@JUDGMENTTAG-ORDER
The Honourable Mr. Justice K. Chandru
1. The Petitioner company filed the present writ petition seeking to challenge an order dated 14.9.2009 issued by the second Respondent State Industries Promotion Corporation of Tamil Nadu Limited (for short SIndian Penal CodeOT) and the consequential order of the third Respondent, dated 9.11.2009 and the fourth Respondent''s order dated 11.11.2009 and after setting aside the same, seeks for a direction to the second and fourth Respondents to consider the claim of the Petitioner for One Time Settlement (OTS) of dues on reasonable term.
2. In the writ petition, notice was ordered on 18.11.2009 and an interim stay was granted subject to payment of Rs. 20 lakhs on or before 23.11.2009. Subsequently, the interim order granted was extended from time to time with liberty to the Petitioner to submit a proposal for OTS. After 6 extensions of the interim order, on 15.2.2010, the interim stay was extended until further orders. This was on the ground that both sides did not appear before the learned Judge. On notice from this Court, on behalf of Respondents, a counter affidavit dated 22.12.2009 was filed. The Petitioner has also filed a rejoinder dated 7.1.2010.
3. It is seen from records that the Petitioner applied for a loan for carrying on the business of manufacturing Candoms. The project proposal submitted by them was estimated at Rs. 27.70 Crores, out of which Rs. 12 Crores was to be funded by the ICICI and SCICI by way of term loan. But due to shortage of funds, they could not complete the project. Therefore, they had approached the Respondent SIndian Penal CodeOT with the recommendation from the TIDCO for a term loan of Rs. 250 lakhs. It was sanctioned on 27.8.1997 and the Petitioner had executed necessary security documents and had availed the loan agreeing to repay the same with interest at the rate of 18.5% per annum in 8 quarterly installments at Rs. 31.25 lakhs commencing from 1.11.1998 and ending on 1.8.2000. The amount was also secured by the SIndian Penal CodeOT by creation of equitable mortgage jointly with ICICI on 5.11.1997 apart from personal guarantee from the promoter of the company by name Mr. A.V.K. Reddy. However, the Petitioner company had failed to repay the dues and no payments were made by them. Hence a show cause notice dated 28.6.1999 was issued followed by the foreclosure notice for recalling the loan on 2.2.2000. But the promoter had offered to make the payment. Hence the recovery action was deferred. In the meanwhile, the Petitioner had borrowed Rs. 400 lakhs from the Technology Development Board without prior permission of the SIndian Penal CodeOT, thus causing dilution of security held by the Respondent SIndian Penal CodeOT. In view of the chronic default committed by the Petitioner, a further show cause notice dated 31.10.2001 was issued followed by the foreclosure and recall order dated 6.2.2002. Once again, the Petitioner''s promoter had assured to make the payment quoting the purchase order from the Hindustan Latex Limited and had requested for deferment of further action. The Petitioner until such time had paid only Rs. 4.58 lakhs which was adjusted towards interest and during 2007-2008, he had paid Rs. 17 lakhs, which was also adjusted towards interest.
4. In the meanwhile, the Petitioner company had filed a reference to BIFR in terms of Section 15(1) of the Sick Industrial Companies (Special Provision) Act, but it was dismissed on 24.7.2002 as time barred. Subsequently, the Petitioner filed an another application, which was also dismissed on 21.8.2006. But, however the Petitioner company had managed to settle their dues towards borrowal from the Technology Development Board as well as dues in respect of the ICICI. But only in respect of the dues towards SIndian Penal CodeOT, the matter was not settled. The SIndian Penal CodeOT had sent letters dated 7.6.2005 and 10.7.2008 and requested the Petitioner to pay down payment of 10% of the principal amount and to apply for OTS which may be considered by the Respondents. But the Petitioner did not take any steps to settle the loan amount. Though the amount borrowed during August, 1997 was to be settled by August, 2000, even after a lapse of 12 years from the date of borrowal, they had not made any payment towards principal amount. The principal amount and the interest itself had accumulated to the tune of Rs. 2496.19 lakhs. The Petitioner''s attempt to claim parity on the basis of settlement offered by the ICICI and Technology Development Board was not acceptable to the SIndian Penal CodeOT as the terms and conditions for grant of loan was different. Subsequent to the offer made, as the Petitioner had not replied, the foreclosure notice was issued on 14.9.2009. Even after that since no payment was made on 9.11.2009, it directed the inmates and occupants of the third Respondent to vacate the premises to enable the Respondents to take possession. It is stated that in order to enforce the security available, the SIndian Penal CodeOT has to take possession of the mortgaged assets u/s 29 of the State Financial Corporation Act (SFC Act) and without taking possession, the security cannot be realized.
5. The contention raised by the Petitioner was that the Petitioner had settled the loans in respect of several companies on the basis of OTS at 12% interest per annum and even the Petitioner had settled the dues of ICICI Bank by paying Rs. 4.40 crores as against the outstanding of Rs. 69.80 crores. The dues towards Technology Development Board was settled under OTS for a sum of Rs. 1.80 crores as against the dues of Rs. 8.57 crores. Therefore, the Petitioner only wanted a fair settlement. Out of the principal amount of Rs. 250 lakhs borrowed, they had already paid Rs. 20 lakhs. Considering the nature of the industry, the Respondents must think on keeping the Petitioner''s industry alive in national public interest. They are also facing several problems such as power cuts adversely affecting their production. Even in the reply affidavit, in paragraph 7, the Petitioner has admitted that they have still due of Rs. 159.70 lakhs as principal amount.
6. On the basis of the rival contentions, it has to be seen whether the Petitioner has made out any case.
7. It must be noted that the Respondent SIndian Penal CodeOT has been declared as a State Financial Corporation under the SFC Act by the notification issued by the Government of India. Ms. Narmadha Sampath, learned Standing Counsel for SIndian Penal CodeOT placed reliance upon a judgment of the Supreme Court in
11. A statute may expressly or impliedly confer power on a statutory body to enter into contracts in order to enable it to discharge its functions. Dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied. The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act. Every act of a statutory body need not necessarily involve an exercise of statutory power. Statutory bodies, like private parties, have power to contract or deal with property. Such activities may not raise any issue of public law. In the present case, it has not been shown how the contract is statutory. The contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil court or in arbitration if provided for in the contract. Whether any amount is due and if so, how much and refusal of the Appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ petition. The contractor should have relegated to other remedies.
8. The learned Standing counsel further referred to a judgment of the Supreme Court in
7. In our view, it is apparent that the order passed by the High Court is, on the face of it, illegal and erroneous. It is true that many matters could be decided after referring to the contentions raised in the affidavits and counter-affidavits, but that would hardly be a ground for exercise of extraordinary jurisdiction under Article 226 of the Constitution in case of alleged breach of contract. Whether the alleged non-supply of road permits by the Appellants would justify breach of contract by the Respondent would depend upon facts and evidence and is not required to be decided or dealt with in a writ petition. Such seriously disputed questions or rival claims of the parties with regard to breach of contract are to be investigated and determined on the basis of evidence which may be led by the parties in a properly instituted civil suit rather than by a court exercising prerogative of issuing writs.
9. Further, the learned Standing Counsel referred to a judgment of the Supreme Court in
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 sitting as an appellate authority over the Appellant-corporation. Not a single provision of law is said to have been violated.....
12. While this is not the occasion to examine the content and contours of the doctrine of fairness, it is enough to reiterate for the purpose of this case that the power of the High Court while reviewing the administrative action is not that of an appellate court. The judgment under appeal precisely does that and for that reason is liable to be and is herewith set aside.
10. It is true that the Appellant-corporation is an instrumentality of the State created under the State Financial Corporations 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 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 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.
10. The Learned Counsel for SIndian Penal CodeOT also referred to a judgment of the Supreme Court in
19. From the aforesaid, the legal principles that emerge are:
(i) The High Court while exercising its jurisdiction under Article 226 of the Constitution does not sit as an appellate authority over the acts and deeds of the Financial Corporation and seek to correct them. The doctrine of fairness does not convert the writ courts into appellate authorities over administrative authorities.
(ii) In a matter between the Corporation and its debtor, a writ court has no say except in two situations:
(a) there is a statutory violation on the part of the Corporation, or
(b) where the Corporation acts unfairly i.e. unreasonably.
(iii) In commercial matters, the courts should not risk their judgments for the judgments of the bodies to which that task is assigned.
(iv) Unless the action of the Financial Corporation 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 Financial 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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(viii) Fairness cannot be a one-way street. The fairness required of the Financial Corporations cannot be carried to the extent of disabling them from recovering what is due to them. While not insisting upon the borrower to honour the commitments undertaken by him, the Financial Corporation alone cannot be shackled hand and foot in the name of fairness.
11. The learned Standing Counsel also referred to a judgment of the Supreme Court in Punjab Financial Corporation v. Surya Auto Industries reported in (2010) 1 SCC 297, wherein the Supreme Court had reviewed all the previous case laws and also held that the judgment in
20. Commenting upon the judgment in Mahesh Chandra v. U.P. Financial Corpn.3, the three-Judge Bench observed: (Jagdamba Oil Mills case7, SCC pp. 507 & 508, paras 15 & 17-18)
15. The view in Mahesh Chandra case3 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 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 u/s 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 u/s 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 case4 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. (emphasis supplied) 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 case3 the matter has been decided.
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17. The aforesaid guidelines issued in Mahesh Chandra case3 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 case3 will only lead to further delay in realisation of the dues by the Corporation by sale of assets. It is always expected that the Corporation will try and realise 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 Cap4, Naini Oxygen5 and Micro Cast Rubber6 run counter to the view expressed in Mahesh Chandra case3. In our opinion, the issuance of the said guidelines in Mahesh Chandra case3 are contrary to the letter and the intent of Section
29. In our view, the said observations in Mahesh Chandra case3 do not lay down the correct law and the said decision is overruled.
21. 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 u/s 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 dehors 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.
22. 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 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.
12. If it is in the context of law laid down by the Supreme Court is analyzed, the contentions put forth by the Petitioner cannot find acceptance by this Court. In fact, a division bench of this Court presided by M. Katju, C.J. (as he then was) in
18. Before parting with the case we would like to mention that recovery of tens of thousands of crore rupees of loans of banks and financial institutions has been held up by Court orders under Article 226 proceedings which were really unwarranted. However, much sympathy a Court may have for a party, a writ Court must exercise its jurisdiction on well settled principles, and not on mere sympathy or compassion. No doubt, there may be hardship to a party, but unless violation of law is shown the Court cannot interfere. Holding up recoveries of loans by unwarranted Court orders is causing incalculable harm to our economy, since unless the loan is recovered a fresh loan cannot be granted to needy persons. The Courts must keep these considerations in mind.
13. In the light of the above, there is no case made out to entertain the writ petition. Hence the writ petition is dismissed with exemplary cost for dilatory tactics adopted by the Petitioner and the cost quantified is Rs. 10000/- (Rupees ten thousand only) payable by the Petitioner towards counsel fee. Consequently, connected miscellaneous petitions stand closed.
