A financial corporation has the power to sell the mortgaged property of a company that has defaulted in the repayment of a loan under Section 29 of the State Financial Corporation Act, provided that the corporation has given the company reasonable notice and opportunity to repay the loan and that the sale is conducted in a bona fide manner.

S.N.Jha, J.

1. By this application under Articles 226 and 227 of the Constitution of India the petitioners have prayed for quashing of Annexure-1 by which an advertisement under Sec.29 of the State Financial Corporation Act (hereinafter referred to as "the Act") was published calling offers for sale of mortgaged property of the petitioner-company and any subsequent action purported thereto. The petitioners have further prayed for restraining the Respondent ("Bihar State Financial Corporation") from selling the properties including the factory, which had been mortgaged with the Corporation.

2. The facts relevant for the disposal of this application, in short, are that petitioner No. 1 is a private limited company (hereinafter referred to as "the Company"), which was incorporated on 1st April, 1982 under the Companies Act, 1956. The object of the Company was to carry on business as manufactures, exporters, importers, buyers and sellers and dealers in all kinds of machineries and factory implements, and, in particular in diesel engines and electric motors etc.

3. The Respondent Corporation was set up under Sec.3 of the said Act, which is the instrumentality or a device of the Government of Bihar to provide medium and long term credit to the industrial concerns for setting up industries in the State.

4. The Company which was originally a partnership concern under the name and style of M/s Menospak Engineering Industries entered into an agreement with the Corporation on 21st March, 1975 through its partners, namely, Shri P. K. Kurup, Shri M. K. Somnathan, Shri Ramesh Upadhaya and Shri Shankaran Kutti for the grant of loan of Rs. 3,60,000 (Rupees three lac sixty thousand) for the purpose of construction of buildings and purchase of plants and machineries including tools and electric equipment and a mortgage deed was executed between the then partners of the petitioner concern, namely, M/s Menospak Engineering Industries on one hand and the Corporation on the other.

5. It appears that the Corporation had advanced a loan of Rs. 2,48,000 (Rupees two lac forty eight thousand). That loan was paid in instalments between the period 28th April, 1975 to October, 1977. The petitioners were required to pay back the loan alongwith the interest in instalments in terms of the aforesaid agreement entered into between the petitioners and the Corporation,

6. Although the petitioners have paid Rs. 4,77,827.39p (Rupees four lac seventy seven thousand eight hundred twenty seven and paise thirty nine only) yet it is an admitted position that there has been default on part of the petitioners to repay back the loan in terms of the agreement. According to the case of the petitioners the Company suffered a set back as a result of unprecedented flood in the year 1975, which badly damaged the petitioners buildings, plants and machineries for which a claim was lodged with the said Corporation for rehabilitation loan of Rs. 7.000 (Rupees seven thousand), which was subsequently repaid with interest in full on final settlement It appears that the original partnership firm was converted into a private limited company and after its conversion as Company, the Corporation was duly informed on 19th April, 1982. The company duly supplied every details including the name of the Directors.

7. Since the Company could not make repayment of dues for the years 1985 and 1986, the Corporation published an advertisement on 14th February, 1987 inviting offers for purchase of factory and property of the petitioners mortgaged with the respondent Corporation under Sec.29 of the Act by 25th February, 1987 on "as is where is basis", which is under challenge in this application.

8. A supplementary affidavit has been filed on behalf of the petitioners in which it has been seated that originally the petitioners firm was sanctioned a sum of Rs. 3,60,000 (Rupees three lac sixty thousand only) @13.25% interest with rebate of 2% in case of timely payment but there was no penal inter