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CASE NO.:

Appeal (civil) 607 of 2002

PETITIONER:

HARYANA FINANCIAL CORPORATION & ANR.

Vs.

RESPONDENT:

M/S JAGDAMBA OIL MILLS & ANR.

DATE OF JUDGMENT: 28/01/2002

BENCH:

B.N. Kirpal, K.G. Balakrishnan & Arijit Pasayat

JUDGMENT:

ARIJIT PASAYAT, J.

Haryana Financial Corporation (hereinafter referred to as

'Corporation') assails judgment dated 6.10.2000 of the Punjab and

Haryana High Court in regular second appeal No. 3801/2000

whereby judgment and decree in Civil Suit no. 86 of 1995 instituted

before the Civil Judge (Senior Division), Ambala and judgment and

decree in Civil Appeal no.37 of 1998 before the Addl. District Judge,

Ambala affirming them were upheld. Respondents filed the suit

seeking a decree for permanent injunction restraining the

Corporation and its functionaries from auctioning the unit of the

respondents which was seized by the Corporation.

The factual background of the case in a nutshell is as under:

Respondent no.1 a concern represented by its proprietor

(respondent No.2) applied to the Corporation for grant of loan and

in terms of the sanction letter dated 16.10.1992 a sum of

Rs.7,48,000/- was sanctioned. The loan was to be repaid in 8 years,

to be counted from the date of execution of the mortgage deed.

The repayment of the loan was to be made in 15 half yearly

instalments. Said repayment was to commence within 13 months

from the first disbursement of the loan. The first 13 instalments of

payment were to be of Rs.50,000/- each and the last two

instalments were to be of Rs.49,000/-each, towards principal. Apart

from the repayment of principal amount, the respondents were

required to pay, inter alia, interest which became due along with

the respective instalment towards the principal amount.

Respondent no.1 mortgaged its land, building and machinery in

favour of the Corporation. In the mortgage deed it was

categorically mentioned that loan instalments were to be disbursed

on the basis of securities created by the borrowers and as and

when enough securities were created, the loan amount was to be

disbursed. According to the Corporation, the said method was

adopted so as to safeguard the interest of the Corporation and also

to ensure that the money taken as a loan from the Corporation is

being utilized for the purpose for which it was sanctioned as per the

loan agreement. The Corporation disbursed the first instalment of

loan on 25.2.1993 upon creation of the mortgage. The last

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instalment was disbursed on 26.2.1994. The total loan availed by the

respondent no.1 was Rs.7.45 lacs. As per the terms and conditions

stipulated in the loan agreement, respondent no.1 was required to

deposit a sum of Rs.1,29,551/- on 1.3.1994. But there was failure to

deposit the same. Respondent no.1, however, requested the

Corporation to reschedule the repayment schedule. The request

was accepted and reschedulement was done. Thereafter on

1.9.1994 Rs.1,24,409/- fell due. There was again default in making

the deposit. Respondent no.1 again requested to reschedule the

instalment. The request was again accepted. Notwithstanding such

change in the schedule of payments, respondent did not make any

payment. Thereafter on 1.3.1995 an instalment of Rs.1,31,046/- fell

due. As in the past, the respondent defaulted in making the

payment of the said instalment. As the respondent no.1 was a

chronic defaulter in making payment of the instalments action

under Section 29 of The State Financial Corporation Act, 1951 (in

short 'the Act') was taken, after recalling the loan under Section 30

of the Act. Possession of the unit of the respondents was taken by

the Corporation. Respondents instituted Civil Suit no.86 of 1995 in

the court of the Civil Judge (Senior Division), Ambala seeking a

decree for permanent injunction restraining the Corporation and its

functionaries from auctioning the unit which was seized. The said

suit was decreed by the trial court. It was, inter alia, observed that

since the defendants (meaning the Corporation and its

functionaries) did not give breathing time to the unit and its

possession was taken within the period of one year from the date of

last instalment, the action cannot be sustained. Reliance was

placed on the decision of this Court in Mahesh Chandra vs.

Regional Manager, U.P. Financial Corporation and Ors. (1993 (2)

SCC 279). The matter was carried in appeal. The Addl. District

Judge, Ambala in Civil Appeal No. 37 of 1998 upheld the view of

the trial court. Reliance was also placed by the first Appellate Court

on the decision in Mahesh Chandra's case (supra). The matter was

again carried in Second appeal before the Punjab & Haryana High

Court. In the said appeal, by the impugned judgment, the

challenge was negatived. It was held that there was no merit in the

appeal in view of what has been stated by this Court in Mahesh

Chandra's case (supra).

In support of the appeal, learned counsel for the Corporation

submitted that the courts below erred in placing reliance on the

decision in Mahesh Chandra's case (supra) without noticing the

distinguishing factual backgrounds. It was submitted that the courts

below did not apply the decision of this Court in U.P. Financial

Corporation vs. Gem Cap (India) Pvt. Ltd. & Ors. (1993 (2) SCC 299)

which was squarely applicable. The principles to be applied in a

case where action under Section 29 of the Act is sought to be taken

by the Corporation have been elaborately dealt with in the said

case. It is also submitted that the decision in Mahesh Chandra's

case (supra) requires reconsideration in view of what has been

stated in latter decisions, more particularly, in Gem Cap's case

(supra). It is submitted that on the facts as noted by the courts

below, ample opportunity was granted to the respondents to make

payment. Requests for rescheduling the instalments were

accepted. Notwithstanding such adjustments, respondents did not

bother to make payment, and till date, not even a minor fraction of

the principal amount has been paid.

Learned counsel for the respondents submitted the

Corporation and the borrower unit have a fiduciary relationship and

are really partners in a business enterprise. Corporation stands in

the position of a trustee and is not expected to act like any other

individual moneylender. Keeping in view the object for which the

statute in question was enacted, any other interpretation would be

against the legislative intent.

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The object for which the Act was enacted needs to be

noted. Central Industrial Financial Corporation was originally set up

under the Industrial Financial Corporation Act, 1948 with a view to

provide medium and long term credit to industrial undertakings

which fall outside the normal activity of commercial banks. Several

State Governments desired to set up in the States similar

Corporations with a view to supplement the work of Industrial

Financial Corporation. The intention was that the State Financial

Corporations shall confine to the medium and small industrial units

and as far as possible to such cases as are outside the scope of the

Industrial Financial Corporation. Since the incorporation, regulation

and winding up of such Corporations fall within the purview of

Parliament by Entry No.43 of the Union List, request was made to the

Government of India to enact necessary enabling legislation, and

that is how the Act was enacted.

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 unsurmountable 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 instalment by a defaulter may stand on the way of a

deserving borrower getting financial assistance.

As was observed by this Court in Gem Cap's case (supra),

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 creditor and debtor. That

basic feature cannot be lost sight of. A Corporation is not supposed

to give loan and then to write if 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's case (supra), 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. In Mahesh Chandra's case (supra), this Court issued

directions which were required to be observed by the Financial

Corporation while exercising power under Section 29. In this regard,

it was observed at pages 297 and 298 as follows:

"Every endeavour should be made, to make the unit

viable and be put in working condition. If it becomes

unworkable:

(1) Sale of a unit should always be made by public

auction.

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(2) Valuation of a unit for purposes of determining

adequacy of offer or for determining if bid offered

was adequate, should always be intimated to the

unit holder to enable him to file objection if any as

he is vitally interested in getting the maximum price.

(3) If tenders are invited then the highest price on

which tender is to be accepted must be intimated

to the unit holder.

(4) (a) If unit holder is willing to offer the sale price, as

the tenderer, then he should be offered same

facility and unit should be transferred to him. And

the arrears remaining thereafter should be

rescheduled to be recovered in instalments with

interest after the payment of last instalment fixed

under the agreement entered into as a result of

tendered amount.

(b)If he brings third parties with higher offer it would

be tested and may be accepted.

(5) Sale by private negotiation should be permitted

only in very large concerns where investments runs

in very huge amount for which ordinary buyer may

not be available or the industry itself may be of such

nature that by (sic many) normal buyers may not be

available. But before taking such steps there should

be advertisements not only in daily newspapers but

business magazines and papers.

(6) Request of the unit holder to release any part of the

property on which the concern is not standing of

which he is the owner should normally be granted

on condition that sale proceeds shall be deposited

in loan account."

The guidelines were stated to be necessary to ensure fair

play. That decision, as the factual position would go to show was

rendered in a case where the borrower intended to repay the debt

and was anxious to do so. While not insisting upon the borrower to

honour the commitments undertaking by him, the Corporation

alone cannot be shackled hand and foot in the name of fairness.

In matters like the present one, fairness cannot be a one-

way street. Corporations borrow money from the Government or

other financial corporations and are required to pay interest

thereon. Where the borrower has no genuine intention to repay

and adopts pretexts and ploys to avoid payment, he cannot make

the grievance that Corporation was not acting fairly, even if

requisite procedures have been followed.

The obligation to act fairly on the part of the administrative

authorities was evolved to ensure the rule of law and to prevent

failure of justice. This doctrine is complementary to the principles of

natural justice which the quasi-judicial authorities are bound to

observe. It is true that the distinction between a quasi-judicial and

the administrative action has become thin, as pointed out by this

Court as far back as 1970 in A.K. Kraipak V. Union of India [1969 (2)

SCC 262]. Even so the extent of judicial scrutiny/judicial review in

the case of administrative action cannot be larger than in the case

of quasi-judicial action. If the High Court cannot sit as an appellate

authority over the decisions and orders of quasi-judicial authorities, it

follows equally that it cannot do so in the case of administrative

authorities. In the matter of administrative action, it is well known,

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more than one choice is available to the administrative authorities;

they have a certain amount of discretion available to them. They

have "a right to choose between more than one possible course of

action upon which there is room for reasonable people to hold

differing opinions as to which is to be preferred". [As per Lord

Diplock in Secretary of State for Education and Science v.

Metropolitan Borough Counsel of Tameside (1977 AC 1014)]. The

Court cannot substitute its judgment for the judgment of

administrative authorities in such cases. Only when the action of the

administrative authority is so unfair or unreasonable that no

reasonable person would have taken that action, can the Court

intervene. To quote the classic passage from the judgment of Lord

Greene M.R. in Associated Provincial Picture Houses Ltd. v.

Wednesbury Corporation [1947 (2) ALL ER 680]:

"It is true the discretion must be exercised reasonably. Now

what does that mean? Lawyers familiar with the phraseology

commonly used in relation to exercise of statutory discretions often

use the word 'unreasonable' in a rather comprehensive sense. It

has frequently been used and is frequently used as a general

description of the things that must not be done. For instance, a

person entrusted with the discretion must, so to speak, direct himself

properly in law. He must call his own attention to the matters which

he is bound to consider. He must exclude from his consideration

matters which are irrelevant to what he has to consider. If he does

not obey those rules, he may truly be said, and often is said, to be

acting 'unreasonably'. Similarly, there may be something so absurd

that no sensible person could ever dream that it lay within the

powers of the authority."

While this is not the occasion to examine the content and

contours of the doctrine of fairness, it is enough to reiterate for the

purpose of this case that the power of the Courts while reviewing

the administrative action is not that of an appellate court.

The aforesaid position was succinctly stated in Gem Cap's

case (supra).

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 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, for the decision of the Corporation. As was observed by this

Court in U.P. Financial Corporation and Ors. vs. Naini Oxygen &

Acetylene Gas Ltd. and Anr. (1995 (2) SCC 754), 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 vs. Micro

Cast Rubber & Allied Products (P) Ltd. & Ors. (JT 1996 (6) SC 37), 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 the State Financial Corporation, or,

(b) where the 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

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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.

As was observed in The Chairman and Managing Director,

SIPCOT, Madras 8 and Ors. vs. Contromix Pvt. Ltd. by its Director

(Finance) Seetharaman, Madras and Anr. (JT 1995 (6) SC 283) in the

matter of sale of public property, the dominant consideration is to

secure the best price for the property to be sold. This can be

achieved only when there is maximum public participation in the

process of sale and everybody has an opportunity of making an

offer. Public auction after adequate publicity ensures participation

of every person who is interested in purchasing the property and

generally secures the best price. But many times it may not be

possible to secure the best price by public auction when the

bidders join together so as to depress the bid or the nature of the

property to be sold is such that suitable bid may not be received at

public auction. In that event, any other suitable mode for selling of

property can be by inviting tenders. In order to ensure that such

sale by calling tenders does not escape attention of an intending

participant, it is essential that every endeavour should be made to

give wide publicity so as to get the maximum price. These are

aspects which Corporations have to keep in view while dealing with

disposal of seized units.

The view in Mahesh Chandra's case (supra) appears to have

been too widely expressed without taking note of ground realities

and the intended objects of the statute. If the guidelines as

indicated are to be strictly followed, it would be giving premium to

a dishonest borrower. It would not further 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, 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's case (supra) 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 by the courts

below. It is one thing to assist the borrower who has intention to

repay, but is prevented by unsurmountable 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's

cases (supra), the matter has been decided.

Section 29 gives a right to the Financial Corporation inter alia

to sell the assets of the industrial concern and realize the property

pledged, mortgaged, hypothecated or assigned to the Financial

Corporation. This right accrues when the 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

instalment thereof or in meeting its obligations as envisaged in

Section 29 of the Act. Section 29(1) gives the Financial Corporation

in the event of default the right to take over the management or

possession or both and thereafter deal with the property.

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The aforesaid guidelines issued in Mahesh Chandra's case

place unnecessary restrictions on the exercise of power by the

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's 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's (supra),

Naini Oxygen (supra) and Micro Cast Rubber (supra) run counter to

the view expressed in Mahesh Chandra's case. In our opinion, the

issuance of the said guidelines in Mahesh Chandra's case are

contrary to the letter and the intent of Section 29. In our view, the

said observations in Mahesh Chandra's case do not lay down the

correct law and the said decision is overruled.

Courts should not place reliance on decisions without

discussing as to how the factual situation fits in with the fact situation

of the decision on which reliance is placed. Observations of Courts

are not to be read as Euclid's theorems nor as provisions of the

statute. These observations must be read in the context in which

they appear. Judgments of courts are not to be construed as

statutes. To interpret words, phrases and provisions of a statute, it

may become necessary for judges to embark into lengthy

discussions but the discussion is meant to explain and not to define.

Judges interpret statues, they do not interpret judgments. They

interpret words of statutes, their words are not to be interpreted as

statutes. In London Graving Dock Co. Ltd. v. Horton (1951 AC 737 at

P. 761), Lord Mac Dermot observed:

"The matter cannot, of course, be settled merely by treating

the ipsissima vertra of Willes, J. as though they were part of an Act

of Parliament and applying the rules of interpretation appropriate

thereto. This is not to detract from the great weight to be given to

the language actually used by that most distinguished judge."

In Home Office v. Dorset Yacht Co. (1970 (2) All ER 294) Lord

Reid said, "Lord Atkin's speech..is not to be treated as if it was

a statute definition. It will require qualification in new

circumstances." Megarry, J. in (1971) 1 WLR 1062 observed: "One

must not, of course, construe even a reserved judgment of even

Russell L.J. as if it were an Act of Parliament." And, in Herrington v.

British Railways Board, (1972) 2 WLR 537 Lord Morris said:

"There is always peril in treating the words of a speech or

judgment as though they are words in a legislative enactment, and

it is to be remembered that judicial utterances made in the setting

of the facts of a particular case."

Circumstantial flexibility, one additional or different fact may

make a world of difference between conclusions in two cases.

Disposal of cases by blindly placing reliance on a decision is not

proper.

The following words of Lord Denning in the matter of applying

precedents have become locus classicks:

"Each case depends on its own facts and

a close similarity between one case and another

is not enough because even a single significant

detail may alter the entire aspect. In deciding

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such cases, one should avoid the temptation to

decide cases (as said by Cordozo) by matching

the colour of one case against the colour of

another. To decide, therefore, on which side of

the line a case falls, the broad resemblance to

another case is not at all decisive."

xxx xxx xxx

"Precedent should be followed only so far

as it marks the path of justice, but you must cut

the dead wood and trim off the side branches

else you will find yourself lost in thickets and

branches. My plea is to keep the path to justice

clear of obstructions which could impede it."

Learned counsel for the respondents during the course of

hearing submitted that unit is in the possession of the Corporation.

They will make effort to make payment of the amount due to the

Corporation, if a reasonable time is granted. Though their stand has

always been different, and the Corporation opposes the prayer, we

grant the prayer in the peculiar circumstances of the case. To test

the bona fides of the respondents, we direct that the Corporation

shall intimate the respondents within a month from to-day upto

date amount due. Within six months from the date of such

intimation, the respondents shall repay the amount in full. In case of

failure to make the payment, it shall be open to the Corporation to

dispose of the seized unit in accordance with law in such manner as

would bring in the highest price. The appeal is allowed to the

extent indicated above.

....J.

(B.N. Kirpal)

...J.

(K.G. Balakrishnan)

..J.

(Arijit Pasayat)

January 28, 2002