Section 29 of the State Financial Corporation Act, 1951, is not arbitrary and violative of Article 14 of the Constitution, and the corporation's action in taking possession of the petitioner's factory under Section 29 was not arbitrary or violative of principles of natural justice.

Gulab C. Gupta, J.

1. The petitioner, a private limited company registered under the Companies Act, is facing action under Section 29 of the State Financial Corporation Act, 1951 (hereinafter referred to as the Act) and is invoking jurisdiction of this Court under Article 226 of the Constitution, questioning the constitutional validity of the said provision and legality of the action taken thereunder. The petitioner-company further seeks a writ in the nature of prohibition against the respondent No. 2 restraining them from interfering in any way in the affairs of the petitioner in carrying on business in their unit at Mandi Deep, Madhya Pradesh.

2. The petitioner is a private limited company having its industrial unit at Mandi Deep, Madhya Pradesh where it manufactures copper and copper allied pipes and tubes. It is common ground that the company borrowed a term loan of Rs. 63 lacs from the respondent No. 2 in February 1985, additional term loan of Rs. 17 lacs in March 1987 and further additional loan of Rs. 10 lacs in February 1989. There is also no dispute that the petitioner- company has not been able to repay the loan in instalments as agreed to and is therefore a defaulter. It is also common ground that because of difficulties faced by the petitioner-company in making payment of loan in instalments as originally agreed, the arrangement for repayment was re-scheduled on 18-7-1984, 6-12-' 1986, 22-12-1988 and 3-5-1991 in consultation with the petitioner-company. Since in spite of the aforesaid repayment schedule, the payments have not been made, the respondent No. 2 sent notice dated 18-6-1993 Annexure-P-8 informing the petitioner that since they were defaulters, they should make up the default immediately failing which action under Section 29 of the Act would be taken. The petitioner company replied to this notice on 25-6-1993 (Annexure-P-9) explaining that the delay in paying instalments was because of the delay in disbursement of loan by the Bank and a result of various unavoidable circumstances prevailing in the country (Para 2 of the petition). The petitioner company in this reply proposed liquidation of 42 lacs of rupees of loan within a period of six months commencing from September, 1993. It appears that on receipt of the aforesaid reply, the respondents convened a meeting of Recovery Committee on 31-7-1993 and requested the Managing Director or the Chairman of the petitioner-company to attend the same, (Annexure-P-11). In this letter, it was also requested that the petitioner-company should "come along with the Demand Draft". It further appears that in pursuance to this, invitation, the petitioner-company sent its representative, not the Chairman or the Managing Director, to attend the meeting, who submitted five cheques dated 10-8-1993, 20-8-1993, 30-8-1993, 15-9-1993 and 30-9-1993 for a total amount of Rs. 12 lacs. There is no dispute between the parties that the meeting of Recovery Committee was held as notified, though there is dispute as to the decision taken in the said meeting. According to the petitioner, it got "a bona fide impression that the respondent No. 2 is completely satisfied with the entire state of affairs and that they having withdrawn all their legal notices and also after having received the payment thereafter, they would not resort to any action" (Para 14 of the petition). The respondent.No. 2 has however submitted that in the meeting it was decided to accept cheques presented by the petitioner-company and also continue action under Section 29 of the Act and this decision was recorded in the minutes Annexure-R-2/12 and communicated to the petitioner. Thereafter the respondent No. 2 took possession of the factory of the petitioner on 9-8-1993 necessitating filing of this petition, challenging not only the constitutional validity of Section 29 of the Act but also the impugned action thereunder.

3. The submission of the learned counsel for the petitioner is that Section 29 of the Act, in so fa