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1990 Supreme(Kar) 696
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
M.M. Mirdhe and M. Rama Jois, JJ.
N. Gopal and another —Appellant
Vs.
Karnataka State Financial Corporation and another —Respondent
AND
Shilpa Products —Appellant
Vs.
Karnataka State Financial Corporation and others —Respondent
Writ Petition Nos. 14887 of 1986 and 7140 of 1987
Decided on : 28-08-1990
Advocate appeared:
Mr. S.K.V. Chalapathy, N.B. Bhat, T.R. Rangaraju, for the Appellant
Mr. C.B. Nandiswar, B. Srinivasa Gowda, for the Respondent
The duty of the Corporation to inform the party concerned about the actual amount due before exercising its power under section 29.
Headnote:
Constitutional Validity - Karnataka State Financial Corporation Act, 1951 - Section 29
Fact of the Case:
The petitioners challenged the constitutional validity of section 29 of the Karnataka State Financial Corporation Act, 1951, which allows the financial corporation to take over the management or possession of an industrial concern in case of default in repayment of loans or advances.
Finding of the Court:
The court upheld the validity of section 29, emphasizing the duty of the Corporation to inform the party concerned about the actual amount due before exercising its power under section 29. The court also indicated that a limited opportunity of contesting the computation of liability should be afforded to the concerned party.
Issues: Constitutional validity of section 29 of the Act
Ratio Decidendi: The principles of natural justice must be regarded as super added to any statutory provision conferring powers on a public authority. The Corporation must inform the party concerned about the actual amount due before exercising its power under section 29.
Final Decision: The writ petitions were dismissed, subject to the observations made in the order. The petitioners were granted liberty to approach the financial corporation for relief, and the financial corporation was granted liberty to grant relief to the petitioners, if it considers fit and expedient to do so.
Rama Jois, J.—In these three writ petitions, the petitioner have questioned the constitutional validity of section 29 of the Karnataka State Financial Corporation Act, 1951.
2. The brief facts of the case are as under:
3. The Karnataka State Financial Corporation has been established by the State Government, by virtue of the power vested in it under section 3 of the State Financial Corporations Act, 1951 (for short, "the Act"). Section 24 of the Act provides that the Board of a State Financial Corporation, in discharging its functions under this Act, shall act on business principles, due regard being had by it to the interests of industry, commerce and the general public. Section 25 of the Act specifies the kinds of business which the financial corporation should carry on under the Act. One of the powers of the corporation is guaranteeing on such terms and conditions as may be agreed upon, loans raised by industrial concern which are repayable within a period not exceeding twenty years, and are floated in the public market and granting loans or advances to, or subscribing to debentures of an industrial concern, repayable within a period not exceeding 20 years from the date on which they are granted or subscribed to.
4. Section 29 of the Act, the validity of which is challenged in this petition, reads:
"29. (1) Where any industrial concern, which is under a liability to the financial corporation under an agreement, makes any default in repayment of any loan or advance or any installment thereof (of in meeting its obligations in relation to any guarantee given by the Corporation) or other wise fails to comply with the terms of its agreement with the financial corporation, the financial corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the financial corporation.
(2) Any transfer of property made by the financial corporation, in exercise of its power under sub-section (10. shall vest in the transferee all rights in or to the property transferred (as if the transfer) had been made by the owner of the property.
(3) The financial corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it and with respect to the original goods.
(4) Where any action has been taken against an industrial concern under the provisions of sub-section (1), all costs, charges and expenses which in the opinion of the financial corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it, shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such cost, charges and expenses and, secondly in discharge of the debt due to the financial corporation, and the residue of the money so received shall be paid to the person entitled thereto.
(5) Where the financial corporation has taken any action against an industrial concern under the provision of sub-section (1) the financial corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern."
5. The petitioner in Writ Petition No. 14887 of 1986 is a partnership firm established on January 8, 1980. The petitioner is this writ petition has taken loans, one in a sum of Rs. 2,76,000 and another in a sum of Rs. 55,000 for establishing a power mill, having executed the necessary documents and bonds in the prescribed manner. As the petitioner failed to repay the amount due to the Corporation, action was sought to be taken under section 29 of the Act. At this stage, the petitioner has writ petition, questioning the constitutional validity of section 29 of the Act.
6. The
