1997 (10) TMI 365 - HC - Companies Law

Issues Involved:
1. Is the action of the respondents in proceeding to take over possession under section 29 discriminatory and arbitrary?
2. Is the action violative of the provisions of section 29 of the State Financial Corporations Act, 1951?
3. Is the action barred by the principle of estoppel?

Issue-wise Detailed Analysis:

Reg: (i) Discriminatory and Arbitrary Action:

Mr. Sibal contended that the three sugar mills had been sold to three different firms, and all had entered into similar agreements, thus, they were similarly placed. However, the petitioner has been singled out for action under section 29 for no valid reason. The transaction is, thus, violative of article 14 of the Constitution.

The court noted that while it is true that the Government had decided to transfer the three sugar mills from the co-operative to the corporate sector and three promoters had agreed to run the mills, the factual positions were different. Nahar Sugar & Allied Industries Ltd. had paid the entire agreed price in January 1994, and Piccadily Sugar & Allied Industries Ltd. had given a cheque for Rs. 11 crores and a draft for Rs. 49 lakhs on 14-3-1996. Both firms had made the payment while the petitioner had not. Additionally, the petitioner had requested the respondent-corporation to convert the sale consideration into a term loan, which was not done by the other two firms.

Thus, the agreements between the parties were different, and the factual position was different. Consequently, the charge of discrimination was unfounded. Furthermore, even if the other two firms had defaulted, it would not debar the respondent from taking action against the petitioner.

The court also referred to the decisions in Mediwell Hospital & Health Care (P.) Ltd. v. Union of India and Yadu Nandan Garg v. State of Rajasthan, concluding that an illegal order cannot form the basis of a charge of discrimination under article 14. Consequently, the plea of discrimination was not tenable.

Reg: (ii) Violation of Section 29 of the State Financial Corporations Act:

Mr. Sibal contended that the impugned order is contrary to the provisions of section 29 of the State Financial Corporations Act. Section 29(1) provides that the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern in case of default.

The court found that the petitioner had admittedly made a default by not paying the amount as stipulated in the agreement dated 24-6-1993, and later under the agreement dated 30-8-1994. The ingredients of sub-section (1) of section 29 were fulfilled, and the Corporation had the right to take over possession and management, which it did.

Mr. Sibal argued that the Corporation had to get the letter of intent transferred in favour of the petitioner and execute the conveyance deed before repayment. However, the court noted that the petitioner had undertaken to pay a sum of Rs. 13,65,45,876.91 to the State Government on behalf of the respondent-corporation, and the obligation to transfer the assets and liabilities would arise only on payment. The petitioner did not carry out its part of the obligation, so the occasion for the respondent to execute the conveyance deed or transfer the property never arose.

The court referred to the decisions in Mahesh Chandra v. U.P. Financial Corpn. and U.P. Financial Corpn. v. Gem Cap (India) (P.) Ltd., concluding that the respondents had acted fairly and within the provisions of section 29. The petitioner was given ample opportunity to repay, and the action was not arbitrary or unfair.

Reg: (iii) Principle of Estoppel:

The petitioner contended that the respondents were estopped from invoking the provisions of section 29 as they had failed to carry out their obligation to get the letter of intent transferred and to execute the conveyance deed.

The court found that the petitioner was under an obligation to pay the consideration money, which it did not do. The respondents had requested the competent authority to transfer the letter of intent, but the petitioner continuously defaulted. The court noted that the petitioner could not complain that the respondents had failed to carry out their obligations or that they were estopped from resorting to the provisions of section 29.

The court also noted that the petitioner had not carried out its obligations in making the payment to the respondent-corporation, and a company petition for winding up the petitioner-company had been filed. The court found no specific provision in any of the agreements supporting the petitioner's contention that the respondents were bound to transfer the letter of intent and the land before asking for money or resorting to section 29.

Conclusion:

The court concluded that the action of the respondents was neither discriminatory nor arbitrary and was not violative of article 14. The impugned order was in conformity with the provisions of section 29, and the plea of estoppel was not sustainable. Consequently, the writ petition was dismissed, and the parties were left to bear their own costs.

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