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2002(1) Supreme 404
SUPREME COURT OF INDIA
(From Punjab & Haryana High Court)
B.N. Kirpal, K.G. Balakrishnan and Arijit Pasayat, JJ.
Haryana Financial Corporation & Anr. -Appellants
versus
M/s Jagdamba Oil Mill & Anr. -Respondents
Civil Appeal No. 607 of 2002
Decided on 28-1-2002
Councel for the Parties :
For the Appellant : Mr. Anit Dayual, Advocate.
For the Respondent : Mr. G.K. Bansel and Mr. Sanjay Bansal, Advocates.
Held : The view in Mahesh Chandra s case (supra) appears to have been too widely expressed without taking note of ground realities and the intended objects of the statute. If the guidelines as indicated are to be strictly followed, it would be giving premium to a dishonest borrower. It would not further interest of any Corporation and consequently of the industrial undertakings intending to avail financial assistance. It would only provide on unwarranted opportuntiy to the defaulter (in most cases chronic and deliberate) to stall recovery proceedings. It is not to be understood tht in every case the Corporations shall take recourse to action under Section 29. Procedure to be followed, needless to say, has to be observed. If any reason is indicated or cause shown for the default same has to be considered in its proper perspective and a conscious decision has to be taken as to whether action under Section 29 of the Act is called for. Thereafter, the modalities for disposal of seized unit have to be worked out. The view expressed in Gem Cap s case (supra) appears to be more in line with the legislative intent. Indulgence shown to chronic defailter would amount to flogging a deed horse without any conceivable result being expected. As the facts in the present case show not even a minimal portion of the principal amount has been repaid. That is a factor which should not have been lost sight by the courts below. It is one thing to assist the borrower who has intention to repay, but is prevented by unsurmountable difficulties in meeting the commitments. That has to be established by adducing material. In the case at hand factual aspects have not even been dealt with, and solely relying on the decision in Mahesh Chandra s case (supra), the matter has been decided. (Para 15)
Section 29 gives a right to the Financial Corporation inter alia to sell the assets of the industrial concern and realize the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. This right accrues when the industrial concern, which is under the liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations as engaged in Section 29 of the Act. Section 29(1) gives the Financial Corporation inthe event of default the right to take over the management or possession or both and thereafter deal with the property. 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 whichis transparent and acceptable, after due publicity, wherever possible. 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 ofthe 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 not lay down the correct law and the said decision is overruled. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are not to be read as Euclid s theorems nor as provisions of the statute. These observations must be read in the context in which they appear. Judgments of courts are not to be conswtrued as statutes.To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges ingterpret statutes, they do not interpret judgments. They interpret words of statutes, their words are not tobe interpreted as statutes. (Paras 16 to 19)
Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. (Para 21)
However held : Learned counsel for the respondents during the course of hearing submitted that unit is in the possession of the Corporation. They will make effort to make payment of the amount due to the Corporation, if a reasonable time is granted. Though their stand has always been different, and the Corporation opposes the prayer, we grant the prayer in the peculiar circumstances of the case. To test the bona fides of the respondents, we direct that the Corporation shall intimate the respondents within a month from today upto date amount due. Within six months from the date of such intimation, the respondents shall repay the amount in full. In case of failure to make the payment, it shall be open to the Corporation to dispose of the seized unit in accordance with law in such manner as would bring in the highest price. The appeal is allowed to the extent indicated above. (Para 23)
Certainly. Based on the provided legal document, the key points are as follows:
The case involves a dispute where the respondents sought a permanent injunction to prevent the auctioning of their seized unit by the Haryana Financial Corporation, which had taken possession due to default in repayment (!) .
The court recognized that the relationship between the financial corporation and the borrower is primarily that of creditor and debtor, with the corporation acting as a State instrumentality dealing with public funds (!) (!) .
The legislative intent behind the relevant statute is to promote industrialization by providing financial assistance to small and medium industries, with an emphasis on recovering dues to enable further lending and industrial growth (!) (!) .
The power under the statute allows the corporation to sell assets and realize property pledged or mortgaged when a default occurs, but this power must be exercised fairly and with proper procedure, including considering reasons for default and ensuring transparency in sale processes (!) (!) .
The guidelines previously laid down in certain case law, which mandated extensive consultation with the defaulting unit at every stage of sale, are considered overly restrictive and contrary to the legislative intent. Such restrictions could delay recovery and favor dishonest borrowers, thus undermining the corporation’s ability to recover dues efficiently (!) (!) .
The court overruled the earlier guidelines that imposed unnecessary restrictions, emphasizing that the corporation should follow a transparent and fair sale process, such as public auction or tender, after due publicity, and should not be hindered by procedural constraints that do not align with the statute’s purpose (!) (!) .
The court highlighted that the exercise of power by the corporation should be based on factual circumstances and that reliance on decisions without considering the specific facts of each case is inappropriate. Circumstantial flexibility is essential, as even a single different fact can alter the outcome (!) (!) .
The court acknowledged that fairness in administrative and quasi-judicial actions is a fundamental principle but should not be interpreted to prevent the corporation from recovering public funds. The corporation is entitled to act according to its own judgment, provided its actions are not mala fide (!) (!) .
In the particular case, the court found that the respondents demonstrated bona fide efforts to make payment and were granted a reasonable period within which to settle their dues, with the understanding that failure to do so would result in the sale of the seized unit at the highest possible price (!) (!) .
The appeal was allowed to the extent that the corporation was directed to intimate the respondents of the amount due within a month, and if the respondents failed to pay within six months, the corporation could dispose of the seized unit in accordance with law to realize the maximum sale price (!) .
Overall, the decision underscores that the exercise of powers under the relevant statute must balance fairness with the necessity of recovering dues, and procedural guidelines should be flexible enough to serve the statute’s legislative purpose without unduly favoring defaulting borrowers.
JUDGMENT
Arijit Pasayat, J.-Haryana Financial Corporation (hereinafter referred to as Corporation ) assails judgment dated 6.10.2000 of the Punjab and Haryana High Court in regular second appeal No. 3801/2000 whereby judgment and decree in Civil Suit No. 86 of 1995 instituted before the Civil Judge (senior Division), Ambala and judgment and decree in Civil Appeal no. 37 of 1998 before the Addl. District Judge, Ambala affirming them were upheld. Respondents filed the suit seeking a decree for permanent injunction restraining the Corporation and its functionaries from auctioning the unit of the respondents which was seized by the Corporation.
2. The cunctional background of the case in a nutshell is as under.
Respondent No.1 a concern represented by its proprietor (respondent No.2) applied to the Corporation for grant of loan and in terms of the sanction letter dated 16-10-1992 a sum of Rs. 7,48,000/- was sanctioned. The loan was to be repaid in 8 years, to be counted from the date of execution of the mortgage deed. The repayment of the loan was to be made in 15 half yearly instalments. Said repayment was to commence 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 the last two instalments were to be of Rs. 49,000/-each, towards principal. Apart from the repayment of principal amount, the respondents were required to pay, inter alia, interest which became due along with the respective instalment towards the principal amount. Respondent No. 1 mortgaged its land, building and machinery in favour of the Corporation. In the mortgage deed it was categorically mentioned that loan instalments were to be disbursed on the basis of securities created by the borrowers and as and when enough securities were created, the loan amount was to be disbursed. According to the Corporation, the said method was adopted so as to safeguard the interest of the Corporation and also to ensure that the money taken as a loan from the Corporation is being utilized for the purpose for which it was sanctioned as per the loan agareement. The Corporation disbursed the first instalment of loan on 25-2-1993 upon creation of the mortgage. The last instalment was disbursed on 26-2-1994. The total loan availed by the respondent No. 1 was Rs. 7.45 lacs. As per the terms and conditions stipulated in the loan agreement, respondent No. 1 was required to deposit a sum of Rs. 1,29,551/- on 1-3-1994. But there was failure to deposit the same. Respondent No. 1, however, requested the Corporation to reschedule the repayment schedule. The request was accepted and reschedulement was done. Thereafter on 1.9.1994 Rs. 1,24,409/- fell due. There was again default in making the deposit. Respondent No. 1 again requested to reschedule the instalment. The request was again accepted. Notwithstanding such change in the schedule of payments, respondent did not make any payment. Thereafter on 1-3-1995 an instalment of Rs. 1,31,046/- fell due. As in the past, the respondent defaulted in making the payment of the said instalment. As the respondent No. 1 was a chronic defaulter in making payment of the instalments action under Section 29 of the State Financial Corporation Act, 1951 (in short the Act ) was taken, after recalling the loan under Section 30 of the Act. Possession of the unit of the respondents was taken by the Corporation. Respondents instituted Civil Suit No. 86 of 1995 in the court of the Civil Judge (Senior Division), Ambala seeking a decree for permanent injunction restraining the Corporation and its functionaries from auctioning the unit which was seized. The said suit was decreed by the trial court. It was, inter alia, observed that since the defendants (meaning the Corporation and its functionaries) did not give breathing time to the unit and its possession was taken within the period of one year from the date of last instalment, the action cannot be sustained. Reliance was placed on the decisi
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