Back
Allahbad High Court
T.S.MISRA,D.N.JHA
Mirza Javed. Murtaza - Appellant
Versus
U.P. financial Corporation Kanpur - Respondent
Decided On : 03/23/1982
CONTRACT - LOAN AGREEMENT - BREACH - RESCISSION - RESTITUTION - INTEREST - RECOVERY OF LOAN - MORTGAGE - SALE OF PROPERTY - DAMAGES - CLAIM FOR COMPENSATION - STATE FINANCIAL CORPORATIONS ACT, 1951 - SECTIONS 27, 29, 30, 31.
Fact of the Case:
The petitioner obtained a loan from the Corporation for setting up an industry. The Corporation sanctioned a loan of Rs. 3,70,000/- against the demand of Rs. 4,11,000/-. A sum of Rs. 90,000/- was released by the Corporation against the bank guarantee on 23-7-1977. Another sum of Rs. 48,500/- was also released on 31-3-1978 in the manner that Rs. 46,000/- were paid directly by the Corporation to the U.P. State Industrial Development Corporation towards the cost of the land and Rs. 2,500/- were paid in cash to the petitioner. The petitioner then asked for the release of further sum of Rs. 2,31,500/- being the balance of the sanctioned loan of Rs. 3,70,000/-. The Corporation told the petitioner that in view of the condition No. 23 of the sanction advice further loan amount would be disbursed only after taking stipulated margin of security and that the margin of each security should not be less than 15%. The borrower should also invest proportionate amount from his own resources towards the completion of the scheme. The Corporation assured the petitioner that if he created further assets further loan amount would be disbursed without any delay. On the other hand the petitioner contended that he was entitled to the release of further amount of loan and as the Corporation had failed to do so it had committed breach of the agreement. The Corporation asked for payment of overdue interest which the petitioner had act paid Ultimately the Corporation exercised its right to recall the entire amount of loan with interest and gave a notice in that behalf saying that the petitioner had committed breach of the terms of agreement. So, each party alleged that the other had committed breach of the agreement.
Finding of the Court:
The court held that the contract had been put an end to by the petitioner's rescission and that the petitioner was liable to restore the benefit received by him under the contract with the Corporation from whom he has received it and at the same time, on the other hand has a legal right to file a suit for compensation for the damages he has suffered through the non-fulfilment of the contract. The court also held that the petitioner was liable to pay simple interest at the Reserve Bank of India rate as was prevailing at the time the loan was advanced, on the said sum of Rs. 1,62,382.31 from 6-8-1979 till the date of repayment.
Issues: 1. Whether the petitioner was entitled to the release of further amount of loan? 2. Whether the Corporation had committed breach of the agreement? 3. Whether the petitioner was liable to repay the loan with interest? 4. Whether the petitioner was entitled to claim compensation for damages suffered due to breach of contract?
Ratio Decidendi: 1. The court held that the petitioner was not entitled to the release of further amount of loan as he had not created sufficient assets as required under the terms of the agreement. 2. The court held that the Corporation had not committed breach of the agreement as it had acted in accordance with the terms of the agreement. 3. The court held that the petitioner was liable to repay the loan with interest as the contract had been put an end to by the petitioner's rescission. 4. The court held that the petitioner was entitled to claim compensation for damages suffered due to breach of contract, but the amount of damages had to be determined in a separate suit.
Final Decision: The petition was partly allowed. The notice dated 3-9-1980 (Annexure-14) to the writ petition was quashed, and the opposite-parties were restrained from realising any amount towards the collection charges as no property of the petitioner had been put to sale for recovery of the loan. The U.P. Financial Corporation was, however, directed to afford reasonable opportunity and grant permission, if asked for, to the petitioner to sell the properties mortgaged and hypothecated or any portion there of by private negotiations for the purpose of redeeming the mortgage and repaying the loan.
T. S. MISRA, J.:- The facts giving rise to this petition are these:- On 29-3-1976 the U.P. Financial Corporation (hereinafter called the Corporation) published in the National Herald newspaper an advertisement, the relevant portion of which is extracted below:-
"We provide with pleasure loans for land, plant and machinery, stamps and registration, consultancy and interest during construction period. Margin money assistance for self-employment of educated persons to the extent of 10% of the total cost of the project, to assist you to meet preliminary and preoperative expenses, working capital margin and margin of fixed capital."
2. The petitioner had obtained a diploma in Mechanical Engineering in First Division in the year 1969. He joined the Irrigation Department of the U.P. State Government as Junior Engineer (Mechanical). After perusing the aforesaid advertisement in the newspaper dated 29-3-1976 the petitioner applied for a loan of Rs.7.18 lakhs to the Corporation for setting up an industry in tools etc. The amount of loan was subsequently reduced to Rs. 4,11,000/-.
Going ahead with his project the petitioner applied on 1-4-1976 for a piece of land to set up his manufacturing unit to the U.P. State Industrial Development Corporation at Amausi. The land was allotted to him on 8-4-1976. The Corporation sanctioned a loan of Rupees 3,70.000/- against the demand of Rs. 4,11,000/- and communicated the sanction to the petitioner by letter dated 27-9-1976. The terms and conditions of the loan were mentioned in Annexures Nos.1 and 2 attached to that letter. The purpose for which the amount of loan was to be utilised was as
follows:-
(i) (a) For land direct payment to U.P.S.T.D.C. and balance to be paid by the party.
Rs.46,000/-
(b) For construction of factory building. Rs. 54,000/-
(c) For purchase of plant and machinery. Rs.2,40,000/-
(d) For other expenses, viz. interest during construction period and mortgage expenses.
Rs.30,000/-
Total Rs. 3,70,000/-
3. The value of investment at each stage of disbursement, which was not to be less than 15% was as under:-
(2) (a) Land
Rs. 54,000/-
(b) Building Rs. 60,000/-
(c) Plant and Machinery Rs. 2,56,000/-
(d) Contingencies and Escalation Rs.29,000/-
(e) Preliminary and pre-operative expenses Rs. 17,000/-
(f) Interest during construction period
Rs. 19,000/-
Total Rs. 4,35,000/-
The recovery schedule was as under :-
(3) (a) Total period 12 years
(b) Gestation period 2 years
(c) First half yearly Rs. 12,000/-
(d) Four half-yearly instalments of Rs. 9,500/-each
Rs. 38,000/-
(e) Subsequent 16 equal instalments of Rs. 20,000/- each Rs. 3,20,000/-
Total Rs. 3,70,000/-
The petitioner sent a formal letter of acceptance. Thereafter he resigned from the Government service on 6-7-1977 with an avowed object of establishing a manufacturing concern and run his own business. An agreement was then executed on 11-7-1977 between the petitioner and the Corporation for the release of Rs. 90,000/- against a bank guarantee given by the Punjab National Bank for a period of nine months. The Corporation then released a sum of Rupees 90,000/- in favour of the petitioner on 23-7-1977. Thereafter on 11-1-1978 an agreement was executed between the petitioner and the Corporation for a term loan of Rs. 3,70,000/- requiring the petitioner inter alia to create equitable mortgage of land and building by depositing the title does and also to hypothecate the moveable assets. A deed of hypothecation was required to be executed to secure the said loan. A copy of the said agreement is Annexure No. 2 to the writ petition. The deed of hypo-thecation was executed on 11-1-1978. The Petitioner, as required, also executed a pronote in favour of the corporation for a sum of Rs. 3,70,000/- and executed an irrevocable power of attorney in favour of the Corporation. The petitioner invested the amount of Rupees 900,00/- for setting up the project. The progress of the project was found to be satisfactory and a certificate in tha
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
