Srinivasan, J.@mdashThough in our view the reference to the Full Bench is unnecessary in this case, we have proceeded to hear the appeal, as the
entire case is placed before us. We have also taken into account the fact that the parties would be put to unnecessary hardship if we return the
reference.
2. The appellant borrowed a sum of Rs. 2,10,000 from the first respondent-Corporation for the purchase of a lorry to be plied as a public carrier
with a national permit. The loan was sanctioned subject to the terms and conditions specified and the appellant accepted the same. The entire loan
was disbursed in three instalments as follows :
Rs. P.
1. 5-3-1987 1,71,500.00
2. 13-3-1987 28,564.25
3. 24-4-1987 9,935.75
3. The amount was to be repaid in 50 monthly instalments commencing after three months from the date of the first disbursement. A schedule of
repayment was stipulated in the sanction order as follows :
Rs.
First 10 monthly instalments of Rs. 4,600 46,000
Next 10 monthly instalments of Rs. 4,300 43,000
Next 10 monthly instalments of Rs. 4,200 42,000
Next 10 monthly instalments of Rs. 4,100 41,000
Next 10 monthly instalments of Rs. 3,200 32,000
Next 6 monthly instalments of Rs. 1,000 6,000
------------
2,10,000
------------
4. It was agreed that interest at the rate of 14.5 per cent. per annum with a rebate of 2 per cent. per annum for prompt payment should be paid
along with the principal. The repayment commenced from July 1, 1987, and was to end on March 1, 1992. The vehicle which was purchased,
bearing registration number TCV 5425 was given as security under a hypothecation bond dated February 23, 1987.
5. The appellant admittedly did not adhere to the schedule of repayment. He was making payments irregularly. The lowest payment was Rs.
413.90 and the highest payment was Rs. 20,000. He was not making payments every month. He chose to pay as and when the pleased. Thus, the
appellant had been committing default from the beginning. But the Corporation had not taken any steps to enforce the repayment schedule. By
notice dated August 29, 1991, the Corporation informed the appellant that a sum of Rs. 1,93,601.81 was due towards principal and a sum of Rs.
25,755.25 was due towards interest as on August 20, 1991, and he was required to pay the same. The notice also called upon him to intimate the
Corporation within a fortnight of the receipt thereof if there was any discrepancy in the figures mentioned as per his records, failing which it would
be construed that the liability to the Corporation as stated in the notice had been accepted by him. There was no response and admittedly the
appellant did not make any payment after that notice. The Corporation seized the lorry on October 1, 1991, by exercising its powers under clause
10 of the hypothecation agreement, which empowered the Corporation to take possession of the hypothecated assets in default of payment of
monies and/or instalments due to the Corporation. Thereafter, the appellant made a payment of Rs. 15,000 on October 4, 1991. According to the
Corporation, he promised to pay the entire amount due within one month therefrom. The appellant gives a different version to which we will make
a reference a little later. The fact remains that no amount was paid thereafter by the appellant to the Corporation. A notice was issued on
November 14, 1991, by the Corporation styling itself as foreclosure notice. The appellant was called upon to pay the entire amount due under the
transaction within 15 days from the receipt thereof. The appellant was informed that if there was a failure on his part to clear the dues, the
Corporation would, without any further intimation or reference to him, proceed to enforce the rights reserved under the hypothecation deed
including the right to exercise the power of sale, etc., under the provisions of the State Financial Corporations Act. The last paragraph of the notice
read thus :
Please note that we will be constrained to take action u/s 29 and/or section 32G of the State Financial Corporations Act, without prejudice to or
other rights of recovery on your failure to pay the amount as indicated above.
6. The appellant claims to have sent a letter by registered post on November 26, 1991, praying for grant of one month''s time to pay the balance
and close the account. According to the Corporation, it did not receive such a letter. The Corporation made a newspaper publication on
December 6, 1991, that the lorry would be sold in public auction on December 12, 1991. The auction was held on December 12, 1991, and the
third respondent herein was the highest bidder for Rs. 2,58,500. His bid was accepted by the Corporation and the sale was confirmed in his
favour as he had complied with the terms of auction and paid the entire amount.
7. The writ petition, our of which this appeal arises was presented in this court by the appellant on January 6, 1992. In the affidavit filed in support
of the petition, the appellant admitted that he had not been paying the instalments within the stipulated time limits. According to him, the lorry was
seized on October 3, 1991, without any prior notice of seizure or a memo calling upon him to repay the amount due within a stipulated time limit.
He proceeded to state in the affidavit as follows :
However, immediately after seizure, I had gone to the office of the second respondent and met him personally on October 4, 1991. I had
explained my inconvenience and grievances in detail and requested him to release the vehicle on payment of Rs. 15,000. He had agreed to release
the vehicle on payment of the said amount and I paid the amount on October 5, 1991. After the payment of Rs. 15,000 made by me, the second
respondent refused to release the vehicle and asked me to pay a further sum of Rs. 50,000 for the release of the vehicle granting me three weeks
time. Accordingly, I had gone to the office of the second respondent with a sum of Rs. 50,000 and met him on November 17, 1991. But, he
refused to accept the said amount and asked me to bring a further sum of Rs. 35,000. Thus he asked me to pay a total sum of Rs. 85,000 for the
release of the vehicle. I requested him to accept the amount of Rs. 50,000 at first. But, for no reasons stated, he had refused to accept it. Hence, I
turned back vexatiously. While I was making arrangement for collecting a further sum of Rs. 35,000 a notice dated November 14, 1991, in Ref.
No. TIIC/TRX/RC/Legal/91-92 was served on me by registered post with acknowledgement due for closing the loan and calling upon me to pay
to the first respondent within 15 days from the date of receipt of the said notice, a sum of Rs. 2,12,537.16, being the entire principal amount of the
loan and the interest, etc., thereon up to November 13, 1991, and other charges and dues amounting to Rs. 200 aggregating to Rs. 2,12,537.16
with further interest an additional interest at the prevailing rates till the date of payment and other charges and dues. In the said notice it had been
stated that a sum of Rs. 1,90,601.81 being the instalments of principal and a sum of Rs. 18,735.35 being the interest up to November 13, 1991,
were overdue besides commitment charges, sundry dues, expenses and other charges.
I humbly submit that the above said notice was served on me on November 19, 1991, and immediately after receiving the same I had forwarded a
letter dated November 26, 1991, by registered post with acknowledgement due to the second respondent herein agreeing to repay the entire
amount due to be paid to the first respondent within 30 days as 15 days'' time granted by the second respondent was not sufficient. I have not yet
received the acknowledgement from the second respondent. After forwarding the above dated letter, I had making arrangements for the entire
payment due to the first respondent-Corporation.
8. He claimed to have gone to the office of the second respondent on December 16, 1991, to make the entire payment due and get the vehicle
released, where he was informed that the vehicle was sold in public auction on December 12, 1991. According to him, he requested the second
respondent to cancel the auction accepting the entire amount from him, but the latter refused to do so. It was stated in the affidavit that he went
again on December 20, 1991, and December 23, 1991, to meet the second respondent. According to him, on December 23, 1991, the second
respondent refused to accept his offer of payment and directed the third respondent to pay the balance due as per the auction terms.
9. A reference was made thereafter to the petition given by the appellant to the General Manager (Follow up) of the first respondent-Corporation
on December 31, 1991, requesting him to accept the balance of money and return the lorry to him. According to him, his offer was not accepted
and hence he moved this court with the writ petition under article 226 of the Constitution of India. The prayer in the writ petition was to issue a writ
of mandamus directing respondents Nos. 1 and 2 to accept the outstanding amount due from the petitioner and release the lorry by declaring the
auction conducted by the second respondent as null and void and illegal.
10. Before proceeding further, it is necessary to point out that the averments made by the appellant in the affidavit filed in support of the writ
petition were not true as is evident from the records placed before us. The passage in the affidavit extracted above is one relating to the happenings
between October 4, 1991, and November 17, 1991. According to the aforesaid portion, when a sum of Rs. 15,000 was paid by him after the
seizure of the lorry, he was directed to pay a sum of Rs. 50,000 in the first instance and then a further sum of Rs. 35,000 when he took the sum of
Rs. 50,000 to be paid to the second respondent. He had given a different story in his letter dated December 31, 1991, written to the General
Manager (Follow up) of the first respondent. A copy of the letter has been produced by the appellant himself and included in his typed set.
According to the said letter, the payments made by him before October 3, 1991, were sufficient only to meet the interest. After the seizure of the
lorry on October 3, 1991, he met the branch manager, who wanted him to pay a sum of Rs. 25,000 and he paid the same. He was directed to
apply a further sum of Rs. 75,000 and before he could make the money ready, the lorry was sold for a low price and that the branch manager was
not willing to give the lorry in spite of his offer to pay the entire balance. The letter bears the date December 31, 1991, and the affidavit in the writ
petition bears the date January 6, 1992, within an interval of a week, the appellant has chosen to give two different versions contradictory to each
other. Hence, the appellant is not entitle to invoke the extraordinary jurisdiction of this court under article 226 of the Constitution of India, a he has
failed to disclose the facts truthfully and correctly.
11. The writ petition was dismissed in limine by a learned single judge of this court on September 7, 1992. The learned judge held that the
foreclosure notice dated November 14, 1991, issued by the Corporation was sufficient in law for the purposes of section 29 of the State Financial
Corporations Act, 1951, and rejected the contention of the appellant that the principles of natural justice had been violated. It was also held by the
learned judge that after third respondent had purchased the vehicle in the auction, it was not for this court to interfere with the exercise of rights of
parties flowing from bilateral contracts, merely because one of the parties happens to be a State undertaking and the remedy of the appellant was
only to vindicate his rights, if so advised, before some other forum in accordance with law. Obviously, the learned judge meant that the appellant
had to approach only the civil court, if he had any right to be vindicated.
12. Aggrieved by the dismissal of the writ petition, the appellant preferred this appeal. When it came for admission, a Division Bench of this court
admitted the same and ordered notice to the respondents. But, at the same time, the Division Bench passed an order referring the appeal to a large
Bench and directed the records to be placed before the Hon''ble Chief Justice for posting the case before a Full Bench. The order made by the
Division Bench reads as follows :
Sitting alone to dispose of Writ Petition No. 12959 of 1989. .. R. Kailasanathan v. Managing Director, Tamil Nadu Industrial Investment
Corporation Ltd. one of us observed with reference to section 29 of the State Financial Corporations Act as follows :
''Whether action has been taken u/s 29 of the Act or not, however, is a different question. But without giving any formal notice to the loanee in
default and thus without complying with the requirements of the principles of natural justice, a contention may naturally arise, whether the
Corporation infringed any legal right of the petitioner or not. This question, however, has been answered by a Division Bench of this court in Writ
Appeals No. 530 of 1990 (Judgment dated June 11, 1990 (K. Vidhya Kumari v. Managing Director, Tamil Nadu Industrial Investment
Corporation) saying that the very terms of the borrowing impelled the borrower to make payment and it will not be proper to insist that there
should be a formal notice before action is taken. I am, however, bound by the said pronouncement of the Bench, but, feel like observing that it is
one thing to say that the terms of the borrowing contemplate action in the event of default u/s 29 of the Act. But, it will be against the rules of fair
play, if it is always assumed that the Corporation committed no wrong even if it ignored the defence of the borrower and decided to take action u/s
29 of the Act. The proper procedure to be adopted for the purpose of realisation of its claims from the borrower would be to first give a notice
and if default is unexplainable take action u/s 29. The case in hand is one in which such a plea may arise. Parties are at dispute as to whether there
has been any default in the payment of the instalments or not. How to assume that the Corporation is right and the borrower is wrong in asserting
that there has been a default or there has been no default ? On a notice being given to the petitioner informing him that he had fallen in default and
that the Corporation intended to proceed against him u/s 29 of the Act, the petitioner would have brought to the notice of the competent authorities
in the Corporation that there was no deliberate default and that the Financial Corporation would not be justified in taking action against the
petitioner in accordance with section 29 of the Act. While some courts in India have taken the view that section 29 excludes the application of the
principles of natural justice, some courts have taken the view that section 29 does not exclude the application of principles of natural justice (see
Kharavela Industries Pvt. Ltd. Vs. Orissa State Financial Corporation and Others, ) In view of the conflict arising on account of the Bench
decision of this court, I would have decided to refer the case to a Division Bench, had I been satisfied that the Corporation''s action falls u/s 29 of
the Act.''
The instant appeal is one, in our opinion, in which this court should give an authoritative judgment. Accordingly we refer the appeal to a larger
Bench.
13. Frankly speaking, we are unable to appreciate the course followed by the Division Bench. The writ petition was dismissed in limine without
notice to the respondents and there was no opportunity to the respondents to place the facts before the court. When the appeal was admitted and
notice was directed to the respondents, in the normal course, the court should have waited for the service of notice and given an opportunity to the
respondents to state their case before deciding the scope of the lis or formulating the questions which arise for consideration in the appeal. Without
doing so, the Division Bench has chosen to make a reference straightaway to a Full Bench observing that an authoritative judgment should be given
in this appeal. A reference to a Full Bench can be made, if there is a conflict of opinion already between the judgments of this court or if a question
of law of general importance arises, which requires to be decided by a Bench comprising more than two judges.
14. Here, there was no pre-existing conflict of opinions. The observations contained in the judgment in W.P. No. 12959 of 1989 made by A single
judge and referred to in the order of reference were obiter dicta and unnecessary for the judgment in that case as is evident even from the passage
extracted in the order of reference. In the said case, there was a seizure of the R.C. book of a hypothecated vehicle by a Tahsildar of the
Corporation, which was held by the learned single judge to be not an action falling u/s 29 of the State Financial Corporations Act. The learned
judge said clearly that he was bound by the pronouncement of the Bench in W.A. No. 530 of 1990 (K. Vidhya Kumari v. Managing Director,
Tamil Nadu Industrial Investment Corporation). He proceeded to dispose of the writ petition on the footing that section 29 of the said Act was not
applicable to the action taken by the Tahsildar of the Corporation and the same was without jurisdiction. Consequently, he allowed the writ petition
and directed the return of the R.C. book to the writ petitioner therein without delay. There was an appeal against the said order in W.A. No. 104
of 1991. A Division Bench, one of the members of which was a party to the earlier judgment in W.A. No. 530 of 1990 dismissed the appeal on
March 19, 1991, without admitting it, holding that there was no dispute before them that there was no sanction in law for the seizure of the R.C.
book of the vehicle. As the proposition of law laid down by the learned single judge that the seizure of R.C. book of a vehicle did not fall u/s 29 of
the Act, was not challenged before the Bench, the latter dismissed the appeal after recording the fact that the direction given by the learned single
judge to return the book had been complied with by the appellants before them.
15. Thus, there was no conflict between the judgment of the Division Bench in W.A. No. 530 of 1990 and any other judgment of this court. A
reference was made to the judgment of the Orissa High Court in Kharavela Industries Pvt. Ltd. Vs. Orissa State Financial Corporation and
Others, , in the order made in W.P. No. 12959 of 1989. If the Division Bench in the present case had opined that the view taken by this court in
W.A. No. 530 of 1990 (K. Vidhya Kumari v. Managing Director, Tamil Nadu Industrial Investment Corporation Ltd.) was in conflict with the
view taken by the Orissa High Court and that the Division Bench preferred to agree with the view of the Orissa High Court, it should have stated
so in the order of reference. We do not find any such statement either in the order of reference or in the order of the signal judge in W.P. No.
12959 of 1989. In the absence of any expression of an opinion which would run counter to the decision taken in W.P. No. 530 of 1990 by a
Division Bench of this court, which is binding on this court until it is overruled by a large Bench, no question of reference to a Full Bench will arise.
16. It is also not stated in the order of reference that even if there is no conflict of opinions, the question which arises for consideration in the
present case is one of such great importance as to be decided by a Bench comprising more than two judges. The Division Bench has neither
decided the facts of the case, nor formulated any question of law. It is seen from the facts that a notice had been admittedly issued on November
14, 1991, to the appellant calling upon him to pay the entire amount due within 15 days therefrom and informing him in unmistakable terms that on
his failure to do so, action will be taken under sections 29 and 32G of the State Financial Cooperations Act without prejudice to the other rights of
recovery of the Corporation. The learned single judge, who has dismissed the writ petition in limine, has given a clear finding that the said notice,
dated November 14, 1991, satisfied the requirements of the provisions of the Act. Without considering the question whether the finding of the
learned single judge is correct or not, we ar at a loss to know how a reference to a Full Bench can be made by the Division Bench. The proper
course for the Division Bench would been to wait for the respondents to appear before court on receipt of notice and after ascertaining their stand,
to decide whether the notice, dated November 14, 1991, satisfied the requirements of the Act and if they had differed from the view taken by the
learned single judge, then only the Division Bench could have made a reference to a large Bench.
17. However, as stated earlier, we were not inclined to return the reference, as such a course would only delay the disposal of the matter and
cause hardship to the parties. Thus, as the entire appeal has been referred to us by the hon''ble Chief Justice, we have heard counsel on both sides
fully on the merits of the appeal.
18. The main contention urged by learned counsel for the appellant is that the principles of natural justice had been violated and before any action
u/s 29 of the State Financial Corporations Act is taken, a notice should be given to the borrower as to the proposed action and adequate
opportunity should be given to him to make his representations. Reliance is placed on the judgment of the Orissa High Court in Kharavela
Industries Pvt. Ltd. Vs. Orissa State Financial Corporation and Others, , for the proposition that section 29 of the Act does not exclude the
application of the principles of natural justice and unless the said principles are complied with in a particular case, the action taken by the
Corporation is null an void. According to him, the seizure of the vehicle in this case was without any notice and it was, therefore, illegal. It is argued
that as the seizure was illegal, the auction sale of the vehicle is null and void and the respondents are bound to hand over the vehicle to the appellant
after accepting the entire amount due. It is also submitted that the instructions contained in the legal manual issued by the Corporation have not
been followed in the present case and, therefore, the auction held by the respondents is vitiated. If is further submitted that the appellant has been
repeatedly making attempts to pay the amounts due, after the seizure of the vehicle and the respondents had high-handedly refused to accept the
same an proceeded with the auction sale and confirmation of the same.
19. We have already referred to the facts chronologically and also pointed out that the version given by the appellant in the affidavit filed in support
of the writ petition is not true. We have referred to the notice dated August 29, 1991, informing the appellant the amount due as on August 20,
1991, and calling on him to pay the arrears as well as the instalments due on September 1, 1991. The appellant was also told by the notice that if
he disputed the figures mentioned therein on the basis of his records, he should intimate the Corporation within a fortnight of the receipt thereof. In
spite of the receipt of such notice, the appellant did not take steps to make any payment. That is an admitted fact. It is only thereafter, the
respondents seized the vehicle on October 1, 1991. While in the affidavit filed in support of the writ petition the appellant has stated that the vehicle
was seized on October 3, 1991, in a letter dated February 18, 1992, written by him to the motor vehicles authority, he has given the date as
October 2, 1991. A copy of that letter is included in the typed set by the appellant himself. That letter is written after the admission of the writ
appeal. There is no explanation for the discrepancy in the dates given by him. However, it does not matter whether the vehicle was seized on
October 1, 1991, or October 2, 1991, or October 3, 1991. The grievance of the appellant is that the vehicle was seized without a notice of
seizure. As rightly pointed out by learned counsel for the respondents, if a notice of seizure had been given, the vehicle would have disappeared
from the normal area of operation. The appellant would have taken it beyond the reach of the respondents, anywhere in the country as he is
holding a national permit. There is no substance in the contention that the seizure is illegal in the absence of notice of seizure. Clause 10 of the
hypothecation deed provides expressly for seizure of the hypothecated assets in the event of default in the payment of amounts due to the
Corporation. The Corporation is certainly entitled to exercise its powers and enforce the terms of the contract.
20. There is nothing in section 29 of the State Financial Corporations Act which would prevent the Corporation from enforcing the terms of the
contract by seizure of the hypothecated assets, without notice of seizure.
21. It should be remembered at this stage that one of the objects of the State Financial Corporations Act is to enable financial institutions to
recover the money invested by advancement of loans as speedily as possible. Before the Act was passed, the financial institutions were finding it
difficult to freely invest their money in industrial concerns as they were required to adopt lengthy and cumbersome procedure of sale through courts
in cases of defaults by borrowers. Thus, the funds of the financial institutions were getting locked up for a long time an were not available to as
many industrial concern and as quickly as possible. For the purpose of quick industrial progress it was felt necessary that the flow of credit
remained smooth, unimpaired and quick. It was for that reason, the Parliament enacted the State Financial Corporations Act and incorporated
section 29 to 31 conferring certain rights on the Corporation. The scheme of the Act shows that parliament wanted special financial institutions to
be established for giving financial accommodations to industrial concerns and at the same time confer on them special rights for recovery of their
dues in case of defaults by the borrowers. Such recovery is made possible even without an adjudication by judicial authorities. Section 29 of the
Act confers particular rights to take over the management or possession or both of the industrial concern and it realise the property pledged,
mortgaged, hypothecated or assigned by transfer, either by lease or sale.
22. In our view, section 29 to 31 of the Act should be read together. Section 29 thereof enables the financial corporation to take over the
management or possession or both of the industrial concern, which is under a liability to the Corporation under an agreement and which makes a
default in repayment of the loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given to the
Corporation. The section also provides that the Corporation has a right to transfer by way of lease or sale an realise the property pledged,
mortgaged, hypothecated or assigned to it. Section 30 of the act provides that notwithstanding anything in any agreement to the contrary, the
Financial Corporation may, by notice in writing, require any industrial concern to which it has granted any loan or advance to discharge forthwith in
full its liabilities to the Financial Corporation. The contingencies in which such notice may be issued are set out in clauses (a) to (f). Suffice it to refer
to clauses (b) and (f) thereof. Clause (b) reads :
if the industrial concern has failed to comply with the terms of its contract with the Financial Corporation in the matter of the loan or advance.
23. Clause (f) reads,
if for any reason it is necessary to protect the interests of the Financial Corporation.
24. u/s 31 of the Act, the Corporation may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the
whole or a substantial part of its business for one or more of the reliefs set out in the section. Such a right to apply to the District Judge is without
prejudice to the provisions of section 29 of the Act an section 69 of the Transfer of Property Act. The right may be exercised where an industrial
concern in breach of any agreement makes any default in repayment of any loan or advance or instalment thereof or otherwise fails to comply with
the terms of the agreement, or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or
advance u/s 30 of the Act and the latter fails to make such repayments. In all, section 31 of the Act shows that if a notice is issued u/s 30 of the
Act and not complied with, the Corporation is empowered to exercise (1) its rights u/s 29 of the Act, (2) its rights u/s 69 of the Transfer of
Property Act, and (3) its rights u/s 31 of the Act. The Corporation may choose any one of them.
25. It is seen from the facts of the present case that a notice of foreclosure has been issued u/s 30 of the Act and the impugned auction has been
held only after sufficient time has elapsed after the receipt of such notice by the appellant. The notice was admittedly received by the appellant on
November 19, 1991. The auction sale was announced and advertised by publication in newspaper on December 6, 1991. The auction was fixed
to take place on December 12, 1991. The appellant had 23 days after the receipt of the foreclosure notice, to pay the amount and stop the
auction. Even according to him, he wanted only a month''s time for payment of the entire amount and he wrote a letter praying for grant of such
time on November 26, 1991. If he had made an attempt to pay the money or a substantial part thereof before December 12, 1991, the
Corporation would certainly have accepted the same and stopped the auction. Even after the publication of the notice of public auction, the
appellant did not take any step to pay the amount due. Hence, there is no illegality whatever in the auction held by the respondents on December
12, 1991.
26. As pointed out already, there was no necessity for a notice of seizure before the lorry was seized. But, factually there was a notice calling upon
the appellant to pay the amount due as on September 1, 1991. That notice was dated August 29, 1991. In spite of the notice to pay, the appellant
did not move his little finger. Naturally, the Corporation was obliged to take action in order to protect the interests of the Corporation by seizing
the lorry. There was no violation of any principle of natural justice in the seizure of the lorry, particularly when the Cooperation was only enforcing
the terms of the contract and exercising its powers under clause 10 of the hypothecation deed.
27. The judgment of the Orissa High Court cited by the appellant''s counsel does not lay down any absolute proposition of law as contended by
him. The facts in that case were somewhat peculiar. A notice was given by the Financial Corporation to the industries as to the default position an
its decision to take over possession on failure of the industries to pay the instalments. Subsequently, the industries made some payments and the
earlier order to take over possession was not given effect to. Again, another order for taking possession of the industries was passed, without
giving any notice, though substantial payments had been made by the industries. In those circumstances, the Division Bench held that the
Corporation had failed in its duty to give reasonable notice to the industries that it was going to take over the concerns and a minimum opportunity
to the concerns to put forth their case before the Corporation ought to have been given. It was held that the earlier order of the Corporation
complied with the principles of natural justice, but the subsequent order failed to give any opportunity whatsoever and, therefore, the action taken
by the Corporation was struck down. However, the Bench took care to observe that in a given case, whether the rules of natural justice have been
complied with or not depends upon the facts and circumstances of that case. Hence, it cannot be stated as an absolute proposition of law that in
every case an action taken by the Corporation u/s 29 of the Act without notice to the borrower is contrary to the principles of the natural justice
and vitiated thereby, It has to be decided in each case by the court whether the particular action taken by the Corporation required the issue of a
prior notice to the borrower. Such decision will naturally depend on the exigencies of the situation and the nature of the hypothecated assets.
28. Referring to the judgment of the Orissa Bench, a Division Bench of the Gujarat High Court in Alka Ceramics Vs. Gujarat State Financial
Corporation and Others, , observed as follows (at p. 115) :
However, we wish to make it clear that merely because there is some subsequent payment, it would not nullify the earlier notice and action under
29 unless the payment is substantial; say about one third of the outstanding and there is a concrete and reasonable proposal and promise to pay the
balance within a reasonable period. If such substantial payment and proposal are made, the Corporation has to consider afresh whether to
proceed u/s 29 after taking into account the reasonableness and reliability of the offer.
29. Therefore, it is clear that the Orissa Bench has not laid down any proposition of law in the abstract without any reference to the facts of the
case.
30. At this stage it is worthwhile referring to the dictum of the Supreme Court in Union of India and Another Vs. Tulsiram Patel and Others, , on
the principles of natural justice. The relevant passages are as follows (at p. 1461) :
Though the two rules of natural justice, namely, nemo judex in causa sua and audi alteram partem, have now a definite meaning and connotation in
law and their content and implication are well understood and firmly established, they are none the less not statutory rules. Each of these yields to
and changes with the exigencies of different situations. They do not apply in the same manner to situations which are not alike. These rules are not
cast in a rigid mould nor can they be put in a legal strait-jacket. They are not immutable but flexible.
So far as the audi alteram partem rule is concerned, both in England and in India, it is well established that where a right to a prior notice and an
opportunity to be heard before an order is passed would obstruct the taking of prompt action, such a right can be excluded. This right can also be
excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its
exclusion; nor can the audi alteram partem rule be invoked if importing it would have the effect of paralysing the administrative process or where
the need for promptitude or taking action so demands as pointed out in Mrs. Maneka Gandhi Vs. Union of India (UOI) and Another, .
31. Therefore, it is futile to contend that though section 29 of the Act does not provide for issue of notice before taking action thereunder, the
principles of natural justice require such a notice to be issued in every case before any kind of action is taken. The fact that the Legislature has
made a provision for notice in section 30 but has omitted to do so in section 29 is not without significance.
32. Reliance is placed by learned counsel on the judgment of the Supreme Court in Mahesh Chandra v. U.P. Financial Corporation [1993] 78
Comp Cas 1. It was a case in which the Financial Corporation did not disburse the loan fully and when the industrial concern was in need of funds,
the Corporation acted indifferently and took action u/s 29 of the Act. Condemning the action taken by the Corporation in the context of the facts
of the case, the Supreme Court laid down that the basic philosophy enshrined in section 24 of the Act should be kept in mind before any action is
taken u/s 29 of the Act. The court also prescribed guidelines for exercising the power u/s 29 of the Act. Section 24 of the Act to which reference
was made by the Supreme Court requires the board of directors of the Financial Corporation to discharges its functions on business principles, due
regard being had to the interests of industry, commerce and the general public. It was held by the court that on the facts of the case it was clear
that the interests of the industry were completely ignored by the Financial Corporation. The following passage is referred to by learned counsel (at
page 11) :
Section 29 refers confers very wide power on the Corporation to ensure prompt payment by arming it with effective measure 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. Every wide power, the exercise of which has far-reaching repercussions,
has inherent limitations on it. It should be exercised to effectuate the purpose of the Act. In legislation enacted for general benefit and common
good, the responsibility is far graver. It demands a purposeful approach. The exercise of discretion should be objective. The test of reasonableness
is more strict. The public functionaries should be duty conscious rather than power charged. Its actions and decisions which touch the common
man have to be tested on the touchstone of fairness and justice. That which is not fair and just is unreasonable. And what is unreasonable is
arbitrary. An arbitrary action is ultra vires. It does not become bona fide and in good faith merely because no personal gain or benefit to the person
exercising discretion is established. An action is mala fide if it is contrary to the purpose for which it was authorised to be exercised. Dishonesty in
discharge of duty vitiates the action without anything more. An action is bad even without proof of motive of dishonesty, if the authority is found to
have acted contrary to reason. Power u/s 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 a loan may attract section 29. But that alone is insufficient either to assume
possession or to shell the property. Neither should be resorted to unless it is imperative. Even though no rules appear to have been framed nor any
guidelines framed by the Corporation were placed, yet the basic philosophy enshrined in section 24 has to be kept in mind. The 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.
33. Nothing in the above passages suggests that a special notice should be issued u/s 29 of the Act. On the other hand, the court has referred only
to a notice to pay arrears. Nowhere in the judgment of the apex court do we find any prescription of a special notice being issued u/s 29 of the Act
before taking action. The ruling dies not help the appellant in any manner, particularly when in this case a notice to pay has been issued on August
29, 1991 before the seizure of the lorry and a foreclosure notice has been issued on November 14, 1991, before the auction sale informing the
appellant clearly that action will be taken under sections 29 and 32G of the Act.
34. Learned counsel for the appellant places reliance on the instructions contained in the legal manual issued to the officers of the Corporation.
According to him, they are regulations within the meaning of section 48(2) of the Act. u/s 48 of the Act, the board of directors after consultation
with the Development Bank and with the previous sanction of the State Government, may make regulations not inconsistent with the Act and the
rules made thereunder, to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of
the Act. Certain categories have been set out in sub-section (2) thereof, without prejudice to the generality of the power given in sub-clause (1) of
section 48 of the Act. Clause (1) of sub-section (2) of section 48 of the Act provides for taking over of the management of any industrial concern
on a breach of its agreement with the financial Corporation. Sub-section (3) enjoins that all regulations made under the section shall be published in
the Official Gazette and any such regulation shall have effect from such earlier or later date as may be specified in the regulations. Thus, if the board
makes any regulations, they shall be published in the Official Gazette in order to be treated as regulations. The legal manual containing instructions
to the officers of the Corporation is admittedly not a regulation framed u/s 48 of the Act by the board. It was not published in any Official Gazette.
It is conceded that they are not regulations as contemplated u/s 48 of the Act. But, however, it is contended that the instructions contained in the
manual confer a right on the borrowers and they are enforceable at the instance of the borrowers. We do not agree. The instructions are merely
guidelines to be generally followed by the officers in order to avoid legal tangles. Moreover, the paragraphs in the legal manual which are relied on
by learned counsel relate only to taking over of industrial units and taking possession of immovable properties. We agree with the view taken by
learned single judge in this case that the instructions contained in the legal manual referred to by learned counsel for the appellant do not apply to
seizure of vehicles or the sale thereof.
35. Learned counsel submits that a lorry or a motor vehicle is also an industrial concern as defined by the Act. We do not find any substance in the
contention. According to him, section 2(c)(iv) of the Act would mean a motor vehicle. The said sub-section read thus :
Industrial concern"", means any concern engaged or to be engaged in ...
(iv) the transport of passengers or goods by road or by water or by air or by ropeway or by lite.
36. The expression used by the section is ""concern"". The Act does not define that expression. One of the meanings of ""concern"" is ""a business"". A
lorry or motor vehicle is not a business, though it may be a business asset. Hence, the contention that a lorry is an industrial concern within the
meaning to the Act cannot be accepted.
37. Nothing has been placed before us to show that the auction is not conducted fairly or properly. On the other hand, the records show that
proper public notice was given by publication in the newspapers and several members of the public had taken part in the auction. Ultimately, the
vehicle has been sold for a sum of Rs. 2,28,500 which is more than the amount due to the Corporation. The Corporation has stated in its counter
affidavit filed here before us that a sum of Rs. 30,000 is remaining as a surplus, which is payable to the appellant herein. Thus, the appellant cannot
make any grievance against the auction as such. There is absolutely nothing to show that the Corporation had acted vindictively or arbitrarily
against the appellant. He was given more than ample opportunity to discharge the debt due by him. Yet, he had not availed of the same.
38. We find no merit whatever in the appeal. We are entirely in agreement with the view taken by the learned single judge. The facts of the case
fully justify the dismissal of the writ petition in limine. In fine, the writ appeal suffers dismissal. In view of the fact that the appellant has made false
statements in his affidavit filed in the writ petition, we direct him to pay costs in this appeal. Counsel''s fee Rs. 1,000.
