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TMI Blog2009 (12) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Court in Central Bank of India v. Ravindra (supra) and held that the corporation is not entitled to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked 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 of 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 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 suit. Such difficulties do require rescheduling of payment of installment 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 effect 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court under Article 226. Doctrine of fairness, evolved in administrative law 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 and 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 possessions 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 ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 installments. While the cooperation is expected to act fairly in the matter of disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the installments 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Corporation v. Naini Oxygen and 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 Corporation v. Micro Cast Rubber and 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified 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 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 the 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 the unit. Undis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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