ORDER
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 far as it empowers the financial institution to take forcible possession of the unit, confers arbitrary and unguided power and is for that reason violative of Article 14 of the Constitution (Para 23 of the petition). It is also submitted that the action of the respondent No. 2 in taking possession of the Unit on 9-8-1993 is arbitrary and violative of principles of natural justice, inasmuch as, it was done abruptly and without affording a reasonable opportunity to the petitioner-company in the matter. As regards notice dated 18-6-1993 admittedly served on the petitioner, it is submitted that the said notice would be deemed to have been waived on acceptance of cheques of Rs. 12 lacs on 31-7-1993. Reliance is placed on the decision of the Orissa High Court in M/s. Kharavela Industries Pvt. Ltd. v. Orissa State Financial Corporation, AIR 1985 Orissa 153. It is further submitted that even otherwise, there is no justification for any action under Section 29 of the Act as the default, if any, was caused because of late release of loan by the respondent No. 2 and also the delay in making available the working capital by the respondent No. 3. It is also submitted that the respondent No. 2 had not released the entire term loan applied for and the Unit had, for that reason, become a sick Unit. It is therefore submitted that since the respondent No. 2 is also to be blamed for the present state of affairs, they have no right to initiate action under Section 29 of the Act. In reply, the learned counsel for the respondent No. 2 submitted that the respondents had done everything possible within their command to help the company to revive and repay loans and for that reason, not only granted extra loans of Rs. 17 lacs in July 1987 and Rs. 10 lacs in February, 1989 but also agreed to re-scheduling of payment of instalments. They had also granted interest concession and agreed to charge simple interest. Since the petitioner did not honour re-scheduling programme and continued to make default, they had to unwillingly resort to action under Section 29 of the Act. It is also submitted that the notice dated 18-6-1993 was served on the petitioner-company informing them clearly and specifically the intention of the respondents to resort to the provisions of Section 29 of the Act. The respondents regret that the petitioner did not take the said notice seriously and created a situation where they had to take possession of the Unit. As regards acceptance of five cheques worth Rs. 12 lacs, it is submitted that they only indicate the reasonable attitude of the answering respondents. Two of these cheques were dishonoured and three could not be presented for encashment becauses of communication by the petitioner. Since it was made clear in the meeting dated 31-7-1993 where the cheques were presented that action under Section 29 of the Act will continue, there is no justification for the plea of waiver of notice. It is further submitted that the conduct of the petitioner had been unreasonable and therefore there is nothing that this court would be able to do for the petitioner in law. Reliance is placed on the Supreme Court decision in U. P. Financial Corporation v. M/s. Gem Cap (India) Pvt. Ltd., AIR 1993 SC 1435.
4. It must, at the very outset be mentioned that in view of the guidelines given by the Supreme Court in U. P. Financial Corporation v. M/s. Gem Cap (India) Pvt. Ltd. (supra), this Court pointedly asked the learned counsel for the petitioner whether the petitioner-company would be able to, within a reasonable time, make payment of all money due to the respondent No. 2 so far and follow the re-scheduling arrangement agreed between them on 5-2-991 (Annexure-P5). It was also made clear to the learned counsel for the petitioner that the purpose of this query was to ascertain whether the Unit in question was viable and whether the petitioners are prepared to honour the commitment voluntarily made by them. It is unfortunate that the reply was in the negative. The learned counsel for the petitioner-company after having obtained instructions from the officer of the petitioner-company, eventually informed this Court that they would, if at all, be able to pay about Rs. 45 lacs in September, 1994 and nothing more. The learned counsel for the petitioner however, clarified that under the re-scheduled plan, Annexure-P-5, the entire loan has to be liquidated upto 1998 which the Company would certainly do. Under the circumstances, it is clear to this Court that there is no possibility of the default being made up before September 1994. Considering the details of the amount due as appearing in Para 5 of the return, it appears unlikely that the petitioner-company would be able to make up the default. The liability of the company as on 30-9-1993 is stated to be about 2.26 crores and hence, considering the amount of interest and future instalments, there is little possibility of the company repaying the total amount due.
5. As regards constitutional validity of Section 29 though the submission is contained in the writ petition (Para 3), no oral submission was made in that behalf. In spite of it, it is clear that the point was not given up. The constitutional validity of the provision has been challenged on the ground of arbitrariness. In this connection what is to be kept in view is that what is sought to be recovered through this procedure is the money due to a financial institution. Demanding one's own money cannot be said to be unreasonable even if the demand causes some hardship. Then, the provision is in public interest as the Corporation is funded by public funds. Section 29 no doubt confers wide powers on the Financial Corporation but the purpose of those powers is to ensure prompt payment of money advanced to the industrial unit. The power has to be exercised only in case of default in payment of loan or advance and extends to taking over the management or possession or both. As far as dealing with the property or taking possession thereof is concerned the power relates to the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. It was because of this object and purpose that prompted the Supreme Court in Mahesh Chandra v. The Regional Manager, U. P. Financial Corporation, AIR 1993 SC 935 and in M/s Gem Cap's case (supra) to hold that there was nothing arbitrary in it. The matter has also been considered in detail by the Orissa High Court in S. K. Kamiruddin v. Union of India, AIR 1993 Orissa 238, which had upheld the constitutional validity of the provision for reasons mentioned above. Even before it, the Andhra Pradesh High Court in M/s S. K. Sugars v. Government of Andhra Pradesh, AIR 1976 Andhra Pradesh 93, had found nothing illegal or unconstitutional in the said provision. To the same effect is the decision of Patna High Court in The East India Caterers v. Bihar State Finance Corporation, I.L.R. (1981) 60 Patna 674. There is therefore no justification for any complaint about the constitutional validity of the said provision. The challenge must fail.
6. In spite of it. in Mahesh Chandra's (supra) the Supreme Court has clarified that the approach of the Financial Corporation should be public oriented, helpful to the unit but without loss to the Corporation (Para 6). It was also observed that every wide power the exercise of which has far reaching repercussion has inherent limitation on it. It should be exercised to effectuate the purpose of Act. The exercise of discretion should be objective and should meet the test of reasonableness. Under the circumstances, it is obvious that Section 29 of the Act requires the authority to act cautiously, honestly and reasonably. Though the default in payment of loan may attract Section 29 of the Act, that alone would be insufficient either to assume possession or to sell the property. Neither should be resorted to unless it is imperative. In this case, the petitioner company has not been able to honour its commitment and pay the loan as per schedule and therefore action under Section 29 of the Act was taken but the latter was anxious to pay off the debt and had requested the Corporation to permit him to sell the adjoining vacant land which was sufficient to pay off the debt but that was not permitted and the Unit was sold. In view of those facts, the Supreme Court held that the Corporation had not acted reasonably. This case was considered in Gem Cap's case and it was observed that the decision therein had turned on peculiar facts of the case. It was clarified in this case that the Corporation is not an ordinary money lender. It is a money-lender with a purpose and the said purpose would be frustrated if it cannot recover its loan. It was therefore held that it was not the obligation of the financial corporation to revive and resurrect every sick industry irrespective of the cost involved. Permitting industrialization at the cost of public funds does not serve the public interest. It merely amounts to transferring public money to private account. The fairness required of the Corporation cannot be carried to the extent of disabling it from recovering what is due to it. While making those observations, the Supreme Court further observed that Article 226 of the. Constitution does not empower the High Court to sit in judgment as an appellate authority over the decision of the financial corporation. It is therefore obvious that though the Corporation while referring to the provisions of Section 29 of the Act, is required to act fairly and not arbitrarily, the decision on this question must depend on the facts and circumstances of each case.
7. Did the respondent No. 2 act arbitrarily in the matter That it gave notice of its intention to resort to this provision on 18-6-1993 is admitted. The submission of the learned counsel for the petitioner is that the said notice was waived by accepting five cheques on 31-7-1993 and thereafter if the respondent No. 2 Corporation wanted to resort to the remedy under this provision, they should have given another opportunity/notice to the petitioner. The petitioners have not produced the minutes of the meeting dated 31-7-1993 though the respondent No. 2 has produced the same. It is challenged as fabricated and written down only for the purpose of this Act. The said submission is made on the basis that it is signed on 17-8-1993. A perusal of this minute (see page 34 of the Paper Book) indicates that Shri Ramesh Parekh, Director of the company had attended the said meeting. The said Shri Parekh therefore would have been in a position to specifically state in this Court about the decision taken in the said meeting. There is no statement or affidavit of said Shri Parekh, attached to the petition. Shri Parekh seems to have filed his affidavit in support of application of the petitioner dated 1-10-1993. In this application and the affidavit also, he has not stated as to what was the actual decision taken in the said meeting. Indeed, he has only stated that the amount of Rs. 12 lacs was paid during the meeting on 31-7-1993 (paras 4 and 7). Under the circumstances, there is nothing on record to hold that any assurance was given to the petitioner in the said meeting that the notice has been withdrawn and therefore no further action under Section 29 of the Act will be taken against the petitioner-company. That was why perhaps it had been submitted that the notice would be deemed to have been withdrawn by positive act of accepting five cheques. The position would have been different if the cheques had been honoured and payments made. But, admittedly, the cheques had not been encashed. On the contrary, the two cheques have bounced back and three have been directed not to be encashed. Apparently therefore there had been no payment after the notice, as in S. K. Kamiruddin's case (supra) and therefore there had been no change in the circumstances, justifying the conclusion that the notice was deemed to have been withdrawn. This Court is therefore of the opinion that though the petitioners were informed of the intention of the respondent No. 2 to resort to Section 29 of the Act, they did not take the said notice with any amount of seriousness and made no efforts to pay the amount due. The purpose of the said notice is to give an opportunity to avoid drastic action under Section 29 of the Act. Reasonableness as observed by the Supreme Court is not a one way affair. If the answer of reasonable attitude is unreasonableness on the part of the defaulter-company, it would forfeit its right to claim reasonableness. This is what has happened in the instant case. This Court expected the petitioner to make an all out effort to save the situation by paying substantial amount to the respondent No. 2 and persuading them to agree to a new arrangement for payment, they did nothing of the type and even avoided attending the meeting called on 31-7-1993. It is true that the meeting was attended by a Director but the position of a Director cannot be equated with that of the Chairman or the Managing Director. There was no reason why the Chairman or the Managing Director would not have taken the notice seriously and made efforts to avoid the consequences of the notice. The fact that they did not consider the meeting important enough to be attended by them is itself the indication of the fact that they did not attach any importance to the consequences flowing from action under Section 29 of the Act.
8. It is therefore obvious that the petitioners having borrowed substantial amount from the respondent-Corporation, have failed to honour their commitment in respect of payment thereof. They have not considered the meeting dated 31-7-1993 called by the respondent-Corporation to work out an arrangement for repayment of loan, important enough to be attended by their Chairman and Managing Director. The petitioners have also not shown their willingness in this Court to follow the last agreed re-scheduling arrangement by clearing of all instalments payable within a reasonable time. The conduct of the petitioner-company, as aforesaid, cannot therefore be said to be reasonable. It is not possible to assume that a financial corporation advancing such a huge amount of the loan would have any mala fide intention against the petitioners. The conduct of the respondent-Corporation in providing extra funding of Rs. 17 lacs and Rs. 10 lacs in July 1987 and February 1989 respectively would support the aforesaid inference. Their agreeing to re-scheduling of repayment of loan at least on three occasions and granting interest concession would further justify the aforesaid conclusion. It is therefore difficult to find fault with the respondent- Corporation. In view of these peculiar facts of the case, neither the Supreme Court decision in Mahesh Chandra's case (supra) nor the Orissa High Court decision in Mis Kharavela Industries' case (supra) can help the petitioners. The petitioners would be governed by the Supreme Court decision in Gem Cap's case (supra) and would not be entitled to any relief from this Court. It is not the function of this Court exercising powers under Article 226 of the Constitution to work out a repayment arrangement suiting the convenience of the petitioners and thereby save them from the consequences under Section 29 of the Act. Once this Court has held that there was no illegality in the action taken by the respondent-Corporation, it could do nothing except dismissing the petition. In this view of the matter, it is not necessary to consider the consequences of respondent-Corporation's refusal to accept the demand draft of Rs. 4 lacs paid on 26-8-1993 vide Annexures P-20 to P-23. The matter at that time was in this Court for its decision and therefore the respondent-Corporation could not be blamed for not agreeing to an arrangement that may avoid the pending lis.
9. In view of the discussion aforesaid, the Court finds no substance in this petition which fails and is dismissed with costs. Counsel' fee Rs. 500/- only in favour of respondent No. 2. All other respondents to bear their own costs.