Hon'ble Pankaj Bhatia,J.
The petitioner was sanctioned a term loan of Rs. 4,21,800/- by U.P. Financial Corporation (for short, "the Corporation") to establish a plastic industry. It is stated that later, an additional loan of Rs. 1,21,000/- was sanctioned by the Corporation. To secure the said loan, the petitioner had mortgaged some land to the Corporation and also executed loan agreement dated 22.11.1985 wherein the schedule of repayment was provided. One of the conditions in the agreement was that the Corporation can recall entire loan in case of default.
In paragraph-8 of the writ petition it is admitted by the petitioner that he has made default due to loss in his business. The first respondent initiated recovery proceedings against the petitioner in terms of the agreement. A citation dated 23.12.1993 was issued to the petitioner under the provisions of the U.P. Public Moneys (Recovery of Dues) Act, 1972 for recovery of a sum of Rs. 12,32,780.58 as arrears of land revenue. The said citation was challenged by the petitioner by means of Civil Misc. Writ Petition No. 765 of 1994 and the Court stayed the recovery proceedings vide interim order dated 4.1.1994. The said writ petition was dismissed on 7.7.1995 for non-prosecution. There is nothing on the record to show that the petitioner made any effort to get the writ petition restored. It appears that in compliance of the interim order, Corporation did not proceed further.
The Corporation issued another notice to the petitioner on 19.6.2007 calling upon the petitioner to pay the outstanding amount of Rs. 1,43,99,413.04 (one crore forty three lacs ninety nine thousand four hundred thirteen rupees and four paise). The petitioner has challenged the said auction by means of the present writ petition. The petitioner has prayed amongst other for the following reliefs:
"I) Issue a writ, order or direction in the nature of certiorari to quash the demand notice dated 19.6.2007 issued by respondent no. 2 (Annexure No. 3 to the writ petition).
II) Issue a writ, order or direction in the nature of certiorari to quash the auction sale dated 28.9.2006 after summoning the record from the office of Respondent no. 2 in respect of the land mortgaged by the petitioner with respondents."
A perusal of the relief shows that the petitioner has also challenged the auction of the mortgaged property of the year 2006.
At the time of admission of this writ petition on 10.7.2007 the Court has passed a conditional interim order wherein the petitioner was asked to deposit initially Rs. 25,00,000/- within one month and the remaining amount in four equal quarterly installments on or before 30th of every month and some other conditions were also imposed. It was made clear by the Court that if the petitioner commits default of any of the conditions the interim order shall stand vacated automatically on the date of default itself without reference to the Court and the petitioner will become liable to pay collection charges also. The petitioner failed to comply with interim order and did not make the payment in terms thereof.
We have heard learned counsel for the petitioner, learned Standing Counsel and Sri Mohd. Saleem Khan, learned counsel appearing for the Corporation.
The learned counsel for the petitioner submitted that the Corporation is an instrumentality of the State thus it is bound to act fairly and reasonably. The Corporation has invoked its power under Section 29 of the Act, 1951 without any justification. The Corporation has failed to consider that plastic industry has been facing recession and for the said reason the petitioner in spite of his intention to pay the installments, could not make the payment. The Corporation's position is like a trustee. The exercise of its discretion to invoke Section 29 of the Act, 1951 must be fair and reasonable. In facts and circumstances, the Corporation has failed to exercise its discretion objectively. The learned counsel for the petitioner has relied on a judgment of the Supreme Court in the case of Mahesh Chandra v. Regional Manager, U.P. Financial Corporation and others, (1993) 2 SCC 279.
The learned counsel for the respondents submitted that the petitioner had entered into a loan agreement, he is bound by the terms of the agreement. The petitioner made persistent defaults and has failed to make the payment.
We have considered the submissions of learned counsel for the parties and perused the record.
The U.P. Financial Corporation was established under the State Financial Corporation Act, 1951, a Central Act. Earlier, Central Industrial Financial Corporation Act was originally set up under the Central Act, Industrial Financial Corporations Act, 1948. The object of the Act was to provide financial assistance to medium and long term loan to industrial units. Several State Governments wanted to establish similar Corporations in their States to help the industrial progress of the States. In view of the said reasons the Parliament enacted State Financial Corporation Act, 1951. The State of U.P. has established U.P. Financial Corporation under the Act, 1951. The Corporation is thus an instrumentality of the State which deals with public money.
The petitioner approached the Corporation to sanction the loan to establish a plastic manufacturing unit. The Corporation sanctioned the total loan of Rs. 5,86,000/- (including additional loan). The petitioner executed a loan agreement on 22.11.1985. It is not disputed that the Corporation has disbursed the said amount to the petitioner. In the loan agreement the schedule of repayment/ installment is provided. Indisputably, the petitioner failed to make payment in terms of the conditions of the loan agreement. The petitioner made several defaults. When the petitioner failed to deposit the installments, the interest on delayed payment kept in rising. Having no other option the Corporation invoked its power under Section 29 of the Act, 1951. Section 29 of the State Financial Corporations Act, 1951 reads as under:
"29. Rights of Financial Corporation in case of default.--
(1) 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 instalment 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 Financial Corporation shall have the [right to take over the management or possession or both of the industrial concerns], as well as the [right to transfer by way of lease or sale] and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the property transferred [as if the transfer] had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods [(4) [Where any action has been taken against an industrial concern] under the provisions of sub-section (1), all costs, [charges and expenses which in the opinion of the Financial Corporation have been properly incurred] by it [as incidental thereto] shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.] (5) [Where the Financial Corporation has taken any action against an industrial concern] under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of [the concern]"
On plain reading of Section 29 of the Act, 1951 it becomes clear that the Corporation has very wide power and discretion to take recourse to recover its dues with expedition. The Supreme Court had occasion to deal with the power of the Corporation to exercise its discretion reasonably. Regard being had to the fact that the Act, 1951 confers the power on the Corporation to select one of the modes of recovery provided under the Act, 1951. It can also issue a citation under the provisions of the U.P. Public Money Recovery Act, 1972 or to exercise its power under Section 29 of the Act, 1951.
In the case of Mahesh Chandra v. Regional Manager, U.P. Financial Corporation and others, (1993) 2 SCC 279, for the first time the Supreme Court elaborately considered the scope of Section 29 and laid down the following guidelines:
"22. Keeping these various factors giving rise to conflicting interest the following directions are necessary to be issued to be observed by the Corporation while exercising power under Section 29:
Every endeavour should be made, to make the unit viable and be put on working condition. If it becomes unworkable:
(1) Sale of a unit should always be made by public auction.
(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 investment runs in very huge amount for which ordinary buyer may not be available or the industry itself may be or such nature that by 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."
But the Supreme Court in the case of U.P. Financial Corporation v. GEM Cap (India) Pvt. Ltd. and others, (1993) 2 SCC 299 distinguished the judgment in Mahesh Chandra's case. The Court set aside the judgment of the Allahabad High Court. A Division Bench of this Court had allowed the borrower's writ petition and issued certain directions to rehabilitate the borrower's unit. The Supreme Court distinguished the judgment in Mahesh Chandra (supra) and held thus:
"3. With great respect to the learned judges who allowed the writ petition we feel constrained to say this: a reading of the judgment shows that they have not kept in mind the well- recognised limitations of their jurisdiction under Article 226 of the Constitution. The judgment reads as if they were setting as an appellate authority over the appellate-corporation. Not a single provision of law is said to have been violated. The exclusive concern of the court appears to be to revive and resurrect the respondent-company, with the aid of public funds, without giving any thought to the interest of public financial institutions...
10. It is true that the appellant corporation is an instrumentality of the State created under the State Finance Corporation Act, 1951. The said Act was made by the Parliament with a view to promote industrialisation of the States by encouraging small and medium industries by giving financial assistance in the shape of loans and advances, repayable within a period not exceeding 20 years from the date of loan. We agree that the corporation is not like an ordinary money-lender or a Bank which lends money. It is a lender with a purpose --- the purpose being promoting the small and medium industries. 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. The above narration of facts shows that the respondents have no intention of repaying any part of the debt. They are merely putting forward one or other ploy to keep the corporation at bay. Approaching the courts through successive writ petitions is but a part of this game. Another circumstance. These corporations are not sitting on King Solomon's mines. They too borrow monies from Government or other financial corporation. 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 situation: (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."
In U.P. Financial Corporation and others v. Naini Oxygen & Acetylene Gas Ltd. and another, (1995) 2 SCC 754 the Supreme Court reiterates the principles laid down in Gem Cap (supra). The following paragraph is, in this regard, apposite:
"21. 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 business like 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."
In the aforesaid case also the judgment of this Court was set aside by the Supreme Court.
In the case of Haryana Financial Corporation and another v. Jagdamba Oil Mills and another, (2002) 3 SCC 496 a Three-Judge Bench overruled the judgment in Mahesh Chandra (supra).
"17. The aforesaid guidelines issued in Mahesh Chandra's case, (1993) 2 SCC 279 , 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.
18. 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 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."
Applying the aforesaid principles what we find in the present case is that the petitioner has made persistent default in repayment of the loan amount. The huge outstanding amount is not disputed by the petitioner. The Corporation lends the public money for the purpose to promote the industrialization and to help the medium and small entrepreneurs to establish their business, but it does not mean that it should not recover the money on sympathy. It needs to recover the money so that it can sanction fresh loan to others who intends to set up their unit. The Act, 1951 does not cast any obligation on the Corporation to provide help to Sick Units. The borrower who commits persistent default cannot claim waiver of interest or outstanding amount as a matter of right. The Corporation can waive the interest or reschedule the outstanding amount in terms of its guidelines or scheme, if any, prepared in this regard. Moreover, this Court while exercising its jurisdiction under Article 226 does not act as an appellate authority, we are satisfied that the Corporation is well within its right to recover the loan amount and there is no arbitrary action against the petitioner. The learned counsel for the petitioner has failed to point out any statutory violation by the Corporation.
In view of the conspectus of the aforesaid facts and circumstances and for the reasons recorded above, we find no merit in the writ petition and same is accordingly dismissed.
No order as to costs.
Order Date :- 30.1.2019 Digamber