Bhaskaran Nambiar, J.
1. Thepetitioner challenges the validity of Section 29 of the State Financial Corporations Act, 1951 (for short, the Act) under the Following circumstances. He obtained a loan of Rs. 99,752/- from the Kerala Financial Corporation for purchasing machinery for a mini industry in the Mini Industrial Estate at Koduvayur, by hypothecating his properties and executing an agreement on 7-9-1977. He, however, defaulted in the payment of the instalments due to the Corporation and the Corporation therefore demanded by a written notice the payment of the balance amountswith interest and also warned the petitioner that on his failure to comply with the demand, possession of the premises would be taken over by the Corporation and assets disposed of under the provisions of the Act. The petitioner did not pay the arrears demanded; nor did he show his willingness even to pay any portion of the debt. Instead he replied that the steps may be dropped for a further period of six months and requested that his case for granting interest rebate, refixation of the loan amount and re-schedule of the instalment may be considered afresh. When he did not make any remittance as demanded, the Corporation was constrained to take possession of the factory premises on 14-8-1982. This writ petition is thus filed challenging the validity of Section 29 of the Act and for a direction commanding the Corporation to hand over possession of the factory to the petitioner and to direct them to reschedule the instalments after allowing interest rebate as claimed by him.
2. The petitioner's rights and liabilities arise under a contract which he has entered into with the Corporation and therefore his claim as to the amounts actually due by him are outside judicial examination under Article 226 of the Constitution of India as held by this Court in the decision in David v. Kerala State Financial Corpn., (1988) 1 Ker LT 585 : (AIR 1988 Ker 319) wherein it has been held thus : --
'the jural relationship between the petitioners and the Corporation is purely contractual. For breach of any conditions in the said contract, or for enforcing the rights thereunder, or for getting redressal against recovery of amounts pertaining to such contract, the remedy of the petitioners should be, by filing a suit in the ordinary civil court. It is not open to the petitioners to invoke the extraordinary jurisdiction vested in this Court under Art. 226 of the Constitution of India.'
3. He has, therefore, confined his attack, in this Court, to the validity of Section 29 and if his contention is upheld, he may be entitled to restoration of possession of the factory premises. He contends that the Act has given an unguided, uncanalised power to the Corporation to take possession of the property of a defaulter and the Corporation can pickand choose one of the two remedies available to them against the same defaulter, as their discretion is not controlled by any statutory guidelines. Section 29, according to the petitioner is harsh, and capable of arbitrary exercise and thus violative of Article 14 of the Constitution.
4. We shall, therefore, straightway advert to the constitutional question raised by the petitioner. The two remedies available to the Financial Corporation under the Act are contained in Sections 29 and 31 of the Act. Section 29 of the Act reads thus : --
'29. Rights of Financial Corporation in case of default,-- (1) Where any 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 in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers under Sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
(4) Where any action has been taken against an industrial concern under the provisions of Sub-section (1) all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of suchcosts, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.
(5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of Sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern'.
Section 31 provides thus : --
'31. Special provisions for enforcement of claims by Financial Corporation. -- (1) Where an industrial concern in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to take immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882(4 of 1882), any other officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely : --
(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance; or
(aa) for enforcing the liability of any surety; or
(b) for transferring the management of the industrial concern to the Financial Corporation; or
(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or planter equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.
(2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed'.
5. The objects and reasons for enacting this law state that the Act was intended to provide medium and long term credit to industrial undertakings which fall outside the normal activities of commercial banks. A State Corporation, controlled and guaranteed by the Government was therefore constituted as a special statutory agency to advance loans to deserving industrial undertakings. While providing incentive to start industrial undertaking by affording financial assistance under the Act was ensured, the stability of the Corporation itself had to be assured and therefore the objects and reasons specifically provided that Corporation will have 'special privileges in the matter of enforcement of its claims against recovery of dues'.
6. The Act, in essence, achieves these objects in the provisions made for the constitution of a State Financial Corporation under the superintendence, direction and management of a Board of Directors, in empowering the Corporation to advance and recover loans, in compelling them to adopt business principles and in providing quick and effective summary remedy for realisation of the amounts from the defaulters. The Board of Directors under the Act consists of four directors nominated by the State Government, one of whom shall be a person who has special knowledge of or experience in small-scale industries, one director nominated by the Reserve Bank, two directors nominated by the Development Bank, three directors elected in the prescribed manner and a Managing Director appointed by the State Government in consultation with and after obtaining the advice of the Development Bank. The Corporation, under Section 25, can carry on and transact any of the business mentioned therein, including the granting of loans or advances or floating debentures to an industrial concern, repayable within a period not exceeding twenty years from the date on which they are granted or subscribed to, as the case may be Section 24, particularly important for the consideration of thequestion in dispute provides the general duty of the Board thus: --
'The Board in discharging its functions under this Act shall act on business principles, due regard being had by it to the interests of industry, commerce and the general public'.
Recently a third method of recovery of amount from the defaulter has been prescribed by amendment of the Act by incorporation of Section 32G under which the Corporation can recover the amounts as arrear of land revenue also. Section 46B specifically states that the provisions of this Act and the rules or orders made there under shall effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act. The supremacy of this law over allied enactments is statutorily declared. Under Section 48 the Board, after consultation with the Reserve Bank and with the previous sanction of the State Government, can make regulations, not inconsistent with this Act and the rules made there under to provide for all matters for which provision is necessary or expedient for the purpose of the Act. The regulations can be made for taking over of the management of any industrial concern on a breach of its agreement with the Financial Corporation.
7. While considering the contention of the petitioner in this background, we shall at the outset refer to the decision in Maganlal Chhagganlal (P) Ltd. v. Greater Bombay Municipality AIR 1974 SC 2009, a decision by a Constitution Bench of seven Judges. The summary of the judgment is given in paragraph 15 therein thus : --
'Where a statute providing for a more drastic procedure different from the ordinary procedure covers the whole field covered by the ordinary procedure, as in Anwar All Sarkar's case 1952 SCR 284: AIR 1952 SC75 and Suraj Mali Mohta's case (1955) 1 SCR 448: AIR 1954 SC 545 without any guidelines as to the class of cases in which either procedure is to be resorted to, the statute will be hit by Article 14. Even there, as mentioned in Suraj Mall Mohta's case, a provision forappeal may cure the defect. Further, in such cases if from the preamble and surrounding circumstances, as well as the provisions of the statute themselves explained and amplified by affidavits, necessary guidelines could be inferred as in Saurashtra case 1952 SCR 435: AIR 1952 SC 123 and Jyoti Pershad's case (1962) 2 SCR 125 : AIR 1961 SC 1602 the statute will not be hit by Article 14. Then again where the statute itself covered only a class of cases as in Haldar's case (1960) 2 SCR 646 : AIR 1960 SC 457 and Bajoria's case 1954 SCR 30 : AIR 1953 SC 404 the statute will not be bad. The fact that in such cases the executive will choose which cases are to be tried under the special procedure will not affect the validity of the statute. Therefore, the contention that the mere availability of two procedures will vitiate one of them, that is the special procedure, is not supported by reason of authority.'
8. It is not the law that there can be only one remedy available for recovery of loans, advances, etc. from defaulters, namely, recourse through the ordinary courts of land. Any statute may in appropriate cases provide for more than one remedy against the same defaulter for recovery of the dues or it may be that relief for recovery is provided in different enactments. Special remedies may be available in favour of or against particular classes of persons. When these two statutory remedies are available against the same defaulter, the power so conferred under the statute is not arbitrary where there are guidelines to control the discretion to be exercised. Thus guidelines need not necessarily, be specifically enumerated in the very section or provision conferring those powers. The guidelines can be gathered from the other provisions of the Act itself, the preamble and the surrounding circumstances etc.
9. The Act intended to create and the Government constituted a financial corporation, mainly to advance loans and to give financial assistance to certain financial undertakings. The Corporation is controlled, managed and supervised by a Board of Directors, chosen with special emphasis on the financial responsibility of the Corporation. The Board has to act on business principles due regard being had to the interests of theindustry, commerce and general public, as specifically provided in Section 24. In the enforcement of its rights and obligations, the Board cannot fritter its funds by giving dubious loans and fail to take proper steps for recovery of the amounts due. To be compelled to resort to a court of law for recovery of its dues is to submit to the inevitable delay that it entails. The Act, therefore, intended that the Corporation should have 'special privileges' for enforcement of its claims. The object was sought to be achieved by the provision contained in Section 31 and Section 29 and now by Section 32B also. Section 29 is an enabling provision under which the Corporation can in certain circumstances, if the situation warrants, take possession of the sutured premises in the interests of the industry, in the interests of the Corporation, in case of default. In the absence of Section 29, the Board would have been powerless to take possession even in those cases where there is default, and no attempt is made by the defaulter to pay the dues and the factory is allowed to remain idle. Delay in taking possession in such cases may be suicidal to the interests of the Corporation and the industry, for the machinery, etc. may rust and the undertaking will be useless when it is brought to sale later. Section 29 is thus not meant for arbitrary use and is not capable of arbitrary exercise. The guidelines for the exercise of this power are thus found in the object and purpose of the Act and in the various provisions including Section 24 of the Act. Section 29 is thus not arbitrary or is violative of Article 14 of the Constitution.
10. These identical contentions were raised and considered in considerable detail by a Division Bench of the Andhra Pradesh High Court in Srinivasa Kandasari Sugars v. State, AIR 1976 AndhPra93. Their Lordships after referring to the relevant decisions of the Supreme Court stated thus : --
'In the light of the aforesaid principles the constitutionality of Sec. 29 of the Act has to be examined. The State Financial Corporations Act, 1951 was enacted in order to provide immediate and long term credit to industrial undertakings which fall outside the normal activities of the commercial banks etc. As seen from the Statement of Objects and Reasons, the intention is that the StateCorporations will finance medium and small scale industries. One of the main features of the Bill was that the Corporation will be managed by a Board consisting of directors nominated by the Government, Reserve Bank and the Industrial Financial Corporation of India. It is also mentioned that the Corporation will have Special Privileges in the Matter of Enforcement of its claims against borrowers.
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From the objects and Reasons and Section 3(2) of the Act it is clear that the Financial Corporation is a responsible body vested with the power to discharge the various functions under the Act.
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As already mentioned the two procedures mentioned in Sections 29 and 31 are different and there are no provisions by way of guidelines in these two sections as to when a particular procedure can be resorted to. The choice is left to the Corporation. It may also be noted that under Section 29 the Financial Corporation shall have the right to take over the management of the defaulting industrial concern as well as the right to transfer by way of these or sale. Normally one would expect a responsible body like the Financial Corporation, to take action under this section when it becomes necessary depending on the circumstances. From a combined reading of the Objects and Reasons and Sections 8, 9, 10, 24, 25 and 27, the requisite guidance can be inferred and a very responsible authority is vested with the power of selecting either of the procedures under Sections 29 and 31 respectively. So the statute itself discloses a definite policy and objective and it confers authority on the Corporation to make selection of the procedure. When that is so a responsible body like the Financial Corporation will act in a realistic manner keeping in view the interests of the Corporation, industry, commerce and the general public. For these reasons, we are of the opinion that there is a guiding policy and principle available from the statute for the Corporation to act in this regard and accordingly we hold that Section 29 is not violative of Article 14 of the Constitution. Further, we are also of the view that in thiscase the Corporation acted with due care and caution and that it did not act arbitrarily or capriciously, and we will be considering this aspect in detail at a later stage.'
11. Section 31 was challenged before the Karnataka High Court and the validity of that section was upheld in the decision reported in Shreeshyla Crowns and Screws Pvt. Ltd v. Union of India AIR 1983 Kant 130. We shall usefully refer to the observations contained in that judgment in paragraphs 65 & 66 :-
(65). 'The first and the foremost principle, that emerges from the rulings of the Supreme Court, in particular from Maganlal Chhagganlal's and Deep Chand Agarwal's cases is that a special and speedier procedure can be provided for speedy recovery of State dues and that the same will satisfy the twin test of permissible classification under Article 14 of the Constitution. The second principle is whether the Act or provisions contain sufficient guidelines for the exercise of power by the authority. But, both these principles are exhaustive and they are subject to whether the special procedure provided is harsh, unreasonable and unconscionable.
(66) A Corporation constituted and functioning under the Act controlled by a Board of Directors with a Chairman and a Managing Director and at least four other directors nominated by the State Government, Reserve Bank of India, Development Bank, an undertaking of the Central Government and elected directors, if any is a responsible body. A Corporation is required to conduct its affairs on business principles with due regard to the interests of the industry and the public. Every one of the inbuilt safeguards in the Act, are provided by the legislature for a smooth and efficient functioning of a Corporation in the public interest. An irresponsibility of whimsical exercise of power by a financial corporation cannot be presumed by a Court. If anything, the presumption should be otherwise. A State owned financial Corporation is presumed to exercise its power and discharge its functionshonestly and for purposes of the Act. The possibility of misuse of power in a given case, is not a ground for striking down an Act' or provision in an Act. Any such misuse of power by a Corporation in a given case can be remedied by the District Judge or the High Court in an appeal and in any event by a High Court in a proceeding under Article 226 of the Constitution and in the ultimate by the Supreme Court.'
12. Section 31 was upheld by this Court in Molly Jose v. Kerala Financial Corpn. 1984 Ker LT 655 : (AIR 1984 Ker 194), though for different reasons. We are in respectful agreement with the reasoning of the Andhra Pradesh and Karnataka High Courts.
13. Even where the provisions of a statute are not arbitrary, the exercise of that power can still be challenged as offending the fundamental rights guaranteed under Article 14 of the Constitution. Apart from the fact that there is no such contention in this case, we are also satisfied that the Board has not acted vindictively or arbitrarily against the petitioner. He was alerted about the action proposed to be taken under Section 29. He was given an opportunity to discharge the arrears. He did not avail of that opportunity. He has not paid the arrears even now. We are, therefore, satisfied that the action taken against the petitioner is not bad in law.
14. We, therefore, hold that Section 29 of the State Financial Corporations Act is not arbitrary or violative of Article 14 of the Constitution. The petitioner is not entitled to any relief. However, before parting, we would like to observe that the disposal of this Original Petition need not prevent the Corporation, if they so deem fit, to re-consider their stand and hand back possession to the petitioner, in case he is prepared to pay substantial amount towards arrears within a reasonable time and the balance in reasonable instalments thereafter.
The Original Petition is dismissed. Nocosts.