terms of agreement and directed the appellant to make fresh
calculation of the outstanding dues and allowed the respondent to pay the
amount as per fresh demand by selling the mortgaged property. This
approach of the High Court is ex facie contrary to the law laid down in U.P.
Financial Corporation v. Gem Cap (India) Pvt. Ltd. (supra) and
Haryana Financial Corporation v. Jagdamba Oil Mills (supra).
18. The direction given by the High Court for review of pending cases in
the light of judgment of this Court in Central Bank of India v. Ravindra
(supra) is also unsustainable because, as mentioned above, the High Court
was not called upon to examine the legality or otherwise of the terms of
21
agreement entered into between the appellant-Corporation and respondent
under which the latter was obliged to pay interest at the particular rate with
periodical rests. Moreover, conclusion No.3 contained in para 55 of that
judgment clearly postulates that stipulations incorporated in the contract
entered into and binding on the parties shall govern their substantive rights
and obligations in the matter of recovery and payment of interest.
19. In the result, the appeal is allowed, the impugned order is set aside
and the writ petition filed by the respondent is dismissed.
……………………. …J.
(G.S. Singhvi)
………………………..J.
(Asok Kumar Ganguly)
New Delhi
December 01, 2009