Important Point
It is true that fairness cannot be a one way street, but then whereas the Corporation indisputably has a right to realize its dues, it must act strictly in terms of the statutory and constitutional Scheme. If it acts unfairly, it fails the system.

Headnote:State Financial Corporations Act, 1951 – Section 29 – Uttar Pradesh Public Moneys (recovery of Dues) Act, 1972 – Appellant company M/s Everest wools pvt ltd took loan from U.P. State financial corporation – Notice issued by U.P. State financial corporation to appellant company on premise that appellant company had purchased some plants and machinery worth Rs. 6.75 lacs form one of their financial units and obtained financial assistance form PICUP – Entire loan was recalled on premises that company had committed defaults in payment of installments – Possession of assets of appellant company was taken over by U.P. State Financial corporation in exercise of its powers u\s 29 of Act – Invocation of guarantees executed by Directors of Appellant company by PICUP and issuance of a recovery citation – Writ petition praying for stay of recovery proceedings – Dismissed by High Court – Appeals there against – Contention of appellants that action on part of respondents in recalling loan and taking over possession of running unit was neither fair nor reasonable and taking recourse to invocation of personal guarantees of Directors of company for recovery of loan amount was totally illegal - Held High Court, was not correct in passing impugned order - Corporation, no doubt, was entitled to realize its dues, but it must be borne in mind that it had been conferred with a special statutory power in terms of Section 29 and 31 of Act of 1951 therefore - Such a power in Corporation was conferred by an Act of Parliament, inter alia, keeping in view fact that it being a statutory authority and, thus, being a State within meaning of Article 12 of Constitution of India, will act fairly and reasonably - Entire loan was recalled not only because appellants were defaulters but also on allegation that they had purchased second hand plant and machinery from another financial institution in breach of the contract, which having been found to be wholly incorrect, it must be held that it had acted on extraneous consideration - So far as PICUP was concerned, it was bound to act in terms of provisions of the 1972 Act - Whether it did so, was a question which should have been gone into by High Court - Impugned judgment set aside and matters remitted back to High Court for its consideration afresh in Interests of Justice. (Paras 15 to 20)
       Facts of the case :
       Appellant company M/s Everest Wools Pvt Ltd took loan from U.P. State financial corporation herein in the instant case. Notice was issued by U.P. State financial corporation to appellant company on premise that appellant company had purchased some plants and machinery worth Rs. 6.75 lacs form one of their financial units and obtained financial assistance form PICUP. Entire loan was recalled on premises that company had committed defaults in payment of installments. Possession of assets of appellant company was taken over by U.P. State Financial corporation in exercise of its powers u\s 29 of Act. Guarantees executed by Directors of Appellant Company was invoked by PICUP and recovery citation was issued. Writ petition filed by Appellant Company praying for stay of recovery proceedings was dismissed by High Court.
       Present Appeal has been filed against said order of High Court.
       Finding of the Court :
       The Court held that High Court, was not correct in passing impugned order. Corporation, no doubt, was entitled to realize its dues, but it must be borne in mind that it had been conferred with a special statutory power in terms of Section 29 and 31 of Act of 1951 therefore. Such a power in Corporation was conferred by an Act of Parliament, inter alia, keeping in view fact that it being a statutory authority and, thus, being a State within meaning of Article 12 of Constitution of India, will act fairly and reasonably. Entire loan was recalled not only because appellants were defaulters but also on allegation that they had purchased second hand plant and machinery from another financial institution in breach of the contract, which having been found to be wholly incorrect, it must be held that it had acted on extraneous consideration. So far as PICUP was concerned, it was bound to act in terms of provisions of the 1972 Act. Whether it did so, was a question which should have been gone into by High Court. Impugned judgment set aside and matters remitted back to High Court for its consideration afresh in interests of Justice.
       Result : Ordered accordingly.

JUDGMENT

S.B. SINHA, J.—

1.Application of Section 29 of the State Financial Corporations Act, 1951 (the 1951 Act) vis-‘-vis the Uttar Pradesh Public Moneys (Recovery of Dues) Act, 1972 (the 1972 Act) is in question in these appeals which arise out of a common judgment and order dated 29th September, 1999 passed by a Division Bench of the High Court of Judicature at Allahabad in Civil Misc. Writ Petition Nos. 41848 and 34059 of 1999.

2.Before embarking on the questions raised at the bar, we may notice the basic fact of the matter.

3.M/s. Everest Wools Pvt. Ltd. of which Pradeep Kumar Agrawal is a Managing Director took loan from the U.P. State Financial Corporation (Corporation). The company applied for re-scheduling of the loan and the same was granted. Appellant company intended to expand their unit. It applied for grant of loan to the respondent No.3, the Pradeshiya Industrial and Investment of U.P. Ltd. (PICUP). Rs. 47 lacs was sanctioned by it. A sum of Rs. 41.60 lakhs was disbursed to it by March, 1992. Some other amount was also disbursed by way of State Capital Investment Subsidy by the Government.

4.Inter alia on the premise that the appellant-company had purchased some plants and machinery worth Rs.6.75 lacs from one of their financed units namely M/s. Uttrakhand Woolen Yarn Udyog Pvt. Ltd. and obtained financial assistance from PICUP, a notice was issued by U.P. State Financial Corporation to the appellant asking for its response thereto failing which it was threatened that action under Section 29 of the 1951 Act would be taken. An explanation, pursuant thereto, was submitted. However, entire loan was recalled inter alia on the premise that the company had committed defaults in paying the instalments. Some letters were exchanged between the parties. However, it appears that PICUP authorized U.P. State Financial Corporation to act as its agent as both of them are premium financial institutions of the State of U.P. A representation was again made by the appellants before the Financial Corporation for adjusting the over-due amount which was not acceded to. In exercise of its powers under Section 29 of the 1951 Act possession of the assets of the appellant company was taken over by the U.P. State Financial Corporation. A First Information Report was also lodged in respect of the purported purchase of plant and machinery by the appellant company from M/s. Uttrakhand Woolen Yarn Udyog Pvt. Ltd. On enquiry, the allegations against the appellant company were not found to be correct; whereafter a request was made by the appellant company to the Financial Corporation as also PICUP for handing over the possession of the unit to it as also for waiver of interest etc. PICUP, however, invoked the guarantees executed by the Directors of the appellant company. A recovery citation was also issued.

5.However, in the meantime some machinery parts were found to be missing, although security guards had been posted in the said factory. Valuation thereof was made and a sum of Rs.45,000/- was credited to the account of the appellant-company. Again some theft took place.

6.Two writ petitions were filed, one by the company and three others, including Vinod Kumar Agrawal, (CMWP No. 34059 of 1999) and the other by Vinod Kumar Agrawal (CMWP No. 41849 of 1999). In the said writ petitions following reliefs were prayed for :

“IN CMWP No. 34059/1999.

a.to issue a writ, order or direction in the nature of certiorari quashing the impugned personal recovery certificate dated 31.07.1999 (Annexure 12) passed by respondent No.1.

b.to issue a writ, order or direction in the nature of mandamus restraining the respondents from recovering the loan from the petitioners in pursuance of impugned personal recovery certificates dated 31.07.1999 (Annexure 12).

c.to issue a writ, order or direction in nature of ad interim mandamus staying operation of the impugned recovery citation dated 31.07.1999 (Annexure 12) issued by respondent no.5 against the petitioners.

d.to issue a

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Judicial Analysis

SupremeToday

2007 Supreme(SC) 1646

2008(8) Supreme 599Supreme Court of indiaS.B. Sinha & Harjit Singh Bedi, JJ.M/s Everest Wools Pvt. Ltd. and others — PetitionersversusU.P. Financial Corporation and others — RespondentsAppeal (civil) 2707-2708 of 2003Decided on : 14-12-2007

Important PointIt is true that fairness cannot be a one way street, but then whereas the Corporation indisputably has a right to realize its dues, it must act strictly in terms of the statutory and constitutional Scheme. If it acts unfairly, it fails the system.

Judicial Analysis

2008(8) Supreme 599
Supreme Court of india
S.B. Sinha & Harjit Singh Bedi, JJ.
M/s Everest Wools Pvt. Ltd. and others — Petitioners
versus
U.P. Financial Corporation and others — Respondents
Appeal (civil) 2707-2708 of 2003
Decided on : 14-12-2007

Important Point
It is true that fairness cannot be a one way street, but then whereas the Corporation indisputably has a right to realize its dues, it must act strictly in terms of the statutory and constitutional Scheme. If it acts unfairly, it fails the system.