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Issues Involved:
1. Legality of the Corporation's actions in taking over and transferring the unit. 2. Adherence to business principles and public interest by the Corporation. 3. Application of principles of natural justice u/s 29 of the State Financial Corporations Act. 4. Guidelines for Financial Corporations in exercising power u/s 29. 5. Definition and application of "business" in the context of public and private sectors. 6. Interpretation of law and justice in the context of public functionaries' actions. 7. The Corporation's duty as a trustee in managing and selling the debtor's property. Summary: 1. Legality of the Corporation's Actions: The Corporation was found guilty of not acting in accordance with law either at the stage of takeover or in transferring the unit. Defaults in loan payment may attract Section 29, but that alone is insufficient to assume possession or sell the property unless imperative. Lack of reasonableness or fairness at either stage renders the takeover and transfer invalid. The Corporation's actions were contrary to the spirit and scheme of Section 24 of the Act, which requires the Board to discharge its function on business principles, considering the interest of industry, commerce, and the general public. 2. Adherence to Business Principles and Public Interest: The Corporation's decision to accept a lower tender instead of a higher lump-sum offer was neither based on business principles nor in the interest of commerce and industry. The Corporation's solicitous attitude at the expense of the appellant was deemed unjust and unfair. The Corporation should honor its commitments of releasing the entire loan timely, except for very good reasons, which should be communicated beforehand. 3. Application of Principles of Natural Justice u/s 29: Section 29 does not exclude the application of the principles of natural justice. Before accepting the tender of the third respondent, an opportunity should have been given to the appellant to object. The sale of the property was vitiated by unjust and unreasonable acts on the part of the Corporation and is liable to be set aside. The appellant is not bound by the sale or subsequent acts of the purchasers. 4. Guidelines for Financial Corporations: The Court issued necessary directions for Financial Corporations while exercising power u/s 29: - Endeavour to make the unit viable. - Sale of a unit should be by public auction. - Intimate the unit holder about the valuation. - Inform the unit holder of the highest tender price. - Offer the unit holder the same facility as the tenderer. - Sale by private negotiation only in very large concerns with prior advertisement. - Grant requests to release any part of the property not standing on the concern. 5. Definition and Application of "Business": "Business" has a wide import with no definite meaning, differing from private to public sector or from institutional financing to commercial banking. Financial corporations under the Act were visualized as an extended arm of a welfare state to harness business potential for public benefit. 6. Interpretation of Law and Justice: The law consists of body and soul, with the letter of the law being the body and the sense and reason being the soul. Actions of public functionaries should be tested on the touchstone of fairness and justice. Arbitrary actions are ultra vires and do not become bona fide merely because no personal gain is established. 7. Corporation's Duty as a Trustee: The Corporation, as a trustee, must act reasonably and fairly in dealing with the debtor's property. The sale should aim to secure the maximum price, and actions should be just, fair, and reasonable. The Corporation's failure to act prudently and reasonably in this case led to the setting aside of the sale. Conclusion: The appeal was allowed, quashing the sale and mandating the Corporation to resume possession of the hypotheca and implement the directions contained in the judgment. The appellant was given the option to pay the entire liability and redeem the hypotheca as per the contract. If the appellant fails, the Corporation can sell the same in an open auction after giving wide publicity.
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