Back
HIGH COURT OF PATNA
N. P. Singh and P. S. Sahay, JJ.
Sri Arun Kumar Agrawal . . Petitioner
Versus
The Bihar State Financial Corporation, Patna and others - Respondents.
Civil Writ Jurisdiction Case No: 5140 of 1978
Decided On : 20.4.1979
STATE FINANCIAL CORPORATION ACT, 1951 - SECTION 29 - SALE OF MORTGAGED PROPERTY - BONA FIDE EXERCISE OF POWER - DUTY OF MORTGAGEE.
Fact of the Case:
Petitioner, who had mortgaged his property to the respondent Bihar State Financial Corporation (Corporation) for a loan, defaulted on the repayment of installments. The Corporation, acting under section 29 of the State Financial Corporation Act, 1951 (the Act), issued a notice to the petitioner to discharge the liability or face sale of the mortgaged property. The petitioner requested more time to repay the dues and asserted that the property was worth more than the loan amount. The Corporation, after receiving offers from various parties, accepted the offer of respondent no. 4 to purchase the undertaking by paying the outstanding dues. The petitioner challenged the legality of the Corporation's action under section 29, alleging lack of bona fide and good faith.
Finding of the Court:
The Court held that the Corporation had the right to take over the management of the industrial concern or transfer the mortgaged property under section 29 of the Act. However, the power under section 29 was not absolute and had to be exercised in a bona fide manner. The Court found that the Corporation had not acted in a bona fide manner while accepting the offer of respondent no. 4, as it had not taken adequate steps to obtain the best price for the property and had not considered the petitioner's request for more time to repay the dues.
Issues: 1. Whether the Corporation had the authority to sell the petitioner's undertaking under section 29 of the Act. 2. Whether the Corporation had acted in a bona fide manner while exercising its power under section 29.
Ratio Decidendi: 1. The Court held that the Corporation had the authority to sell the petitioner's undertaking under section 29 of the Act, as the petitioner had defaulted on the repayment of the loan. However, the Court emphasized that this power had to be exercised in a bona fide manner. 2. The Court found that the Corporation had not acted in a bona fide manner while exercising its power under section 29. It noted that the Corporation had not taken adequate steps to obtain the best price for the property and had not considered the petitioner's request for more time to repay the dues. The Court held that the Corporation's decision to sell the undertaking to respondent no. 4 was not consistent with the requirement of law and was likely to cause substantial injury to the petitioner.
Final Decision: The Court allowed the petitioner's application and directed the Corporation to reconsider the sale of the undertaking in accordance with section 29 of the Act, taking into account the observations made by the Court. The Court also held that the petitioner could not obtain relief in the instant case through an application under Articles 226 and 227 of the Constitution of India, as such power could only be exercised by a Civil Court in a properly constituted suit.
Nagendra Prasad Singh, J. -
The petitioner in this writ application has challenged the legality of the exercise of the power by the respondent Bihar State Financial Corporation (hereinafter referred to as 'the Corporation') under section 29 of the State Financial Corporation Act, 1951 (hereinafter referred to as the Act).
2. The petitioner owns and possesses an industry in the name and style 'Klshanganj Re-Rolling Mills' (hereinafter referred to as the 'Mill'). In connection with the said Mill, the petitioner was, granted a loan of Rs.4,75,000/- by the aforesaid Corporation sometime in the year 1971. The petitioner executed a mortgage deed in favour of the said Corporation on 30.11.1971. A copy of the said mortgage deed is Annexure-A to the counter affidavit filed on behalf of the respondent Corporation. As there was default in the re-payment of the instalments of the loan advanced to the petitioner the respondent Corporation served a notice dated 20.8.1976 calling upon the petitioner to discharge the full liability amounting to Rs. 4, 75,400/-, failing which the mortgage security would be advertised for sale' by public auction and shall be sold in accordance with section 29 of the Act. A copy of that notice is Annexure-B to the counter-affidavit filed on behalf of the Corporation. Again on 19.12.1977, the petitioner was asked to make payment of the dues by 31.12.1977, failing which action would be taken under section 29 and section 30 of the Act. A 'copy of that notice is Annexure-1 to the writ application. The Board of Directors of the Corporation passed a resolution dated 12.1.1978, directing advertisement of the mortgaged security of the petitioner, for sale. The sale notice was published in the newspapers in February, 1978 in which the last date for receiving the offers, was fixed as 28.2.1978. Some offers were received from different persons, but the matter of sale was' for the time, being postponed considering the application of the petitioner for 'allowing him some further time to re-pay the dues.
3. A letter dated 29.5.1978 was addressed by the petitioner to the Chairman of the Corporation making reference to the earlier communications and saying that the properties which have been mortgaged to the Corporation are 'much in excess in value than the loan granted to him. It was asserted that the total investment was about Rs. 9,500,00/-including the loan advanced by the Corporation. A request was made in the said letter that before, taking any action against the petitioner "the Corporation should take into consideration the current valuation of the properties which exceeds Rs. 13. lacs".' He also requested for 'more time to re-start the industry, failing, which he shall sell the properties at the current market rate to re-pay the entire dues of the 'Corporation. A copy of that letter is Annexure-2 to the writ application. In the meeting of the Board of Directors held on 11.8.1978, the offers received from different parties were placed and it was resolved that negotiations be made with the three persons, whose offer was the highest. One of such offer was of Shri K. C. Jain, respondent no. 4. By a letter dated 20.10.1978 the petitioner requested the Corporation for easy instalments saying that the working of the industry had to be stopped because the electric line had been disconnected by the Bihar State Electricity Board illegally 'on 7.9.1977 and thereafter, the petitioner had to file a writ application before the Court against the Electricity Board which was numbered as C. W. J. C. Mo. 3777 of 1978 for the restoration of the line and after an ORDER :passed by this Court' the factory has started production on its re-opening on 18. 10. 1978. It was further asserted that the present value of the plant and machinery was Rs. 15, 68,553/-, details thereof were given in a chart annexed to that letter. A copy of that letter is Annexure-3 to the writ application. On 9.11.1978, however, the Corporation, after a meeting of
AI
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
