JUDGMENT

S.C. Agrawal, J.-Special leave granted.

2. The Karnataka State Financial Corporation, appellant herein, is a State Financial Corporation established under the provisions of the State Financial Corporations Act, 1951 (hereinafter referred to as the Act ). Respondent No.1, a company registered under the Companies Act, set up a unit for the manufacture of rubber and like products. The appellant extended finance to the tune of Rs.14.15 lakhs to respondent No.1 on March 21, 1981. In August 1981 the unit of respondent No.1 commenced production but from its very inception it continued to incur losses. In order to make the unit viable the appellant, on December 14, 1981, rescheduled the payment of the loan. A further sum of Rs.1.65 lakhs was sanctioned in March 1984 for the purpose of purchasing a Diesel Generating Set. On October 10, 1986 the appellant extended rehabilitation assistance under the RSR Scheme of IDBI and treating the unit as a sick unit sanctioned a further amount of Rs.3.39 lakhs. Inspite of these facilities respondent No.1 continued to make default in payment of instalments for repayment of the loan. On October 23, 1990 the appellant took over the possession of t