1989 (12) TMI 356 - HC - Indian Laws

Summary

Issues Involved:
1. Constitutional validity of Section 29(1) of the State Financial Corporations Act, 1951.
2. Alleged unreasonableness and arbitrariness of Section 29(1).
3. Comparison between Section 29 and Section 31 of the Act.
4. Alleged discriminatory and arbitrary power of the Corporation under Section 29(1).
5. Principles of natural justice and fair play in the application of Section 29(1).
6. Remedies available to aggrieved parties.
7. Specific individual grievances of petitioners.

Detailed Analysis:

1. Constitutional Validity of Section 29(1) of the Act:
The petitioners challenged the constitutional validity of Section 29(1) of the State Financial Corporations Act, 1951, arguing that it is "unreasonable, drastic, arbitrary, violative of the principles of natural justice and fair play." They contended that the provision allows the Corporation to act as a judge in its own cause without any hearing, reasoned order, or procedural safeguards, making it violative of Articles 14, 19, 21, and 300A of the Constitution.

2. Alleged Unreasonableness and Arbitrariness of Section 29(1):
The petitioners argued that Section 29(1) is unreasonable and arbitrary because it provides the Corporation with absolute discretion to take possession and transfer the industrial concern without following any procedure. They claimed that this violates the principles of natural justice and fair play.

3. Comparison Between Section 29 and Section 31 of the Act:
The petitioners pointed out that Section 31 of the Act provides a judicial remedy by allowing the Corporation to approach the District Judge for an order of sale or transfer of management. They argued that the existence of these two remedies gives arbitrary power to the Corporation, enabling it to "pick and choose" which industrial concern to proceed against under Section 29(1) and which to proceed against under Section 31(1). This, they claimed, violates Article 14 of the Constitution.

4. Alleged Discriminatory and Arbitrary Power of the Corporation:
The petitioners contended that the discretion given to the Corporation to choose between proceeding under Section 29 or Section 31 is discriminatory and arbitrary. They argued that this violates the guarantee of equality under Article 14 of the Constitution.

5. Principles of Natural Justice and Fair Play:
The court held that even though the decision of the Corporation under Section 29 is not a quasi-judicial decision but an administrative function, a reasonable reading of Section 29 does not exclude the principle of fair play and some element of natural justice. The court stated that the Corporation must give notice to the party about the default and the consequences, allowing the party reasonable time to explain, reply, or comply. If the Corporation acts fairly and reasonably, it would not be acting arbitrarily.

6. Remedies Available to Aggrieved Parties:
The court noted that if the Corporation's action under Section 29 is in breach of the principles of natural justice, such action could be challenged. However, this would not vitiate the legal provision contained in Section 29. The court also mentioned that the absence of an appeal or corrective machinery does not make the provision bad, as the aggrieved party can challenge the action in writ jurisdiction.

7. Specific Individual Grievances of Petitioners:
The court addressed specific grievances raised by the petitioners, such as:
- Non-payment of the full amount of the loan sanctioned.
- The unit being a sick unit and the Corporation's duty to help in its revival.
- The Corporation's duty to rehabilitate and not kill industrial units by coercive recovery.
- Running units should not be forced to close down by enforcing recovery under Section 29.

The court found that these arguments were attempts to avoid paying the amounts due and delaying recovery. The court emphasized that the Corporation is entitled to cancel the remaining outstanding loan after a reasonable time and proceed under Section 29 if the debtor fails to make substantial payments or offer reasonable reschedulement.

Conclusion:
The court upheld the constitutional validity of Section 29(1) of the State Financial Corporations Act, 1951, stating that it is not arbitrary, irrational, or unreasonable, and is not violative of Articles 14, 19, 21, and 300A of the Constitution. The court emphasized that the Corporation must act fairly and reasonably, giving notice to the debtor and allowing reasonable time for compliance. The court dismissed all the petitions, vacated interim relief, and directed the Corporation to issue fresh advertisements for sale where necessary. The court also provided specific directions for individual cases where possession had been taken or sale had been effected.