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1998 Supreme(Raj) 589
High Court Of Rajasthan
Judgename : J.C. Verma
Ram Niwas Gupta - Appellant
Versus
Rajasthan Financial Corporation - Respondent
Civil Writ Petition No. 4901 of 1989
Decided On : 08/28/1998
V.L. Mathur, for the Appellant
D.K. Soral, for the Respondents
The Rajasthan Financial Corporation's actions in taking possession of and selling the petitioner's factory were unreasonable, not in accordance with law, and violated the principles of natural justice.
Headnote:
FINANCIAL CORPORATION - AUCTION OF FACTORY - VALIDITY - PRINCIPLES - REHABILITATION OF ENTERPRISER - MALICE IN LAW - NATURAL JUSTICE - SALE BY PRIVATE NEGOTIATION - CONDITIONS.
Fact of the Case:
Laxmi Enterprises, a small factory manufacturing sodium silicate, obtained a loan from the Rajasthan Financial Corporation (RFC). Despite facing difficulties, the petitioner continued to make payments. RFC issued a notice under Section 30/29 of the State Financial Corporation Act, 1951, and took forcible possession of the factory without prior notice. The factory was sold to Satya Narain Girdhari Lal for Rs. 1 lakh through private negotiation, while the assessed value of the building and machinery was over Rs. 2 lakhs. The petitioner challenged the auction and sale, alleging violations of principles of natural justice and unfair treatment.
Finding of the Court:
The court held that the RFC's actions were unreasonable and not in accordance with law. It found that the auction was not conducted properly, the reserve price was arbitrarily set, and the sale to Satya Narain was discriminatory. The court also noted that the RFC failed to take steps to rehabilitate the petitioner and instead acted in a manner that killed the enterprise. The court further held that the RFC's actions violated the principles of natural justice, as no prior notice was given to the petitioner before taking possession of the factory.
Issues: 1. Whether the auction of the factory was conducted in a fair and reasonable manner. 2. Whether the RFC took adequate steps to rehabilitate the petitioner before taking possession of the factory. 3. Whether the RFC's actions violated the principles of natural justice.
Ratio Decidendi: The court relied on the principles laid down in Mahesh Chandra vs. Regional Manager, U. P. Financial Corporation, AIR 1993 SC 935, and U. P. Financial Corporation vs. M/s. Gem Cap (India) Pvt. Ltd., AIR 1993 SC 1435, to hold that the RFC's actions were unreasonable and not in accordance with law. The court held that the RFC should have made every effort to rehabilitate the petitioner and that the sale of the factory by private negotiation was not justified. The court also held that the RFC's actions violated the principles of natural justice, as no prior notice was given to the petitioner before taking possession of the factory.
Final Decision: The court allowed the writ petition, set aside the order of taking over the property and selling it to Satya Narain Girdhari Lal, and directed the RFC to compensate the petitioner for the raw material seized in the factory but not accounted for. The court also directed the RFC to deliver back the possession of the factory to the petitioner within two months from the date of receipt of the certified copy of the order.
J.C. Verma, J.-The petitioner M/s. Laxmi Enterprises Gangapur City, District Sawai Madhopur had applied for financial loan for establishing a small factory to the Rajasthan Financial Corporation, a Corporation established under law by the State of Rajasthan to help assist, guide and to uplift the industrialists. The petitioner wanted to manufacture and process sodium silicate. As per annexure- 1 a total amount of Rs. 1,33,000/- was sanctioned on 2-9-1981. The petitioner established his factory at 246, Saloda Industrial Area, Gangapur City. On the application of the petitioner another loan of Rs. 22,000/-was sanctioned vide Annexure-3 on 2-2-1984, thus the amount of loan was enhanced to Rs. 1,55,000/-. Rate of interest as per Annexure-3 was fixed at 5% above the bank rate prevailing from time to time subject to a minimum 15%. However, it was also mentioned under clause 4(b) of Annexure 3 under “Soft Loans heading” that if subsidy is available from the state Government and refinance is made available by the 1DB 1 10%, the Corporation will charge interest 11 % p.a. There was default in quarterly payment of the instalments. However, the petitioner continued making certain payments. It is stated by the petitioner that on 30-12-1986 a total amount of loan including the interest which remained payable was Rs. 1,05,658/-as per notice issued to it. However, in January, 1986 as informed to the petitioner the loan was Rs. 62,380/-. A notice was issued under Section 3 0/29 of the State Financial Corporation Act, 1951 vide Annexure 4. In the notice the principal amount has been shown as Rs. 41335/-whereas the interest has been shown as Rs. 21,045/-. On receipt of the notice, the petitioner deposited certain amount as per Annexure 5. There were certain difficulties being faced by the
industry in regard to non-availability of the raw material and also because of the power cuts. The petitioner had deposited Rs. 10,000/-in January and again deposited Rs. 5,000/-in March, 1986. Another legal notice was issued to the petitioner and again the Corporation reminded the petitioner that in case any default is made, the petitioner would face the consequences of Section 29 of the Act. The petitioner deposited another Rs. 5,000/-on 30-12-1986. In Annexure 8 dated 16-12-1986 the details given by the respondents of over dues as on 30-12-1986 are Rs. 77,335/-as principal amount and Rs. 28,323/-as interest and total Rs. 1,05,658/-@ 18.50%, however, after giving such details the petitioner has been asked to deposit an amount of Rs. 1,38,527/ -.
2. It is the case of the petitioner that on 7-2-1987 a forcible possession had been taken of the factory of the petitioner by breaking open the lock. Raw material worth Rs. one lac which stood hypothecated to the bank was lying in the factory but no inventory was made by the RFC. According to the petitioner, as per statement submitted by the petitioner to the bank about the hypothecation of the raw material as on 31-1-1987, copy of which has been placed on record as Annexure 9, the raw material worth Rs. 1,10,932/-was lying in the factory. The RFC started taking proceedings for sale of the factory as per publication in the newspaper on 20-3-1987. Ultimately by way of negotiation it transferred the factory with its materials, machinery, building for an amount of Rs. one lac to Satya Narain Girdhari Lal, Respondent No. 3. It is submitted by the petitioner that his property worth more than Rs. four lacs was thrown away at Rs. one lac.
3. The petitioner had been praying that in the circumstances he be allowed to pay the amount in instalments. His requests were not heeded to. It is interesting to note that this Satya Narain Girdhari Lal, Respondent No. 3 (hereinafter called as Respondent No. 3) is said to have purchased the property in question for Rs. one lac with a condition that he was to deposit 25% of the amount within seven days and the balance amount was to be deposited in 34 monthly instalments and in case
