Back
High Court Of Orissa
P. C. MISRA, G. B. PATTANAIK
KHARAVELA INDUSTRIES PVT.LTD. - Appellant
Versus
ORISSA STATE FINANCIAL CORPN. - Respondent
ORIGINAL JURDN. CASE 340 Of 1984
Decided On : 02/05/1985
STATE FINANCIAL CORPORATIONS ACT - SECTION 29 - TAKING OVER OF INDUSTRIAL CONCERN - PRINCIPLES OF NATURAL JUSTICE - NOTICE - HEARING - SALE OF INDUSTRIAL CONCERN - MALA FIDES - COLLUSION - BURDEN OF PROOF - RULES OF NATURAL JUSTICE - APPLICABILITY - EXCEPTIONS - FAIR PLAY IN ACTION - REASONABLE OPPORTUNITY OF BEING HEARD - GENUINE HEARING - SITUATIONAL MODIFICATIONS - CORE OF THE RULE - PRAGMATIC FLEXIBILITY - COMPLIANCE WITH THE PRINCIPLES OF NATURAL JUSTICE - PAYMENT OF DUES - ADJUSTMENT OF SUBSIDY - FAILURE TO GIVE NOTICE AND OPPORTUNITY OF HEARING - VIOLATION OF PRINCIPLES OF NATURAL JUSTICE - SETTING ASIDE OF ORDER - RESTORATION OF POSSESSION TO PETITIONER - REPAYMENT OF AMOUNT PAID BY PURCHASER - REPHASING OF INSTALMENTS.
Fact of the Case:
The petitioner, an entrepreneur, challenged the action of the Orissa State Financial Corporation (Corporation) in taking over the petitioner's industrial concern under Section 29 of the State Financial Corporations Act, 1951, alleging that the action was arbitrary, mala fide, and in violation of the principles of natural justice. The petitioner also alleged that no due notice was given before the takeover, and that the Corporation acted with undue favoritism towards Orissa Ceramic Industries Limited (opposite party No. 2), which was subsequently given possession of the industrial concern.
Finding of the Court:
The Court found that the Corporation had failed to take into consideration the payments made by the petitioner after the initial notice of takeover was issued, and that the decision to take over the industrial concern was therefore vitiated. The Court also found that the sale of the industrial concern to Orissa Ceramic Industries Limited was conducted with undue haste and without proper publicity, and that the price obtained was likely to be significantly lower than the market value. The Court further found that the petitioner had not been given a reasonable opportunity to be heard before the takeover, and that the Corporation had failed to comply with the principles of natural justice. The Court also rejected the petitioner's allegations of mala fides and collusion between the Corporation and Orissa Ceramic Industries Limited, finding that the petitioner had failed to discharge the burden of proof on these issues.
Issues: 1. Whether the Corporation's action in taking over the petitioner's industrial concern was arbitrary, mala fide, and in violation of the principles of natural justice? 2. Whether the Corporation failed to give due notice before the takeover? 3. Whether the Corporation acted with undue favoritism towards Orissa Ceramic Industries Limited? 4. Whether the sale of the industrial concern to Orissa Ceramic Industries Limited was conducted with undue haste and without proper publicity? 5. Whether the price obtained for the industrial concern was likely to be significantly lower than the market value? 6. Whether the petitioner had been given a reasonable opportunity to be heard before the takeover? 7. Whether the Corporation had failed to comply with the principles of natural justice? 8. Whether the petitioner had discharged the burden of proof on the allegations of mala fides and collusion between the Corporation and Orissa Ceramic Industries Limited?
Ratio Decidendi: 1. The power conferred on the Corporation under Section 29 of the State Financial Corporations Act, 1951, is an extraordinary power that must be exercised only after taking into consideration all relevant factors, including all payments made by the entrepreneur till the date of the order. 2. The Corporation's failure to take into account relevant factors before deciding to take over an industrial concern vitiates the decision. 3. The Corporation has a duty to obtain the best possible price for an industrial concern that it is selling, and must take all necessary steps to ensure that the sale is conducted in a fair and transparent manner. 4. The principles of natural justice require that an industrial concern be given a reasonable opportunity to be heard before the Corporation takes action under Section 29 of the Act. 5. The rules of natural justice are not absolute and may be excluded in exceptional circumstances where, having regard to the nature of the action to be taken, its object and purpose, and the scheme of the relevant statutory provision, fairness in action does not demand their implication. 6. The core of the rule of audi alteram partem is that the person affected must have a reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise.
Final Decision: The Court quashed the Corporation's order taking over the petitioner's industrial concern and set aside all subsequent actions, including the sale of the industrial concern to Orissa Ceramic Industries Limited. The Court directed the Corporation to put the petitioner back in possession of the industrial concern upon receipt of a sum of Rs. 4 lakhs, which was to be adjusted against the petitioner's outstanding dues. The Court also directed the Corporation to re-phase the petitioner's instalments so as not to cause undue hardship.
G. B. PATNAIK, J.
( 1 ) IN these two writ petitions, the action of the financial institution, namely, the Orissa State Financial Corporation (hereinafter referred to as the "corporation") is being impugned by the entrepreneur essentially on the ground that the action of opposite party No. 1, the Corporation, is arbitrary and is calculated to confer undue favour on the Orissa Ceramic Industries Limited (opp. party No. 3 in O. J. C. 340 of 1984 and opp. party No. 2 in O. J. C. 427 of 1984 ). The petitioner also alleges that no due notice of the impugned action being given to the petitioner, there has been a flagrant violation of the principles of natural justice and consequently, the action of the Corporation is vitiated.
( 2 ) AFTER the country became independent, the Industrial Finance Corporation Act came to be enacted in 1948 to set up a Corporation called 'industrial Finance Corporation' with the object that the said Corporation would provide long-term credits to industrial undertakings. With the rapid growth of industries in different States, and to facilitate the object of industrialising the States, it was felt that financial institutions should also be set up in different States and for that purpose, the Parliament enacted the State Financial Corporations Act, 1951 (Central Act LXIII of 1951 ). The said Act authorises the State Government to establish a Financial Corporation whose main object would be to provide long-term loans to industrial concerns as well as to guarantee loans raised by such industrial concerns. The said Act also provides for recovery and confers on the Corporation the right to take over the management and possession of the industrial concern in case an industrial concern makes any default in repayment of loan or advance or any instalment thereof or fails to comply with the terms of the agreement with the Financial Corporation.
( 3 ) ACCORDING to the case of the petitioner, the Corporation sanctioned a loan of Rs. 6. 75 lakhs on 20th January, 1978 and the stipulation in the agreement was that the loan would be repaid by eighteen half-yearly instalments of Rs. 37,500/- each beginning from 28th of October, 1979. The rate of interest was agreed to at 15% per annum with quarterly rest. The total amount of loan was disbursed to the petitioner in different instalments between 27-4-1978 and 11-9-1980. The industrial concern went into production by 1979 and the petitioner asserts in paragraph 13 of the writ application in O. J. C. 427 of 1984 that the total assets of the petitioner-company would be about Rs. 35 lakhs. The petitioner-company made some repayments and according to the assertions made in the writ petitions, the total amount of repayment made by the petitioner is Rs. 4. 95 lakhs. The Corporation, however, disputes this figure and asserts in paragraph-4 of the additional counter affidavit filed on 3-9-1984 in O. J. C. No. 340 of 1984 that the total amount of repayment is Rs. 3. 68 lakhs. Be that as it may, the petitioner-Company had failed to make payment of some instalments and ultimately for such non-payment, the Corporation had taken recourse to action under S. 29 of the State Financial Corporations Act, 1951. This action of the Corporation has been challenged in the present writ petitions.
( 4 ) MR. B. B. Mohanty, the learned counsel for the petitioner mainly raises two contentions, apart from some corollary submissions :- (I) the narration of events unmistakably points out that the authorities of the Corporation acted arbitrarily and in bad faith with the motivated object of bestowing some favour on opposite party - Orissa Ceramic Industries Limited (opposite party No. 2 in O. J. C. 427/84) and, therefore, the said action of taking over is bad in law; and (II) before taking action under S. 29 of the Act, no notice having been given, there has been a flagrant violation of the principles of natural justice and on that score the action of taking over is vitiated. Mr. R. K. Mohapatra, the lea
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
