Case: U.P. Financial Corporation Vs. Gem Cap (India) Private Limited And Others

The appeal is directed against the judgment and order of a Division Bench of the Allahabad High Court allowing Writ Petition 20544 of 1986 with certain directions. The first respondent Gem Cap (India) Pvt. Ltdis a private limited company. Second respondment is its Managing Director. At the request of the respondents, the appellant, U.P. Financial Corporation, sanctioned a loan of Rs. 29.70 lakhs. The terms and conditions of loan and the manner of repayment of the loan a re contained in the agreement and hypothecation deeds executed in 1981. Suffice it to note that loan was repayable in certain specified instalments along with interest. A sum of Rs. 26, 29, 578 was released to the respondents. The first respondent went into production in December 1982. Within a few months i.e.,in March 1983 its operations ceased. By an order dated February 21, 1984 the first respondent-unit was declared a sick unit. The respondents did not make any repayment as stipulated in the agreement and hypothecation deeds whereupon the Corporation took steps to take over the unit under Section 29 of the State Financial Corporations Act, 1951 for recovering an amount of Rs. 38.57 lakhs due to it by that date vide notice dated July 10, 1984. Then started a series of Writ Petitions by the respondents, all designed to stall the appellant from taking over and/or recovering the amount due to it. It is not necessary to trace the course of the several writ petitions except the one from which the present appeal arises.Writ Petition 20544 of 1986 was filed questioning the taking over of the first respondent-unit by the appellant- Corporation under Section 29 of the Act and for a direction to the appellant to reschedule the repayment of debt in accordance with the earlier orders of the High Court. The writ petition has been allowed with the following directionsg regard to the discussion made:above we direct the U.P. Financial Corporation:-  (1) to consider expeditiously the resolution dated 29.1.1986aimed at the rehabilitation of the industrial concern in question in the light of the feasibility report of the U.P. Industrial Consultants Ltd. the Financial aid forthcoming from the Bank of Baroda and other financial institutions and the reports of the managing director of the corporation dated 18.12.85 and 29.1.1986;(2) to restore back possession of the unit to the petition No. 1 forthwith.  The notice dated 11.6.1986 issued by the Corporation under Section 29 of the State Financial Corporation Act, 1951 shall, however, remain alive it being open to the Corporation to proceed further in pursuance thereof in case the rehabilitation deal is given a fair trial but does not bear fruit. The petition is allowed accordingly with no order, however, as to costs."judgment of the Allahabad High Court aforesaid (dated April 6, 1987) the appellant filed this appeal and on May 8, 1987 this Court while issuing notice on the SLP directed stay of operation of the judgment of the High court. After the respondents filed a counter affidavit this Court made the following order on September 18, 1987:"Stay made absolute with the direction that there shall be no sale of the industrial unit. Hearing expedited. To be heard alongwith Civil Appeal No. 568 of 1987."The S.L.P. could not be heard finally though it was posted for hearing on certain dates. On November 13, 1991, the counsel for the respondents made an offer which is recorded in the order of that date. It reads

Reasoning: Here was a company which drew substantial public funds and became sick within three months of its going into production. One of the main reasons for its sickness appears to be the inter-necine fight between the two groups controlling the Company.The unit was closed. It was not paying a single pie in repayment of the loan neither the principal nor the interest. Already a huge amount was due to the appellant. There was no prospect of its recovery. And yet other financial corporations were being asked by the court, four years after its closure, to sink more money into the sick unit. Though a passing reference is made to the financial risk of appellant. this concern was not translated into appropriate directions. The Corporation was not allowed to sell the unit when it wanted to in 1984-85. Now, it is difficult to sell it, because it has been lying closed for about 8 years and more. The machinery must have become junk. While the Company could not be revived, the appellant-corporation now stands to lose more than a crore of rupees all public money in this one instance"We have heard learned counsel on both sides. Apart from the merits of the issues raised, it appears to us that the present impasse is to nobodys advantage. The dispute has to be resolved in some meaningful way. We accordingly direct the respondent-Company and Sri K.P. Chaturvedi, who claims to be in- charge of the affairs of the Company, to confirm in writing to the petitioner-Corporation within three weeks from today that they unconditionally agree to settle the claims of the. Financial Corporation at a figure which would represent the principal amount said to be Rs. 26.30 lacs and interest thereon from the inception at 13.5% per year with half yearly rests calculated upto 25.7.1986If such an offer is made, the Financial Corporation will assess the merit and acceptability of that offer and take within six weeks thereafter, an appropriate decision including the manner in which and the period over which the payment should be completed, and if the Financial Corporation agree s to grant time for payment, the rate of interest for the deferred period. The decision taken by the Corporation will be placed before this Court.If, however, a ny offer, as indicated above, is not communicated by the company or Sri Chaturvedi within a period of three weeks from today, then the Financial Corporation shall be at liberty to initiate, with notice to the respondents, steps for the sale by public auction of the subjectmatter of the security in its favour and to treat and hold the proceeds of sale as substituted security in the place of the subject-matter of the security, subject to the final result of this S.L.P. Call this matter in the 3rd week of May, 1992."On behalf of the appellant reliance has been placed upon the decision of this court in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation &Ors., . We have perused the decision. That was a case where the debtor was anxious to pay off the debt and had been taking several steps to discharge his obligation. On the facts of that particular case it was found that the corporation was acting reasonably. In that context certain observations were made. The decision also deals with the procedure to be adopted by the Corporation while selling the units taken over under Section 29. That aspect is not relevant in this case. We are, therefore, of the opinion that the said decision is of no help to the appellant herein