IMPORTANT POINT
The State Industrial Investment Corporation of Maharashtra Limited (SIICOM), a company established by the State Government with the object of developing the industries and financing industrial concerns in the State would be covered by the expression ‘an institution established by a State Government’, therefore, it would thus be a Financial Corporation covered under the State Financial Corporation Act.

Headnote:State Financial Corporations Act, 1951—Sections 29 and 46—Auction of properties including plants and machinery of appellant, which were mortgaged in favour of SICOM—Whether SICOM is a State Financial Corporation within the meaning of and governed by the State Financial Corporations Act—SICOM, State Industrial Investment Corporation of Maharashtra Limited, is a company established by Government of Maharashtra with 100 percent shares being owned by the State Government—Appellant company mainly engaged in transport business, was sanctioned a term loan of Rs. 90 lakhs for setting up a unit to manufacture grain based alcohol—On account of delay in commencing production, appellant company started defaulting in payment—Pursuant to demand notice issued by first respondent, certain payments were made by appellant—Respondent issued a take over notice owing to continuous defaults and non payment of instalments and interest on time—As arrears were not cleared, respondent took over possession of assets mortgaged with it invoking its powers under Section 29 of the Act—Order of auctioning—Writ petition filed seeking stay of auction proceedings—Appellant submitted that provisions of Section 29 of the Act were not applicable to the first respondent as it ceased to be a financial corporation after the reduction of shares of State Government to 49% only—Whether reduction in shareholdings of State Government shall make any difference to status of first respondent being a financial corporation—(No).
       Held : It is not in dispute that the first respondent was established by the State Government with the object of developing the industries and financing industrial concerns in the State. It is also not in dispute that the Central Government had extended the provisions of Section 29 of the Act to the first respondent. Thus, the first respondent would be covered by the expression “an institution established by a State Government” offering range of services including the object of financing industrial concerns in the State of Maharashtra. It would thus be a financial corporation covered under the Act. (Para 12)
       It would be seen from the above that provisions of Section 29 and other provisions of the Act were made applicable to the first respondent by the Central Government by virtue of the powers vested in it under Section 46 of the Act. Section 29 enables the first respondent to take over the assets of the delinquent borrowers. As the appellant had failed to discharge its liability in spite of several opportunities afforded to it, as has been enumerated in the foregoing paragraphs, in our view, the first respondent was fully justified in taking over the assets of the appellant in exercise of its powers under Section 29 of the Act. (Para 16)
       It is not disputed that Respondent No. 1 had been established by the State Government with the object of financing industries and the Central Government had issued the notification under Section 46 confering the powers to be exercised under various sections of the Act including Section 29. (Par 17)
       By mere reduction in its stakes to below 50 per cent, SICOM (the first respondent) would not cease to be a State Finance Corporation in view of the fact that it has been established by the State of Maharashtra for financing industrial concerns and that it had been so notified by the Central Government in exercise of its powers under Section 46 of the Act. The first respondent is a finance corporation covered by the Act and reduction in the shareholdings of the State of Maharashtra below 50 per cent shall not make any difference to the status of the first respondent, i.e., being a financial corporation. (Para 20)
       It was admitted before the High Court that outstanding amount had been recovered from the sale of the appellant’s property. In view of this, the High Court had permitted the appellant to withdraw the sum of Rs. 25 lakhs deposited by the appellant in pursuance to the interim order of the High Court. This direction of the High Court holds good and does not call for any interference. (Para 22)

JUDGMENT

Bhan, J.—The final judgment and order dated 10th of October, 2003, passed by the High Court of Judicature at Bombay, Nagpur Bench at Nagpur in Writ Petition No. 153 of 2003 dismissing the writ petition filed by the appellant, is under challenge in the instant appeal. By the impugned order, the High Court has declined the prayer of the appellant to quash the auction of the properties including the plants and machinery of the appellant, which were mortgaged in favour of SICOM Limited (the first respondent herein).

2. The short question that arises for our consideration in this appeal is, whether SICOM (the first respondent) is a State Financial Corporation within the meaning of and governed by the State Financial Corporations Act, 1951 (for short “the Act”)?

3. To appreciate the question, it would be necessary to state the facts giving rise to the present appeal, which are in brief as follows:

The first respondent, formerly known as “The State Industrial Investment Corporation of Maharashtra Limited” (SIICOM), is a company established under the provisions of the Indian Companies Act, 1956, by the Government of Maharashtra in the year 1966, with 100 per cent shares being owned by the State Government, with an object of development of industries and financing the industrial undertakings in the State of Maharashtra.

4. The appellant company mainly engaged in the transport business, approached the first respondent to get a loan for setting up a unit to manufacture grain based alcohol with installed capacity of 5000 Kilo Litres annually. The appellant was sanctioned a term loan of Rs. 90 lakhs in August, 1994 in consortium with IREDA (Rs. 65 lakhs) and Oriental Bank of Commerce (Rs. 35 lakhs). Commercial production of the appellant’s unit which was scheduled to begin in April 1995 could commence only in July 1996. On account of such delay of over one year in commencing production, the appellant company started defaulting in payment right from July 1996 itself. Several opportunities were given to the appellant to pay up the amount due and outstanding. On the failure of the appellant to pay up the same, the first respondent sent a demand notice dated 23rd March, 1999 to the appellant stating that a sum of Rs. 19,91,783/- be paid by the 31st of March, 1999. Pursuant to the demand notice issued by the first respondent, certain payments were made by the appellant. However, the appellant again defaulted in payment of instalments and, as on 14th December, 2000, a sum of Rs. 97,57,695/- (principal amount + the interest accrued thereon) became due and payable. As many as 16 cheques issued by the appellant-company bearing different dates amounting to Rs. 36.81 lakhs were dishonoured on presentation.

5. Owing to the continuous defaults and non-payment of instalments and interest on time, the first respondent issued a take over notice on 8th January, 2001 stating therein that in case the appellant fails to clear the outstanding dues of Rs. 97,57,695/- on or before the 25th of January, 2001, the first respondent would take over the possession of the hypothecated and mortgaged assets on 31st of January, 2001 at 10.00 A.M. Subsequently due to negotiations between the parties, the first respondent, vide its letter dated 6th February, 2001, deferred the take over of the assets of the appellant company to 20th February, 2001. The appellant-Company was asked to pay Rs. 19.81 lakhs by the 15th of February, 2001, failing which the mortgaged assets will be taken over by the first respondent on 20th of February, 2001. The appellant issued 12 post-dated cheques amounting of 19.81 lakhs. On receipt of those cheques, the take over action was again deferred. Out of those 12 cheques issued in favour of the 1st respondent, four cheques were dishonoured on presentation. The appellant’s limit was one again extended till 20th of August, 2001 to enable it to make good the outstanding payments, failing which the assets were to be taken over by the first respondent

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2005 Supreme(SC) 1448

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