Punjab Financial Corp vs M/S.Surya Auto Industries

3. On an application made by the respondent for grant of loan for setting up an industrial unit in District Gurdaspur (Punjab), the appellant- Corporation sanctioned a term loan of Rs.24.25 lacs. For securing repayment of the loan, the respondent mortgaged immovable properties in favour of the appellant-Corporation. As per the terms of agreement executed between the parties, the respondent was required to repay the loan together with interest on specified dates but it failed to adhere to the time schedule and a sum of Rs.2.70 lacs only was deposited till 2002. Therefore, after issuing notice under Section 29 of the Act, the appellant-Corporation took possession of the unit. This action was followed by notices dated 2.12.2002, 3.3.2003, 30.5.2003 and 29.8.2003, whereby the respondent was repeatedly called upon to pay the outstanding dues. The respondent not only ignored the notices but also failed to avail the concession offered by the appellant- Corporation vide letter dated 10.9.2004 to reduce the rate of interest and reschedule the payment of the outstanding dues. The attitude of non- cooperation adopted by the respondent in the matter of repayment of loan and interest forced the appellant-Corporation to issue notice dated 26.6.2007 under Section 29 of the Act for taking over collateral security. 3

24. Accordingly, we allow this petition and apart from setting aside compounding of penal interest, declare that from 1.4.2003 i.e. after expiry of period of six months from the date of taking over of unit of the petitioner, the Corporation will be entitled to simple interest @ 10%. The Corporation is directed to make fresh calculation accordingly within one month from the date of receipt of a copy of this order. We further direct the Corporation to allow the petitioner to pay the amount as per fresh demand, if necessary, by selling the mortgaged property which has been taken over, subject to the payment being made directly to the Corporation to the extent of its dues. We also restrain the Corporation from giving effect to its notice Annexure P-8 of taking over other properties till the unit already taken over is disposed of. The Corporation may also review all pending cases where penal interest has been compounded in violation of law laid down by the Hon'ble 6 Supreme Court and where no steps are being taken after taking over of the unit."

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:

(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.

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).

19. In the result, the appeal is allowed, the impugned order is set aside and the writ petition filed by the respondent is dismissed.