# M/s Garg Oil Industries & Anr v. State of U.P. & Ors

- **Citation:** (2020) 2 ILRA 1863
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2020-01-14
- **Case number:** Writ C No. 37453 of 2001
- **Bench:** Sudhir Agarwal, Rajeev Misra
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-garg-oil-industries-anr-v-state-of-u-p-ors-45571
- **Pages:** 11

## Headnote

C.S.C., Sri A. Khan, Sri A. Khare, Sri Ateeq
Ahmad Khan, Sri Dinesh Tewari, Sri V.
Singh, Sri V.S. Singh

Petitioners applied for working capital
Term
Loan-loan
sanctioned
and
disbursed-Petitioner applied for geting
the
unit
declared
as
sick
and-for
rehabilitation-claim rejected-one time
settlement
sanctioned-not
compliedenough opportunity given-but repeated
default made in repayment-no fault if no
time
granted
in
last
notice-W.P.
dismissed.

Held,
A
person,
who
himself
has
committed repeated default and has not
dealt with affairs in a bona fide and 10
honest manner, cannot seek indulgence
on a technical plea when repeated
notices, opportunities have been given
and the same have all failed. (para 16)
(E-9)

Cases Cited:

## Text

2 All. M/s Garg Oil Industries & Anr.Vs. State of U.P. & Ors.
1863
(2020)02ILR A1863

ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 14.01.2020

BEFORE
THE HON'BLE SUDHIR AGARWAL, J.
THE HON'BLE RAJEEV MISRA, J.

Writ C No. 37453 of 2001

M/s Garg Oil Industries & Anr.
 ...Petitioners
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioners:
Sri Manoj Kumar Rajvanshi, Sri N.C.
Rajvanshi, Sri Prakash Chandra Shukla

Counsel for the Respondents:
C.S.C., Sri A. Khan, Sri A. Khare, Sri Ateeq
Ahmad Khan, Sri Dinesh Tewari, Sri V.
Singh, Sri V.S. Singh

Petitioners applied for working capital
Term
Loan-loan
sanctioned
and
disbursed-Petitioner applied for geting
the
unit
declared
as
sick
and-for
rehabilitation-claim rejected-one time
settlement
sanctioned-not
compliedenough opportunity given-but repeated
default made in repayment-no fault if no
time
granted
in
last
notice-W.P.
dismissed.

Held,
A
person,
who
himself
has
committed repeated default and has not
dealt with affairs in a bona fide and 10
honest manner, cannot seek indulgence
on a technical plea when repeated
notices, opportunities have been given
and the same have all failed. (para 16)
(E-9)

Cases Cited:

1.
Mahesh
Chandra
vs.
Regional
Manager, U.P. Financial Corporation and
others (1993) 2 SCC 279.
2.
Maharashtra
State
Financial
Corporation vs. M/s Suvarna Board Mills
and another (1994) 5 SCC 566

3. M/s Kharavela Industries Pvt. Ltd. vs.
Orissa State Financial Corporation and
others, AIR 1985 Orissa 153

4. Haryana Financial Corporation and
Another vs. Jagdamba Oil Mills and
another
(2002)
3
SCC
496
(Differentiated)

5.
Mahesh
Chandra
vs.
Regional
Manager,
U.P.
Financial
Corporation
(supra)

6. U.P. Financial Corporation vs. Gem
Cap (India) (P) Ltd. (1993) 2 SCC 299
(Relied upon)

7.
U.P.
Financial
Corpn.
vs.
Naini
Oxygen & Acetylene Gas Ltd. (1995) 2
SCC 754

8. Karnataka State Financial Corpn. vs.
Micro Cast Rubber & Allied Products (P)
Ltd. (1996) 5 SCC 65- (Relied upon)

9.
Punjab
Financial
Corporation
vs.
Surya Auto Industries (2010) 1 SCC 297

10.
Maharashtra
State
Financial
Corporation
and
others
vs.
Sanjay
ShankarsaMamarde (2010) 7 SCC 489
(Delivered by Hon'ble Sudhir
Agarwal, J.)

1. Sri N.C.Rajvanshi, Senior
Advocate, assisted by Sri Prakash
Chandra Shukla, for petitioners and
learned
Standing
Counsel
for
respondents 1, 2 and 5. None has
appeared on behalf of respondent 3,
U.P.
Financial
Corporation,
and
respondent
6-Taj
Singh
Tyagi,
though this petition has been called
in revise, hence we proceed to hear
and decide the same after hearing
1864 INDIAN LAW REPORTS ALLAHABAD SERIES
counsel for petitioners and learned
Standing Counsel.

2. This writ petition under Article 226
of Constitution has been filed with a prayer
for issue of writ of certiorari to quash sale
deed dated 03.9.2001 and supplementary
sale deed dated 26.9.2001 executed by U.P.
Financial Corporation (hereinafter referred
to as "UPFC") in favour of Tej Singh Tyagi
respondent-6. Further a mandamus has
been sought commanding respondents to
hand over possession of land, building,
plant and machinery etc. to petitioners and
not to proceed with any recovery.

3. By way of amendment, two prayers
have been inserted; one is to issue a writ of
certiorari to quash notice dated 13.6.1997
and further a writ of mandamus not to
charge interest over loan amount after
10.6.1997, when physical possession of
Unit was taken over by UPFC.

4. Facts in brief, as stated in writ
petition are that petitioner-1 M/s Garg Oil
Industries, Village Ladu Khera, Agra
(hereinafter referred to as "M/s GOI") is a
Proprietorship
Firm,
engaged
in
the
business of producing Oil and Oil Cakes.
Petitioner 2, Vinod Kumar Garg is Sole
Proprietor of M/s GOI. Industry was
established
in
1990
with
financial
assistance from UPFC, who sanctioned a
term
loan
of
Rs.1,69,600/-
and
Rs.1,81,000/-, for plant and machinery,
with
working
capital,
respectively.
Production was started and instalments
were also paid as and when the same fell
due, as alleged in para 5 of writ petition.

5. In 1995, petitioners applied for
Working Capital Term Loan of Rs.9 lakhs,
which was also sanctioned and disbursed.
In
1997,
however,
UPFC
started
proceedings under Section 29 of State
Financial
Corporation
Act,
1951
(hereinafter referred to as "Act, 1951") and
locked the Unit. Petitioners made various
representations
but
same
remained
unheeded. There was a Government Order
dated
13.11.1995
providing
for
rehabilitation
of
Sick
Industrial
Establishments, hence, petitioners made
representation dated 04.03.2000 to General
Manager, District Industries Centre, Agra
(hereinafter referred to as "GMDIC") to
declare petitioner's Unit sick and proceed
for rehabilitation and revival of Unit by
recomputation of financial liability of
Financial Institutions. As nothing was done
on the said representation, petitioners, M/s
GOI came to this Court in Writ Petition
No.39334 of 2000, which was disposed of
vide judgment dated 05.9.2000, which
reads as under :

"Heard
learned
counsel
for
petitioner
and
Sri
H.N.Misra
for
U.P.Finance Corporation.

The petitioner claims that his unit
has become sick and it has applied for
rehabilitation vide Annexure-3 and 5 to the
petition. This petition is disposed of with
the direction to the authority concerned
Corporation
to
decide
petitioner's
application for rehabilitation preferably
within six weeks in accordance with law. If
the petitioner files certified copy of this
order before the said authority within two
weeks from today the impugned recovery
shall remain stayed, till disposal of the said
application,
unless
the
petitioner's
application for rehabilitation has already
been decided."

6. Pursuant thereto, Additional
Director,
Industry,
vide
letter
dated
06.01.2001, communicated petitioners a
decision of Divisional Level Committee
2 All. M/s Garg Oil Industries & Anr.Vs. State of U.P. & Ors.
1865
informing
that
petitioner's
claim
for
rehabilitation was already rejected in April,
2000 but this fact was concealed in the
above writ petition. Further, One Time
Settlement was sanctioned by UPFC in
1998 but that was not adhered to and
complied
with
by
M/s
GOI.
Only
Rs.96,000/- was deposited by M/s GOI in
April, 1997. The Committee therefore,
proposed that, if petitioners deposit Rs.1.40
lakhs, towards earnest money within three
weeks with UPFC, it may be allowed an
year's time to pay rest amount, which was
total Rs.14 lakhs. Petitioners did not
comply with the said demand claiming that
it was arbitrary. Petitioners filed appeal
before State Level Standing Committee
vide memo of appeal dated 02.02.2001
which remanded the matter to Regional
Level Committee but it reiterates earlier
order vide decision dated 27.03.2001.
Again an appeal was filed by petitioners on
24.4.2001 before State Level Standing
Committee. When the same was pending,
UPFC advertised, in daily newspaper Amar
Ujala dated 10.05.2001, petitioner's Unit
for sale with a reserve price of Rs.5 lakhs.
Petitioners were also informed vide letter
dated 28.6.2001 sent by Regional Manager,
UPFC that pursuant to High Court's
judgment
dated
05.7.2001,
his
representation was rejected. Petitioners
protested against said decision vide letter
dated 12.7.2001 but UPFC reiterated the
above decision vide letter dated 11.7.2001.
Petitioners then filed an application before
State
Level
Standing
Committee
on
05.9.2001 requesting for stay of sale of
Unit by UPFC. The Committee, vide letter
dated 13.9.2001, requested UPFC to defer
sale of Unit till a decision is taken by State
Level Standing Committee. Petitioners,
vide letter dated 15.9.2001 made similar
request to UPFC. UPFC sent a letter dated
4.10.2001 to petitioners stating that Unit
has been sold for Rs.5 lakhs in the
proceedings under Section 29 of Act, 1951
and after adjusting aforesaid amount of
Rs.5
lakhs,
the
balance
amount,
if
petitioners are ready, may be allowed to
clear in instalments and if petitioners are
ready for One Time Settlement, it may
apply
alongwith
earnest
money
by
25.10.2001.

7. However, UPFC executed sale deed
on 25.9.2001 (Annexure 14 to writ petition)
and
 informed petitioners that rest amount shall
be recovered by issuing a recovery
certificate under U.P Public Moneys
(Recovery of Dues) Act, 1972 (hereinafter
referred to as "Act, 1972"). Hence present
writ petition has been filed seeking relief,
as described above.

8. Respondent 3 i.e. UPFC has filed a
counter affidavit sworn by N.K.Dixit,
Deputy Senior Manager (Law) sworn on
10.12.2001 stating that Term Loan of
Rs.1.72 lakhs and Rs.1.80 lakhs were
sanctioned to Mr. Vinod Kumar Garg in
1991 for setting up an Industrial Unit for
manufacturing Mustard Oil at Village Ladu
Khera Kheragarh, Agra. Subsequently,
Working Capital Term Loan of Rs.9 lakhs
was
sanctioned
and
disbursed
in
September, 1995. Therefore, a total loan of
Rs.12.52 lakhs was disbursed to petitioners
by UPFC. Petitioners committed default in
repayment of instalments of principal sum
as well as interest. Despite repeated request
and reminders, it did not clear its
outstanding dues. Consequently, a notice
under Section 29 of Act, 1951 was issued
on 13.6.1997. Physical possession of Unit
was also taken over by UPFC. Electric
connection was already disconnected on
25.11.1995 due to default in payment of
electricity dues to U.P. State Electricity
1866 INDIAN LAW REPORTS ALLAHABAD SERIES
Board
(hereinafter
referred
to
as
"UPSEB"). An
undated proposal
for
rehabilitation submitted by petitioners were
received in the office of UPFC on
07.3.2000 but it was not found viable hence
rejected vide order dated 11.04.2000, which
was communicated to petitioners. Then
petitioners, vide letter dated 26.9.2000,
informed about the steps taken before
Regional Level Rehabilitation Committee.
Additional Director (Industries) vide letter
dated 6.1.2001 required petitioners to
deposit Rs.1.40 lakhs within three weeks
whereafter it would be given a year's time
to make payment of balance One Time
Settlement amount but even this direction
was not complied with by petitioners.
Consequently, UPFC proceeded for sale of
Unit
by
publishing
notice
in
daily
newspaper 'Amar Ujala' on 10.5.2001,
following guidelines laid down by Supreme
Court in Mahesh Chandra vs. Regional
Manager, U.P. Financial Corporation
and others (1993) 2 SCC 279. Information
was also given to petitioners vide letter
dated 23.5.2001 sent by Regional Manager,
UPFC. Here also petitioners did not
respond. A registered letter was also sent to
petitioners
on
11.7.2001.
Ultimately,
auction was held and Unit of M/s GOI was
sold by UPFC vide sale deed dated
03.09.2001 for a sum of Rs.5 lakhs.
Thereafter,
outstanding
dues,
after
adjusting Rs.5 lakhs, were demanded from
petitioners vide notice dated 04.10.2001. A
similar notice was also given to Kailash
Chandra Mittal, Guarantor to petitioner's
loan.

9. To the amendment sought by
petitioners, UPFC has also filed counter
affidavit stating that initially notice under
Section 29 of Act, 1951 was issued on
14.3.1995 and 06.5.1995 but the same
remained unheeded. Thereafter, on the
request of petitioners, for the interest of
Unit and in the hope that it will function,
Working Capital Term Loan of Rs.9 lakhs
was
sanctioned
on
11.09.1995
and
disbursed. Thereafter again petitioners
committed default. He made part payments
through various cheques, details whereof
are given in para 4(d) of counter affidavit
and all these cheques were dishonored.
Details of said cheques, mentioned in para
4(d) of counter affidavit to the amendment
application are as under :

Sl.
Cheque Date
Amount
1
17.01.1996
Rs.34,000/-
2
15.07.1996
Rs.56,000/-
3
23.10.1996
Rs.44,000/-
4
10.12.1996
Rs.44,000/-
5
30.09.1996
Rs.56,000/-
6
29.10.1996
Rs.12,000/-
7
10.12.1996
Rs.16,000/-
8
31.03.1997
Rs.79,000/-

10. On 15.5.1997 there were overdues
of Rs.2 lakhs in Working Capital Term
Loan Account and Rs.2,40,183.92 in the
main loan account. When UPFC was
contemplating to issue notice under Section
29 of Act, 1951, it came to knowledge,
through its Recovery Officer on 12.9.1996,
that petitioners had abandoned the Unit.
Consequently, for the safety of assets of
Unit, UPFC recommended for posting of its
Guard. Thereafter notice under Section 29
of Act, 1951 was issued and actual physical
possession of assets was taken over on
13.6.1997. Information to this effect was
also given at Police Chauki Ladukhera,
Agra. Thereafter, several letters were issued
to petitioners but the same remained
unheeded. On 13.6.1997, when UPFC
Officers visited the Unit, they did not find
either petitioners, his family members or
2 All. M/s Garg Oil Industries & Anr.Vs. State of U.P. & Ors.
1867
any other employees or representatives
present at the Unit. This shows that
information given by Recovery Officer that
petitioners had abandoned the Unit was
correct. Possession of Unit was taken
almost after one and half years of
disconnection
of
electric
connection
showing that Unit was not functional.

11. Respondent 6 has also filed
counter affidavit, who is purchaser of Unit
in question and he has taken a stand,
similar to UPFC. Respondent 6 has also
pleaded that he is a bona fide purchaser of
Unit for valid consideration.

12. Learned Senior Counsel for
petitioners has submitted written arguments
and
reiterated
the
contents
of
said
arguments
orally
before
this
Court.
However, he could not submit any reply to
the contents of para 4(d) of counter
affidavit, submitted to amended paragraph
of writ petition, that several cheques
submitted by petitioners towards payment
of outstanding dues were dishonored. On
this aspect nothing has been said either
orally before us nor mentioned in the
written arguments. However, relying on
para 9 of writ petition, it is urged that there
was no outstanding dues. This aspect stood
contradicted
by
specific
details
of
dishonored cheques given in para 4(d) of
counter affidavit sworn on 27.6.2003 by
R.K.Srivastava, Senior Manager (Law) in
the office of Regional Manager, UPFC,
Allahabad, hence cannot be accepted.

13. Learned Senior Counsel for
petitioners however contended that notice
under Section 29 of Act, 1951 was issued
on 13.6.1997 (i.e. Annexure 4 to the
counter affidavit) and on the same date
physical possession was taken therefore no
time was given to petitioners to clear the
outstanding dues. Hence notice is in
violation of principles of natural justice and
reliance is placed on Supreme Court's
Judgment in Maharashtra Sate Financial
Corporation vs. M/s Suvarna Board
Mills and another (1994) 5 SCC 566 and
a Division Bench judgment of Orissa High
Court in M/s Kharavela Industries Pvt.
Ltd.
vs.
Orissa
State
Financial
Corporation and others, AIR 1985
Orissa 153. It is also contended that as per
valuation chart, filed as Annexure 5 to
supplementary
affidavit,
prepared
by
officials of UPFC on 25.7.2000, value of
Unit was Rs.22.80 lakhs but it has been
sold for a petty sum of Rs.5 lakhs, showing
sale of Unit by UPFC on throw away prices
and this is nothing but a malicious act on its
part.

14. Counter affidavit of UPFC shows
that first notice under Section 29 of Act,
1951 was issued on 14.3.1995 stating that a
sum of Rs.61,662.72 was overdue till
20.12.1994, and petitioners were informed
earlier vide letter dated 2.2.1995 but it
remained unheeded. The entire outstanding
dues including overdues of instalments of
Principal and Interest, which came to
Rs.3,34,262.72 as on 20.12.1994, was
required to be paid within seven days.
Further, a notice was sent by Assistant
General Manager, UPFC on 6.5.1995
informing petitioners that upto 20.3.1995
principal amount of Rs.55,000/- and
interest of Rs.27,796.54 was outstanding
and the same must be cleared by 25.5.1995.

15. Thereafter, since Working Capital
Term Loan of Rs.9 lakhs was sanctioned, it
was disbursed to petitioners between
15.2.1996 to 15.11.1999 but petitioners'
payment of instalment was not found
regular. In view thereof, notice under
Section 29 of Act, 1951 was again issued
1868 INDIAN LAW REPORTS ALLAHABAD SERIES
on 13.6.1997 and on the same day actual
physical possession was taken by UPFC.
This was necessitated in view of the fact
that Recovery Officer had informed UPFC
that petitioners have abandoned the Unit.
Actual possession memo (Annexure 5 to
the counter affidavit) shows that petitioners
or his family members were not present
when physical possession was taken by
UPFC. Therefore, contention of petitioners
that no opportunity was given to clear dues
is hyper technical objection considering
facts, already discussed above, showing
that repeated opportunity was given to
petitioners to clear dues but it failed.

16. Annexure CA 9 to the counter
affidavit sworn on 27.6.2003 filed by
UPFC
is
a
letter
dated
17.12.1996
informing
petitioners
that
cheque
no.219562 drawn on Punjab National Bank,
Belanganj,
Agra
on
30.11.1996
for
Rs.60,000/- towards repayment of Term
Loan was returned dishonored with the
remark ''insufficient funds' and petitioners
were required to pay the said amount but
nothing proceeded. Thereafter, a notice
dated 10.02.1997 issued by Senior Manager
(Technical) UPFC, (Annexure 10 to the
writ petition), further shows demand of
outstanding dues from petitioners as also
inviting to submit proposal, if any, for
repayment as Unit's physical possession
would be taken on 25.02.1997 but nothing
has been placed on record to show that in
response thereof petitioners made payment
of dues to UPFC. On the contrary, UPFC
has
filed
petitioner-2's
letter
dated
15.6.1997
addressed
to
Senior
Superintendent of Police, Agra, (Annexure
CA-11 to counter affidavit) complaining
that on 08.6.1997 petitioner-2 and his
family members had gone out of station
locking his House and Mill but when he
returned, Mill was looted and possession
was taken by third party who also
threatened him. Another letter of petitioners
dated 21.6.1997 is Annexure 12 to counter
affidavit whereby petitioner-2 has informed
Regional Manager that auction proposed on
26.6.1997 shows entire Unit but only 259.2
sq.m. is liable to be auctioned and rest area
has no concerned with UPFC. Here also we
do not find any objection raised by
petitioner-2 for auction proposed by UPFC.

17. In the entirety of the facts and
circumstances of this case we find that
there was no honest and serious attempt on
the part of petitioners to clear outstanding
dues of loan amount as well as interest
which
admittedly
was
advanced
to
petitioners but default was committed in
repayment thereof. The objections raised
before this Court are hypertechnical, bereft
of facts, which demonstrate that enough
opportunity was given to petitioners to
clear outstanding dues but failed. Principles
of natural justice are not technically legal
principle which can be attracted bereft of
existence of good conscience, justice and
equality. A person, who himself has
committed repeated default and has not
dealt with affairs in a bona fide and honest
manner, cannot seek indulgence on a
technical plea when repeated notices,
opportunities have been given and the same
have all failed. Application of natural
justice is founded on the facts and where it
is evident that enough opportunity has been
given an ultimate action cannot said to be
vitiated in law only on the ground that last
notice has not given any further time
though repeated time was already given.

18. Even authorities of Supreme
Court are against petitioners. We may first
refer to three Judges' decision of Supreme
Court in Haryana Financial Corporation
and Another vs. Jagdamba Oil Mills and
2 All. M/s Garg Oil Industries & Anr.Vs. State of U.P. & Ors.
1869
another (2002) 3 SCC 496. M/s Jagdamba
Oil Mills (hereinafter referred to as
"JOM") a Partnership Firm was sanctioned
a Term Loan of Rs.7,48,000/- by Haryana
Financial Corporation (hereinafter referred
to as "HFC") vide letter dated 19.10.1992.
The loan was to be repaid in 8 years, which
was to commence from the date of
execution of mortgage deed. Payment
schedule comprised of 15 half-yearly
instalments. The repayment was to be
commenced within 13 months from the
first disbursement of the loan. The first 13
instalments of payment were to be of
Rs.50,000/- each and remaining two
instalments of Rs.49,000/- each, towards
principal sum. Interest fell due, was to be
paid
with
respective
instalments
of
principal amount. JOM mortgaged its land,
building and machinery in favour of HFC.
Loan instalments were to be on the basis of
securities created by borrowers and as and
when enough securities were created, loan
amount was to be disbursed. The first
instalment of loan was disbursed on
25.02.1993 and last on 26.02.1994. Total
loan availed by JOM was Rs.7.45 lakhs.
The first instalment payable was for
Rs.1,29,551/- (including principal and
interest) on 01.03.1994 but JOM failed to
deposit. It requested HFC to reschedule
repayment. Request was accepted and
reshedulement was done. Then instalment
fell due on 01.09.1994 of Rs.1,24,409/-.
Again there was a default. JOM again
requested for reshedulement. Again it was
accepted. However, again default was
committed
when
first
instalment
of
Rs.1,31,046/- fell due on 01.03.1995. Since
JOM proved to be a chronic defaulter in
making payment of instalments, HFC
initiated action under Section 29 of State
Financial
Corporations
Act,
951
(hereinafter referred to as "Act, 1951")
after recalling loan under Section 30 of the
said Act. Possession of Unit was taken by
HFC. JOM instituted Civil Suit No.86 of
1995 in the Court of Civil Judge (Senior
Division), Ambala, seeking a decree for
permanent injunction restraining HFC and
its functionaries from auctioning the Unit,
which was seized. Suit was decreed by
Trial Court on the ground that HFC did not
give breathing to JOM and possession was
taken within one year from the date of last
instalment hence such action cannot be
sustained. Trial Court relied on Supreme
Court judgment in Mahesh Chandra vs.
Regional
Manager,
U.P.
Financial
Corporation (supra). The First Appeal
No.37 of 1998 filed by HFC was dismissed
and it also failed before Punjab and
Haryana High Court in Second Appeal
hence matter came to Supreme Court.

19. Before Supreme Court, judgment
in Mahesh Chandra (supra) was sought
to be distinguished on the ground that facts
of the case were different, inasmuch as
JOM had already proved to be a chronic
defaulter and in such as case no further
opportunity was needed to the defaulting
unit.

20. On behalf of HFC in fact
argument was raised that decision in
Mahesh
Chandra
(supra)
required
reconsideration in the light of later
judgment of Supreme Court in U.P.
Financial Corporation vs. Gem Cap
(India) (P) Ltd. (1993) 2 SCC 299.
Supreme Court considered the object of
Act, 1951 and said that intention was that
State
Financial
Corporations
being
instrumentality of the State deals with
public money shall have approach of
public-orientation.
It
can
operate
effectively if there is regular realization of
the instalments. While Corporation is
expected to act fairly in the matter of
1870 INDIAN LAW REPORTS ALLAHABAD SERIES
disbursement of loans, corresponding duty
is cast upon borrowers to repay instalments
in
time,
unless
prevented
by
insurmountable
difficulties.
Regular
payment is the rule and non-payment due to
extenuating circumstances is exception. If
repayment is not received as per scheduled
time-frame,
equilibrium
of
financial
arrangements of Corporation would get
disturbed. Corporation do not have at their
disposal unlimited funds. They have to
cater to the needs of intended borrowers
with available funds. Non-payment of
instalment
by
defaulter
may
create
obstruction in financial assistance to be
extended
to
deserving
borrower
by
Corporation. A Corporation is not supposed
to give loan and right it off as a bad debt
and ultimately to go out of business. Court
approved observations made in Gem Cap
(India) (P) Ltd. (supra) that promotion of
industrialization does not serve public
interest if it is at the cost of public funds. It
may amount to transferring public money
to private account.

21. Guidelines issued in Mahesh
Chandra (supra) before exercising power
under Section 29 were reiterated in para 7
of judgment but Court in Haryana
Financial Corporation Vs. Jagdamba Oil
Mills
(supra)
also
said
that
these
guidelines were stated to be necessary to
ensure fair play. That decision [Mahesh
Chandra (supra)], was rendered in a case
where borrower intended to repay the debt
and was anxious to do so.

22. That was not the case either in
Haryana
Financial
Corporation Vs.
Jagdamba Oil Mills (supra) nor in the
present case. Supreme Court in Haryana
Financial Corporation Vs. Jagdamba Oil
Mills (supra) further said that borrower
cannot
be
insisted
upon
to
honour
commitments
undertaken
by
him,
Corporation alone cannot be shackled hand
and foot in the name of fairness. One
canMahesh
Chandra
(supra)Mahesh
Chandra
(supra)Mahesh
Chandra
(supra)Mahesh Chandra (supra)Mahesh
Chandra
(supra)Mahesh
Chandra
(supra)not lose sight that fairness cannot
be a one-way street. Corporations borrow
money from Government or other Financial
Corporations and are required to pay
interest thereon. Where borrower had no
genuine intention to repay and adopts
pretexts and ploys to avoid payment, such
borrower cannot make grievance that
Corporation was not acting fairly, even if
requisite procedures have been followed.
Fairness required of Corporations cannot be
carried to the extent of disabling them from
recovering what is due to it. Supreme Court
further said :

"The
Corporation
is
an
independent autonomous statutory body
having its own constitution and rules to
abide by, and functions and obligations to
discharge. As such in the discharge of its
functions, it is free to act according to its
own light. The views it forms and decisions
it takes are on the basis of the information
in its possession and the advice it receives
and according to its own perspective and
calculations. Unless its action is mala fide,
even a wrong decision by it is not open to
challenge. It is not for the courts or a third
party to substitute its decision, however,
more prudent, commercial or businesslike it
may be, for the decision of the Corporation.

23. Relying on earlier decision in U.P.
Financial Corpn. vs. Naini Oxygen &
Acetylene Gas Ltd. (1995) 2 SCC 754
Court said that in commercial matters the
courts should not risk their judgments for
the judgments of bodies to whom that task
2 All. M/s Garg Oil Industries & Anr.Vs. State of U.P. & Ors.
1871
is assigned. It also relied on another
judgment in Karnataka State Financial
Corpn. vs. Micro Cast Rubber & Allied
Products (P) Ltd. (1996) 5 SCC 65
holding that for exercising power under
Section 29, scope of judicial review is
confined to two circumstances i.e. (a)
where there is statutory violation on the
part of State Financial Corporation, or (b)
where State Financial Corporation acts
unfairly i.e. unreasonably. Court very
categorically said that High Court should
not interfere with action under Section 29
of Act, 1951 unless aforesaid two situations
exist.

24. Thereafter Court referred to
guidelines referred in Mahesh Chandra
(supra) and overruling the same, said in
paras 17 and 18 as under :

"17. The aforesaid guidelines
issued in Mahesh Chandra's case place
unnecessary restrictions on the exercise of
power by the Financial Corporation
contained in Section 29 of the Act by
requiring the defaulting unit holder to be
associated or consulted at every stage in
the sale of the property. A person who has
defaulted is hardly ever likely to cooperate
in the sale of his assets. The procedure
indicated in Mahesh Chandra's 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.

18. The subsequent decisions of
this Court in Gem Cap's (supra), Naini
Oxygen (supra) and Micro Cast Rubber
(supra) run counter to the view expressed
in Mahesh Chandra's case. In our opinion,
the issuance of the said guidelines in
Mahesh Chandra's case are contrary to the
letter and the intent of Section 29. In our
view, the said observations in Mahesh
Chandra's case do nMahesh Chandra
(supra)Mahesh Chandra (supra)Mahesh
Chandra
(supra)Mahesh
Chandra
(supra)Mahesh Chandra (supra)Mahesh
Chandra (supra)ot lay down the correct
law and the said decision is overruled. "

25. The aforesaid decision, in our
view, fortifies our approach and justify no
interference in the light of facts of present
case.

26. Subsequently, similar issue has
been considered in Punjab Financial
Corporation vs. Surya Auto Industries
(2010) 1 SCC 297. Therein also for setting
up an Industrial Unit in Gurdaspur
(Punjab), Punjab Financial Corporation
(hereinafter
referred
to
as
"PFC")
sanctioned a term loan of Rs.24.25 lakhs to
M/s Surya Auto Industries (hereinafter
referred to as "SAI"). Loan was to be repaid
with interest on specified dates but SAI
failed to adhere to repayment schedule and
till 2002 could deposit only Rs.2.70 lakhs.
PFC then issued notice under Section 29
and took possession of Unit. Thereafter
notices dated 02.12.2002, 03.03.2003,
30.05.2003 and 29.08.2003 were issued by
PFC but SAI failed to pay outstanding
dues. It also failed to avail concession
offered
by
PFC
for
reschedulement
reducing rate of interest. Consequently,
PFC also issued notice under Section 29 of
Act, 1951 for taking over collateral
security. Challenging the said notice on the
ground of violation of principles of natural
justice, SAI filed Writ Petition No.11932 of
2007 in Punjab & Haryana High Court,
which upholding the contention held that
possession of mortgage property could not
1872 INDIAN LAW REPORTS ALLAHABAD SERIES
have been taken without giving reasonable
time and opportunity for payment. Hence,
writ petition was allowed and High Court
set aside compounding of penal interest
from 01.04.2003 i.e. after expirty of a
period of six months from the date of
taking over of SAI. Supreme Court in
appeal preferred by PFC after noticing
contradictory
decisions
in
Mahesh
Chandra (supra) and U.P. Financial
Corpn. vs. Gem Cap (India) (P) Ltd.
(supra) referred to Larger Bench judgment
in Haryana Financial Corporation Vs.
Jagdamba
Oil
Mills
(supra)
and
following the same, in paras 21 and 22 of
judgment
in
Punjab
Financial
Corporation vs. Surya Auto Industries
(supra) said as under :

"21. 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.

22. 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 Ors. 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. "

27. Having said so, Court held that
PFC had acted in a most reasonable and
fair manner and High Court was not
justified in nullifying the second notice
issued under Section 29 of Act, 1951
assuming that PFC had not taken effective
steps for realization of dues in furtherance
of first notice. Court said that High Court
ignored conduct of borrower, who adopted
a recalcitrant attitude in the matter of
payment of outstanding dues, but also
failed to avail concession offered by PFC
by
reducing
rate
of
interest
and
reschedulement. It also held that High
Court should not have reduced interest to
simple interest, altering terms of loan
agreement, which is not permissible.

28. Following decision in Haryana
Financial Corporation Vs. Jagdamba Oil
Mills (supra) Supreme Court in Managing
Director, Maharashtra State Financial
Corporation and others vs. Sanjay
Shankarsa Mamarde (2010) 7 SCC 489
held that where borrower had no genuine
intention to repay and adopts pretexts and
ploys to avoid payment, he cannot make
grievance that Corporation was not acting
fairly, even if requisite procedures have
been followed.

29. In these facts and circumstances
we do not find any illegality on the part of
UPFC in proceeding to take possession of
petitioner's Unit in exercise of power under
2 All. Reena Gupta Vs. State of U.P. & Ors.
1873
Section 29 of Act, 1951 and putting the
Unit for auction.

30. Moreover, nothing has been
placed by petitioners on record to show that
there was any bona fide, willing buyer
actually available to purchase Unit and its
assets, for more than Rs.5 lakhs i.e.
consideration whereupon it has been sold to
respondent 6. In absence of any buyer
offering higher price than that whereupon it
has been sold to respondent 6, we find no
reason to interfere with sale transaction of
Unit in favour of respondent 6.

31. In the entirety of the facts and
circumstances we find that petitioners
have not approached this Court in a
bona fide manner. It was financed by
UPFC but committed repeated defaults
in repayment. Despite demand and
notices, petitioners made no attempt to
clear outstanding dues. Several cheques
issued by petitioners towards repayment
of outstanding dues were dishonored.
Even when One Time Settlement was
accepted and Rehabilitation Committee
of State Government made proposal to
petitioners to deposit just 10 percent of
the total outstanding dues, at that time
i.e. Rs.1,40,000/-, vide letter dated
06.01.2001, still petitioners had no
intention to pay the said amount and
made no attempt to do so.

32. In these facts and circumstances,
we do not find that petitioners are entitled
to any relief and this is not a fit case
justifying interference in extra ordinary
equitable jurisdiction under Article 226 of
Constitution. Writ petition lacks merit.

33. Dismissed.

34. Interim order, if any, stands
vacated.
----------
(2020)02ILR A1873

ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 18.01.2020

BEFORE

THE HON'BLE PANKAJ BHATIA, J.

Writ C No. 57052 of 2010

Reena Gupta ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Sri S.V. Goswami, Sri Bharat Pratap Singh

Counsel for the Respondents:
C.S.C.

Sale
deed
executed
in
Petitioner's
favour-for
agricultural
land-impugned
order asseseed market value of the land
on non agricultural basis-on ground
that there exist a textile mill-and Petrol
pump of Reliance-defficiency of stamp
directed to be paid-impugned order
quashed-as it is based upon view that
land has potential to be used as
commercial land-W.P. allowed.

HELD-
A perusal of the order dated 20th
July, 2009 further reveals that on the
property in question there is only one
tree of Neem and there is no finding
on record to suggest that the property
in question was being used for non -
agricultural
purposes.
The
order
impugned has been passed on the
presumption that the land in question
has the potential of being used for
nonagricultural purposes. (para 4)
(E-9)