ORDER G.S.N. Tripathi, J.
1. This is a petition under Art. 226 of the Constitution for the following reliefs:--
(a) to issue appropriate writ, order or direction in the nature of certiorari quashing and/setting aside the notice dated 4-11-1992 issued by the respondent No. 1 (Annexure 8 to the writ petition).
(b) to issue appropriate writ, order or direction in the nature of certiorari quashing/ setting aside the letter dated 9-11-1992 (Annexure 10 to the writ petition.
(c)to issue an appropriate writ, order or direction in the nature of mandamus directing the respondent No. 1 to create Pari-Passu charge in favour of the other Financial Institutions vis-a-vis the petitioner.
(d) to issue an appropriate writ, order or direction in the nature of mandamus directing the respondent No. 1 to disburse the balance amount of loan to the petitioner in terms of the agreements.
(e) to issue a writ, order or direction restraining the respondents, their officers and agents from taking any action pursuant to the notice dated 4-11-1992 and Utter dated 9-11-1992.
(f) to pass such other and further orders a this Hon'ble Court may deem fit and proper in the circumstancs of the present case.
(G) to award cost of this petition to the petitioner as against the opposite parties.
2. The petitioner is a limited company engaged inter alia in the manufacture and sale of explosives (Nitro Glycerine based Industrial explosives). Prior to 1986, the petitioner company was known as Narendra pxplosives Ltd. On 27-12-82 the respondent No. 1 (which is Uttar Pradesh State Financial Institution established to advance loans etc. for industrialization of the State) entered into an agreement with Narendra Explosives Ltd. (Predecessors of the petitioner) to advance a term loan of Rs. 24 lakhs. Out of it, Rs. 22.5 lakhs have already been advanced by respondent No. I as per agreement of the said date (Annexure 1). Thereafter, another additional supplememary loan agreement was entered into between the respondent No. 2 and the petitioner on 29-6-89 whereby, respondent No. I agreed to advance an additional term loan of Rs. 7 lakhs for the aforesaid manufacturing purpose (Annexure 2). The said loan was repayable in 32 quarterly instalments from 31-8-89 to 31-5-97 as per schedule given in Annexure 1 supra. Further the respondent No. 1 had agreed that the charge would rank Pari Passu with the charge created/to be created in favour of PICUP. IDB1, ICICI, IFC1, LTD. and IRB1 (other financial institutions established by the Government of India for the loans obtained/ to be obtained from these Financial Institutions.
3. After 1986 the petitioner decided to go in for an expansion of the project and for that he required financial assistance from other institutions as well. He first approached Industrial Finance Corporation of India (IFCI) to lead financial insatitution. The said institution agreed on 9-10-90 to grant term loan to the petitioner not exceeding Rs. 295 lakhs in aggregate under the Project Finance Participation Scheme in participation with other financial institutions. The IFCI further agreed to subscribe 15% of redeemable cumulative preference shares of the aggregate face value of Rs. 100 lakhs. It further agreed to extend foreign currency loan equivalent to U.S. Dollar 1319,790. Other financial institutions also agreed to participate in this expedition of the petitioner. The IFCI disbursed part of its loan for the first time in the first quarter of 1991 but due to extremely stringent foreign exchange condi-
tions prevailing in the country, no disbursement of foreign currency loan could be effected by the financial institutions in 1990-91. The respondent No. 1 as per its letter dated 8-1-91 agreed in principle to the IFCI letter dated 9-10-90 supra and decided to gram concessions/reliefs as per its letter dated 8-1-91 inter alia, to fix the repayment of the funded interest over a period of 8 years between 1993-94 and 1996-97, to reschedule the repayment of term loan to be paid over a period of 8 years between 1993-94 and 2000-01 to grant pari passu charge over the fixed assets to secure the additional rupee loan of Rs. 295 lakhs and foreign currency loan equivalent to Rs. 205 lakhs from CFI (Central Financial Institution) vide Annexures 3 and 4.
4. The petitioner started its trial production in April, 1992 and approached IFCI to extend the concessions agreed (Annexure 5). The IFCI agreed in principle to grant modification to the existing package of reliefs/ concessions in respect of term loans as per its letter dated 15-10-92 (Annexure 6) with the following conditions:--
(i) The amount of interest up to 31-3-1991 already funded as per existing package (except the amount relating to dormant period referred to at (iv) below), to carry interest at the rate of 13.5 percent per annum (exclusive of interest tax) from 1-4-1991.
(ii) To fund interest due/accruing from 1-4-91 to 30-9-1992 after waiver of penal interest liquidatend damanges on term loans and funded interest at (i) above, calculated at net document rate(s) on compound basis.
(iii) The funded interest referred to at (i) and (ii) above to be repaid over a period of 4 years in 16 quarterly instalments from 1994-95 to 1997-98, as per repayment schedule to be advised separately.
(iv) The funded interest relating to the period when project implementation remained dormant, i.e. from 7-11-1986 to 13-9-1988 already converted into rate of debentures to be repaid in 2000-01.
(v) To defer interest computed on net document rate(s) on compound basis on term Loans/FI, accruing/due during the first six months of operations, i.e. from 1-10-1992 to 1-3-1993, carrying interest @ 13.5 per cent (exclusive of interest tax) and to be repaid in two equal quarterly instalments between 1-10-1993 and 31-3-1994.
(vi) To revise the schedule of repayment in respect of the existing terms loans to be amortised over a period of 7 years in quarterly/half yearly instalments from 1995-96 to 2001 -02, carrying document rate(s) of interest (Repayment Schedule for Rupee Loans is annexed).
5. Pursuant to the said concessions of IFCI, the LIC (Life Insurance Corporation of India) agreed to grant modifications to the existing package of reliefs and concessions in respect of term loans (Annexure-7).
6. The respondent No. 1 issued notice dated 4-11-92 (Annexure 8) purportedly under Section 29 of the State Financial Corporation Act, 1991 calling upon the petitioner to pay a sum of Rs. 4,51,632.33 paisa on or before 18-11-92, failing which physical possession of the petitioner's unit would be taken over by it. This notice was against the spirit of concessions agreed to be extended by other financial institutions and was likely to cause immense set back to the progress of the petitioner's unit. The petitioner requested respondent No. 1 to withdraw the notice vide its letter dated 12-11-92 (Annexure 9). By another letter dated 9-11-92 (Annexure 10) respondent No. 1 informed the petitioner of Us decision to cancel the additional term loan of Rs 9.50 lakhs sanctioned earlier. Further it informed about its decision to withdraw concessions and reliefs in respect of the earlier term loan of Rs. 22.50 lakhs sanctioned to the petitioner. It further expressed its inability to accede to pari passu charge in favour of other financial institutions for their rupee and foreign currency loans. The petitioner made a representation dated 23-11-92 to the respondent No. 1 (Annexure 11) explaining the circumstances in which the instalments could not be paid and other handicaps likely to be suffered by the petitioner at the hands of other financial institutions who had agreed to extend helping financial hands to the petitioner.
7. The petitioner in its expansion programme is installing an Emulsion Explosive Plant for which M/s. Atlas Powder Company of U.S.A. made an offer in December, 1989 which included three machines costing US Dollar 718000. The petitioner negotiated for the second hand used plant machinery and another supplier Premont Group Ltd. offered the bid worth US Dollar 339000, In case the Letter of Credit is not opened by respondent No. 1 by the end of November, 92, the plant would not be supplied to the petitioner by the foreign bidders which preferably may be supplied in winter season only otherwise cost escalation would be enormous hence the opening of Letter of Credit by the respondent No. 1 is a must for the survival of the petitioner and as otherwise all the expansion programmes will be jeopardised and it will further block enormous funds advanced to be advanced by other financial institutions. Nay, it will defeat the very purpose i.e. promote industrialization in the State, for which the respondent No. 1 came into existence. Other financial institutions who had agreed to extend financial concession are also likely to withdraw. Other financial institutions were very keen to finance terms loan to the petitioner as they are satisfied with the progress of the project (Annexure 14).
8. Under these circumstances, respondent No. 1 after once having agreed to extend help to the petitioner cannot back-track of its promise and assurances and principles of promissory estoppel will come in its way. It cannot be said to be a fair exercise of powers conferred upon the respondent No. 1 under Section 29 of the State Financial Commission Act. Hence both these notices have been challenged by the petitioner and the reliefs aforesaid have been prayed for.
9. The respondents in their counter-affidavit filed through Sri C. B. Lal, Legal Asstt. in its office at Lucknow has averred that the respondent No. 1 agreed to advance a term loan of Rs. 25 lakhs out of which an amount of Rs. 22.50 lakhs was disbursed in three instalments i.e on 25-1-83-- 10 lakhs, on 24-2-83-- 5 lakhs and on 21-12-83-- 7.5 lakhs to Narendra Explosives, the predecessor of the petitioner.
10. Apart from this, the said company had been advanced a loan against Central Investment Subsidy expected by them which not having been released an amount of Rs. 7,94,000/- stood as loan against them w.e.f. 12-4-84.
11. Under a supplementary loan agreement dated 29-6-89, a further additional loan of Rs. 7 lakhs was agreed to be advanced to the company. This was coupled with the undisbursement portion of the term loan totalling Rs. 9,50,000/-. The respondent No. 1 had also issued a letter dated 15-3-91 giving consent to pari passu charge for the additional term loan. This loan had been disbursed and has been withdrawn as per impugned notice. The respondent had further agreed for pari passu charge with other financial institutions in respect of the equitable mortgage created in its favour.
12. But the progress of the company in implementation of the scheme was very tardy. They not only defaulted in payment of interests even after the joint equitable mortgage created on 7-4-84 in respect of the term loan of the various institutions, the company could not complete the formalities to start production. Therefore, the financial institutions led by IFCI granted concessions and reliefs to the petitioner's company with a view to rehabilitate them. These concessions carried reliefs in respect of the dues til! 31-3-92 and reschedulement of these dues from 1993-94 onwards but this was subject to a specific term that the terms and conditions under the existing term loan would continue to apply. Consequently, the company was bound to pay the interest on the term loan falling due after 31-3-92 including interest but the company did not pay even a single instalment towards the current dues. At the time of extending concessions and reliefs as per letter dated 8-1-92, it was envisaged that commercial production will start w.e.f. 1-4-91 but due to tardy progress the confidence of respondent No. 1 was considerably eroded regarding viability and trustworthiness of the petitioner. Due to the default in payment of current dues, the respondent No. 1 pointed that there was no justification to further support the petitioner. Therefore, the impugned notices were issued. The petitioner did not inform the respondents about the commencement of its commercial production. The respondent is not legally bound to grant further reliefs and concessions merely because IFCI has agreed to do so. The respondent had been accommodating the petitioner as far as possible, but it was compelled to take stern legal action after finding that the progress of the petitioner-company was not satisfactory. There was never any assurances given by the respondents to the petitioner to extend reliefs even in case of defaults committed by the petitioner.
13. In its rejoinder, the petitioner, through an affidavit filed by Sri N. L. Gayari, Secretary of the petitioner-company, has denied that the progress of the company in implementation of the scheme was very tardy or that the company defaulted in payment of interests as per agreement. The earlier company Narendra Explosives was taken over by the present company in 1986 and by 31-12-92, the present management has brought in funds by way of promoters contribution to the extent of Rs. 865-50 lakhs. It has approached other financial institutions also who have agreed to contribute additional funds to the extent of Rs. 600 lakhs, whereas, the contribution of respondent No. 1 is very negligible. Of late, the behaviour of the respondent No. 1 has been very non-co-operative. Other financial institutions have agreed to reschedule the debts and payments but respondent No. 1 has not been so helpful. It is not correct to say that the petitioner-company was bound to pay interest on the term loan falling due after 31-3-92. The entire project of the petitioner is in grave danger mainly on account of unreasonable and high handed attitude of the respondent in refusing to fall in line with other financial institutions extending help to the petitioner. In its progress report dated 2-12-92 (Anncxure C to the rejoinder-affidavit) the petitioner-company brought to the notice of the respondent that it had started commercial production. The respodent has not tried to accommodate the petitioner. In absence of any default in repayment of the dues by the petitioner, the respondent is bound to extend the reliefs and it cannot withdraw the no-objection certificate in issuing pan passu charge in favour of other financial institutions. All payments to be made by the petitioner were deferred up to 30-9-92 hence nothing was due when the impugned notices were issued.
We have heard the learned Counsel for the parties at stretch at the stage of admission itself. During the course of arguments, learned Counsel for the petitioner Sri Sudhir Chandra agreed to deposit Rs. 2 lakhs within a month in order to show the bona fides of the petitioner, that it is ready to pay its dues as and when they will fall due. Learned Counse for the respondent Sri Murlidhar has no objection to it.
14. Before we embark upon the exercise to analyse the factual position, it will be proper for us to define the scope of jurisdiction of this Court while dealing with a petition under Article 226 of the Constitution. We may profitably quote the observations of their Lordships of the Supreme Court made in the judgment dated 2-3-92 in U. P. Financial Corportion v. M/s. Gem Cap (India) Pvt. Ltd., 1993 (2) JT SC 226 : (1993 AIR SCW 1189), para 10 at page 231 :-
"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 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.
Para 11: -- The obligation to act fairly on the part of the administrative authorities was involved to ensure the Rule of Law and to prevent failures 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 administrative action has become thin, as pointed out by this Court far back as 1970 in A. K. Kraipakv. Union of India, AIR 1970 SC 150. Even so the extent of judicial scrutiny judicial review in the case of administrative action cannot be larger than 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 usually that it cannot do so in the case of administrative authorities. In the matter of administrative action, it is well-known, 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" (Lord Diplock in Secretary of State for Education v. Tameside Metropolitan Borough Counsel, 1977 AC 1014 at 1064. The Court cannot substitute its judgment for the judgment of administrative authorities in such cases. Only when the aciton 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 Greeme MR in Associated Provincial Picture Houses Ltd. v. Wednes-bury Corporation 1948 (1) KB 223 at 229.
"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 rather comprehensive sense. It has recently been 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 not relevant 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 "unreason ably" similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority."
Para 12 : -- While this is not the occasion to examine the content and contours of the doctrine of fairness, it is enough to reterate for the purpose of this case that the power of High Court while reviewing the administrative action is not that of an appllate court. The judgment under appeal precisely does that and for that reason is liable to be and is herewith set aside."
15. In view of the aforesaid latest pronouncement of their Lordships of the Supreme Court, it is amply clear that this Court cannot analyse the decisions arrived at by the quasi-judicial authorities as if it were the appellate Court. This Court can interfere only when it finds that the quasi-judicial authorities have violated the rules of natural justice or have acted unfairly or arbitrarily.
16. At this stage it is pertinenl to note that much stress was laid by the learned counsel for the petitioner on some observations made by their Lordships of the Supreme Court in case of Mahesh Chandra v. Regional, Manager, U. P. Financial Corporation, 1992 JT (II) SC 326 : (1992 AIR SCW 3629) dated 12-2-1992. While dealing with this case in the Gem Cap case supra, their Lordships have made the following observations in paragraph 13, which are as under:--
"On behalf of the appellant reliance has been placed upon the decision of this Court in Mahesh Chandra v. Regional Manager, U. P. Financial Corporation, 1992(2)JT 326:1992 AIR SCW 3629. We have perused the decision. That was a case where the debtor was anxious to pay off the debt and had been taking several steps to discharge his obliga-
tion. On the facts of that particular case it was found that the corporation was acting reasonably. In that context certain observations were made. The decision also deals with the procedure to be adopted by the Corporation while selling the units taken over under S. 29. That aspect is not relevant in this case. We are therefore, of the opinion that the said decision is of no help to the appellant herein."
17. This is not a case in which the petitioner was anxious to pay all the debts or has shown its anxiety to do so rather the present is a case in which the petitioner has been seeking excuses for not making payments. Therefore, too much reliance upon the observations of their Lordships of the Supreme Court in Mahesh Chandra's case supra is not going to be of much help to the petitioner.
18. Admittedly, the agreement between respondents and M/s. Narendra Explosives Ltd. came into being on 17th December, 82, whereby the respondents agreed to lend Rs. 22.5 lakhs to Narendra Explosives Ltd., predecessors of the petitioner. All the terms and conditions which are very material for decision of this case have also been contained in that agreement (Annexure 1 to the petition). It is admitted that all the assets and liabilities of M/s. Narendra Explosives Ltd. were taken by the present petitioner company.
19. Another supplementary loan agreement dated 29-6-89 was entered into between respondent and the petitioner. That was a term loan of Rs. 25 lakhs. The terms and conditions of earlier loans were also coopted in this agreement. The respondent further sanctioned an additional term loan of Rs. 7 lakhs to the petitioner by the same agreement. The name of the company was also changed from M/s. Narendra Explosives Ltd. to M/s. Bharat Explosives Ltd. (present petitioner) and also for the transfer of the respondents term loan to the new borrower i.e. the present petitioner. Two other terms in these words were also incorporated in this agreement. They are as under:--
i. In extension of joint equitable mortgage with PICUP, IDBI, ICICI, 1FCI, CIC and IRBI for their loan of Rs.605.27 lakhs covering the entire fixed assets of the borrower acquired and proposed to be acquired, including moveable machinery, spares tools and accessories for its above project at Lalitpur and such other assets which may subsequently be acquired during the currency of the loan.
ii. The above charge would rank pari passu with the charge to be created/in favour of PICUP, IDBI, ICICI, IFC1, LIC and IRBI for rupee loan of Rs.605.27 lakhs to be obtained from these institutions.
The repayment schedule to be made in 32 quarterly instalments beginning from 3 l-8-89 and ending on 31-5-97 as per schedule given in Annexure A. It is relevant to refer to the repayment schedule as given at page 49. Fifteen instalments have become due by 28-2-93. It is also not disputed that the petitioner has not paid any instalment so far. Of course, it has been assigning reason and raising its accusing fingers towards the respondent by saying that on due dates the respondent did not release loans, therefore, the petitioner was handicapped in proceeding with its progress schedule. It also said that other concessions were not extended by the respondent, as a result of which other financial institutions could not extend loans, although they had promised to do so and in absence of a certificate for pari-passu charge by the respondent, other financial aid has not flown into the petitioner company and, therefore, it has not been able to pay the money. But in this clothed and sophisticated way the petitioner wants to impress upon this Court that since the loan instalments have not become due, therefore, the question of payment of instalments does not arise. Again it was urged that as the trial prodcution has started and other loans are very much in the pipeline, awaiting for a green signal from the respondents, the money would be paid as and when it becomes covenient to the petitioner. It is not backing out from its liability to pay the same.
20. These questions have to be examined in (sic).
21. One thing which has to be kept in mind is that it is a primary duty of the State to provide employment to its citizens, the list of which is never ending and ever increasing. In achieving this object, industrialisation of the country is a must. It is for achieving these aims that the State has constituted financial corporations tike the respondent. Admittedly, the respondents are the instrumentality of the State. The State acts through them. Apart from it, India is a welfare country. Therefore, very technical view should not be taken and broad based consideration should be had. Before we embark upon to decide the conduct of the parties to this case, we have to keep in mind the solitary factor that the petitioner is a company which aims at providing employment to the citizens on the one hand and also raising production, on the other it is likely to earn foreign exchange also for the country. For this purpose they entered into agreements with the respondents: The respondents also assured the petitioner that in case it tries to get funds from other financial institutions, the respondents will be helpful in that process. For that reference may be made to Annexure 2, letter dated 8-1-91 written by the respondents to the petitioner. "............ We have considered your request and are agreeable, in principle, to grant you the concessions and reliefs in respect, of our two term loans aggregating to Rs. 32.00 lakhs, to fund the interest between 1-4-87 to 31-3-91 on our term loans computed at net document rates on compound basis, and on interest upto 31 -3-87 earlier agreed to be funded, computed @ 6% per annum on compound basis............."The repayment schedules of PP1CUP term loans and funded interest would be drawn up after the same is done by IFCI on their loans and funded interest. (Column IV page 59), to fix repayment of funded interest over a period of 4 years between 1993-94 and 1996-97 with interest-free component having precedence on repayment. (Column vii, page 60) and to reschedule the repayment of our term loans to be repaid over a period of 8 years between 1993-94 and 2000-01 and to grant pari passu charge over fixed assets to secure the additional loans of Rs. 295.00 lakhs of Central Financial Institutions..........." (Columns vii and ix at page 60). This way the respondents were not only fully aware that the petitioner wanted to take loans from other financial institutions to expant its operation, but they also assured the petitioner to actively involve themselves in this expansion programme by releasing concessions and over and above by re-scheduling the re-payment and further to grant pari passu charge. This was a very helpful step which the respondents undertook to extend and provide to the petitioner.
22. The letter dated 15-10-92 (Annexure 6, pages 89 to 96 is very relevant in this connection. This is a letter written by the Industrial Finance Corporation of India, New Delhi to the petitioner. In responst to its request for grant of reliefs and concessions. In paragraph 2 at page 90, it has been specifically mentioned............. In this connection, IFCI is agreeable, in principle, to grant modification to the existing package of reliefs/concessions in respect of term loans sanctioned for the NG Explosives and Emulsion Explosives project to the company as per the following packages (column No. ii) to fund interest due/accruing from 1-4-1991 to 30-9-1992 after waiver of penal interest/liquidated damages on term loans and funded interest....
(column iii) ...... The funded interest to be repaid over a period of 4 years in 16 quarterly instalments from 1994-95 to 1997-98, as per revised repayment schedule (column iv). The funded interest relating to the period when the project remained dormant i.e. from 7-11-1986 to 13-9-1988, already convened into '0' rate debentures to be repaid in 2000-01. (column v) To defer interest computed on net document rates............ during first 6 months of operations i.e. 1-10-92 to 31-3-1993 to be repaid............. in two equal quarterly instalments between 1-10-93 to 31-3-94......"
There are other concessions also extended by the IFCI which should be kept in mind and need not be incorporated in the judgment. This is a thing which had been agreed to by the respondents also as we have already noted above. Therefore, the respondents were bound by their commitment to extend all the facilities as they had agreed on the same terms, as IFCI or other financial institutions would agree. Believing on the assurances given by the respondents. The petitioner tried to expand its business and further to raise capital for its expansion programme. To a greater extent it succeeded also and the trial production started after dormancy period (7-11-86 to 13-9-88) in April, 1992. This was a stage also for the petitioner company to raise its head as it was at the threshold of its career. Naturally it needed help from all concerned financial institutions. The respondents being the first promoters, it was not proper on the part of the respondents to withdraw thier hands in a negative manner. Firstly they refused to extend additional loans, although agreed to earlier, and secondly, they issued recovery notices and threatend to take action under S.29 of the State Financial Corporation Act. Naturally it was the shocking news for the petitioner. It was a bolt from the blue. The explanations for this action of the respondents is contained in paragraph 3(ii)(c) of the counter-affidavit in these words ......... The progress of the company in implementation of the scheme was very tardy and they not only defaulted in payments of interests even after joint equitable mortgage created on 7-4-84 in respect of the term loans of the various institutions. The company could not complete the formalities to start production............ In the net result these concessions carried relief in respect of the dues till 31-3-92 and reschedulement of these dues from 1993-94 onwards.............. The company did not pay a single shell towards the current dues. (D) - As a State level institution (PICKUP) it has its own constraints in giving concessions. On the default of payment of current dues PICKUP was of the opinion what there was no ground for further support to the company and in view of this, the impugned notices under S. 29 of the Act and for withdrawal of reliefs and concessions were issued. In support of its contention, the letter dated 15-12-92 (Annexure C.A.I has been filed........ We have to inform you that the company was required to pay interest of Rs. 4.44 lakhs as per our recovery bill for the period ended on 30-9-92". There is a reference to an earlier letter also signed by the respondents but that has not been filed on the record. In order to prove that the petitioner company was tardy in its business, there is no evidence on the record supplied by the respondents. Therefore, at this stage it is not possible to believe the charge of tardiness, levelled by the respondents in their counter-affidavit. We refuse to believe it. Then the question arises as to what could be other justifiable grounds to issue the impugned notices. Earlier if the respondents found that the petitioner was not working properly, it should have issued notices by way of warning and caution to it, which, it never did. No opportunity was given to the petitioner to improve its so called inefficient working. Thus there is no material available on the record to believe that the .petitioner company was working inefficiently. Similarly for demanding a sum of Rs. 4.44 lakhs at this juncture of the company's life cannot be said to be a prudent and fair act on the part of the respondents. The company was seeking help from all corners. It is a matter of common knowledge that arranging of capital in India is a very difficult job. In market, money is seldom available except on very stringent terms, which may not be economical for a company, which has started its career and is still in its infancy. So, foreign aid is needed. The petitioner has alleged that it could arrange for foreign currency loans with great difficulty, apart from other loans from, the financial institutions of the Government of India. All these facts have been admitted by the respondents in their letter dated 8-I-911 (Annexure 3 supra). Therefore, some delay in starting the process was natural. However; this delay was on account of the reasons beyond the control of the petitioner company. Hence to level a charge of tardiness on their parrt will not be proper. Again, we may say at the cost of repetition that the respondents arc not ordinary money-lenders. Of course, they are lenders but with a purpose. The purpose is to advance the aims of the State i.e. to help in industrialisation of the country. So the respondents cannot roceed as ordinary money-lenderrs. When they say and realise that other aid from different corners was flowing in, and the petitioner company needed a certificate from the respondents for procurring additional loans from other finan-
cial institutions, the respondents could not be justified in not only issuing the said certificate of pari passu charge but also to demand back a huge amount, like Rs. 4,44 lakhs by its letter dated 15-10-92 9 (C.A. 1 supra).
23. It is a clear case of breach of promise, inviting the application of the principles of promissory estoppel against the respondents. In face of clear promfse made by it to follow the pattern of payment of interest and other term loans of other financial institutions, it (FCI/PICUP) issued the first notice dated 4-12-92 threatening to take physical possession of the entire establishment of the petitioner. It also threatened to take p6ssession of the Unit itself. This way the respondents were riot only making a breach of their own promise, but they Were also putting in jeopardy the other capital loans extended by other institutions and thus committing infanticide of the petitioner company. This act of the respondents has rudely shaken it and given a jolt to other financial institutions too, who were willing to extend help, reliefs and concessions to the petitioner. This circumstance shows that before issuing notices, the respondents did not consider the pros and cons of their action. It was not only an unbusiness like act of the respondent, but also unwise. It can be termed as harssing tactics unfortunately adopted by an instrumentality of the State. As it is unreasonable, it can be termed as a malicious and arbitrary act on the pan of the respondents.
24. According to the petitioner, by this time it had invested a sum of Rs. 16 crores in the project. This allegation is supported by an affidavit. Hence it has to be taken on its face value.
25. Since trial production had started in April, 92 there was no justification to believe that the petitioner company was not a viable unit and to release further loans would mean sinking money in an ocean, as was viewed by the 'respondents. This was not a proper appraisal of the company's financial position. It is needless to stress that before issuing the /impugned notices, the respondents were duty bound to assess the financial viability of the petitioner unit. For that, they have a huge staff and expertise. They could take the assistance from other subsidiary agencies like institutions of professional Auditors or Chartered Accountants. After perusing their reports and objective conclusion could have been drawn by the respondents that the petitioner company was no longer a viable institution and then only the respondents should have issued the impugned notices. But that was not done. This again shows arbitrariness in the approach of the respondents.
26. Even otherwise, experience has shown that taking over possession under S. 29 does not help the lender. Valuable properties are auctioned at throw away prices ana the unit is ruined forever. In the present case, not only the amount/spent by the respondents would be in jeopardy, but the funds extended by other institutions would also be totally blocked and become irrecoverable. If the unit is crushed at Us infancy stage, it was not going to help either the respondents or other financial institutions, whereas, it was likely to cause colossal damage to a prospective industrial unit, throwing out of employment hundreds of employees and causing frustrations to other prospective enterpreneurs.
27. As the loans had been rescheduled, in fact, they were not due on the dates on which these, impugned notices were issued by the respondents. In paragraph 3(D) of the counter-affidavit, the words are as under:--
"While the PICUP had agreed to go by the concessions and reliefs earlier dictated by IFCI, as a State level institution it has its own constitution it has its own constraints (must be interpreted as financial constraints) in giving concessions."
We appreciate the financial constraints of a State institution like Financial Corporation of U. P. or PICUP. But these constraints were very much there when the respondents agreed in writing to follow suit with other financial institutions like IFCI. Believing upon these assurances, which are an integral part of the agreement, petitioner acted in proceeding with the project. In believing upon these assurances given by the respondents, other financial institutions agreed to extend loans, reliefs and concessions to the petitioner. Now it was too late for the respondents to take the plea of "other financial constraints" in fulfilling their obligation. Therefore, we have no hesitation in saying that these excuses taken by the respondents are lame excuses and this act on their part is totally arbitrary. Arbitrariness is an anathema for a civilized and democratic society, still worse in case of the State or its other organs and instrumentalities, like the respondents. We accordingly reject the explanation given by the respondents for their act.
28. Not only this, there is another reason to assail this conduct of the respondents. They should have given a notice in advance, pointing the defects and other shortcomings before issuing impugned notices. No show cause notice was issued. No opportunity was afforded to the petitioner to mend itself and all of a sudden a bomb-shell was thrown at the petitioner company. This is not proper. It deserves to be condemned. Rules of natural justice were thrown to the wind. Smaller weapons would have been useful incarrying out the purpose of the respondents, but the most vigorous weapon in its arsenal was used in the shape of a threatening notice to take over possession under Section 29 of the State Financial Corporation Act. This is again an indication of the high handed attitude of the respondents.
29. Although we do not agree with the petitioner's counsel that before resorting to the provisions of Section 29, respondents were bound to act under Section 31 another provision of the Act but we agree with this proposition that prior notices should have been issued to the petitioner company before resorting to the proposed action under Section 29.
30. As there was no reasonable apprehension nor there could be any that the petitioner would not be able to pay the smaller loans which the respondents had given to the petitioner as larger and bigger financial aid was coming in from the All India level financial institutions, the respondents should not have drawn an advance conclusion regard-
ing the financial viability of the petitioner and irrecoverability of the advanced loan, hence it should not have acted in a hurried manner as they have done in the present case.
31. We also do not agree that action under Section 29 is extra-judicial or illegal. When the financial institution Act itself provides a remedy and its vires has not been challenged, the remedy available to the respondents under Section 29 is a judidial and legal remedy. Of course, this is a very effective weapon provided it is sparingly and selectively used. Before its use, reasonable care should be taken and all the pros and con? should be judged objectively. This is a constitutional requirement., Nay fair play also demands the same.
32. The belief that the Government will act on principle of honour and good faith is an invaluable but fragile national asset. The greatest mistake men in power make is to destroy that asset in heir arrogant whim and fancy. The fiscal system must have not merely legality but also legitimacy. It is denuded of all legitimacy when there are breaches of faith on the part of the Government in its dealings with tax payers or borrowers.
33. By the letter dated 9-lI-92 (Annexure 10), respondents indicated their refusal to disburse the instalments of loans which they had themselves agreed to disburse. This refusal should also not be arbitrary and must be based on subjective satisfaction. This was a quasi-judicial act on the part of the respondents. They were custodians of public fund and also the projectors of a public cause. Therefore, before taking an action, when the State resiles from its commitment, they must weigh all the repercussions which can be hazardous for the entire country. If the State proceeds in an unreasonable manner, the entire machinery of the State is likely to be blamed and it is further likely to cause indelible mark on the mind of the people at large that here is a State where reason and fair play have no place. They may start thinking that it is not wise to believe the commitments made by such a State. Crbres of rupees are collected by the State in the shape of bonds issued of different denominations. People do not hesitate in purchasing the bonds and paying the money to the State Exchequer, believing that the commitment should not be taken lightly. As seen earlier, the respondents with open eyes agreed to release funds, they made the petitioner to believe that it could proceed with its expansion business believing the commitment made by the respondents. Nay, it also made other financial institutions to believe that the money, as promised by the financial promoter (PICUP) will be paid by them and the other institutions should also extend their helping hands. But by issuing the impugned letter dated 9-11-92, the respondents were resiling out of their commitments, which by no standard of judgment can be termed as a fair and reasonable judgment on their part. The result is that we conclude that this act of the respondents i.e. of issuing the letter dated 9-11-92, is not a fair and reasonable act. This notice, like the earlier notice, also deserves to be quashed.
34. The loan agreed by other financial institutions was in the process of being disbursed and was very much in pipeline. So the confidence, which the earlier act of the respondent generated by its own commitments, should not have been allowed to be shaken by this letter dated 9-11-92. Unfortunately, the respondents did not give cooler thoughts to the wide and multiple aberrations which this leter dated 9-11-92 was likely to cause.
35. No doubt, now the respondents have become minor helpers in the cause and progress of the petitioner, but all the same they are the basic fators and initial promoters. So their act of initial helping the petitioner further helped it in acquiring a status of respectability, on the basis of which it could negotiate with other financial institutions and in fact, it had done so and was also doing further. Therefore, the respondents cannot say that whether they grant additional reliefs by way of loans to the petitioner or not, that is not likely to cause any substantial damage to h nor it was likely to torpedo its progress.
36. Taking an analytical view of the entire set of facts and circumstances on the record, we find that the petition has substantial merits and it deserves to be allowed.
37. Subject to deposit of Rs. 2 lakhs within a month from today, the notice dated 4-1-92 (Annexure 8 to the petition) and the letter dated 19-11-92 (Annexure 10 to the petition) are quashed. The respondents are directed to create par! passu charge in favour of other financial institutions, vis-a-vis the petitioner as agreed by them. The respondents are further directed to disburse the balance amount of their loans to the petitioner in terms of the agreement. The respondents are restrained from taking any action pursuant to the notice dated 4-11-92 and the letter dated 9-11-92 supra against the petitioner.
38. It is however made clear that the petitioner shall continue to repay the loans as agreed by it on scheduled dates and shall also clear off within two months from today, the amount accumulated till date, if any.
39. If it fails to repay the accumulated amount, if any and the loans along with agreed interest on agreed dates as per schedule, the respondents shall be at liberty to proceed against it in accordance with law. In the circumstances of the case, parties will bear their own costs.
40. Petition allowed.