Santosh Duggal, J.
(1) Industrial Finance Corporation of India, (IFCI for short), a statutory body established under the Industrial Finance Corporation Act, 1948 (hereinafter referred to as the Act), advances medium and long term credits, amongst others, to industrial concerns in India, particularly in circumstances where normal banking accommodation is inappropriate or recourse to capital issue methods is impracticable. It is em powered under the Act, inter alia, to grant loans or advances to industrial concerns on the security of mortgage, pledge, hypothecation etc. of moveable and immoveable properties of such industrial concerns.
(2) The Ifci, as petitioner No. 1, sets out following facts, that have necessitated a petition to this Court, invoking provisions of Section 30 of the Act , M/s. Century Metals Ltd., a company incorporated under the Companies Act, 1956 (hereinafter referred to as the Company), with its registered office at 86/87, Model Basti, New Delhi, respondent No. 1 herein, is an industrial concern within the meaning of the Act. It approached Ifci, petitioner No. 1 herein, for loan/advance to finance its project consisting of construction equipment and operation of its plan to be located at 2413, Milestone Delhi Hapur Road, Meerut district U.P. The agreement between the Ifci and the Company was finalised whereby the Ifci agreed to finance loan of Rs. 29,00,000 to the Company on the terms and conditions which were incorporated in the agreement of loan entered into on 19th August, 1972, (hereinafter referred to as the Loan Agreement).
(3) As security for the payment of the said loan together with interest stipulated therein, and commitment charges as well as other monies, which may become due and owing by the Company to the Ifci in terms of the agreement, the former created, in favor of the latter on 29th March, 1973. a mortgage by deposit of title deeds in respect of their immoveable properties, and this transaction of equitable mortgage was also confirmed by respondent No. I by letter dated 30th March, 1973, addressed to petitioner No, 1. Further, hypothecation deed was executed also on 29th March, 1973 in respect to its moveable assets in favor of petitioner No. 1. Both the documents, namely, the one witnessing the mortgage by deposit of title deeds as well as the deed of hypothecation were duly registered within the statutory period with the Registrar of Companies and the certificate of registration of charge dated 13th December, 1972 was issued by the said Registrar.
(4) A sum of Rs. 25,00,000 was disbursed out of the loan amount of Rs. 29,00,000 but it is alleged that respondent No. 1 failed, and did not fulfill certain conditions of the loan and committed various breaches of the covenants contained in the Loan Agreement and since its factory had been lying dosed since March 1980, the Ifci by its letter dated 3rd November, 1980 cancelled the balance amount of loan of Rs. 4,00,000.
(5) The petition, filed under section 30 of the Act, through the Assistant General Manager, and one of the principal officers, specially authorised by the Board of Directors of the Ifci, (arrayed as petitioner No. 2), further alleges that respondent No. 1 committed defaults in payment of Installments of principal as Well as interest, which had fallen due and payable under the terms of the Loan Agreement and the deed of hypothecation. These are tabulated as under:
(i) Principal Due date of Amount payable payment 20-5-1975 1,45,000.00 20-11-1975 1,45,000.00 20-5-1976 1,45,000.00 20-11-1976 1,45,000.00 20-5-1977 1,45,000.00 20-11-1977 1,45,000.00 20-5-1978 1,45,000.00 20-11-1978 1,45,000.00 20-5-1979 1,45,000.00 20-11-1979 1,45,000.00 20-5-1980 1,45,000.00 20-11-1980 1,45,000.00 20-5-1981 1,45,000.00 20-11.1981 1,45,000.00 20-5-1982 1,45,000.00 20-9-1978 2,017.00 21,75,000.00 (ii) Interest 20-3-1975 51,575.34 20-9-1975 1,18,486.80 20-3-1976 1,19,882.78 20-9-1976 1,26,579.41 20-3-1977 1,30,165.00 20-9-1977 1,38,228.00 20-3-1973 1,42,143.00 20-9-1978 1,50,949.00 20-3-1979 1,55,224.00 20-9-1979 1,64,840.00 20-3-1980 1,70,445.00 554 20-9-1980 1,80,052.00 20-3-1981 1,95,151.00 20-9-1981 1,96,620.00 20-3-1982 2,02,190.00 31-5-1982 85,186.00 23,17,717.33 (iii) Commitment Charges 20-3-1975 Nil 20-5-1975 Nil 20-3-1976 1,994.52 20-9-1976 2,016.44 20-3-1977 1,984.00 20-9-1977 2,017.00 20-3-1978 1,984.00 20-9-1978 2,017.00 20-3-1979 1,984.00 20-9-1979 2,017.00 2(>
-3-i980 1,995.00 20-9-1980 2,016.00 20-3-1981 (up to 3-11-80) 482.00
(6) Besides aforementioned defaults in payment of Installments on account of principal and interest, as and when due, various other breaches of the covenants of the Loan Agreement ere imputed to respondent No. 1, and it is stated that eventually a notice dated 15th June, 1982 was served by petitioner No. 1 on respondent No. 1 recalling the entire principal amount of Rs. 25,00,000 besides interest amount of Rs. 23,17,717.33, calculated up to 31st May, 1982, making together Rs. 48,38,224.29 as also further interest stipulated in the Loan Agreement up to the date of payment, further intimating respondent No. 1 that the terms of the loan agreement as well as the deed of hypothecation, and of the Act, would be enforced without any further reference to respondent No. 1. But there has been no response to the said notice by payment of any of the dues, as claimed.
(7) At the tune this petition was instituted, the amount as payable on account of principal of Rs. 25,00,000 besides interest and commitment and other charges was calculated at Rs. 49,13,715.29 as per details below:
(i) Principal Rs. 25,00,000.00 (ii) Interest calculated up to 31-7-1982 Rs. 23,90,181.33 (iii) Commitment charges Rs. 20,506.96 (iv) Insurance premium paid (after adjustment of Rs. 5300 held in excess.) Rs. 3,027.00 Rs. 49,13,715.29.
(8) It is asserted that the entire assets of respondent No. 1 both moveable and immoveable existing and future, situate or lying at the factory of respondent No. 1 at 24/3 Milestone, Delhi Hapur Road, Meerut district, in the State of Uttar Pradesh and also at its registered office at Delhi or elsewhere were and are mortgaged/charged in favor of petitioner No. 1 as security for due re-payment of the aforesaid sum of Rs. 49,13,736.29 due to Ifci up to 31st July, 1982, with further interest, costs, charges and expenses and other monies due or to become due on the said loan. Alleging that respondent No. 1 has failed and neglected to pay and is unable to pay the aforesaid dues or any part thereof to petitioner No. 1, and has also committed defaults in performance and observance of other terms, conditions and covenants of the Loan Agreement and the deed of hypothecation and alleging that respondent No. 1's factory was lying closed since March 1980; an order of this Court was sought for the sale of the entire properties of respondent No. 1, mortgaged hypothecated to petitioner No. 1, under the equitable mortgage created by deposit of title deeds as confirmed in the letter dated 30th March, 1973, and the deed of hypothecation dated 29th March, 1973.
(9) It is further revealed in the petition that respondent No. 1 had also taken a loan from Industrial Development Bank of India, a body corporate established under the Industrial Development Bank of India Act, 1964, (hereinafter referred to as the Bank), which loan was secured under Indenture of Mortgage dated 2nd March 1974 executed by respondent No. 1 in favor of the Bank with the result that properties of respondent No. 1 are mortgaged to the Ifci and the Bank on pari passu basis. The said Bank has been imp leaded in the petition as res-pondent No. 2, only for the reason that the properties in regard to which this petition is being made, also stand mortgaged in their favor as security for the loan of Rs. 15,00,000 granted by respondent No. 2 to respondent No. 1. No relief is claimed against this respondent. It was however added that any order passed in this petition would also ensure to the benefit of respondent No. 2 and protect its interest to the extent of the loan secured by respondent No. 1 from respondent No. 2, and petitioner No. 1 was willing to have the sale proceeds of the mortgaged properties disbursed towards discharge of the outstanding amounts on pari passu basis to respondent No. 2.
(10) On notice being served, respondent filed a written reply raising some preliminary objections to the effect that the petition has not been signed, verified and instituted by a, duly authorised person and that the petitioner was not otherwise entitled to claim these reliefs because the management of the industrial concern was taken over by the Managing Committee appointed by petitioner No. 1 pursuant to a joint meeting of the representatives of the Financial Institutions and the bankers including the petitioner No. 1, having been held on 7th April, 1978. It is contended that the petitioner was not entitled to even otherwise initiate legal action against respondent No. 1 as the present industrial concern was in reality and has always been deemed and considered as joint industrial concern of the petitioner and others providing finance for its establishment, and that the Board of Directors of the company since 1972 comprised of two representatives of the Ifci, two representatives of Upside and three directors of the Company with Mr. G. D. Saraogi as Chairman and that all affairs of the Company and its management were controlled by the Board of Directors with its constitution as stated above and subsequently since May 1978 by the Managing Committee. It is pleaded that in view of the active participation in the management of the industrial concerned by the petitioner, it was estopped from initiating the present legal proceedings and that it was the duty of all Concern to join hands together and to provide requisite resources for the revival of the sick unit, and that no one can be permitted to take advantage of the industrial concern, which inspire of the efforts of all concerned, has become sick.
(11) It is further averred that the IFCI is not entitled to claim any relief against respondent No. 1, for the reason of not having acted in accordance with the Loan Agreement, dated 19th August, 1972, inasmuch as after having sanctioned the loan of Rs. 29,00,000, it disabused only a sum of Rs. 25,00,000 and that failure on the part of the petitioner to disburse the balance sanctioned loan of Rs. 4,00,000 hampered viability of the project of the industrial concern.
(12) A challenge is also thrown up to the virus of section 30 of the Act on the contention that the procedure prescribed in Section 30 of the Act is onerous, unreasonable and arbitrarily restrictive of the normal procedural law as prescribed in Civil Procedure. Code, and that it incorporated provisions which are absolutely unjust and against rules of natural justice and fair play. The plea is that the provisions of Section 30 of the Act are discriminatory and vocative of the fundamental rights granted to the Company under Article 14 of the Constitution, and that right of defense against the claim vested in the present respondent cannot be unreasonably curtailed or abridged by the arbitrary provisions of Section 30 of the Act.
(13) The jurisdiction of this Court to entertain and try the present petition is also questioned for the reason that only that High Court has jurisdiction to entertain and try the petition within the local limits of whose jurisdiction the respondent carries on the whole or substantial part of its business and that it was within the knowledge of the petitioners that respondent No. 1 was not carrying on the whole or substantial part of the business within the local limits of the High Court of Delhi.
(14) Another preliminary objection has been raised as to the rate of interest claimed in the petition. The contention is that the rate of interest stipulated in the Loan Agreement is usurious under the Usurious Loans Act, and thereforee violates the provisions thereof and the whole loan transaction was liable to be re-opened by this Court and claim of interest is also liable to be reduced to 6 per cent p.a. under the provisions of the Interest Act.
(15) On facts, the statutory status of petitioner No. I is nut disputed nor the execution of the loan agreement or the creation of the charge as security for re-payment of the Loan and other dues by way of equitable mortgage as well as deed of hypothecation dated 29th March, 1973. It was, however, denied that the charge was duly registered with the Registrar of Companies within the statutory period. While admitting the fact that its registered office was at 86-87, Model Basti, Delhi, it was contended that since the entire business was being conducted from the factory premises of the industrial concern, this Court has no territorial jurisdiction. The receipt of the notice dated 3rd November, 1980 cancelling the balance of the sanctioned loan was not denied; the only plea being that it was arbitrary and that there has been no breach of the loan agreement by respondent No. 1 and it was wrong on the part of petitioner No. 1 to say that there has been a breach on account of closure of the factory. The terms and conditions of the loan agreement are not denied as such. It is contended that these were illegal and arbitrary, and in any case not attracted pursuant to the decision taken in the joint meeting held on 7th April, 1978, for constitution of a joint Managing Committee
(16) As to the amount claimed to be due, besides urging that. the petitioner No. 1 was not entitled to recall the loan, on account of its failure to disburse the sanctioned loan, it is further alleged that the rate of interest claimed was not permissible arid the petitioner was not entitled to claim compound interest nor any commitment charges in view of its own failure to honour the terms of the agreement. The allegation that respondent No. I had failed to comply with various conditions and covenants of the loan agreement or of the alleged deed of hypothecation are also controverter arid it is pleaded that in any case the said terms stood superseded by virtue, of the conduct of the parties and the subsequent agreement arrived at in the joint meeting held on 7th April, 1978, and consequential action taken pursuant thereto by the petitioner and all concerned. For the same reason, notice dated 15th June. 1982 is also assailed as being illegal or arbitrary and the rate of interest is challenged as being exhorbitant, besides being erroneous in its calculation.
(17) Contents of paras 17 and 21 of the petition which related to respondent No. 2 have been simply denied as wrong There is no specific denial about advance of loan by respondent No. 2 of Rs. 15.00.000.00 , as set out in the petition, or creation of equitable mortgage in its favor of the properties as described in the petition.
(18) Respondent No. 2, namely, Industrial Development Bank of India, also filed a reply by way of affidavit confirming the fact that it had granted a loan of Rs. 15,00,000.00 to respondent No. 1. which was for the purpose of setting up a factory at Delhi Hapur Road near Ghaziabad, and that iri consideration of the said loan, respondent No. 1 executed a loan agreement dated 2nd March, 19/4 setting out the terms and conditions of the said loan. It further averred that on the same day, i.e. 2nd March, 1974, respondent No. 1 executed a registered deed of mortgage in favor of respondent No. 2 in respect of the moveable and immovable properties of respondent No. 1 company for the said term loan of Rs. 15,00,000 together with interest, commitment charges, costs, expenses and all other monies payable by respondent No. 1 to respondent No. 2. and that in terms of the said loan agreement, a sum of Rs. 14,95,000 was disbursed to respondent No. 1. It was further asserted that as respondent No. I had failed to pay the Installments of principal as well as interest in accordance with the said loan agreement respondent No. 2 called upon respon dent No. 1 by its notice dated 7th August 1981 to pay forthwith a sum of Rs. 24,07,802.06 which has become due and payable, but it has failed and neglected to pay the said amount. and as on 30th October, 1982, an aggregate sum of Rs. 25,78.990.84 is outstanding against respondent No. 1 The break up is extracted below:
(a) Principal outstanding as on 30-10-3982. Rs. 14.95.000.00 (b) (i) Interest accrued and due on 19-6-1982 Rs. 9.76.331.95 (ii) Interest accrued for the period 20.6-19S2 Rs. 49.027. 80 to 30-10-1983 ..... (c) Additional interest for the period 20-13-1974 to 30-10 1983 ...... Rs. 58.631.09 Rs. 25,78.990.84
The Company was alleged to be liable to pay the aforesaid amount, together with interest as well as future interest there- on at the rate mentioned in the oan agreement dated 2nd March, 1974 for the period subsequent to 30th October. 1982 till payment. It asserted that the mortgage and charges created in favor of respondent No. 2, as security for the said rupee loan of Rs. 15,00.000 rank pari passu with the mortgages and charges, created in favor of petitioner No. 1, as security for their respective financial assistance and as such any realisation made by the petitioners out of the mortgaged Properties shall be liability to be distributed pro rata on a pari passu basis amongst the Ifci and respondent No. 2.
(19) The assertion of the petitioner is the present petition that the factory of respondent No. 1 has been lying closed since March 1980 is also confirmed, with further allegation that the present management was unable or incapable of restarting or running the factory and consequently the plant and machinery has been lying idle and rapidly deteriorating in value for want of proper use and maintenance reserving its right as a secured creditor to exercise right and remedies available to them under the mortgaged securities executed or created by respondent No. I in favor of respondent No. 2. and to enforce the same but prayed that in the interest of justice equity and fair play, the receiver appointed by this Court in the present petition filed by Ifci be directed to sell the entire property of respondent No. 2 and to hold the realisation of the sale proceeds of the raid mortgaged property for the benefit of petitioner No. 1 and respondent No. 2, and to distribute the same pro rata on pari passu basis between the two.
(20) A counter affidavit was filed on behalf of respondent No. 1 to the reply affidavit filed on behalf of respondent No. 2, where besides reiterating the challenge to the legality and validity of the provisions of Section 30 of the Act and the maintainability of the present petition, it was asserted that the claim of respondent No. 2 is not legally maintainable as the so-called charge created by respondent No. 2 Bank over the movable and immovable properties of respondent No. 1 by virtue of mortgage deeds, was not enforceable for the reason that the alleged mortgage deeds has not been got registered with the Registrar of Companies, as required under the law.
(21) Execution of the loan agreement dated 2nd March, 1974 and the sanction of the loan amount of Rs. 15,00,000 was not denied as a fact nor the receipt of the loan amount of Rs. 14,95,000, the only plea being that the Bank had not acted in accordance with the terms of the loan agreement. The plea. that respondent No. 2 held any pari passu charge with petitioners for any term loan of Rs. 15,00,000 was repudiated on the contention that the mortgage was not duly registered with the Registrar of Companies, as per the requirement of law.
(22) In reply to this contention, a rejoinder affidavit has beer. filed on behalf of respondent No. 2, asserting that respondent No. 1 Company had in accordance with Section 134 of the Companies Act filed a return in Form No. 8 on 6th March, 1974 upon execution of the mortgage deed dated 2nd March, 1974, and that a receipt had been issued by Registrar of Companies bearing No. A. 367314 dated 6th March, 1974, and that respondent No. I filed another return subsequently in Form No. 14 together with a copy of letter dated 4th June, 1974 issued by Ifgi, ceding pari passu charge in favor of respondent No. 2. This return is stated to have been filed on 27th June, 1974 as against receipt No. 425887.
(23) It was pleaded that respondent No. 2 has not been informed by Registrar of Companies, the reasons for no registration of the charge. The Bank also contended that the responsibility to get the charges registered lay with the Company, and if that was not done, there was lapse on the part of the said Company, for not furnishing proper details, required by Registrar of Companies, and respondent No. 1 could not take advantage of its own failure to get the charges registered with the Registrar of Companies, and contend that the charges were unenforceable. It is further pleaded that the charges, if not registered could be void against the liquidator or other creditors of the Company but here the petitioner in the present petition, under Section 30 of the Act, has prayed for sale of the moveable and immovable assets of the Company, and the fact of non registration of the charge was inconsequential, It was reiterated that ou of the sanctioned loan of Rs. 15,00.000 a loan of Rs. 14,95,000 was disbursed by re pendent No. 2 to respondent No. 1.
(24) The petitioner alo filed a rejoinder to he reply filed on behalf of respondent No. 1 in response to notice issued on this petition where ail the assertion made in the petition were reiterated. The preliminary objections were controverter a being wholly untenable and devoid of meri s on the plea that the virus of Section 30 of the Act was not liable to challenge and that it has been so upheld by the High Court of Punjab & Haryana. It was further pleaded that provisions of Sections 31 and 32 of State Financial Corporation Act, 1951. which were identical to those of Section 30 of the Act. have. been upheld by various High Courts in the country and were even considered by the Supreme Court, and thus the objections raised by respondent No. 1 were not maintainable. The objection raised as to the authority of petitioner No. 2 to institute this petition was also met by reiterating that he had been duly authorised by Board of Director by means of a resolution passed on 31st January, 1979, and the petition had been duly and properly signed and verified by petitioner No. 2. who was then Assistant General Manager, now Deouty General Manager of the petitioner No. 1, and its principal officer.
(25) On facts it was denied that petitioner No, 1 had ever been in charge of any management of respondent No. 1 or was jointly responsible for its affairs or that the management of respondent No. 1 Company had been taken over by the Managing Committee, it was pleaded that although Mr. G.D. Saraogi resigned as Managing Director of the respondent company, he continued to be a member of the Board of Directors, and Chairman of the Company and he continued to function even after constitution of the Management Committee and that us operations were being looked after by its Chief Executive under the supervision and control of Shri G. D. Saraogi. It is also contended that the Management Committee was. constituted in the meeting held on 5th June, 1980 whereas the factory was lying closed since March 1980 and that there was no truth in the allegation that the financial institutions had a ay role to play in the management of the respondent company or that it was in the nature of a pint industrial concern.
(26) It was further asserted that out of the sanctioned loan of Rs. 29,00.000. the petitioner No. 1 disbursed a sum of Rs. 25,00000 and that the remaining amount was withheld because of the closure of the Company since March 1980. It was denied that the viability of the project was hampered on account of the cancellation of the balance amount of Rs. 4,00,000.
(27) I was further asserted that in view of the fact that respondent No. 1 had its registered office within the jurisdiction of this Court, this Court has the territorial jurisdiction to entertain and try this petition.
(28) In regard to objection as to the permit able rate of interest, the contention that the rate claimed was usurious under the Usurious loans Act or that the claim as it rate or amount of interest was liable to be re-opened and that the rate of interest be reduced to 6 per cent p.a. under the provisions of the Interest Act, was controverter on the plea that neither the provisions of Usurious Loans Act nor that of Interest Act were applicable to the present loan transaction, which is an Indusial and commercial loan. and the rate of interest was fixed with the approval of the Industrial Development Bank of India in terms of the rules framed under the Act, which have over' riding effect over any other law for the time being in farce of terms of Section 41-A of the Act.
(29) Following issues were formulated. pursuant to various contentions raised by the parties, as reproduced below
(1)Whether the application has been properly signed and filed by a duly authorised person? OPP
(2)Whether the provisions of Usurious Loans Act are applicable to the loan sanctioned by the petitioner to respondent No. 1? If so, whether the rate of interest stipulated under the loan agreement violat
SPARA>(3) Whether the mortgage by deposit of title deeds and the hypothecation created by respondent No. 2 in favor of the petitioner, are illegal? OPR-1.
(4) Whether Section 30 of the Industrial Corporation Act is ultra virus the Constitution? OPR-1.(5) Whether the petitioner is disentitled from bringing the present proceedings as alleged in paragraph 4 of the preliminary objections of respondent No. 1's reply? OPR-1.(6) Did failure to pay rupee four lacs out of the promised sum of rupees twenty nine lakh hamper the viability of the project of the industry concerned? If so, to what effect? OPR-1.(7) Whether respondent No. 1 failed to comply with the terms and conditions of the loan agreement? If so, to what effect? OPP.(8) What is the amount due to the petitioner in respect of the loan and from whom? OPP.(9) Relief. Issue No 1
(30) Section 30(1) of the Act provides that whenever there is breach of an agreement by way of default in repayment of any loan or advance or any Installment thereof on the part of the industrial concern or any failure on its part to meet its obligation in relation to guarantee given to the Corporation or otherwise it fails to comply with the terns of its agreement with the Corporation or where the Corporation requires an industrial concern to make immediate payment of any loan or advance under section 29 of the Act and the industrial concern fails to make such repayment then without prejudice to the provisions of Section 28 of the Act and Section 69 of the Transfer of Property Act, 1882, an officer of the Corporation authorised generally or specially by the Board in this behalf may apply to the Court for one or more of the refuses contemplated in the ensuing provisions of Section 30 of the Act.
(31) Shri H. C. Sharma having been authorised by special resolution of Ifci to institute the present petition was thus fully competent to do so. It is thus established that the present application has been properly signed and verified by a duly authorised person. This issue is answered accordingly in favor of the petitioner. Issue NO. 2
(32) The onus to prove the contentions set forth by the sespondents, as reflected in issue No. 2, was on the respondents. The petition sets forth the details of the amount advanced, and interest that has accrued in terms of the loan agreement Ex. P3. An officer of the Corporation, namely, Shri K. R. Rajora, appearing as Public Witness 4, who is Assistant Manager with the Ifci working in the accounts department has deposed that according to the books of account maintained by the petitioner, the maximum rate of interest charged from respondent No. 1 is 9 per cent p.a. He further added that as long as respondent No. 1 remained punctual in payment, interest charged was 8 1/2 p.a. and it was only that when defaults were committed in repayment that the petitioner charged interest @9 per ment p.a. on (impounding basis. Not a single question was put to this witness that the Corporation was no entitled to claim to clam this rate. The learned counsel for the petitioner, at the time of hearing, referred to clause 3.2 of the loan agreement Ex.P3, where the term as to interest is incorporated as under : '3.2 Interest : The Borrower shall pay interest on the principal amount of the loan outstanding from time to time at the rate of 9 per cent (nine per cent) per annum with a rebate of 112 per cent (half per cent) per annum for punctual payment of Installment of principal and interest subject to the borrower complying with the provisions and covenants of these presents. Such interest shall be paid with half-yearly rests on 20th March and 20th September each year in default of regular payment of interest on the due date(s) compound interest shall become payable on monies due.'
(33) There is not a whisper of suggestion to repudiate the existence of this term of the loan agreement or its binding nature by way of cross-examination of any of the witnesses of the .petitioner nor during statement of the witnesses examined on. behalf of respondents including Mr. K. K. Bhagaria. who as one of the directors of the company appeared as DW2.
(34) Mr. Paul, however, pressed this objection as to the entitlement of the petitioner to claim interest as worked out in the statement of account incorporated in the petition, and vehemently pleaded that the respondent bad turned a sick unit and that it has not been able to carry on, inspire of best efforts, and that it was a fit case where this Court exercise the discretion in the matter of award of interest. He submitted that although he could not question the right of the petitioner to claim interest unto the date of the institution of the petition at the stipulated rate but for the period pendente lite as well as in respect of future interest, the discretion lay with this Court to award interest at rate which may appear just and reasonable in the circumstances of the case. and that the petitioner cannot claim as a matter of right interest pendente lite as well as future interests at the contractual rate.
(35) Dr. Shanker Ghosh appearing for the petitioner countered this plea by pointing out that the provisions of Section 30 of the Act lay down a special statutory procedure, and that the Act was a self-contained enactment in the matter of realisation of the dues of the Ifci, and that the petition instituted under Section 30 of the Act, was not in the nature of a civil suit nor the proceedings under the Act attract the provisions of the Civil Procedure Code or any other statute and as such the prayer that the Court exercise discretion in the matter of award of pendente lite and future interest was not tenable. He stress ed that Section 30 of the Act provides a special procedure to facilitate the recovery of its dues by the Ifci and that recourse to its provisions cannot be equated with that of institution of a civil suit and that as such the provision of Section 34 of the Code of Civil Procedure would not apply to these proceedings
(36) The learned counsel placed renounce on a judgment of the Supreme Court : [1979]1SCR372 (The Gujarat State Financial Corporation v. M/s. Natson . and others) (6) to press his point that the petition under section 30 of the Act was not in the nature of a civil suit nor the prayer made for enforcement of the terms of the agreement for recovery of the amount of loan advanced of interest accrued in the nature of a civil decree, and as such the powers of this Court while disposing of a notation under Section 30 of the Act was not to be circumscribed by other statutory provisions.
(37) Dr. Ghosh pointed out that the Supreme Court in the aforesaid case was dealing which the matter arising out of a petition under Section 31 of the State Financial Corporation Act, (for short the State Act, but submitted that the provisions are pan materia in all material particulars with that of Section 30 of the Act. and as such the ratio of that judgment would squarely apply in the present case.
(38) On a comparative reading of the Central Act as well as the State Act, I find force in the plea of Dr. Ghosh, and as such the principles enunciated by the Supreme Court in the case of The Gujarat State Financial Corporation (supra), shall apply in the case of a petition under Section 30 of the Act also. It has been held in very clear terms in the aforesaid decision that looking at the whole conspectus of the provisions of the State Act. it becomes clear that special provision is made for certain type of relief that can be obtained by the Corporation, by an application under Section 31(1) of the Act, which could not be styled as action for repayment of mortgage money by sale of mortgage property, nor can it be said to be a proceeding to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss.
(39) The High Court of Kerala also had an occasion to deal with a matter arising out of the application made under Section 31 of the State Act. There also it was held, though in a different context, that this Act lays down a wholly special procedure to enable the financial institutions to recover the monies lent by them to industrial concerns speedily and expeditiously, and special procedure has been laid down to enable them to avoid the usual delay in disposal of suits in civil courts, and that it was a legitimate exercise of legislative power which provide a special and speedier procedure for recovery of State or public dues. It was emphasised that money advanced by financial institution to Industrial concerns is public money and is given with the definite object of assisting Industrial concerns to establish themselves with the assistance of loan from these statutory financial bodies, but once the default occurred and the loan is recalled under the provisions of the Act, then the Industrial concern cannot plead that it was entitled to have recourse to provisions of general law or that it would not abide by the terms of the agreement.
(40) Similar view has been expressed in a judgment of Punjab & Haryana High Court, . (Industrial Finance Corporation of India and another v. M/s. Sehgal Papers Limited and others), where it was held that in the petition under Section 30 of the Act for sale of the properties of an industrial concern, the claim of the Corporation is not in the nature of a monetary claim to he investigated nor the relief claimed or awarded is to be termed to be in the nature of a decree.
(41) Reference has been made to these decisions to highlight the point that the proceedings on a petition under Section 30 of the Act are of a special nature and the Act provides an exclusively self-contained procedure, with the result that any reference to any other statutory provision is altogether precluded and misconceived. I say so, in view of the provisions of Section 41-A of the Act, which is in the nature of non-obstante clause and lays down that : the provisions of this Act and of any rules or orders made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
(42) It has been held by a Division Bench of the Ksrala High Court in case reported as (3) 1987 Bank Journal 241. (Rahima Beevi v. Kerala Financial Corporation), that the provisions of Section 60 of the Code of Civil Procedure would not apply to the proceedings under Section 31 of the State Act. and that the District Judge could proceed with the application for sale of the properties, unhampered by the protection provided to various types of property under the proviso to Section 60 of Code of Civil Procedure. This is a judgment referred to by Mr. Paul, learned counsel for respondent No. 1, but this rather supports the contention of the petitioners' counsel to the effect that the provisions of Section 34 Civil Procedure Code cannot be made applicable to an application under Section 30 of the Act. It has already been noticed that the provisions of Section 31 of the State Act are identical in all material respects to that of Section 30 of the Act, and the same principles would govern here also. That being so. another judgment referred to by Mr. Paul which is reported 1987 B J 394, (State Bank of India v. B. Gupta (Tea) P. Ltd. and others), a Division Bench judgment of Calcutta High Court also can be of no assistance to him because all that it lays down is that Section 34 of the Civil Procedure Code vests a discretion in a court in the matter of awarding of interest pendente lite as well as future interest but in view of the foregoing discussion that provisions of Section 34 Civil Procedure Code cannot be attracted to a petition under Section 30 of the Act, there is no point further in going into this plea of the respondents.
(43) For the same reason, namely, because of the special nature of the proceedings under Section 30 of the Act as well as because of the exclusion clause contained in Section 41-A of the Act, the provisions of Usurious Loans Act would also not be attracted.
(44) The statement of account as incorporated in the petition and proved by an accounts officer of Ifci appearing as Public Witness 4, as Ex. Public Witness 411 to Ex. Public Witness 414, makes it clear that the interest had been calculated as per terms of the agreement contained in clause 3.2 of Ex. P3. Public Witness 4 has also affirmed on oath that the maximum rate of interest has been calculated @ 9 per cent p.a. and that so long as the payments were being made regularly, even the reduced rate as per stipulation in the loan agreement was charged, and now after defaults it has been charged at 9 per cent p.a. on compounded basis, as per terms of the agreement.
(45) This issue is, thereforee, held against the respondents to the effect that the provisions of Usurious Loans Act are not applicable to this loan. Although it was not in the pleadings bat since the arguments were advanced at the time of learning by Mr.S. K. Paul, with reference to Section 34 of the Civil Procedure Code , that has also been considered, and this issue !s decided against the respondents. Issues Nos. 3 & 4
(46) These issues which relate to the legality of the transaction as evidenced by loan agreement, as well as virus of Section 30 of the Act, were not pressed during arguments, and thus require no further discussion. Issue No. 5
(47) The contention of respondent No. 1 as set out in preliminary objection No. 4 of the reply is that the Ifci is not entitled to bring any legal action against the Company for the reason that it was always deemed, and considered to be, a joint, industrial concern of the petitioner and other financial institutions, and that the petitioner had on the Board of Directors of the Company, two representatives since 1972; besides representatives of other institutions, such as Upside, and as such the management and affairs of the Company were controlled by the Board of Directors, constituted by joint representatives of all concerned, and consequently respondent No. 1 could not be burdened with financial liability, for its failure to pay off the advances and loans. It is further pleaded that since 9th May, 1978, particularly, the affairs of the Company were being managed by a Management Committee, in which the petitioner had an active participation, and as such it was estopped from initiating the present proceedings inasmuch as it was the duty of all concerned to join hands for providing the requisite resources for revival of the sick unit, and no one could be permitted to take advantage of the industrial concern, which has not been able to pull out of the relapse in productivity, resulting in its becoming sick.
(48) Mr. Paul, arguing for respondent No. 1, first invited attention to the initial constitution of respondent No 1, which shows that the financial institutions including the Ifci had share holding in the industrial concern, and had its directors on its Board of Directors. He commended that in face of this effective representation of the Ifci on the Board of Directors, it was as much responsible for the a flairs of the Company, as the promoters and as such there could not be any financial liability foisted on the Company, because of the failure of all concerned to see that the industrial concern takes off well, and becomes and remains a financially viable unit. He particularly mentioned the decisions taken in April, 1978, when after mutual consultations. it was decided that a Joint Management Committee be constituted to take over the management of this Company. He placed reliance on the correspondence starting with letter dated 3rd April, 1978 (PW 513-X) addressed by Shri B. M. Aggarwal, Manager (Technical) of the Ifci to the respondent and the reply sent by its Chairman and Managing Director, Shri G. D. Saraogi on 11th April, 1978 (Ex. Public Witness 514-X) to the effect that in joint meeting of the representatives of the Corporation, Industrial Development Bank of India. Union Bank of. India and Mr. Saraogi held on 7th April, 1978. a decision had been taken that company's day to day affairs will be looked after by the Management Committee to be constituted by the Corporation. He intimated that pursuant to the said decision, he was relinquishing the office of the Managing Director, with effect from 1st May, 1978 agreeing to discharge his duties as Chairman of the Board of Directors, as well as member of the proposed Management Committee.
(49) Mr. Paul submitted that this arrangement was confirmed by letter dated May 9, 1978 (Ex. Public Witness 5/5-X) addressed by Shri B. M. Agarwal, Manager (Technical) of the Ifci to Mr. G. D. Saraogi intimating that pursuant to the decision taken jointly by all concerned, the Management Committee was being constituted to look after the day to day affairs of the Company in accordance with the decision taken in the meeting held on 7th April, 1978 and that the constitution of this Management Committee would be as under : 1. Shri O. P. Berry, Chief Technical & Administrative Manager of the company. 2. A representative of IFCI. 3. A representative of Union Bank of India. 4. Shri G. D. Saraogi, Chairman of the company. It was further intimated that Ifci nominee, would be Shri K. K. Kathuria. The power and functions of the Management Committee were also set out in detail.
(50) Finally, by letter dated 13th June, 1978 (Ex. Public Witness 517-X) respondent No. 1 conveyed to the Ifci that the Board of Directors had confirmed the decision, taken in the meeting of 7th April. 1978 in their meeting held on June 5, 1978, the plea is that pursuant to this decision taken in 1978, in which the Board of Directors of the Company fully co-operated; the day to day affairs went to the hands of the Joint Management Committee, and thus the Company should be treated to have become absolved of any exclusive liability, and if inspire of this, the industrial concern became or remained sick, the Company should not be burdened with the financial liability, as petitioner had to share the responsibility for the affairs of the Company.
(51) This contention has to be noticed, only to be rejected for the short reason that the agreement in terms of which the present petition has been brought, took place in August, 1972 and it was a contract between Ifci as a financing institution, and the Century Metals Ltd., a company incorporated under the Companies Act, 1956, having its own legal entity, as the loan agreement Ex. P3, executed on 19th August, 1972, is between the Ifci and Century Metals Ltd. as two separate entities irrespective of the factual position as to who constituted the Beard of Directors of the industrial concern, and as to what was the shareholding of the private institutions. In the rejoinder, petitioner No. 1 has clarified that the total shareholding of all the financial institutions was 32 per cent whereas the majority shareholding was of the promoters.
(52) Be that it may, this agreement creates statutory rights in the Ifci, in the event of defaults in payment of principal as well as interest as also other contraventions of other terms of the covenants. It has already been held while considering issue No. 2, that Section 30 of the Act lays down a complete self-contained procedure and in view of Section 41-A of the Act, the provisions of Section 30 as also other provisions of the Act are of overriding application. The commitment under agreement Ex. P3 is by respondent No. 1, and the present petition is also directed against the said industrial concern. The pleas set out in preliminary objection, as extracted above, cannot detract from the statutory rights of the Ifci, the only condition to be satisfied, being the existence of the situations or circumstances as contemplated by sub-section (1) of Section 30 of the Act.
(53) The petitioner has set out in detail the defaults committed by respondent No. I in payment of the Installments of the amount advanced as well as that of interest right from May, 1975 as per details set out in paragraph 9 of the petition. In addition, the evidence led by petitioner No. 1 has established categorically that one of the essential conditions of the agreement, as contained in clause (q) of para 4.1 of the agreement provided that the borrower namely, the industrial concern shall arrange to the satisfaction of the Ifci appointment of a whole time technical director. It is in evidence of Public Witness 5 that the Company never appointed a whole time technical director. There was also a default in the discharge of the terms of the agreement in respect to insurance of security offered to the Ifci, as against the advance taken, as per condition incorporated in para 6.1, clause (d) of the agreement Ex. P3.
(54) It is also not a case where the Company could plead that it was taken unawares because as far back as in October/ November 1974 this point was raised by Ifci in the context of a request made by the company for disbursement of the balance amount of Rs. 4,00,000.00 out of the loan sanctioned by Ifci, by their letter dated 4th October, 1974 (Ex. Public Witness 5/6-X), Ifci raised detailed queries by letter dated 3rd November, 1974 (Ex. Public Witness 5/8-X), asking, inter alia, steps taken by the Company in appointing a technical director, as required by them. The reply given was, as per Ex. Public Witness 5/9-X sent on 2nd February, 1975, that due to world wide recession with no hope of recovery in the near future, the company was passing through a period of struggle and it was a question of survival by minimising the facilities. There was thus an admission that no whole time technical director had been appointed, as per terms of the agreement as also requisition of the IFCI. The plea that the company had on Board of Directors persons renowned in the field of aluminium industry, namely, S/Shri S.C. Jain and K. K. Bhasin, was no answer to the requirement of a whole time technical director.
(55) The tone and tenor of this letter. Ex. Public Witness 5/9-X is so apologetic that it clearly shows that the management of the company was conceding the defaults but was only offering Explanationns and excuses, and pleading with the Corporation to bide with them.
(56) The Ifci has taken recourse to its statutory rights after giving full opportunity to the Company. The fact that it had representative on Board of Directors of the Company or had agreed to Joint Management Committee would not affect that right. It is further on recurd, as brought out in the statement of Shri K. K. Kathuria. that the Joint Management Committee met only 3 or 4 times. He has also made it clear that the meetings were to be convened by the Chief Executive of the Company, who used to issue notices, in consultation with Chairman, of the Company, and that only three meetings were convened by him, one held in August 1978, the other in September 1978, and the third in September 1979. He has categorically stated on oath that he did not receive any notice of any meeting subsequent to September 1979. He has also gone on record to say that the Management Committee in the three meetings had discussed only procedural matters and that it did not function to carry out any of the matters entrusted to it by resolution dated June 5, 1978 (Ex. DW112). Neither Mr. G. D. Saraogi, who was Chairman during the period Management Committee was formed nor Mr. O. P. Berry, Chief Technical & Administrative Officer have been produced in the witness box. Mr. Bhagaria, one of the directors who appeared as Dw 2, did not controvert these assertions made by Mr. K. K. Kathuria, and admitted that Mr. O. P. Berry could not be produced as he was not available.
(57) For all these reasons, it is a case where respondent No. 1 has failed to discharge its burden of proving that petitioner No. 1 was estopped from bringing this action. This issue is, thereforee, answered against the. respondents. Issue No. 6
(58) The plea of the respondents in this respect is that failure to disburse the balance amount of loan of Rs. 4,00,000.00 hampered the financial viability of the industrial concern, and as such, petitioner No. I was disentitled to bring this action under Section 30 of the Act. The circumstances under which the amount of Rs. 4,00,000 was not paid has been discussed in the foregoing issues as noticed above. After requisition for remaining amount of Rs. 4,00,0001-, was made vide letter dated 4th October, 1974 (Ex. Public Witness 5/6-X), certain queries were made which had a bearing either on the terms of the agreement such as appointment of a whole time technical director, or as to the utilisation of the capital as also in regard to the working of the Company, seeking details of the capital expenditure, of the future plans of the Company, in relation to its finances. The reply sent on 2nd February, 1975 (Ex.PW5/9-X), did not satisfy petitioner No. 1.
(59) The request was repeated on 5th February, 1975 vide Ex. DW2/1, enclosing a note of financial requirements and it was then revealed that the finances were required in connection with capital expenditure. This position has been elucidated by Mr. K. K. Bhagaria, appearing as DW2, when he stated that because of failure of Ifci to release the balance loan of Rs. 4,00.000.00, the company was handicapped in raising further finances because had this amount been disbursed, then the company would have been albs to raise a loan of Rs. 16,00,000.00 , from Union Bank of India, on the strength of Rs. 4,00,000.00 being shown as marginal money, and that because of the lack of finances, the Company could not get this further loan, from the said bank who had agreed to advance the credit facilities of Rs. 16,00,000.00 against a marginal money of Rs. 4,00,000.00 , and thus it was prevented from achieving financial viability.
(60) Dr. Ghosh rightly pointed out that apart from the fact that it was admitted by Mr. Bhagaria that this act was not specifically brought to the notice of the petitioner; otherwise also, they were justified in insisting upon the terms of the agreement for appointment of a whole time technical director because that was vital to the functioning of the Company and for pulling it out of the difficulties, by restructuring the project, and that further the liability of the Ifci was to advance loan only for the project, and it was in no way bound to provide revolving funds, for enabling the Company to raise further loans. He argued that the amount of Rs. 29,00,000.00 , agreed to be advanced by the Ifci, as per terms of Ex. P3, was Project Loan, which fact is fully borne out from the terms of the agreement, and that it was subject to performance by the Company of the covenants incorporated in the agreement, including the term of appointment of a whole time technical director. The refusal to advance this amount till the condition was satisfied would fall within the scope and ambit of the agreement Ex. P3, and it does not lie in the mouth of respondent No. I now to contend that failure to disburse this balance amount of Rs. 4,00,000.00 by the Ifci adversely affected its financial viability or that Ifci would be estopped from enforcing recovery of the amount advanced or interest accrued, or other charges that may have fallen due in terms of the ageement.
(61) Mr. Paul did refer to a decision of the Supreme Court : AIR1983SC848 (Gujarat State Financial Corporation v. M/s. Lotus Hotels Pvt. Ltd.), wherein it was held that the Corporation being an agency or instrumentality of the State within the meaning of Article 12 of the Constitution, a writ of mandamus can be issued directing the Corporation to perform its statutory duties. That was a case where on the assurance held out by the Corporation that an amount of Rs. 30,00,000;- would be advanced as loan to the Company (respondent therein), that company took steps for setting up a 4-Star Hotel, which was the, project for which the loan was agreed to be advanced, but subsequently the Corporation declined to finance the project and it was in that setting of facts that the Supreme Court held that a writ of mandamus could be issued against the Corporation because the principle of promissory estoppel would apply and the Corporation could not be allowed to back out of its obligations.
(62) The case here is entirely different in as much as the Ifci did release major part of the loan inasmuch as out of the agreement finance of Rs. 29,00,0001- towards Project Loan, a sum of Rs. 25,00,0001- was released by the Ifci by September 1973 itself. It has come in the statement of Shri H. C. Sharma, petitioner No. 2, as Public Witness. 5, that out of the sanctioned loan of Rs. 29,00,000.00, Rs. 25,00,000.00 was released in two Installments inasmuch as the first Installment was released in March 1973 and the second in September 1973 under cover of letters Ex.P9 and Ex-P 10. He further deposed that the second Installment was released despite the fact that breach of the term for appointment of a whole time technical director had been committed. It is also shown that respondent No. I was put on notice in this respect, because by letter dated 29th August, 1973, the Corporation conveyed in unequivocal terms that the balance loan amount of Rs. 4,00,0001- will be released after the company had appointed suitable persons as technical director and general manager with their approval and further that the Company start availing of the loan sanctioned by the Industrial Development Bank of India.
(63) Mr. H. C. Sharma has also gone on record in listing other breaches committed by the Company, besides this condition of appointment of a whole time director. These are : nonpayment of principal as well as interest, closure of the factory, and failure to properly safeguard the interest of the Ifci by taking proper insurance cover of the mortgaged assets. He further deposed that eventually the Corporation took out insurance of the assets on behalf of respondent No. 1. He has not been contradicted in respect to any part of his 'statement, although a director of the company has been examined. According to statement incorporated in the petition vide paragraph 13, there is an item on account of insurance premium paid which bears out the contention that respondent No. I had failed to take out the insurance as per terms of the agreement Ex. P3, and as a result the Corporation was constrained to take out this insurance and pay the insurance premium which they debited to the account of the Company.
(64) I, thereforee, have no doubt in my mind that apart from the fact that the Ifci was justified in withholding the balance amount of the loan of Rs. 4,00,000.00 , otherwise also the terms of the agreement Ex. P3 as well as the correspondence between the parties makes it abundantly clear that the advance by Ifci was to be by way of project loan, and it is clear that various factors, as set out in letter dated 2nd February 1975 (Ex. Public Witness 5/9-X) were responsible for the industrial concern becoming sick, and this was in spite of the advance of substantial amount of loan by the Ifci to the tune of Rs. 25,00,000.00 in the year 1973 itself, and as such it cannot be urged by respondent No. I with any degree of credibility or plausibility that failure to disburse the balance amount of Rs. 4,00,000.00 affected the financial viability of the Company or that this will disentitle the petitioner from enforcing the terms of the agreement or taking recourse to statutory provisions of Section 30 of the Act.
(65) Even if it were so, by virtue of Section 41-A of the Act, as already noticed, the provisions of Section 30 are fully available to the Ifci to bring this petition for recovery of the amount outstanding against the Company, by sale of the mortgaged property as well as hypothecated assets, in terms of the loan agreement. In view of the aforesaid statutory provisions, which have an overriding effect, the Company has no defense in these proceedings, by way of setting up breaches on the part of the Corporation, or resist the claim by setting up plea of failure to advance the remaining part of the loan. I say so on a cumulative reading of the provisions of the Act, which as already held, provide a self-contained procedure, and also on the strength of a decision by a Division Bench of Allahabad High Court, reported as AIR 1983 All 234 (Mirza Javed Murtaza v. U.P. Financial Corporation, Kanpur and another), where it was held that in reply to a petition filed under Section 31 of the State Act. which as already noticed, is pari materia with section 30 of the Central Act, he cannot be absolved from liability to repay the loan with interest, in terms of the loan agreement, on the plea of any breach of contract by the Corporation, although it may have a right to institute a separate suit for damages for breach of contract by recourse to provisions of Section 73 of the Contract Act.
(66) A similar view was expressed by a Division Bench of Himachal Pradesh High Court in its Judgment reported as : Air 1983 H.P. 43, (Bhawani Parshad Kapur v. The Himachal Pradesh Financial Corporation), where also it was held that a bare reading of the provisions to Section 31 of the State Act would suggest that the law requires the industrial concern to repay the amount of loan as also interest in accordance with the agreement arrived at between the Financial Corporation and the industrial concern, and that validity of an agreement cannot be questioned in the proceedings under Section 31, and in case the industrial concern feels that the agreement or a particular term of the agreement is invalid in law and should be declared as such, its remedy lies in filing a civil suit to that effect, and not taking an objection in proceedings under Section
(67) The position that emerges on a plain reading of the provisions of the Act thus is that when a petition is brought under Section 30 of the Act, when the contingencies contemplated therein are shown to have taken place, and the requisite notice of terminating the loan, and recalling the advance as contemplated by Section 29 of the Act has been given, then no defense remains open to the industrial concern or the Company, and any alleged breach by the Corporation cannot be urged to resist the claim of the Corporation, brought by means of a petition under Section 30 of the Act.
(68) In the present case, it has been found as a fact, that there was no breach on the part of the Corporation, but even if it was so, then also the Company cannot urge, that the petitioner was disentitled from bringing an action by way of petition under Secion 30 of the Act. This issue is, thereforee, answered against respondent No. 1. Issue NO. 7
(69) The Terms and conditions which the Company is alleged to have failed to comply, have been discussed in detail while disposing of some of the contention raised by respondent No. 1 during discussion on the foregoing issues. It has already been noticed that there is uncontroverter statement of Shri H. C. Sharma as Public Witness 5 that the breaches committed by the Company tor, (2) failure to pay the Installments on account of principal consisted of : (1) failure to appoint a whole time technical directs well as interest-on the due dates, (3) failure to take out adequate insurance cover, (4) closure of the factory, (5) involvements, such as money suits against the company by Union Bank of India, and (6) issuance of notice to the Company by the Company Law Board as to why it should not be wound up, and also outstanding loans of the company to Idbi and that all these created a reasonable apprehension that the respondent No. 1 would not be in a position to pay its debts or that proceeding for its liquidation may be commenced in the near future.
(70) The Ifci took the necessary steps first by notice dated November 3, 1980 (Ex. Public Witness 5/1) whereby the balance amount of Rs. 4,00,000.00 was cancelled and thereafter a notice in writing as required by section 29 of the Act was served on 15th June, 1982 (Ex. P/11). Before that also, notice had been served on the Company bringing to their notice the breaches committed on their part in the matter of payment of Installments on account of principal as well as interest as and when they fell due, as well as other terms of certain other covenants, by their letter dated 21st September, 1981 (Ex. DW2/4) which was duly received by the Company, as evidenced by letter dated October 30, 1981 (Ex. DW2/5). It is thus a case where all events of defaults, contemplated by clause 10 of the agreement, in so far as as breaches are concerned, took place, and thus, the Ifci was perfectly within its statutory rights to terminate the loan which it did by notice dated November 3, 1986 (Ex. Public Witness 5/1), in which it was clearly stated that the Company had committed various breaches of the terms and' covenants of the lean agreement. The Company was told by means of this letter that their right for withdrawal of the amount of loan was being terminated, and the same stood cancelled.
(71) A statutory notice in terms of Section 29 of the Act was also given on 15th June. 1982 (Ex. P/11). The eventual-ties contemplated by section 30(1) of the Act, on the happening of which or either of them the Ifci can approach the Court with petition under Section 30 of the Act, thus took place, and the petition has been rightly brought in terms of the statutory provisions, as noticed above. The issue is accordingly determined in favor of the petitioners. Issue NO. 8.
(72) The break-up of the amount due to the petitioner on account of non-payment of principal advanced, the interest due in terms of the agreement, which right has been missed while answering issue No. 2, and the commitment charges in terms of clause 3.7 of Ex. P3, has been set out in paragraphs 9 and Ii of the petition. It is finally summed up in paragraph 13, and the amount is shown as Rs. 49,13,715.29 as on 31st July, 1982. This amount is on account of principal, interest, commitment charges and insurance premium. Although a detained reply has been filed by respondent No. 1, nowhere the correctness of the amount detained in the petition has been challenged. The objections were only technical or legal, which have already been held against this respondent. The statements of accounts Ex. Public Witness 4/1 to Ex. Public Witness 4/4 have been proved by Public Witness 4, Shri K. R. Rajora, duly certified under the Bankers' Books Evidence Act which is applicable to the Corporation in terms of Section 31 of the Act. The right of the petitioner to recover interest up to the date of realisation at the stipulated rate has also been upheld while discussing issue No. 2. I, thereforee, find it as established that the Company owed a sum of Rs. 49,13,715.29 to petitioner No. I as on 31st July, 1982, and the petitioner No. I is entitled to recover this amount from respondent No. I by invoking the terms of the agreement, by sale of the securities created in its favor, Along with interest till realisation, at the agreed rate of 9% p.a. coompounded, as per terms of clause 3.2 of agreement. Ex. P3. RELIEF.
(73) As a result of the foregoing findings, the petition is allowed. I, thereforee, in exercise of power, under Section 30(9) of the Act, confirm the order of attachment passed on 24th September, 1982 and direct recovery of the amount, held realisable by petitioner No. I while answering issue No. 8, by sale of the properties, both moveable and immoveable, of respondent No. I, in terms of provisions of Section 30(10) of the Act; which are subject matter of the equitable mortgage, evidenced by deed of mortgage by deposit of title deeds dated 29th March 1973 as per Ex. P7, and confirmed by letter dated 30th March, 1973 (Ex. P8), addressed by respondent No. I to petitioner No. 1, and the deed of hypothecation dated 29th March, 1973, in respect of moveable assets of respondent No. 1 (Ex. P5).
(74) As per averments in the petition, respondent No. 1 had also raised loan from Idbi, respondent No. 2. by creating equitable mortgage in their favor and it is conceded that Properties of respondent No. 1 are mortgaged to petitioner No. 1 and respondent No. 2 on pari passu basis. The prayer is that the realisations made by sale of the mortgaged properties, as well as hypothecated goods, may be ordered to be shared on pari passu basis between petitioner No. 1 and respondent No. 2.
(75) In the reply filed by Idbi to this petition, it was asserted that pursuant to loan agreement dated 2nd Mareh, 1974, a sum of Rs. 14,95,000.00 was disbursed by Idbi to respondent No. 1, out of the total term loan of Rs. 15,00,000 and that this was against securities of the properties mortgaged by respondent No. 1 in favor of the Bank by means of mortgage deed dated 2nd March 1974. It is asserted that sale proceeds that may be collected, on sale of the properties in pursuant to any order passed by this Court in this petition, are to be shared on pari passu basis petitioner No. 1 and respondent No. 2.
(76) However, in a rejoinder filed to this reply by respondent No. 2, respondent No. 1 has taken the position that the charge set up by respondent No. 2 as having been created in its favor, was not a legal charge inasmuch as the same was not registered with the Registrar of Companies and thus was not enforceable in view of the provisions of Section 125 of the Companies Act. The reply of Idbi to this position is that the requisite returns were filed by respondent No. 1 with the Registrar of Companies after the execution of the mortgage deed and that respondent No. 2 was never informed by Registrar of Companies of the reasons for non registration of the charges. It is contended that the responsibility to get the charges registered lay with respondent No. 1, and if that was not done, default was committed by the Company in not furnishing the proper details required by Registrar of Companies, and it could not now take advantage of its own failure to get the charge registered and to contend that the charge was not enforceable. It is further pleaded that the charges, in terms of section 185 of the Companies Act, if not Registered, was void only against the liquidator, and creditors of the Company and that in this petition filed under special provisions. Section 30 of the Act, where Corporation : petitioner No. 1, was conceding the pari passu claim of respondent No. 2, this plea was not open to the petitioner.
(77) It is, however, to be noted that during the pendency of this petition, winding up proceedings had been initiated against respondent No. 1, and on an objection being raised, petitioner No. 1 made an application to the Company Judge for leave to continue the proceedings. That leave was granted by order dated May 20, 1985 in the following terms : 'C.A. 673/84. Leave as prayed, subject, however to the direction that the final order in the proceedings would not be executed without the prior permission of this Court. C.A is disposed of in these terms'.
(78) The result is that the order now being passed on this petition under Section 30 of the Act is not executable without prior permission of the Company Judge. I, thereforee, do not think fit to pass any further order detailing the directions, and the manner in which the properties, which are subject matter of mortgage and hypothecation with petitioner No. 1, are to be sold, or sale proceeds disbursed. Petitioner No. 1 shall approach the Company Judge for appropriate directions in this regard, in terms of aforesaid order dated May 20, 1985.
(79) The question as to whether respondent No. 2, has a claim along with petitioner No. 1 on pari passu basis on the basis of the charge created in its favor is also left open to be determined by the Company Judge because it appears from the rejoinder filed by the Idbi to the reply of respondent No. 1, that no intimation of registration of the charge by Registrar of Companies had been communicated to them.
(80) The winding up proceedings, as already noted, are pending. Only a secured creditor has precedence over other creditors. Petitioner No. 1, namely, Ifci, stands on a privileged footing, both being a secured creditor, as also because of the statutory rights conferred on it by the provisions of Section 30 of the Act. The Idbi cannot claim the status of a Corporation under the Act, Although respondent No. 2, was made a party to these proceedings, and inspire of objection by respondent No. 1 in this regard, no attempt has been made to establish before this Court that Idbi is entitled to be treated as a secured credior, in the sense that the provisions of Section 125 of the Companies Act, would not stand in its way. Section 125(1) clearly lays down that any charge, on the properties, of the Company in the absence of compliance with its provisions shall be void against liquidator, and any creditor of the Company.
(81) Consequently before Idbi can claim pan passu distribution of the sale proceeds of the properties of respondent No. 1, together with petitioner No. 1, in whose favor the order is being passed under Section 30(9) and 30(10) of the Act, it shall have to satisfy the company Judge that it enjoys status of a secured creditor as this order is executable, subject to directions of the said Court, in terms of order dated May 20, 1985.
(82) The amount recoverable by petitioner No. 1 however stands determined as per findings on issue No. 8. The Ifci shall also be entitled to be reimbursed from the sale proceeds of the expenditure incurred by it on account on fee and expenses of the Receiver.
(83) No order, however, as to costs.