Judgment

DESAI, J.:- This appeal was dismissed by an order made by us which reads as under:

"Having heard Mr. R. P. Bhatt, learned counsel for the appellant and Mr. F. S. Nariman, learned counsel for the respondents, we dismiss C. A. No. 1099/82 and vacate all interim orders made by this Court.

We further direct that the appellant-Corporation shall, release Rs. 10 lakhs in favour of the respondent within one month from today, the time of one month being fixed at the request of the appellant The balance is required to be spread over a reasonable period so as not to inconvenience the parties. If any difficulty arises, liberty to move. Reasons will follow."

Here are the reasons :

2. How a public sector corporation set up to give impetus to industrial development of the country a promise of planned economy aimed at job expansion to liquidate the curse of unemployment, and larger production helping price stabilisation acts in a manner contrary to its raison d etre and becomes counter-productive is aptly illustrated by the facts of this case.

3. The Gujarat State Financial Corporation (Corporation for short) is a corporation set up under Section 3 of the State Financial Corporations Act, 1951. It was an instrumentality devised to provide medium and long term credit to industrial concerns inter alia Hotel Industry. Respondent M/s. Lotus Hotels Pvt. Ltd. (Company for short) is a private limited company incorporated on October 7, 1971 under the Companies Act, 1956. The object clause of the memorandum of association shows that Company was incorporated mainly to carry on the business of hotel, restaurant, cafe etc. The Company proposed to set up a 4-Star Hotel under the name and style of Lotus Hotels. One Shri Chandulal Jethalal Jaiswal is the promoter. After acquiring land, where the proposed 4-Star Hotel was to be set-up at Baroda, on December 7, 1977, the Company approached the Corporation for a loan of Rs. 30 lakhs and omitting, for the time being, the correspondence exchanged between the parties, the Corporation by its letter dated July 24, 1978 sanctioned a loan of Rs. 29.93 lakhs, on certain terms and conditions. On August 2, 1978, the respondent wrote a letter accepting the terms and conditions on which the Corporation agreed to advance the loan. As a part of the deal, the Company had to create an equitable mortgage in favour of the Corporation for securing the loan. It is advantageous to refer at this stage, to the term bearing on the question of rate of interest that would be chargeable on the loan, as agreed to be advanced by, the Corporation to the Company. It inter alia provided that: the rate of interest will be 12 1/2% p. a. if re-finance is available from Industrial Development Bank of India (IDBI) at 9% p. a. otherwise it will be 13 % p. a.

4. The trouble erupted when in October, 1978 two pseudonymous letters. purporting to have been written by Ramanlal V. Patel and Chandrakant Pandya addressed to the Chief Minister, Gujarat State and Chairman, Industrial Development Bank of India, Bombay, respectively were received making serious allegations against the promoter Shri Jaiswal about his character and creditworthiness and also pointing out that he was facing several prosecutions in various courts on account of his nefarious activities. Presumably, acting on this letter, the IDBI who was approached for refinancing the loan addressed certain enquiries to the office of the Corporation and then started an enquiry which led to the delay in processing the promised loan. Ultimately by its letter dated February 13, 1979 IDBI informed the Corporation that in view of the pending police enquiry against the promoter Shri Jaiswal, the application for refinancing is treated as closed leaving an option to the Corporation to re-submit the application on receipt of satisfactory report from the concerned authorities in regard to the pending enquiry against the main promoter. By that time, the promised equitable mortgage by the Company was created