IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CWP No.1138 of 2007 Date of decision: 11.12.2008 M/s JP Plastics 11, Guru Gian Vihar, Sector 6 Jawaddi, Ludhiana. -----Petitioner Vs. State of Punjab and others --- Respondents CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MR JUSTICE L.N.MITTAL Present: Mr. Jaideep Verma, Advocate for the petitioner. Ms. Sudeepti Sharma, DAG, Punjab for respondent Nos. 1 and 5. Mr. GS Anand, Advocate for respondent Nos. 2 and 6. Adarsh Kumar Goel,J. 1. This petition seeks, inter-alia, quashing of notice under Section 29 of the State Financial Corporation, 1951 CWP No.1138 of 2007 (in short, ‘the SFC Act’), Annexure P.10 dated 8.1.2007 seeking to take over the unit of the petitioner on account of default in payment. 2. Case of the petitioner is that it took two loans - a sum of Rs.3.50 lacs as Term Loan and a sum of Rs.1.45 lacs as Working Capital on 17.6.1993. The amount was payable in instalments but the petitioner defaulted in making payment. According to the petitioner, it had various difficulties and the business could not succeed and was closed. One Time Settlement Scheme was published by the respondent Corporation on 30.1.2006 for the units which were already taken over, proposing to settle the accounts on receiving 15% of the settlement amount within 30 days, 10% with the application and the remaining 75% in 90 days or within three years in 12 quarterly instalments subject to payment of 12.5% interest. The scheme was to close on 31.3.2006. The petitioner made a proposal to settle these amounts in terms of the said scheme. The proposal was not accepted. Finally, impugned notice was served on the petitioner requiring to pay a sum of Rs.62,15,1671/- i.e. 2 CWP No.1138 of 2007 Rs.4.77 lacs towards principal and about Rs.57 lacs and odd towards interest. In the petition, there is a reference to Reserve Bank of India guidelines for Public Sector Banks and also some State Government policy with regard to border areas in the State of Punjab. There is also a reference to guidelines issued by the Small Industries Development Bank of India (SIDBI) providing for 25% of the amount to be paid upfront and 75% within one year. Reliance has also been placed on an order of this Court dated 24.8.2006, Annexure P.22, admitting a writ petition and granting interim order to Units which were still operating subject to the payments being made as per guidelines of the SIDBI. 3. While issuing notice, statement of the petitioner that a sum of Rs.2 lacs will be deposited in this Court, was recorded and the said amount is said to have been deposited. 4. In the reply filed, the petition has been contested and it has been stated that though, the petitioner had given a proposal but it failed to make any deposit for consideration of any settlement. The petitioner also gave a 3 CWP No.1138 of 2007 proposal on 18.4.2005 to pay Rs.8.52 lacs but his representative failed to appear in the meeting. The amount in the impugned demand letter was as per contract. 5. We have heard learned counsel for the parties and perused the record. 6. It is not disputed that in view of judgment of this Court dated 8.2.2002 in CWP No.8260 of 2001 (Lal Chand Katia v. Punjab Financial Corporation), Annexure P.17, SIDBI guidelines are not as such applicable. Since the petitioner did not take any steps to avail of advertised One Time Settlement Schemes, even if applicable, the question of settlement in terms of any such scheme does not arise. The Corporation has a right to proceed to take over the mortgaged property of the petitioner for default in payment. 7. Even though, on strict interpretation of contract between the parties, there may be no case for interference, we find an unusual feature in the present case that the impugned notice has been issued by the Corporation for the first time on 8.1.2007, even though, as per para 4 of the reply, the respondent-Corporation had taken congnizance 4 CWP No.1138 of 2007 of default of the petitioner vide letter dated 27.3.1996, Anenxure R2/2, whereby a notice was issued to the petitioner to clear the defaulted payment, failing which action under section 29 of the SFC Act was to be taken. After 27.3.1996, no action has been taken by the Corporation upto 8.1.2007. If the Corporation had taken prompt steps, the interest liability which has accumulated, could have been avoided. The purpose of conferring statutory power on the Corporation under section 29 of the SFC Act is to enable the Corporation to forthwith take over a defaulting unit and recover the amount so that the Corporation does not suffer the loss and at the same time interest liability on the debtor does not increase. As per statutory contract, interest in one account is 20% and in the other 20.75% which is compounded half yearly and it is on that account that interest liability is of more than Rs.57 lacs on principal of less than Rs.5 lacs. 8. Question is whether in these circumstances, any interference is called for by this Court. 9. We have already adverted to the obligation of the Corporation to act fairly consistent with Article 14 of the 5 CWP No.1138 of 2007 Constitution, at some length in Surya Auto Industries v. Punjab Financial Corporation, CWP No.11932 of 2007, decided on 21.11.2008. If Corporation remains silent for 10 years without showing any reason, the Corporation will be taking advantage of its own wrong in demanding contractual rate of compound interest. In such case, interference by this Court may be called for with the rate of interest to be charged. 10. In view of above special feature, we set aside the impugned notice dated 8.1.2007, Annexure P.10 and declare that the respondent-Corporation will be entitled to contractual rate of interest only till 31.3.1996. After 1.4.1996, the Corporation will be entitled to 14% simple interest. The Corporation will be at liberty to take its statutory remedies under Section 29 or 31 of the SFC Act to proceed to recover the amount from the mortgaged property unless the petitioner voluntarily pays the amount within three months from the date of receipt of a fresh notice of demand, on the calculation to be made in accordance with law. The petitioner will be at liberty to sell 6 CWP No.1138 of 2007 the mortgaged property for paying the amount, in association with the Corporation, subject to the sale considerations being directly paid to the Corporation to the extent of its dues. Sum of Rs.2 lacs deposited in pursuance of order of this Court dated 23.1.2007 may be remitted to the respondent-Corporation, to be adjusted in the account of the petitioner. 11. The petition is disposed of. (Adarsh Kumar Goel) Judge December 11, 2008 (L.N.Mittal) ‘gs’ Judge 7