1994 Supreme(SC) 1163

SUPREME COURT OF INDIA
Kuldip Singh and P.B. Sawant, JJ.
Civil Appeal No. 568 of 1987
Decided On: 22.11.1994
U.P. Financial Corporation and Ors. Appellants
Vs.
Naini Oxygen & Acetylene Gas Ltd. and Anr. Respondent
Counsel for the Parties
For Appellant/Petitioner/Plaintiff: R.K. Jain, Sr. Adv., Prashant Kumar and Satish Vig, Advs.
For Respondents/Defendant: Shanti Bhushan, Sr. Adv., Prashant Bhushan, Shanti Swarup Sharma, A.K. Sil and R.K. Sharma, Advs.

Headnote:

State Financial Corporation Act, 1951 - Section 29 - U.P. Public Moneys [Recovery of Dues] Act - Section 3 - Companies Act - Sections 397 and 398 - Memorandum of Agreement - Recover balance of loan as arrears of land revenue - Challenge - State Financial Corporation is that it was established under State Financial Corporation Act - It sanctioned a term loan of lakhs to respondent - Company payable in half-yearly instalments by of August - Memorandum of Agreement executed between Corporation and Company and Deeds of Mortgage and Hypothecation executed by Company in favour of Corporation inter alia provided for recall of entire balance of loan in event of default on part of Company in paying two instalments of loan and further to recover balance of loan as arrears of land revenue - Accordingly Corporation disbursed lakhs to Company in and lakhs - In Acetylene Gas plant of Company was commissioned - Corporation disbursed balance of lakhs to company making total payment of loan lakhs - In Oxygen Gas plant of Company was also commissioned - Company however made persistent defaults in repayment of loan instalments with result that recovery certificate was issued against it under Section 3 of U.P. Public Moneys Act - Company challenged said recovery proceedings before High Court in which however was withdrawn by it later - Thereafter Company filed Company Petition under Sections 397 and 398 of Companies Act in High Court seeking removal of persons then in management on grave charges of manipulation of accounts re-allotment of forfeited shares etc - State Government issued Office Memorandum enunciating a scheme for rehabilitation of sick units and setting up inter alia a State Level Inter-institutional Committee with power to approve loan upto lakhs - There was a compromise in Company Petition whereunder then management of Company started running plants - Joint Director of Industries declared Company to be a sick unit - State Level Inter-Institutional Committee suggested a Rehabilitation Package which envisaged reschedulement of payment by Company arrangement of finances by Company appointment of two Directors nominated by Corporation and execution of personal guarantee by Directors - Corporation wrote a letter to Company stipulating said conditions of package - Terms of Rehabilitation Package were acknowledged by Company - Board of Directors of Corporation approved Rehabilitation Package - Company however did not take any steps to implement Rehabilitation Package - Whether Corporation is obliged to invest a further sum of crore in establishment and whether even after such investment unit will be viable or whether Corporation should realise its loan from sale of assets of Company - Held, Court cannot lose sight of fact that 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 discharge of its functions it is free to act according to its own light - Views it forms and decisions it takes are on basis of information in its possession and advice it receives and according to its own perspective and calculations - Unless its action is mala fide even a wrong decision taken by it is not open to challenge - It is not for courts or a third party to substitute its decision however more prudent commercial or business like it may be for decision of Corporation - Hence whatever wisdom of conduct of Corporation same cannot be assailed for making Corporation liable - It cannot further be forgotten that in present case Company had made persistent defaults in repayment of loan-instalments with result that recovery certificate had to be issued against it under Section 3 of U.P. Public Moneys Act - Then management had mismanaged Company and a Company Petition had to be filed seeking its removal on grave charges of manipulation of accounts re-allotment of forfeited shares etc - Non-discharge of liabilities of Company was on account of said fraudulent practices of management - By dues of Company mounted to with result that Corporation had to take over its industrial establishment under Section 29 of Act - Report of IRBI which was given at instance of this Court had stated that industrial unit could be made only marginally viable provided another one crore were invested in it and loan instalments were rescheduled - Between when industrial establishment was closed down and when IRBI report was submitted machinery of establishment was lying idle and was almost rusty with result that by value of machinery had gone down considerably while its liabilities had gone up still further - In circumstances if Corporation thought that revival of unit even after giving all concessions and reliefs as per package deal was problematic and Corporation will stand to lose whatever little it could retrieve towards its dues Corporation could hardly be blamed for same - Appeal Allowed