IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7910 OF 2009

(Arising out of S.L.P. (C) No.2600 of 2009)

Punjab Financial Corporation ....Appellant

Versus

M/s. Surya Auto Industries ....Respondent

J U D G M E N T

G.S. Singhvi, J.

1.Leave granted.

2.This is an appeal for setting aside order dated 21.11.2008 passed by

the Punjab and Haryana High Court whereby it allowed the writ petition

filed by the respondent, quashed the action taken by the appellant-

Corporation under Section 29 of the State Financial Corporations Act, 1951

(for short, ‘the Act’) for recovery of its dues and also directed review of all

pending cases in which penal interest has been compounded.

3.On an application made by the respondent for grant of loan for setting

up an industrial unit in District Gurdaspur (Punjab), the appellant-

Corporation sanctioned a term loan of Rs.24.25 lacs. For securing repayment

of the loan, the respondent mortgaged immovable properties in favour of the

appellant-Corporation. As per the terms of agreement executed between the

parties, the respondent was required to repay the loan together with interest

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.

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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 v. Haryana Financial Corporation

(2001) 2 All India Banking Law Judgments 516. The respondent also made

a grievance that the officers of the appellant-Corporation had deliberately

disposed of the machinery for a paltry sum of Rs.5 lacs and this had the

effect of destroying the unit. In the counter affidavit filed on behalf of the

appellant-Corporation, it was pleaded that action under Section 29 of the Act

was necessitated because the writ petitioner failed to abide by the terms of

the loan agreement and mortgage. It was further pleaded that even though

the appellant-Corporation offered to reduce the rate of interest and

reschedule the payment of outstanding dues, the respondent did not avail the

same. Not only this, the respondent failed to take benefit of the schemes

notified on 3.1.2005 and 18.3.2005 for restoration of the unit on payment of

the principal amount along with 10% of the outstanding interest.

5.On the pleadings of the parties, the High Court formulated the

following question:

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“Whether after invoking power under Section 29 of the Act, the

respondent Corporation has absolute power of retaining the

property without taking any steps and to continue to charge the

interest and penal interest, without any limit.”

6.The Division Bench of the High Court then stated the principle that as

per the contract between the parties, the debtor is liable to pay interest till the

principal amount is repaid and there is statutory power to take over the

mortgaged property and thereafter also, interest continues to run, but

observed that being a public authority, the Corporation is duty bound to act

fairly; that the power to take possession of the mortgaged property cannot be

exercised without any responsibility and that the Corporation is bound to

take further steps within reasonable time and if it does not do so, the debtor

will not only stand deprived of mortgaged property without any purpose

resulting in loss of earning and possibility of repayment by raising money

against the property. The Division Bench then held that as the appellant-

Corporation is not shown to have taken any steps for a period of six years

after taking over the unit and no explanation has been offered for this, it

neither charge interest at the contractual rate nor can it proceed against any

other property till the earlier taken over property is disposed of. The

Division Bench also referred to the judgment of this Court in Central Bank

of India v. Ravindra (supra) and held that the Corporation is not entitled to

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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 penal interest, declare that from

1.4.2003 i.e. after expiry of period of six months from the date

of taking over of unit of the petitioner, the Corporation will be

entitled to simple interest @ 10%. The Corporation is directed

to make fresh calculation accordingly within one month from

the date of receipt of a copy of this order. We further direct the

Corporation to allow the petitioner to pay the amount as per

fresh demand, if necessary, by selling the mortgaged property

which has been taken over, subject to the payment being made

directly to the Corporation to the extent of its dues. We also

restrain the Corporation from giving effect to its notice

Annexure P-8 of taking over other properties till the unit

already taken over is disposed of. The Corporation may also

review all pending cases where penal interest has been

compounded in violation of law laid down by the Hon’ble

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Supreme Court and where no steps are being taken after taking

over of the unit.”

7.We have heard Shri T.S. Doabia, learned senior counsel appearing

for the appellant and scrutinized the records. The appellant-Corporation was

established under Section 3 of the Act. Section 24 of the Act mandates that

in discharging its functions under the Act, the Board [as defined in Section

2(a)] shall act on business principles due regard being had by it to the

interests of industry, commerce and the general public. Section 25 provides

that the Financial Corporation may, subject to the provisions of this Act,

carry on and transact any of the kinds of business enumerated in Clauses (a)

to (v). These include guaranteeing, on such terms and conditions as may be

agreed upon, (i) loans raised by industrial concerns which are repayable

within a period not exceeding twenty years, and are floated in the public

market; (ii) loans raised by industrial concerns from scheduled banks or

State cooperative banks or other financial institutions; transferring for

consideration any instruments relating to loans and advances granted by it to

industrial concerns; granting loans or advances to, or subscribing to

debentures of, an industrial concern, repayable within a period not exceeding

twenty years from the date on which they are granted or subscribed to, as the

case may be; planning and assisting in the promotion and development of

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industries; providing export related credit and services; undertaking money

market 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 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 the 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, therefore, their approach has to be public

oriented and helpful to the loanee. A helping attitude on the part of the

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Corporation to constantly monitor the working of the industrial concern or

units (it may even charge the overhead expenses on this account) would sub-

serve the purpose of the loan, object of the Act, and the constitutional

objective of economic justice to the needy.

9.The two-Judge Bench then adverted to the scope of Section 29 of the

Act and observed:

“Section 29 confers very wide power on the Corporation to

ensure prompt payment by arming it with effective measures to

realise the arrears. But the simplicity of the language is not an

index of the enormous power stored in it. From notice to pay

the arrears, it extends to taking over management and even

possession with a right to transfer it by sale………… Power

under Section 29 of the Act to take possession of a defaulting

unit and transfer it by sale requires the authority to act

cautiously, honestly, fairly and reasonably. Default in payment

of loan may attract Section 29. But that alone is insufficient

either to assume possession or to sell the property. Neither

should be resorted to unless it is imperative. Even though no

rules appear to have been framed nor any guideline framed by

the Corporation was placed, yet the basic philosophy enshrined

in Section 24 has to be kept in mind. Rationale of action and

motive in exercise of it has to be judged in the light of it. Lack

of reasonableness or even fairness at either of the two stages

renders the take over and transfer invalid. Unfortunately the

Corporation was guilty of not acting in accordance with law

either at the stage of take over or in transferring the unit.

Admittedly the entire loan was not disbursed. Need of the

capital in the last stages cannot be doubted. If the Corporation

refused to release the amount at a time when the unit is nearing

completion or is ready to start functioning, then it falls short of

capital and it is bound to land itself in trouble. This is what

happened in this case. The partners did not cooperate and the

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Corporation without any explanation refused to release the full

amount. Result was that the appellant stood pressed on one

hand from absence of capital and on the other by recovery

proceedings. The Corporation, therefore, should honour their

commitments of releasing entire loan timely except for very

good 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 unit. Such difficulties do require

rescheduling of payment of instalment 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 effort 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 in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd (1993)

2 SCC 299. While indicating that the Corporation established under the

1951 Act is not like an ordinary money-lender or a bank which lends money

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and it is a lender with a purpose that is promoting the small and medium

industries, the Court observed:-

“…………At the same time, it is necessary to keep certain

basic facts in view. The relationship between the corporation

and the borrower is that of creditor and debtor. The corporation

is not supposed to give loans once and go out of business. It has

also to recover them so that it can give fresh loans to others.

The corporation no doubt has to act within the four corners of

the Act and in furtherance of the object underlying the Act. But

this factor cannot be carried to the extent of obligating the

corporation to revive and resurrect every sick industry

irrespective of the cost involved. Promoting industrialisation at

the cost of public funds does not serve the public interest; it

merely amounts to transferring public money to private

account. The fairness required of the corporation cannot be

carried to the extent of disabling it from recovering what is due

to it. While not insisting upon the borrower to honour the

commitments undertaken by him, the corporation alone cannot

be shackled hand and foot in the name of fairness. Fairness is

not a one way street, more particularly in matters like the

present one…………. These corporations are not sitting on

King Solomon’s mines. They too borrow monies from

Government or other financial corporations. They too have to

pay interest thereon. The fairness required of it must be

tempered — nay, determined, in the light of all these

circumstances. Indeed, in a matter between the corporation and

its debtor, a writ court has no say except in two situations: (1)

there is a statutory violation on the part of the corporation or (2)

where the corporation acts unfairly i.e., unreasonably. While

the former does not present any difficulty, the latter needs a

little reiteration of its precise meaning. What does acting

unfairly or unreasonably mean? Does it mean that the High

Court exercising its jurisdiction under Article 226 of the

Constitution can sit as an appellate authority over the acts and

deeds of the corporation and seek to correct them? Surely, it

cannot be. That is not the function of the High Court under

Article 226. Doctrine of fairness, evolved in administrative law

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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 & 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 possession 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 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 taken 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. Hence, whatever the wisdom (or

the lack of it) of the conduct of the Corporation, the same

cannot be assailed for making the Corporation liable.

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We are, therefore, of the view that this is not a matter where the

High Court should have stepped in and substituted its judgment

for the judgment of the Corporation which should be deemed to

know its interests better whatever the sympathies the Court had

for the prosperity of the Company. In matters commercial, the

courts should not risk their judgments for the judgments of the

bodies to whom that task is assigned.”

12.In Karnataka State Financial Corporation v. Micro Cast Rubber

& Allied Products (P) Ltd. (1996) 5 SCC 65, the Court referred to the

earlier judgments in Mahesh Chandra v. Regional Manager, U.P.

Financial Corporation (supra) and U.P. Financial Corporation v. Gem

Cap (India) Pvt. Ltd (supra), adverted to the factual matrix of the case and

held that in the absence of any violation of the statutory provisions by the

appellant-Corporation, its decision to accept the offer made by the particular

bidder for rational reasons cannot be interfered with by the High Court in

exercise of powers under Article 226 of the Constitution.

13.In Haryana Financial Corporation v. Jagdamba Oil Mills (2002)

3 SCC 496, a three-Judge Bench disapproved the view expressed by two-

Judge Bench in Mahesh Chandra v. Regional Manager, U.P. Financial

Corporation (supra) and approved the one expressed by another two-Judge

Bench in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd

(supra). The facts of that case were that the appellant-Corporation had

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sanctioned a term loan of Rs.7,48,000/- to the respondent. The loan was to

be repaid in 8 years in 15 half-yearly installments. After disbursement of the

last installment, the respondent made a request to reschedule repayment of

the loan. The said request was accepted by the appellant-Corporation.

Despite this, the respondent continued to commit default in repayment of

loan. Therefore, after issuing 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 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 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 cater to the needs of the intended

borrowers with the available finance. Non-payment of the

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instalment by a defaulter may stand in the way of a deserving

borrower getting financial assistance.”

The three-Judge Bench then referred to the judgments in Mahesh Chandra

v. Regional Manager, U.P. Financial Corporation (supra) and U.P.

Financial Corporation v. Gem Cap (India) Pvt. Ltd (supra), approved the

view taken in the later decision by recording the following observations:

“As was observed by this Court in Gem Cap case 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 a creditor

and debtor. That basic feature cannot be lost sight of. A

Corporation is not supposed to give loan and then to write it 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 case 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.”

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

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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 be, for the decision of the Corporation. As was observed

by this Court in U.P. Financial Corpn. v. Naini Oxygen &

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 Corpn. v. Micro Cast Rubber &

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 are not to interfere with action under Section 29 of the

Act unless the aforesaid two situations exist.”

(emphasis added)

Commenting upon the judgment in Mahesh Chandra v. Regional

Manager, U.P. Financial Corporation (supra), the three-Judge Bench

observed:

“The view in Mahesh Chandra case appears to have been too

widely expressed without taking note of the ground realities and

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

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

dishonest borrower. It would not further the 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, the 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 case 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 of by the courts below. It is one thing to

assist the borrower who has intention to repay, but is prevented

by insurmountable 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 case the matter has

been decided………..

The aforesaid guidelines issued in Mahesh Chandra case

place unnecessary restrictions on the exercise of power by

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 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.

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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 for

recovery thereof. Being an instrumentality of the State, the corporation is

expected to act fairly and reasonably qua its borrowers/debtors, but it is not

expected to flounder public money for promoting private interests. The

relationship between the corporation and borrower is that of creditor and

debtor. The corporation is expected to recover the loans already given so

that it can give fresh loans/financial assistance to others. The proceedings

initiated by the corporation and action taken for recovery of the outstanding

dues cannot be nullified by the courts except when such action is found to be

in violation of any statutory provision resulting in prejudice to the borrower

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or where such proceeding/action is shown to be wholly arbitrary,

unreasonable and unfair. The court cannot sit as an appellate authority over

the action of the corporation and substitute its decision for the one taken by

the corporation.

15.If the order impugned in this appeal is examined in the light of the

principles laid down in U.P. Financial Corporation v. Gem Cap (India)

Pvt. Ltd (supra) and Haryana Financial Corporation v. Jagdamba Oil

Mills (supra), we do not find any difficulty in holding that the High Court

committed an error in declaring that the action taken by the Corporation was

unfair and unreasonable and the direction issued for review of all pending

cases where penal interest has been compounded is legally unsustainable.

While decrying the appellant-Corporation for allegedly going into slumber

after taking over the unit of the respondent in furtherance of the first notice

issued under Section 29 of the Act, the High Court overlooked many

important factors, which are enumerated below:

(i)The respondent miserably failed to discharge its obligation to

repay the loan together with interest and as against the outstanding

dues of more than Rs.36 lacs in 2002, a paltry sum of Rs.2.70 lacs

was deposited.

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(ii)The appellant-Corporation issued notices dated 2.12.2002,

3.3.3003, 30.5.2003 and 29.8.2003 to the respondent requiring it to

pay the amount specified therein, but the latter did not respond to

either of the notices.

(iii)Vide letter dated 10.9.2004, the appellant-Corporation offered to

reduce the rate of interest and reschedule the payment of dues, but

the respondent did not avail the same.

(iv)The respondent did not take benefit of the schemes notified 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

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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 he

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 of the unit. Undisputedly, the respondent had not challenged the terms

of loan agreement. Therefore, the High Court could not have suo motu

altered terms of agreement and directed the appellant to make fresh

calculation of the outstanding dues and allowed the respondent to pay the

amount as per fresh demand by selling the mortgaged property. This

approach of the High Court is ex facie contrary to the law laid down in U.P.

Financial Corporation v. Gem Cap (India) Pvt. Ltd. (supra) and

Haryana Financial Corporation v. Jagdamba Oil Mills (supra).

18.The direction given by the High Court for review of pending cases in

the light of judgment of this Court in Central Bank of India v. Ravindra

(supra) is also unsustainable because, as mentioned above, the High Court

was not called upon to examine the legality or otherwise of the terms of

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agreement entered into between the appellant-Corporation and respondent

under which the latter was obliged to pay interest at the particular rate with

periodical rests. Moreover, conclusion No.3 contained in para 55 of that

judgment clearly postulates that stipulations incorporated in the contract

entered into and binding on the parties shall govern their substantive rights

and obligations in the matter of recovery and payment of interest.

19.In the result, the appeal is allowed, the impugned order is set aside

and the writ petition filed by the respondent is dismissed.

……………………. …J.

(G.S. Singhvi)

………………………..J.

(Asok Kumar Ganguly)

New Delhi

December 01, 2009

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