Case: Punjab Financial Corp Vs. M/S.Surya Auto Industries

in hardly ever likely to cooperate in the sale of his assets. The procedure indicated in Mahesh Chandra 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. The subsequent decisions of this Court in Gem Cap, Naini Oxygen and Micro Cast Rubber 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." 14. 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 under Section 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 de hors 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. 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. 15. If the order impugned in this appeal is examined in the light of the principles laid down in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. (supra) and Haryana Financial Corporation v. Jagdamba Oil Mills (supra), we do not find any difficulty in holding that the High Court committed an error in declaring that the action taken by the Corporation was unfair and unreasonable and the direction issued for review of all pending cases where penal interest has been compounded is legally unsustainable. While decrying the appellant-Corporation for allegedly going into slumber after taking over the unit of the respondent in furtherance of the first notice issued under Section 29 of the Act, the High Court overlooked many important factors, which are enumerated below: (i) The respondent miserably failed to discharge its obligation to repay the loan together with interest and as against the outstanding dues of more than Rs. 36 lacs in 2002, a paltry sum of Rs. 2.70 lacs was deposited. (ii) The appellant-Corporation issued notices dated 2.12.2002; 3.3.2003, 30.5.2003 and 29.8.2003 to the respondent requiring it to pay the amount specified therein, but the latter did not respond to either of the notices. (iii) Vide letter dated 10.9.2004, the appellant-Corporation offered to reduce the rate of interest and reschedule the payment of dues, but the respondent did not avail the same. (iv) The respondent did not take benefit of the schemes notified on 3.1.2005 and 18.3.2005 for restoration of the unit by paying the principal amount along with 10% of the outstanding interest. 16. In our view, the appellant-Corporation had acted in a most reasonable and fair manner and the High Court was not justified in nullifying the second notice issued under Section 29 of the Act by assuming that the appellant-Corporation had not taken effective steps for realization of its dues in furtherance of first notice. Unfortunately, the High Court ignored that the respondent had not only adopted a recalcitrant attitude in the matter of payment of the outstanding dues, but also failed to avail the concessions offered by the appellant-Corporation by reducing the rate of interest and rescheduling the payment of outstanding dues and did not take benefit of the schemes notified by the appellant-Corporation for restoration of unit on payment of the principal amount with a 10% outstanding interest. 17. The High Court also committed serious error in declaring that he appellant-Corporation will be entitled to charge simple interest at the rate of 10% w.e.f. 1.4.2003 i.e., after expiry of six months from the date of taking over of the unit. Undisputedly, the respondent had not challenged the terms of loan agreement. Therefore, the High Court could not have suo motu altered terms of agreement and directed the appellant to make fresh calculation of the outstanding dues and allowed the respondent to pay the amount as per fresh demand by selling the mortgaged property. This approach of the High Court is ex facie contrary to the law laid down in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. (supra) and Haryana Financial Corporation v. Jagdamba Oil Mills (supra). 18. The direction given by the High Court for review of pending cases in the light of judgment of this Court in Central Bank of India v. Ravindra (supra) is also unsustainable because, as mentioned above, the High Court was not called upon to examine the legality or otherwise of the terms of agreement entered into between the appellant-Corporation and respondent under which the latter was obliged to pay interest at the particular rate with periodical rests. Moreover, conclusion No. 3 contained in para 55 of that judgment clearly postulates that stipulations incorporated in the contract entered into and binding on the parties shall govern their substantive rights and obligations in the matter of recovery and payment of interest.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]We are, therefore, of the view that this is not a matter where the High Court should have stepped in and substituted its judgment for the judgment of the Corporation which should be deemed to know its interests better whatever the sympathies the Court had for the prosperity of the Company. In matters commercial, the courts should not risk their judgments for the judgments of the bodies to whom that task is assigned."16. In our view, the appellant-Corporation had acted in a most reasonable and fair manner and the High Court was not justified in nullifying the second notice issued under Section 29 of the Act by assuming that the appellant-Corporation had not taken effective steps for realization of its dues in furtherance of first notice. Unfortunately, the High Court ignored that the respondent had not only adopted a recalcitrant attitude in the matter of payment of the outstanding dues, but also failed to avail the concessions offered by the appellant-Corporation by reducing the rate of interest and rescheduling the payment of outstanding dues and did not take benefit of the schemes notified by the appellant-Corporation for restoration of unit on payment of the principal amount with a 10% outstanding interest17. The High Court also committed serious error in declaring that he appellant-Corporation will be entitled to charge simple interest at the rate of 10% w.e.f. 1.4.2003 i.e., after expiry of six months from the date of taking over of the unit. Undisputedly, the respondent had not challenged the terms of loan agreement. Therefore, the High Court could not have suo motu altered terms of agreement and directed the appellant to make fresh calculation of the outstanding dues and allowed the respondent to pay the amount as per fresh demand by selling the mortgaged property. This approach of the High Court is ex facie contrary to the law laid down in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. (supra) and Haryana Financial Corporation v. Jagdamba Oil Mills (supra)18. The direction given by the High Court for review of pending cases in the light of judgment of this Court in Central Bank of India v. Ravindra (supra) is also unsustainable because, as mentioned above, the High Court was not called upon to examine the legality or otherwise of the terms of agreement entered into between the appellant-Corporation and respondent under which the latter was obliged to pay interest at the particular rate with periodical rests. Moreover, conclusion No. 3 contained in para 55 of that judgment clearly postulates that stipulations incorporated in the contract entered into and binding on the parties shall govern their substantive rights and obligations in the matter of recovery and payment of interest