Judgment JCM

8/6/2019 Judgment JCM

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Equivalent Citation: AIR2010SC3534, 2010(6)ALD29(SC), 2010AWC(Supp)4387SC, 2010(5)BomCR684, RLW2011(1)SC41,(2010)7SCC489, [2010]8SCR358

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 7189 of 2002

Decided On: 09.07.2010

Appellants: Managing Director, Maharashtra State FinancialCorporation and Ors.

Vs.Respondent: Sanjay Shankarsa Mamarde

Hon'ble Judges:

D. K. Jain and H. L. Dattu, JJ.

Subject: Consumer

Catch Words

Mentioned IN

Acts/Rules/Orders:

Consumer Protection Act , 1986 - Sections 2and 23

Cases Referred:U.P. Financial Corporation and Ors. v. Naini Oxygen and Acetylene GasLtd. and Anr. MANU/SC/0638/1995 : (1995) 2 SCC 754; HaryanaFinancial Corporation and Anr. v. Jagdamba Oil Mills andAnr. MANU/SC/0056/2002 : (2002) 3 SCC 496

Disposition:Appeal allowed

Citing Reference:

U.P. Financial Corporation and Ors. v. Naini Oxygen and AcetyleneGas Ltd. and Anr. MANU/SC/0638/1995

Relied On
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Haryana Financial Corporation and Anr. v. Jagdamba Oil Mills and Anr.MANU/SC/0056/2002 Relied On

Case Note:

Consumer - Compensation - Consumer

Protection Act , 1986 - National ConsumerDisputes Redressal Commission allowed Respondent'scomplaint and directed Corporation to pay an amount ofcompensation with further interest to complainant - Hence,this Appeal - Whether, Commission was correct in holding thatthere had been deficiency in service provided by Corporationto complainant on account of their failure to release balanceloan amount - Held, there was no shortcoming or inadequacy in

service on part of Corporation to performed its duty or to

discharge its obligations under loan agreement -However, Corporation was constrained not to release balanceinstallments and recall loan on account of defaults on part ofcomplainant himself - Moreover, complainant was defaulterright from inception in his dealing with corporation indischarging its liability, despite repeated demand for payment- Therefore, failure of Corporation to render 'service' could not

be held to give rise to claim for recovery of any amount

under Act - Hence, order passed by Commission was setaside - Appeal allowed.

Ratio Decidendi:"Where borrower has no genuine intention to repay andadopts pretexts and ploys to avoid payment, then nogrievance can make out against Corporation."

JUDGMENT

D.K. Jain, J.

1. Challenge in this appeal, filed under Section 23 ofthe Consumer Protection Act, 1986 (for short "the Act"), by theMaharashtra State Financial Corporation (hereinafter referred toas "the Corporation"), is to the final order, dated 7th January,
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2002, passed by the National Consumer Disputes RedressalCommission, New Delhi (for short "the Commission") in OriginalPetition No. 9 of 1995. By the impugned order, the Commissionhas accepted the complaint preferred by the respondent

(hereinafter referred to as "the complainant") against theCorporation and has directed the Corporation to pay to thecomplainant an amount of Rs. 4,84,457/- as compensation,within a period of two months from the date of the order and incase of default, to pay interest at the rate of 18% per annumfrom the date of order till actual payment.

2. Succinctly put, the material facts giving rise to the presentappeal are as follows:

The complainant approached the Corporation for sanction of loan

for his hotel project at Amravati. As per the project report, thecapital outlay was of Rs. 74.45 lakhs. The means of financeenvisaged in the project report were as follows:

i) Proprietor's capital : Rs. 16.80 lakhs

ii) Term loan from : Rs. 30.00 lakhsCorporation

iii) Special Capital : Rs. 21.30 lakhsIncentive from

SICOM

iv) Unsecured loans : Rs. 6.35 lakhs

Total : Rs. 74.45 lakhs

3. The Complainant's loan proposal was approved by the ExecutiveCommittee of the Corporation on 27th May, 1992, sanctioning aterm loan of Rs. 30 lakhs to the complainant. Accordingly, asanction letter along with terms and conditions of the loan wasissued to the complainant on 2nd July, 1992. The material

conditions of loan were as follows:

(a) The loan shall be utilised exclusively for the project as perthe scheme approved by MSFC and the specific purposesfor which the same is sanctioned.

(b) The loan shall be disbursed by MSFC in one lump sum or ininstalments as and when the said purposes are fulfilled or


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at the entire discretion of the Corporation or may berefused if in the opinion of the Corporation, the purpose forwhich the full loan has been sanctioned are not properlyfulfilled.

(c) The loan will be disbursed either for acquisition of fixedassets under the said scheme or for reimbursement offunds utilised for acquisition of fixed assets taken for

security under the said scheme.

(d) A minimum margin of 55% over all on fixed assets shall bemaintained during the currency of the loan.

(e) The loan shall be repaid within a period of 8 years by 13half yearly instalments commencing from the end of 2nd

year of disbursement of the first instalment of the loan.The amount of each instalment repayable being about 1/13of the amount sanctioned regardless of the amountdisbursed.

(f) The interest shall be charged @ 22% p.a. and the sameshall be payable quarterly on the total loan and the sameshall be charged from the date of disbursement of firstinstalment of the loan.

Additionally, it was also agreed that the loan amount would be

disbursed depending on the progress of the work in accordancewith a set time schedule. The progress of the construction workwas required to be evaluated by the valuer approved by theCorporation.

4. The said conditions were accepted by the complainant. Pursuantto complainant's request vide his letter dated 2nd September,1992, undertaking to bring entire 100% capital; filing hisbanker's confirmation for grant of bridge loan against subsidy i.e.(SCI) and load sanction letter from MSEB, before availing of thenext disbursement, the first instalment of the loan of Rs.

2,90,000/- was released by the Corporation to the complainant.On the same day, the complainant issued a cheque in the sum ofRs. 30,000/- towards up-front fees to the Corporation. However,the said cheque of Rs. 30,000/- was dishonoured when presentedfor payment. By their letter dated 15th December, 1992, theCorporation intimated the complainant that despite the releaseof first instalment of Rs. 2.90 lakhs, he had neither submittedpapers for further disbursements nor reported progress of the


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project and had also failed to submit Chartered Accountant'scertificate showing his investment. Subsequently, a valuationreport dated 7th January 1993, showing that a total amount ofRs. 6,97,057/- (Rs. 5,02,099/- as per previous valuation + Rs.1,94,958/- as per present valuation) had been spent on the

construction of the hotel was filed by the complainant. Accordingto the Corporation, despite the fact that the complainant hadfailed to submit complete documents, second instalment of Rs.87,000/- was released to him on 19th January 1993, afteradjusting therefrom the amount of interest due in terms of theconditions of loan.

5. Vide their letter dated 5th March, 1993, the Corporationrequested the complainant to inform them about the progress ofthe project and avail the balance loan limit by submittingvaluation report, Chartered Accountant's certificate towards

further investment made by him for creation of fixed assets.According to the Corporation, since they had learnt that therewas a proposal for laying a railway line between Amravati andNarkhed which was likely to affect the hotel project and thecomplainant had also defaulted in payment of interest despiterepeated requests by them vide their letters dated 10thDecember 1993 and 24th February, 1994, they did not releasefurther instalments of the loan sanctioned to the complainant. Onthe contrary, the stand of the complainant was that although byJune 1993, he had spent Rs. 27,25,510/- but no evaluation wasdone by the valuer of the Corporation and all his request for

release of further instalments fell on deaf ears. All the time, theCorporation insisted on a written assurance from the railwayauthorities that the proposed Amravati and Narkhed railway linewould not be passing through the hotel project site, beforereleasing the balance loan amount.

6. Finally, vide their letter dated 5th September, 1994, theCorporation informed the complainant that the entire balanceunavailed term loan of Rs. 26.23 lakhs had been treated ascancelled. The said intimation was followed by a legal noticedated 18th October, 1994 by the Advocate of the Corporation,

wherein it was alleged that the complainant had failed to pay theinterest on the amount already disbursed to him; as on 31stMarch, 1994 he was in arrears by more than Rs. 1 lakh asinterest and he had also failed to give any alternative proposalfor the hotel project as the project at the existing site was likelyto be affected by new railway track from Amravati to Narkhed. The complainant was called upon to repay the entire loanamounting to Rs. 5,19,726/-, the outstanding amount as on 23rd


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September,1994, within fifteen days from the date of receipt ofthe said notice.

7. It appears from the impugned order that by his letter dated 15thSeptember 1994, the complainant protested to the recall of loan

sanctioned to him. It is stated that the complainant pointed outthat though a number of instalments of the loan had fallen dueto be paid to the complainant, it was only as late as on 29th July,1994, that he was asked to submit a letter from the competentauthority regarding the status of the railway line and that hepromptly submitted a certificate issued by the Commissioner,Amravati Division affirming that there was no proposal ofAmravati - Narkhed line.

8. Having failed to get any favourable response from theCorporation, on 17th January 1995, the complainant filed a

complaint with the Commission. It seems that during thependency of the complaint before the Commission, theCorporation retraced their steps and proposed to renew the loanon certain conditions, which were not acceptable to thecomplainant.

9. As already stated, the Commission has accepted the complaintand has come to the conclusion that there was no justifiableground for the Corporation to deny disbursement of loan to thecomplainant. According to the Commission, having sanctionedthe loan and then stopping its disbursement without any cause

amounted to deficiency in service on the part of the Corporation.However, keeping in mind the passage of time, the Commissiondid not find it expedient to direct the Corporation to releasefurther instalments of the loan, sanctioned as far back as in July1992.

10. Being aggrieved by the award of compensation, the Corporationhas preferred this appeal.

11. We have heard Mr. Santosh Paul, learned Counsel appearing forthe Corporation and Mr. Manish Pitale, learned Counsel

appearing for the complainant.

12. Learned Counsel appearing for the Corporation submitted that inthe instant case there was no deficiency in service as defined in

Section 2(g) of the Act . The learned Counsel argued thatthe Commission has exceeded its jurisdiction in examining theadministrative decision of the Corporation to recall the loan as it
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felt that having regard to the past conduct of the complainant itwas not in the interest of the Corporation to disburse the balanceamount of loan to him. Relying on the decision of this Court inU.P. Financial Corporation and Ors. v. Naini Oxygen andAcetylene Gas Ltd. and Anr. MANU/SC/0638/1995 : (1995) 2 SCC

754 it was submitted that unless the action of the Corporationwas held to be mala fide, even a wrong decision taken by it wasnot open to challenge as it is not for the Courts or a third party tosubstitute its decision, however more prudent, commercial orbusinesslike it may be, for the decision of the Corporation.Reliance was also placed on another decision of this Court inHaryana Financial Corporation and Anr. v. Jagdamba Oil Mills andAnr.MANU/SC/0056/2002 : (2002) 3 SCC 496 to contend that incommercial matters the Court should not risk their judgments forthe judgments of the bodies to whom that task is assigned. Itwas asserted that since the Corporation was of a bona fide belief

that the entire hotel project of the complainant may get affectedbecause of the proposed railway line and further there weredefaults on the part of the complainant to discharge his liabilitytowards quarterly instalments of interest, the decision of theCorporation not to disburse further instalments cannot be termedas mala fide or unreasonable and, therefore, there was noquestion of any deficiency in the service of the Corporationtowards the complainant.

13. Supporting the impugned judgment, learned Counsel appearingfor the complainant, on the other hand, submitted that in the

absence of any stipulation in the conditions of loan for stoppingthe disbursement on account of default in the payment ofinterest on time, the action of the Corporation in not releasingthe remaining instalments on the stipulated dates not onlyaffected the hotel project, it also caused a huge loss to thecomplainant as he was deprived of the special capital incentiveby SICOM. It was argued that the non release of the instalmentson the specious plea that there was a proposal for a railway linewas mala fide inasmuch as there was no such proposal.

14. The short question arising for consideration is whether the

Commission was correct in holding that there has beendeficiency in service provided by the Corporation to thecomplainant on account of their failure to release the balanceloan amount?

15. Clause (o) of Section 2 of the Act defines "service" to mean:
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"service" means service of any description which is madeavailable to potential users and includes, but not limited to, theprovision of facilities in connection with banking, financinginsurance, transport, processing, supply of electrical or otherenergy, board or lodging or both, housing construction,

entertainment, amusement or the purveying of news or otherinformation, but does not include the rendering of any servicefree of charge or under a contract of personal service;

The use of the words 'any' and 'potential' in the context thesehave been used in Clause (o) indicates that the width of theclause is very wide and extends to any or all actual or potentialusers. The legislature has expanded the meaning of the wordfurther by extending it to every such facilities as are available toa consumer in connection with banking, financing etc.Undoubtedly, when the bank or financial institutions advance

loans, they do render 'service' within the meaning of the clause.In that behalf, there is no dispute.

16. "Deficiency" under Clause (g) of Section 2 of the Act means:

"deficiency" means any fault, imperfection, shortcoming orinadequacy in the quality, nature and mannerof performance which is required to be maintained byor under any law for the time being in force or has beenundertaken to be performed by a person in pursuance of acontract or otherwise in relation to any service;

It is manifest from the language employed in the clause that itsscope is also very wide but no single test as decisive in thedetermination of the extent of fault, imperfection, nature andmanner of performance etc. required to be maintained can belaid down. It must depend on the facts of the particular case,having regard to the nature of the 'service' to be provided.

17. Therefore, in so far as the present case is concerned, in order toexamine whether there was a deficiency in service by theCorporation, it has to be seen if there was any inadequacy in the

quality, nature and manner of performance which wasrequired to be maintained by the Corporation in terms of theirletter dated 2nd July, 1992, conveying the sanction of loan to thecomplainant. As noted above, the Corporation was obliged todisburse to the complainant a loan of Rs. 30 lakhs in instalmentson complainant's furnishing the progress report of the project.Although, no specific information with regard to the actual dates


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for release of the instalments of the loan amount areforthcoming, yet it can be gathered from the correspondence onrecord that the loan amount was to be disbursed periodically(perhaps half yearly), on the basis of the report of the approvedvaluer on the progress of the project. It is evident from

Corporation's letters dated 5th March, 1993, 10th December,1993, 24th February, 1994 and 29th July, 1994 that thecomplainant not only failed to furnish the progress report, healso did not discharge his liability towards interest, as demandedfrom him from time to time. As already stated, even the chequein the sum of Rs. 30,000/- issued by the complainant to theCorporation on 2nd September, 1992 towards up-front fee wasreturned unpaid by his bankers. In Corporation's letter dated24th February, 1994 it was alleged that the complainant had notonly failed to pay interest, it was also found on inspection oncouple of occasions by the Regional Manager that during the last

four months there was no further progress in implementation ofthe project. It is significant that these allegations and details ofinterest due from the complainant had not been seriouslydisputed by the complainant either before the Commission or inthe counter affidavit filed by him in this appeal. In thebackground of the factual scenario as emerging from thematerial on record, we are convinced that there was noshortcoming or inadequacy in the service on the part of theCorporation in performing its duty or discharging itsobligations under the loan agreement. The Corporation wasconstrained not to release the balance instalments and recall the

loan on account of stated defaults on the part of the complainanthimself. Non release of loan amount was not because of anydeficiency on the part of the Corporation but due tocomplainant's conduct and therefore, the failure of theCorporation to render 'service' could not be held to give rise toclaim for recovery of any amount under the Act.

18. We also find substance in the contention of learned Counsel forthe Corporation that unless the action of a financial institution isfound to be mala fide, even a wrong decision taken by it is notopen to challenge, as the wisdom of a particular decision is

normally to be left to the body authorized to decide. In U.P.Financial Corporation and Ors. v. Naini Oxygen & Acetylene GasLtd. and Anr. (supra) this Court had observed that a Corporationbeing an independent autonomous statutory body having its ownconstitution and rules to abide by, and functions and obligationsto discharge, in the discharge of its functions, it is freeto act according to its own right. The views it forms and thedecisions it takes would be on the basis of the information in its


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possession and the advice it receives and according to its ownperspective and calculation. In such a situation, more so incommercial matters, the court should not risk their judgments forthe judgments of the bodies to which that task is assigned. It washeld that: (SCC p. 761, para 21)

Unless its action is mala fide, even a wrong decision taken by itis not open to challenge. It is not for the courts or a third party tosubstitute its decision, however more prudent, commercial orbusinesslike it may be, for the decision of the Corporation.Hence, whatever the wisdom (or the lack of it) of the conduct ofthe Corporation, the same cannot be assailed for making theCorporation liable.

19. Having considered the matter in the light of the correspondenceexchanged between the Corporation and the complainant, we

have no hesitation in holding that there has not been anydeficiency in the service the Corporation was required to provideto the complainant. In our opinion, the Commission was notcorrect in coming to the aforestated conclusion. We are of theview that the complainant being himself a defaulter right frominception of his dealing with the Corporation, when his cheque inthe sum of Rs. 30,000/- got dishonoured, coupled with persistentdefaults in discharging his liability to the Corporation towardsinterest, despite repeated demands, he cannot be permitted toplead at the later stage that he suffered on account of deficiencyin service by the Corporation because of non-disbursement of

balance instalments of loan by them. As was observed by thisCourt in Jagdamba Oil Mills (supra), while not insisting upon theborrower to honour the commitments undertaken by him, theCorporation alone cannot be shackled hand and foot in the nameof fairness. Fairness cannot be a one-way street. Where theborrower has no genuine intention to repay and adopts pretextsand ploys to avoid payment like in the present case, he cannotmake the grievance that the Corporation was not acting fairly,even if requisite procedures have been followed.

20. For the foregoing reasons, we allow the appeal; set aside the

order passed by the Commission and dismiss the complaint filedby the complainant. Amount deposited in terms of order dated19th July, 2004 shall be released to the Corporation on maturityof the fixed deposit. There shall, however, be no order as tocosts.


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Equivalent Citation: I(1996)BC1(SC), [1995]82CompCas671(SC),

1995(1)CTC362, JT1994(7)SC551, 1994(4)SCALE1076, (1995)2SCC754,[1994]Supp5SCR654IN THE SUPREME COURT OF INDIACivil Appeal No. 568 of 1987Decided On: 22.11.1994Appellants: U.P. Financial Corporation and Ors.Vs.Respondent: Naini Oxygen & Acetylene Gas Ltd. and Anr.Hon'ble Judges:Kuldip Singh Singh and P.B. Sawant, JJ.Subject: Civil

Catch WordsMentioned INActs/Rules/Orders:State Financial Corporation Act, 1951 - Section 29; Constitution of India- Articles 136 and 226; Uttar Pradesh Public Moneys (Recovery of Dues)Act - Section 3Case Note:

Civil - loan to company - Section 29 of State FinancialCorporation Act, 1951, Articles 136 and 226 of Constitution ofIndia and Section 3 of Uttar Pradesh Public Moneys (Recovery

of Dues) Act - persistent default in repayment of loaninstalments by respondent company to State FinancialCorporation - under Section 29 of Act of 1951 corporation tookover defaulting company when huge amount of dues accrued -when Industrial Reconstruction Bank of India (IRBI) submittedits report it was found that machinery of industrialundertaking deteriorated due to long closure and non usage -Corporation under such circumstances refused to comply with
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relief package suggested by IRBI - Corporation beingindependent autonomous body is free to act in discharge of itsfunctions - it is not for Courts to substitute its decision fordecision of Corporation - held, High Court not justified instepping in and substituting its judgment for judgment of

Corporation.

JUDGMENTP.B. Sawant, J.

1. The case of the appellant-State Financial Corporation [for shortthe "Corporation"] is that it was established under the StateFinancial Corporation Act, 1951 [hereinafter referred to as the"Act"]. On 10th December, 1975, it sanctioned a term loan of Rs.30 lakhs to the 1st respondent-Company [for short the"Company"] payable in 17 half-yearly instalments by the 22nd of

August, 1986. The Memorandum of Agreement executed theCorporation and the Company and the Deeds of Mortgage andHypothecation executed by the Company in favour of theCorporation, inter alia provided for recall of the entire balance ofthe loan in the event of default on the part of the Company inpaying two instalments of the loan and further to recover thebalance of loan as arrears of land revenue. Accordingly, theCorporation disbursed Rs. 18 lakhs to the Company in 1977 andRs. 10 lakhs in 1978. In 1979, the Acetylene Gas plant of theCompany was commissioned. In 1980, the Corporation disbursedthe balance of Rs. 2 lakhs to the company thus making the total

payment of loan of Rs. 30 lakhs. In July 1981, the Oxygen Gasplant of the Company was also commissioned.

2. The Company, however, made persistent defaults in repaymentof the loan instalments with the result that the recoverycertificate was issue against it under Section 3 of the U.P. PublicMoneys [Recovery of Dues] Act. The Company challenged thesaid recovery proceedings before the High Court in W.P. No.15648 of 1981 which, however, was withdrawn by it later. Thereafter on 30th November, 1981, the Company filedCompany Petition No. 23 of 1981 under Sections 397 and 398 of

the Companies Act in the High Court seeking removal of personsthen in management on grave charges of manipulation ofaccounts, re-allotment of forfeited shares etc.

3. On 25th March, 1982, the State Government issued OfficeMemorandum enunciating a scheme for rehabilitation of sickunits and setting up, inter alia a State Level Inter-institutionalCommittee with power to approve loan upto Rs. 30 lakhs. On 9th
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January, 1984, there was a compromise in Company Petition No.23 of 1981 whereunder the then management of the Companystarted running the plants. On 30th November, 1984, the JointDirector of Industries declared the Company to be a sick unit. On5th October, 1985, the State Level Inter-institutional Committee

suggested a Rehabilitation Package which envisagedreschedulement of payment by the Company, arrangement offinances by the Company, appointment of two Directorsnominated by the Corporation and execution of personalguarantee by the DirectOrs.

4. On 19th October, 1985, the Corporation wrote a letter to theCompany stipulating the said conditions of the package. On 28thNovember, 1985 the terms of the Rehabilitation Package wereacknowledged by the Company. On 5th December, 1985, theBoard of Directors of the Corporation approved the Rehabilitation

Package. The Company, however, did not take any steps toimplement the Rehabilitation Package.

5. On 30th May, 1986, the Corporation issued to the Companynotice under Section 29 of the Act for recovery of Rs.90,31,102.13 which was made up on the principal amount of Rs.30 lakhs, interest amount of Rs. 59,40,514.13 upto 31st March,1986 and expenses of Rs. 90,588.00. The Company gave reply tothe notice on 5th June, 1986.

6. On 13th June, 1986, the Corporation took over the industrial

establishment under Section 29 of the Act. On 11th August,1986, the Corporation pointed out to the Company that none ofthe conditions of the Rehabilitation Package was complied with.On 1st October, 1986, the Company filed W.P. No. 16691 of 1986in the High Court. On 16th December, 1986, the Corporationdeclined to further liberalise the package. On 13th/15th January,1987, the High Court allowed the writ petition and directed theCorporation to hand over the possession of the industrial unit tothe Company without any adjustment. On 5th March, 1987, thisCourt granted special leave and stayed the operation of the HighCourt's order and asked the Industrial Reconstruction Bank of

India [IRBI] to submit its report as to the viability of theCompany. On 29th January, 1988, the IRBI made a report statingtherein inter alia that after reschedulement and further infusionof about Rs. 1 crore, the unit will be "marginally viable".

7. On these facts, the question raised by the Corporation in thisappeal is whether the Corporation is obliged to invest a furthersum of Rs. 1 crore in the establishment and whether even after


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such investment the unit will be viable or whether theCorporation should realise its loan from the sale of the assets ofthe Company.

8. As against the aforesaid case of the Corporation, the contention

of the Company is that pursuant to the loan sanctioned by theCorporation, the Company imported two heavy-duty compressorsfrom the U.S.A. and commissioned the Acetyleneand Oxygen plants in 1979 and 1980 respectively. On account ofthe mismanagement of the majority group then dominating themanagement of the company, the present management whichconsisted of a minority of shareholders, had to instituteproceedings in the High Court under Sections 397 and 398 of theCompanies Act, and in February 1984 the High Court under acompromise order got the shares of the then managementtransferred to the present management at the face value of Rs.

10/- per share. The equity capital invested by the presentmanagement, viz., D.P. Agrawal Group, therefore, became of theorder of Rs. 18 lakhs. Thereafter, the present management tookvarious steps to revive the Company which had become sick andbrought the plants into running condition after overhauling themat a considerable cost. For the purpose, the presentmanagement gave loans of about Rs. 30 lakhs to the Company.On this investment, the total investment of the presentmanagement group became of the order of about Rs. 50 lakhs.

9. On 30th November, 1984, the unit was declared sick by the Inter-

institutional Committee consisting of various State Governmentagencies including the Corporation. This Committee was formedunder the Government Order dated 25th March, 1982. By thesaid G.O. the Committee had been given full powers to take allsteps to revive sick units in the State which were found viableand which could be restored to health. The Committee had alsothe power to wind up such units as were found not viable.

10. On 5th October, 1985, the State-level Inter-institutionalCommittee which was presided over by the Commissioner,Allahabad Division, suggested the Rehabilitation Package. On the

same day, viz., 5th October, 1985 the Board of the Corporationmet and noted that the new management of the Company hadbrought about Rs. 8.30 lakhs during 198.4-85 and 1985-86 andapproved of the Rehabilitation Package suggested by theCommittee. On 19th October, 1985, the Corporation also issuedto the Company a formal letter communicating that the requestfor rehabilitation of the unit had been considered and the reliefsand concessions set out in the said letter had been granted. The


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concession included rescheduling of the payment of the principalamount of the loan of Rs. 30 lakhs so as to require the saidrepayment from 22nd August, 1987 to 22nd August, 1993. Theconcessions also included the grant of interest-free funding onsimple interest which was made repayable from February 1987

to February, 1996. The penal and compound interests werewaived. The result of the grant of these concessions was that therepayment of the amount due to the Corporation was only tocommence in 1987 and not before.

11. On 23rd December, 1985, the Commissioner and Director ofIndustries, U.P. wrote to the Reserve Bank to place the matterrelating to the Company before the State Level Inter-institutionalCommittee for their final decision and asked the Reserve Bank torequest all departments including the Corporation to stay theirrecovery proceedings till the final decision was taken on the

rehabilitation. On 6th January, 1986, the Reserve Bank requestedthe Corporation to stay the recovery proceedings.

12. In spite of this and in spite of the fact that the matter concerningthe rehabilitation of the unit was pending consideration beforethe State Level Inter-institutional Committee and the Corporationitself had granted deferment of the repayment of the loan to1987 to be completed in 1996, the Corporation issued anotherrecovery notice of 9th January, 1986. However, on 18th January,1986, the Head Office of the Corporation advised its Allahabadbranch to stay the recovery proceedings. On 2nd May, 1986,a

meeting of the State Level Inter-institutional Committeeconvened by the Reserve Bank, was held and the representativeof the Corporation informed the Committee that the Corporationhad stayed the recovery proceedings against the Company andin consultation with the Canara Bank a proposal for rehabilitationof the Company had been forwarded to the IRBI. The Committeedecided that the Reserve Bank will call a joint meeting of all theagencies to take a decision in the matter. However, theCorporation once again issued a recovery notice on 30th May,1986. The Company replied to the said notice on 5th June, 1986stating that on account of the deferment of the repayment

scheduled by the Corporation itself, dues for which the noticewas issued were not payable before 1987 and further the wholematter of rehabilitation was pending to be finalised.

13. Both the Acetylene and Oxygen plants, in the meanwhile,were working to full capacity, the same being 24 hour continuousprocess plants. However, on 13th June, 1986, the Corporation gotthe factory sealed and the workers were forcibly evicted from the


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factory. This arbitrary action of the Corporation was criticised byall Government agencies and officers in [written] letter which areon record. They are: IRBI's letter dated 30th June, 1986, CanaraBank's letters dated 14th, 16th and 17th June, 1986; letter dated28th June, 1986 of the Commissioner, Rehabilitation Division and

the letter dated 30th June, 1986 of the Additional Director ofIndustries. The Corporation, however, did not consider the advicegiven by these institutions and instead wrote to the Company'scustomers asking them not to pay the dues of the Company'sbills and not to return the Company's empty cylinders [about1000 of the value of about Rs. 20 lakhs]. The said cylinders arenow not traceable with the lapse of time.

14. On 11th August, 1986, the Director of Industries again wrote tothe Reserve Bank requesting it to take up the matter ofrehabilitation before the State Level Inter-institutional

Committee. On the same day, the Corporation wrote to theCompany agreeing to give to the company the possession of theunit stating that the IRBI shall prepare a total rehabilitationproposal within three months and the Corporation will follow thesaid proposal. The letter further stated that the present Directorsof the Company should give personal guarantee for therepayment of the liabilities of the Corporation. On 21st August,1986, the Company accepted the terms stipulated by theCorporation in its said letter and also confirmed that theDirectors will give personal guarantee for such amounts as weredecided upon by the IRBI. On the same day, i.e., 21st August,

1986 the Reserve Bank wrote to the Director of Industries that inthe meeting of the State Level Inter-institutional Committee heldon 2nd May, 1986 an assurance was given by the representativeof the Corporation that the recovery proceedings against theCompany had been stayed, and, therefore, a decision was takento call another meeting for the rehabilitation of the unit. Since,however, the Corporation had taken physical possession of theunit, no further action could be taken pursuant to that decision.The Reserve bank in that letter also desired that the matter betaken up with the State Government so that the Governmentcould intervene to stay the actions of the Corporation. By his

letters of 29th August, 1986, the Director of Industries advisedthe Corporation to withdraw its action and allow the unit to run.

15. It was in these circumstances that the Company was forced tofile the writ petition in the High Court on 1st August, 1986. TheHigh Court had, by its impugned judgment, found that the actionof the Corporation was very arbitrary and had directed it torestore the possession to the Company forthwith. It had also


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directed the IRBI to prepare rehabilitation package within fourmonths of the restoration of the possession.

16. At the time the Corporation sealed the unit viz., on 13th June,1986, according to the Company, the value of its assets was

about Rs. 96 lakhs. This valuation had been done at the instanceof the Corporation by a registered valuer in the later part of1985. Under the Rehabilitation Package proposed by theCorporation, the Company was liable to pay to it the principalamount of Rs. 30 lakhs and interest on it in deferred instalmentsfrom 1987 to 1993 and without any further interest on the saidinterest amount in easy instalments from 1987 to 1996. Inaddition, the liabilities of the Canara Bank had already beenquantified at Rs. 12.5 lakhs and the Bank had also to recover thesaid liabilities in easy instalments. Thus, as against the assets ofthe Company worth Rs. 96 lakhs, the total liabilities of the

Company to the Corporation and the Canara Bank together werebetween Rs. 75 to 80 lakhs and these liabilities were also to bedischarged in easy instalments upto 1996. Hence it is the case ofthe Company that the impugned judgment of the High Court wasperfectly justified.

17. However, the Corporation obtained the stay of the said judgmentfrom this Court which has continued form 1987 to this day. The resulthas been that the plants have continued to remain closed and theinterest has continued to accumulate on the dues of the Corporationand the Canara Bank. The plants have, in the meanwhile become

almost a junk, and the cylinders worth Rs. 20 lakhs are not traceable.Today, the total value of the assets including land and buildings hascome down to Rs. 42 lakhs from Rs. 96 lakhs in 1986. It is, therefore,the contention of the Company before us that the Corporation's appealshould be dismissed and the Company should be restored to the sameposition in which it had been on the date the stay order was obtainedin this appeal. It is contended that if the stay order had not beenobtained by the Corporation, the Company would have got thepossession of the plants in January 1987 in good condition and itsliabilities would have been only between Rs. 75 to 80 lakhs. TheCompany further prays that the interest which has accrued on the dues

of the Corporation should be waived and that on the dues of theCanara Bank should be borne by the Corporation. It is furthercontended by the Company that as per the order of this Court passedon 5th March, 1987, the IRBI has submitted its report on 5th February,1988 according to which the unit was found viable. In this connection,the following passages from the said report are relied upon by theCompany.


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Resolved that the proposal contained in memorandum of IRBI No.8793/88 dated 1.12.88 for sanction of Rupee term loan notexceeding Rs. 190 lakhs (Rupees one hundred and ninety lakhs

only) to Naini Oxygen & Acetylene Gas limited (NOAG)

towards the cost of proposed modernisation - cum-rehabilitationscheme on the terms and conditions contained in Appendix ofthe memorandum, besides normal terms and conditionsapplicable to such loan from IRBI, be and is hereby approved.

* * * * * * * * *In the light of IRBI having submitted a report on the viabilityaspect of NOAG as elaborated earlier, the Hon'ble Supreme Courthas directed IRBI to consider the report and intimate its decisionto this Court. UPFC some time in August, 1986 hadcommunicated earlier to the Company its intention, inter-alia, tofollow the rehabilitation proposal approved by IRBI. In the

discussion with Canara Bank it appeared that the Bank wasfavourably inclined to support rehabilitation proposal approvedby IRBI. Meanwhile, market study undertaken by M/s.Development consultant Pvt. Ltd., reflects a favourable marketcondition for the proposed produced mix of NOAG.

18. The Report had provided for a package of reliefs and concessionsrelating to the Corporation and the Canara Bank. Apart from thewaiver of penal and compound interests which had also beenagreed to by the Corporation and refunding of the simple interestwhich had also been agreed to by the Corporation, the package

proposed in the report, "interest holiday" during the period of theclosure of the factory, i.e., from the date of the take-over of thefactory to the date of the reopening of the same.

19. In this connection, the Company also pointed out that the IRBIwas prepared to give a term loan of Rs. 1.9 crores for making theunit profitable and no additional finance was required either fromthe Corporation or the Canara Bank. The Company hadthereupon made an application to this Court for permitting it torepair the machinery under the supervision of the Corporationpending the disposal of the appeal. However, the Corporation

through its counsel had undertaken to carry out the said repairsitself, and this was recorded by this Court in its order of 27thApril, 1988. In spite of the undertaking to carry out the repairs,the Corporation did not do so with the result the Company wascompelled to file an application for contempt being CMP No.2715 of 1989. That Contempt Petition is still pending. TheCompany would, therefore, also be entitled to be compensated


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for the losses caused to it on account of the non-fulfilment of theundertaking given by the Corporation to the Court.

20. No doubt, there is nothing on record to explain certain events,viz., [i] when on 19th October, 1985 the Corporation had issued

to the Company a formal letter communicating to it itsacceptance of the rehabilitation package and grant of reliefs andconcessions set out therein, what impelled the Corporation toissue recovery notice on 9th January, 1986 which was later onstayed by the Corporation itself on 18th January, 1986; [ii] if on2nd May, 1986, the. Corporation had informed the State-levelInter-Institutional Committee that it had stayed the recoveryproceedings, what impelled the Corporation once again to issuethe recovery notice on 13th May, 1986; [iii] if the Corporationitself had agreed by its letter on 19th October, 1985 toreschedule the payment of loan from 1987 to 1986, what

impelled it to issue the said recovery notice on 13th May, 1986when admittedly as per the Corporation's offer, the payment ofloan and interest from the Company was not due and when theentire matter of the rehabilitation of the Company was underactive consideration; [iv] what impelled the Corporation on 13thJune, 1986 to seal the unit and write to the customers not to paythe bills and not to return the cylinders to the Company; [v]when on 11th August, 1986, the Corporation had written to theCompany agreeing to give it back the possession of the unit andto follow the rehabilitation proposal that would be prepared bythe IRBI on the condition that the Directors of the Company

would give personal guarantee for the payment of the liabilitiesand the Company had accepted the terms by its letter of 21stAugust, 1986 and when the Director of Industries had advisedthe Corporation on 12th August, 1986 to withdraw the recoverynotice, why had the Corporation not handed over the possessionof the unit to the Company;. [vi] why had the Corporation nottaken steps to repair the machines, in spite of the undertakinggiven to this Court and [vii] why had the Corporation notaccepted the report of the IRBI submitted on 5th February, 1988to this Court when the IRBI was prepared to invest term loan ofRs. 1.9 crores for making the unit marginally viable?

21. However, we cannot lose sight of the fact that the Corporation isan independent autonomous statutory body having its ownConstitution and rules to abide by, and functions and obligationsto discharge. As such, in the discharge of its functions, it is freeto act according to its own light. The views it forms and thedecisions it takes are on the basis of the information in itspossession and the advice it receives and according to its own


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perspective and calculations. Unless its action is mala fide, evena wrong decision taken by it is not open to challenge. It is not forthe courts or a third party to substitute its decision, howevermore prudent, commercial or business like it may be, for thedecision of the Corporation. Hence, whatever the wisdom [or the

lack of it] of the conduct of the Corporation, the same cannot beassailed for making the Corporation liable.

22. It cannot further be forgotten that in the present case, theCompany had made persistent defaults in repayment of the loaninstallments with the result that recovery certificate had to beissued against it under Section 3 of the U.P. Public Moneys[Recovery of Dues] Act. The then management had mismanagedthe Company and a Company Petition had to be filed seeking itsremoval on grave charges of manipulation of accounts,reallotment of forfeited shares, etc. The non-discharge of the

liabilities of the Company was on account of the said fraudulentpractices of the management. By 30th May, 1986, the dues ofthe Company mounted to Rs. 90,31.102/13 with the result thaton 13th June, 1986, the Corporation had to take over itsindustrial establishment under Section 29of the Act. the report ofthe IRBI which was given at the instance of this Court on 29thJanuary, 1988 had stated that the industrial unit could be madeonly marginally viable provided another Rs. one crore wereinvested in it and the loan instalments were rescheduled.Between 1981 when the industrial establishment was closeddown and 1988 when the IRBI report was submitted, the

machinery of the establishment was lying idle and was almostrusty with the result that by 1988, the value of the machineryhad gone down considerably, while its liabilities had gone up stillfurther. In the circumstances, if the Corporation thought that therevival of the unit even after giving all concessions and reliefs asper the package deal was problematic and the Corporation willstand to lose whatever little it could retrieve towards its dues,the Corporation could hardly be blamed for the same.

23. We are, therefore, of the view that this is not a matter where theHigh Court should have stepped in and substituted its judgment

for the judgment of the Corporation which should be deemed toknow its interests better whatever the sympathies the Court hadfor the prosperity of the Company. In matters commercial, thecourts should not risk their judgments for the judgments of thebodies to whom that task is assigned.

24. If the situation was bad on the date of the impugned judgment, ithas become worse today. Between 1988 when the IRBI gave its


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report and this day, the situation has worsened with the furtherdeterioration of the machinery and the spiralling of the liabilities.To grant any indulgence to the Company at this stage will beakin to flogging a dead horse. In the circumstances, we, allowthe appeal and set aside the impugned judgment of the High

Court. The Corporation will now be free to proceed according tolaw.

Judgment JCM

Documents

Transcript of Judgment JCM