Haryana Financial Corporation v. M/s Jagdamba Oil Mills, (SC) BS5918
SUPREME COURT OF INDIA

Before:- B.N. Kirpal, K.G. Balakrishnan and Arijit Pasayat, JJ.

Civil Appeal No. 607 of 2002. D/d. 28.1.2002.

Haryana Financial Corporation - Appellants

Versus

M/s Jagdamba Oil Mills - Respondents

For the Appellants :- Mr. Amit Dayal, Advocate.

For the Respondents :- Mr. G.K. Bansal and Mr. Sanjay Bansal, Advocates.

A. State Financial Corporation Act, 1951, Section 29 - Recovery of loans by financial institutions - Fairness and reasonableness in the process of recoveries - Can be shown only if the lonee co-operates and establishes his intention to discharge his liability but for some unadjustable hurdles - However, where the loanee does not make payment of even a single instalment despite ample opportunity and adjustments, the Financial Corporation has a right to take stringent steps to secure and recover public money in terms of the strict provisions of the Act - Fairness of Corporation cannot be carried to the extent of disabling it from recovering its dues - Unless its action is mala fide, even a wrong decision by it is not open to challenge.

[Paras 6 to 12]

B. Constitution of India, Article 226 - State Financial Corporation Act, 1951, Section 29 - Recovery of loans by financial institutions - Judicial review - Extent of judicial review in the case of administrative action cannot be larger than in the case of quasi-judicial action - High Court cannot sit in an appeal over the decisions and orders of quasi-judicial and orders of administrative authorities which have certain amount of discretion available to adopt one or the other course of action in the facts of the case - Court cannot substitute its own judgment as to which would be the proper and more fair course of action - The Corporation is required to secure the best price of property by open auction inviting maximum contenders - But there may be instances that despite best efforts this object could not be achieved - The corporation is required to proceed strictly in accordance with the procedure laid down - The guidelines issued in Mahesh Chandra's case place unnecessary restrictions on the exercise of power by the Corporation - A person who has defaulted is hardly to cooperate and deserve no preferential participation in sale proceedings - Judgments of court are not to be construed as statutes but are interpretation to the words of statutes and not definition - Held that Mahesh Chandra's case do not lay correct law and overruled.

[Paras 9, 10 to 17]

C. Constitution of India, Articles 141 and 215 - Judgments and precedents - Courts should not place reliance on decisions without discussing on the facts of the case referred and the case in hand - Law applies on facts - Court only interprets the law and does not lay down the law - Decisions are meant to explain and not to define.

[Paras 18 to 21]

Cases Referred :-

Mahesh Chandra v. Regional Manager, U.P. Financial Corporation and Ors., 1992(1) RRR 576.

U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd., 1993(2) SCC 299.

A.K. Kraipak v. Union of India, 1969(2) SCC 262.

State for Education and Science v. Metropolitan Borough Counsel of Tameside (1977 AC 1014).

M.R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, 1947(2) All England Reporter 680.

U.P. Financial Corporation and Ors. v. Naini Oxyegen & Acetylene Gas Ltd. and Anr., 1995(1) RRR 413 (SC).

Karnataka State Financial Corporation v. Micro Cast Rubber & Allied Products (P) Ltd. & Ors., JT 1996(6) SC 37.

Chairman and Managing Director, SIPCOT, Madras and Ors. v. Contromix Pvt. Ltd. by its Director (Finance) Seetharaman, Madras and Anr., 1995(3) RRR 324 (SC).

London Graving Dock Co. Ltd. v. Horton, 1951 AC 737.

Home Office v. Dorset Yacht Co., 1970(2) All England Reporter 294.

Herrington v. British Railways Board, 1972(2) WLR 537.

JUDGMENT

Arijit Pasayat, J. - Haryana Financial Corporation (hereinafter referred to as 'Corporation') assails judgment dated 6.10.2000 of the Punjab and Haryana High Court in regular second appeal No. 3801/2000 whereby judgment and decree in Civil Suit No. 86 of 1995 instituted before the Civil Judge (Senior Division), Ambala and judgment and decree in Civil Appeal No. 37 of 1998 before the Addl. District Judge, Ambala affirming them were upheld. Respondents filed the suit seeking a decree for permanent injunction restraining the Corporation and its functionaries from auctioning the unit of the respondents which was seized by the Corporation.

The factual background of the case in a nutshell is as under :

2. In support of the appeal, learned counsel for the Corporation submitted that the courts below erred in placing reliance on the decision in Mahesh Chandra's case (supra) without noticing the distinguishing factual backgrounds. It was submitted that the courts below did not apply the decision of this Court in U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd. & Ors., 1993(2) SCC 299) which was squarely applicable. The principles to be applied in a case where action under Section 29 of the Act is sought to be taken by the Corporation have been elaborately dealt with in the said case. It is also submitted that the decision in Mahesh Chandra's case (supra) requires reconsideration in view of what has been stated in latter decisions, more particularly, in Gem Cap's case (supra). It is submitted that on the facts as noted by the courts below, ample opportunity was granted to the respondents to make payment. Requests for rescheduling the instalments were accepted. Notwithstanding such adjustments, respondents did not bother to make payment, and till date, not even a minor fraction of the principal amount has been paid.

3. Learned counsel for the respondents submitted the Corporation and the borrower unit have a fiduciary relationship and are really partners in a business enterprise. Corporation stands in the position of a trustee and is not expected to act like any other individual moneylender. Keeping in view the object for which the statute in question was enacted, any other interpretation would be against the legislative intent.

4. The object for which the Act was enacted needs to be noted. Central Industrial Financial Corporation was originally set up under the Industrial Financial Corporation Act, 1948 with a view to provide medium and long term credit to industrial undertakings which fall outside the normal activity of commercial banks. Several State Governments desired to set up in the States similar Corporations with a view to supplement the work of Industrial Financial Corporation. The intention was that the State Financial Corporations shall confine to the medium and small industrial units and as far as possible to such cases as are outside the scope of the Industrial Financial Corporation. Since the incorporation, regulation and winding up of such Corporations fall within the purview of Parliament by Entry No. 43 of the Union List, request was made to the Government of India to enact necessary enabling legislation, and that is how the Act was enacted.

5. The Corporation as instrumentality of the State deals with public money. There can be no doubt that the approach has to be public oriented. It can operate effectively if there is regular realisation of the instalments. While the Corporation is expected to act fairly in the matter of disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the instalments in time, unless prevented by unsurmountable difficulties. Regular payment is the rule and non-payment due to extenuating circumstances is the exception. If the repayments are not received as per the scheduled time frame, it will disturb the equilibrium of the financial arrangements of the Corporations. They do not have at their disposal unlimited funds. They have to cater to the needs of the intended borrowers with the available finance. Non-payment of the instalments by a defaulter may stand on the way of deserving borrower getting financial assistance.

6. As was observed by this Court in Gem Cap's case (supra), the legislative intent in enacting the statute in question was to promote industrialization of the States by encouraging small and medium industries by giving financial assistance in the shape of loans and advances, repayable within a stipulated period. Though the Corporation is not like an ordinary moneylender or a bank which lends money, there is purpose in its lending i.e. to promote small and medium industries. The relationship between the Corporation and the borrower is that of creditor and debtor. That basic feature cannot be lost sight of. A Corporation is not supposed to give loan and then to write it off as a bad debt and ultimately to go out of business. As noted above, it has to recover the amounts due so that fresh loans can be given. In that way industrialization which is the intended object can be promoted. It certainly is not and cannot be called upon to pump in more money to revive and resurrect each and every sick industrial unit irrespective of the cost involved. That would be throwing good money after the bad money. As was rightly observed in Gem Cap's case (supra). promoting industrialization does not serve public interest if it is at the cost of public funds. It may amount to transferring public money to private account. In Mahesh Chandra's case (supra), this Court issued directions which were required to be observed by the Financial Corporation while exercising power under Section 29. In this regard, it was observed at pages 297 and 298 as follows :

7. The guidelines were stated to be necessary to ensure fair play. That decision, as the factual position would go to show was rendered in a case where the borrower intended to repay the debt and was anxious to do so. While not insisting upon the borrower to honour the commitments undertaking by him, the Corporation alone cannot be shackled hand and foot in the name of fairness.

8. In matters like the present one, fairness cannot be a one-way street. Corporations borrow money from the Government or other financial corporations and are required to pay interest thereon. Where the borrower has no genuine intention to repay and adopts pretexts and ploys to avoid payment, he cannot make the grievance that Corporation was not acting fairly, even if requisite procedures have been followed.

9. The obligation to act fairly on the part of the administrative authorities was evolved to ensure the rule of law and to prevent failure of justice. This doctrine is complementary to the principles of natural justice which the quasi-judicial authorities are bound to observe. It is true that the distinction between a quasi-judicial and the administrative action has become thin, as pointed out by this Court as far back as 1970 in A.K. Kraipak v. Union of India, 1969(2) SCC 262. Even so the extent of judicial scrutiny/judicial review in the case of administrative action cannot be larger than in the case of quasi-judicial action. If the High Court cannot sit as an appellate authority over the decisions and orders of quasi-judicial authorities, it follows equally that it cannot do so in the case of administrative authorities. In the matter of administrative action, it is well known, more than one choice is available to the administrative authorities; they have a certain amount of discretion available to them. They have "a right to choose between more than one possible course of action upon which there is room for reasonable people to hold differing opinions as to which is to be preferred". [As per Lord Diplock in Secretary of State for Education and Science v. Metropolitan Borough Counsel of Tameside, 1977 AC 1014. The Court cannot substitute its judgment for the judgment of administrative authorities in such cases. Only when the action of the administrative authority is so unfair or unreasonable that no reasonable person would have taken that action, can the Court intervene. To quote the classic passage from the judgment of Lord Greene M.R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, 1947(2) All England Reporter 680 :

10. While this is not the occasion to examine the content and contours of the doctrine of fairness, it is enough to reiterate for the purpose of this case that the power of the Courts while reviewing the administrative action is not that of an appellate court.

11. The aforesaid position was succinctly stated in Gem Cap's case (supra).

12. The fairness required of the Corporations cannot be carried to the extent of disabling them from recovering what is due to them. The matter can be looked at from another angle. the Corporation is an independent autonomous statutory body having its own constitution and rules to abide by, and functions and obligations to discharge. As such in the discharge of its functions, it is free to act according to its own light. The views it forms and decision it takes are on the basis of the information in its possession and the advice it receives and according to its own perspective and calculations. Unless its action is mala fide, even a wrong decision by it is not open to challenge. It is not for the courts or a third party to substitute its decision, however, more prudent, commercial or business-like it may, for the decision of the Corporation. As was observed by this Court in U.P. Financial Corporation and Ors. v. Naini Oxygen & Acetylene Gas Ltd. and Anr., 1995(2) SCC 754 : 1995(1) RRR 413 (SC), in commercial matters the courts should not risk their judgments for the judgments of the bodies to whom that task is assigned. As was rightly observed by this Court in Karnataka State Financial Corporation v. Micro Cast Rubber & Allied Products (P) Ltd. & Ors., JT 1996(6) SC 37), in the matter of action by the Corporation in exercise of the powers conferred on it under Section 29 of the Act, the scope of judicial review is confined to two circumstances i.e. (a) where there is statutory violation on the part of the State Financial Corporation, or, (b) where the State Financial Corporation acts unfairly i.e. unreasonably. While exercising its jurisdiction under Article 226 of the Constitution of India, 1950 (in short 'the Constitution'), the High Court does not sit as an appellate authority over the acts and deeds of the Corporation. Similarly, the courts other than the High Courts are not to interfere with action under Section 29 of the Act unless the aforesaid two situations exist.

13. As was observed in The Chairman and Managing Director, SIPCOT, Madras - 8 and Ors. v. Contromix Pvt. Ltd. by its Director (Finance) Seetharaman, Madras and Anr., JT 1995(6) SC 283 : 1995(3) RRR 324 (SC) in the matter of sale of public property, the dominant consideration is to secure the best price for the property to be sold. This can be achieved only when there is a maximum public participation in the process of sale and everybody has an opportunity of making an offer. Public auction after adequate publicity ensures participation of every person who is interested in purchasing the property and generally secures the best price. But many times it may not be possible to secure the best price by public auction when the bidders join together so as to depress the bid or the nature of the property to be sold is such that suitable bid may not be received at public auction. In that event, any other suitable mode for selling of property can be by inviting tenders. In order to ensure that such sale by calling tenders does not escape attention of an intending participant, it is essential that every endeavour should be made to give wide publicity so as to get the maximum price. These are aspects which Corporations have to keep in view while dealing with disposal of seized units.

14. The view in Mahesh Chandra's case (supra) appears to have been to widely expressed without taking note of ground relities and the intended objects of the statute. If the guidelines as indicated are to be strictly followed, it would be giving premium to a dishonest borrower. It would not further interest of any Corporation and consequently of the industrial undertakings intending to avail financial assistance. It would only provide an unwarranted opportunity to the defaulter (in most cases chronic and deliberate) to stall recovery proceedings. It is not to be understood that in every case the Corporations shall take recourse to action under Section 29. Procedure to be followed, needless to say, has to be observed. If any reason is indicated or cause shown for the default, same has to be considered in its proper perspective and a conscious decision has to be taken as to whether action under Section 29 of the act is called for. Thereafter, the modalities for disposal of seized unit have to be worked out. The view expressed in Gem Cap's case (supra) appears to be more in line with the legislative intent. Indulgence shown to chronic defaulter would amount to flogging a dead horse without any conceivable result being expected. As the facts in the present case show not even a minimal portion of the principal amount has been repaid. That is a factor which should not have been lost sight by the courts below. It is one thing to assist the borrower who has intention to repay, but is prevented by unsurmountable difficulties in meeting the commitments. That has to be established by adducing material. In the case at hand factual aspects have not even been dealt with, and solely relying on the decision in Mahesh Chandra's case (supra), the matter has been decided.

15. Section 29 gives a right to the Financial Corporation inter alia to sell the assets of the industrial concern and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. This right accrues when the industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations as envisaged in Section 29 of the Act. Section 29(1) gives the Financial Corporation, in the event of default, the right to take over the management or possession or both and thereafter deal with the property.

16. The aforesaid guidelines issued in Mahesh Chandras case place unnecessary restrictions on the exercise of power by the Financial Corporation contained in Section 29 of the Act by requiring the defaulting unit holder to be associated or consulted at every stage in the sale of the property. A person who has defaulted is hardly ever likely to cooperate in the sale of his assets. The procedure indicated in Mahesh Chandra's case will only lead to further delay in realisation of the dues by the Corporation by sale of assets. It is always expected that the Corporation will try and realised the maximum sale price by selling the assets by following a procedure which is transparent and acceptable, after due publicity, wherever possible.

17. The subsequent decision of this Court in Gem Cap's (supra), Naini Oxygen (supra) and Micro Cast Rubber (supra) run counter to the view expressed in Mahesh Chandra's case. In our opinion, the issuance of the said guidelines in Mahesh Chandra's case are contrary to the letter and the intent of Section 29. In our view, the said observations in Mahesh Chandra's case do not lay down the correct law and the said decision is overruled.

18. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are not to be read as Euclid's theorems nor as provisions of the statute. These observations must be read in the context in which they appear. Judgments of courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussion but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes, their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton, 1951 AC 737 at p. 761, Lord Mac Dermot observed :

19. In Home Office v. Dorset Yacht Co., 1970(2) All England Reporter 294, Lord Reid said, "Lord Atkin's speech.....is not to be treated as if it was a statute definition. It will require qualification in new circumstances." Megarry, J. in (1971) 1 WLR 1062 observed : "One must not, of course, construe even a reserved judgment of even Russell L.J. as if it were an Act of Parliament." And, in Herrington v. British Railways Board, 1972(2) WLR 537 Lord Morris said :

20. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.

21. The following words of Lord Denning in the matter of applying precedents have become locus classicks:

22. Learned counsel for the respondents during the course of hearing submitted that unit is in the possession of the Corporation. They will make effort to make payment of the amount due to the Corporation, if a reasonable time is granted. Though their stand has always been different, and the Corporation opposes the prayer, we grant the prayer in the peculiar circumstances of the case. To test the bona fides of the respondents, we direct that the Corporation shall intimate the respondents within a month from today upto date amount due. Within six months from the date of such intimation, the respondents shall repay the amount in full. In case of failure to make the payment, it shall be open to the Corporation to dispose of the seized unit in accordance with law in such manner as would bring in the highest price. The appeal is allowed to the extent indicated above.

Appeal allowed.