M.H.S. Ansari, J.
1. The instant writ application is filed by the debtor, Inter alia, against its creditor respondent-West Bengal Financial Corporation (WBFC). Petitioner has questioned annexure D dated 26.11.1996 being notice Issued under Section 29(1) read with Section 30 of State Financial Corporation Act 1951 (for short 'Act') for recovery of the loan.
2. It is not in dispute that a term loan was sanctioned in favour of the petitioner and was disbursed by the respondent Corporation on 19.2.93 and 23.3.93. The same was required to be repaid by the petitioner within a period of six and half years by 12 half yearly Instalments @ Rs. 0.64 lac each.
3. The dispute in the instant case is mainly with regard to the rate of interest payable.
4. Annexure 'A' is the letter of WBFC sanctioning the loan and specifying therein terms and conditions upon which the loan is to be granted and manner it is to be repaid. With regard to Interest, it has been stipulated in annexure 'I' to the said sanction letter as under:
'Interest on the loan will be charged at the lending rate of the Corporation applicable to such unit and prevailing at the time of disbursement of the loan, the present rate being 23% per annum, which will be subject to a rebate of 4% for regular payment of Instalments of principal as specified and Interest payable quarterly on the 31st March, 30th June, 30th September and 31st December each year or at such other rate higher or lower, as may be in force at the time of each disbursement in default of payment either of principal or of Interest, compound interest will be chargeable. This will not, however, affect the right of the Corporation to realize the defaulted interest on the entire loan thereof by legal steps or otherwise, A surcharge @ 3% p.a. on the applicable rate of Interest will also be levied as Interest tax.
Notwithstanding the foregoing the borrower shall pay to the lenders Interest at such other rate(s) as shall from time to time be fixed by the lenders and intimated to the Borrower but so that such rate(s) shall not at any point of time exceed the rate at which term loans are advanced by Commercial Banks.
Provided that in the event of increase in the rate (k) of interest:-
(a) the Borrower shall have an option to repay to the lenders forthwith on receipt of such intimation the entire outstanding of the loan together with all outstanding Interest thereon without being required to pay any premium for such prepayment in terms of Section 211 hereof; and
(b) In the alternative, the Borrower shall have an option to make suchprepayment together with interest, at the Increased rate(s) asintimated, till payment, at any time during a period of two yearsafter receipt of such intimation.'
5. It must be stated here that an agreement was also executed by the petitioner herein with respect to the said loan (page 81 of the application CAN 3819 of 2001). With respect to interest, Clause 2 of Article II thereof reads as under;
'2. Interest:
The Borrower (s) shall pay interest on the Principal amounts of the TermLoan and Working Capital Loan, outstanding from time to time, at thelending rate of the Corporation applicable to such industrial (manufacturing/repairing/servicing) concern at the time of each disbursement ofthe individual loan (s) I.e. Term Loan and/or (Working Capital Loan) thepresent rate of Interest being 23% [Twenty three percent] per annum onthe Term Loan and x% (X percent) per annum on the working capitalloan and both are payable by quarterly payments on 31st day of March,30th day of June, 30th day of September and 31st day of December ofeach year with rebate of 4% (Four percent) per annum on the Term Loanand x% (x percent) per annum on working capital loan for punctualpayment of instalments of principal and interest of both the loan (s) (i.e.the Term Loan and Working Capital Loan) subject to the Borrower/Borrower (s) complying with the provisions of these presents, but in caseof default or regular payment of principal, interest and other chargeson due dates as set forth in this Agreement, compound Interest shallbecome payable on moneys due which will be deemed to be as principalfor both the loan (s) (i.e. term loan and working capital loan) at the samerate of interest as aforesaid.'
6. As a contention has been raised by the petitioner that the loan agreement has not been signed by the respondent Corporation, no reliance should be placed upon the loan agreement. Assuming the same to be true, this Court is inclined not to take into account the loan agreement as in the view of this Court, the matter can be disposed of on the basis of the letter sanctioning the loan. The material difference between the relevant clause pertaining to interest as contained in the sanction letter and the loan agreement (extracted supra) Is that the non-obstante clause and proviso (a) and (b) as appearing in the sanction letter are absent in the loan agreement.
7. Before we take up for consideration the rival contentions with regard to the main controversy centering around the rate of interest, it would be appropriate to consider the ancillary submission made on behalf of the petitioner assailing the impugned notice (annexure 'D') Issued by WBFC under Section 29 of the Act.
8. Mr. B. L. Bhattacharya, learned advocate appearing along with Mr. Rajarshi Bharadwaj and Ms. Debamltra Bharadwaj contended that the impugned notice is in utter violation of principles of natural Justice in that no opportunity of hearing was afforded to the petitioners nor any show cause notice was issued prior to the purported Invocation of Section 29 of the Act.
9. Reliance has been placed upon the Judgment of Supreme Court in C.B. Gautam v. Union of India and Ors., reported in 1999 ITR 530 and more particularly to that portion of the judgment wherein, the Supreme Court held as under:
'It must, however, be borne in mind that Courts have generally read into the provisions of the relevant section a requirement of giving a reasonable opportunity of being heard before an order is made which would have adverse civil consequences for the parties affected. This would be particularly so in a case where the validity of the section would be open to a serious challenge for want of such an opportunity.'
10. Reliance has also been placed upon a Division Bench Judgment of the Karnataka High Court in Shilpa Products & etc. v. Karnataka State Financial Corporation and Ors., reported in : AIR1991Kant108 , wherein while upholding the constitutional validity of Section 29 of the Act, it was held as under;
'We are in respectful agreement with the view expressed by the learned Judge. It is well settled position in law that the principles of natural Justice must be regarded as super added to any statutory provision, which confers power on any public authority, unless by necessary implication it is excluded. (See A.K. Kratpak v. Union of India, : [1970]1SCR457 ). Section 29 confers powers on the Corporation to seize the property belonging to the person who has taken loan, for recovering the amount due from him. It therefore follows that before resorting to the power under Section 29, the Finance Corporation must inform the parly concerned as to the actual amount due from him to the corporation and if in any given case the person concerned furnishes and reply stating that there is any mistake in computation of the liability or that any amount paid has not been given deduction to, it is the duty of the Corporation to look into the matter and take a final decision as to the actual amount due and thereafter to proceed to exercise its power under Section 29 of the Act.
For the aforesaid reasons, we uphold the validity of Section 29 of the Act, but at the same time Indicating that a limited opportunity of contesting the computation as to the extent of liability of the person concerned made by the Corporation should be afforded to him, before resorting to the steps, which the Corporation is authorized to take, under Section 29 of the Act.'
11. Mr. A. K. Dhandhania, learned advocate appearing along with Mr. A. K. Sur on behalf of the respondent Corporation contended that in the instant case, there is no dispute as to the calculations of the actual amount due and payable by the petitioner towards repayment of the loan. The dispute is only with respect to the rate of Interest. There is therefore, no question of violation of principles of natural justice nor any prejudice having been caused or suffered by the petitioner. The dispute with regard to Interest, it was contended, is not bona fide. The interest and the rate at which the same is liable to be paid by the borrower have been specified in the sanction letter and the loan agreement, if the petitioner was aggrieved by the said rate as specified in the said two documents, it was open to the petitioners not to the take disbursement of the loan.
12. In the matter of application of the principles of natural Justice, there is a subtle distinction between quasi-Judicial and administrative functions. Also, an administrative function is called quasi-Judicial when there is an obligation to adopt the judicial approach and to comply with the basic requirements of justice. Where there is no such obligation the decision is called purely administrative and there is no third category. This is what was meant by Lord Reid in Ridge v. Baldwin. (1963)2 All ER 66 ;
' in cases of this kind with which I have been dealing the Board of Works..... was dealing with a single Isolated case. It was not decidinglike a judge in a law suit, what were the rights of the persons before it. But it was deciding how he should be treated--something analogous to a judge's duty in imposing a penalty..... So it was easy to say thatsuch a body is performing a quasi-judicial task in considering and deciding such a matter and to require it to observe the essentials of all proceedings of a judicial character the principles of natural justice. Sometimes the functions of a minister of department may also be of that character and then the rules of natural justice can apply in much the same way.....'
13. Subba Rao, J., as His Lordship then was, in G. Nageshwara Rao v. Andhra Pradesh State Tansport Corporation. : AIR1959SC308 put on it a different emphasis (at P. 353) (of SCR) : (at p. 326 of AIR);
'The concept of a quasi-Judicial act implies that the act is not wholly Judicial, it describes only a duty cast on the executive body or authority to conform to norms of judicial procedure in performing some acts in exercise of its executive power...'
14. Prof. Wade says 'A judicial decision is made according to law. An administrative decision is made according to administrative policy, A quasi-judicial function is an administrative function, which the law requires to be exercised in some respects as if it were Judicial. A quasi-judicial decision is, therefore, an administrative decision which is subject to some measure of judicial procedure, such as the principles of natural Justice'. (Administrative Law by H.W.R Wade 6th Ed. PP. 46-47).
15. There is a consensus of judicial opinion that an administrative order, which involves civil consequences, must be made consistently with the rule expressed in the Latin Maxim 'audi alteram partem'. It means that thedecision maker should afford to the other party an opportunity to present his case. In other words, the person concerned must be informed of the case against him and the evidence in support thereof and must be given a fair opportunity to meet the case before an adverse decision is take.
16. In Km Neelima Mtshra v. Dr. Harinder Kaur Painted and Ors., reported in : AIR1990SC1402 . The apex Court upon consideration of several of its judgments declared, as under:
'The shift now is to a broader notion of 'fairness' 'fair procedure' in the administrative action. The administrative officers are concerned, the duty is not so much to act judicially as to act fairly (See. Keshav Mills Co. Ltd. v. Union of India : [1973]3SCR22 , Mohinder Stngh Gill v. Chief Election Commissioner, : [1978]2SCR272 ; Swadeshi Cotton Mills v. Union of India, : [1981]2SCR533 and Management of M.S. Nolly Bharat Engineering Co. Ltd. v. The State of Bihar (Civil Appeal No. 1102 of 1990 decided on February 9, 1990). For this concept of fairness, adjudicative setting are not necessary, nor it is necessary to have lites inter parties. There need not be any struggle between two opposing parties giving rise to a 'lis'. There need not be resolution of lis inter parties. The duty to act judicially or to act fairly may arise in widely different circumstances. It may arise expressly or implledly depending upon the context and considerations.....'
17. In M.C. Mehta v. Union of India : [1999]3SCR1173 , it was pointed out that there can be certain situations in which an order passed in violation of natural justice need not be set aside under Article 226 of the Constitution of India. For example, wherein no prejudice is caused to the person concerned, interference under Article 226 is not necessary. It was pointed out by the Supreme Court, in that case, that at one time, breach of principles of natural Justice was in itself treated as prejudice and that no other 'de facto' prejudice needed to be proved. But, since then the rigour of the rule has been relaxed not only in England but also in our country. This aspect of the matter has been considered by the Supreme Court in Aligarh Muslim University and Ors. v. Mansoor Ali Khan reported in : AIR2000SC2783 . wherein the Supreme Court declared as under;
'The principle that in addition to breach of natural Justice prejudice must also be proved has been developed in several cases. In K.L. Tripathl v. State Bank of India. : (1984)ILLJ2SC , Sabyasachi Mukherji, J. (as he then was) also laid down principle that not mere violation of natural justice but de facto prejudice (other than non-issue of notice) had to be proved. It was observed : quoting Wade Administrative Law (5th Ed. Pp 472-475) as follows (Para 31) :
'.....it is not possible to lay down rigid rules as to whenprinciples of natural Justice are to apply, nor as their scope and extent... There must have been some real prejudice to the complainant, there is no such thing as a merely technical Infringement of natural Justice. The requirements of natural must depend on the facts and circumstances of the case, the nature of the inquiry, the rules under which the tribunalis acting, the subject-matter to be dealt with and so forth.' Since then, this Court has consistently applied the principle of prejudice in several cases. The above ruling and various other rulings taking the same view have been exhaustively referred to in State Bank of Patiala v. S.K. Sharma, : (1996)IILLJ296SC . In that case, the principle of 'prejudice' has been further elaborated. The same principle has been reiterated again in Rajendra Singh v. State of M.P., .'
18. U.C. Banerjee, J, has further explained the said doctrine and its applicability in Kumaonn Mandal Vtkas Nigam Ltd. v. Girqja Shankar Pant and Ors., reported in AIR 2001 SC 24 as under:
'While it is true that over the years there has been a steady refinement as regards this particular doctrine, but no attempt has been made and if we may say so, cannot be made to define the doctrine in a specific manner or method. Straight-Jacket formula cannot be made applicable but compliance of the doctrine is solely dependant upon the facts and circumstances of each case. The totality of the situation ought to be taken note of and if on examination of such totality, it comes to light that the executive action suffers from the vice of non-compliance of the doctrine, the law Courts in that event ought to set right the wrong inflicted upon the concerned person and to do so would be a plain exercise of judicial power. As a matter of fact the doctrine is now termed as a synonym of fairness in the concept of justice and stands as the most accepted methodology of a governmental action.'
19. Thus, it can be safely assumed that there is no straight-jacket formula for application of the said doctrine but that compliance of the doctrine is dependant upon the facts and circumstances of each case.
20. Applying the same to the instant case, the dispute as already noticed supra, is only with regard to the rate of Interest. The petitioner is disputing the rate of Interest specified in the sanction letter and more particularly relying upon the non obstante clause in the said sanction letter. It is the contention of the petitioner that the respondent Corporation 'cannot charge Interest higher than the rate of Interest charged by the commercial Banks.' in other words, the contention of the petitioner is that the action of respondent No. 1 charging interest at 23% per annum is in gross breach and contravention of the terms and conditions of the said term loan. The respondent Corporation is disputing the said contention and relying upon the clauses in the sanction letter as also the loan agreement.
21. In such view of the matter, in my view, the Impugned notice cannot be said to be afflicted with the vice of non-compliance of the doctrine audi alteram partem. It is now for the Court to construe the relevant provisions relating to the rate of interest. For the said reason, I am not inclined to Interfere with the Impugned notice, on the aforesaid ground. I must, however, express my respectful agreement with the view of the Division Bench of Karnataka High Court in the Shilpa Product's case, extracted supra. The Instant case, however, is not one where a final decision was required to be taken after rectification of any mistake as regards the amounts due from the petitioner.
22. Adverting now to the main controversy with regard to the rate of interest, Mr. M. L. Bhattachariya, learned counsel for the petitioners contended that in view of the non obstante clause in the sanction letter (annexure 'A'), the respondent Corporation is obliged to charge interest at the rates charged by commercial banks and to give rebate of 4% upon prompt payment. Reliance has been placed by the learned counsel upon the Judgment of the Supreme Court in Union of India and Anr. v. G.M. Kokil and Ors.. reported in : (1984)IILLJ20SC , wherein it was held that a non obstante clause is a legal device which is usually employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and effect of all contrary provisions.
23. On the other hand, the submission of Mr. Dhandhanla, learned advocate for respondent Corporation is that the non obstante clause would apply where the lender (WBFC) Intimates to the borrower (petitioner) a different rate of Interest than specified in the main clause and upon such intimation, borrower shall pay interest at the new rate but such rate, it was submitted, shall not at any point of time exceed the rate at which term loans are advanced by commercial banks. In other words, it is contended by Mr. Dhandhania that where a different rate of interest than specified in the main clause is intimated by the borrower to the petitioner then and in that event only the non obstante clause would be attracted.
24. I am inclined to accept the submissions made by Mr. Dhandhania that in the Instant case the non obstante clause in the sanction letter is not attracted as the lender has not charged interest at any other rate than specified in the main clause. The lender has reserved to Itself the right to charge different rate of Interest from time to time with the condition that the same shall not exceed the rate at which term loans are advanced by commercial banks. In the instant case, the lender (WBFC) has not charged Interest at any rate different from that specified in the main clause and, therefore, the non obstante clause is not attracted nor can the borrower (petitioner) Insist upon payment of interest at the rate as charged by commercial banks giving a go bye to the main clause. The crucial words in the non obstante clause are 'Interest at such other rate as shall from time to time be fixed by the lenders.' it is such rate that shall not 'exceed the rate at which term loans are advanced by commercial banks.'
25. The matter, in my opinion, however, cannot rest here. The respondent corporation being a State within the meaning of Article 12 of the Constitution has a duty to act at all times in a Just and fair manner.
26. The rate of Interest has been stipulated as being 23% per annum. The interest is payable quarterly on the 31st March, 30th June, 30th September and 31st December each year. The main clause postulates charging of compound Interest. There is also a surcharge at 3% per annum on the applicable rate of Interest as and by way of interest tax.
27. It must also be stated here that in the sanction letter (annexure 'A') as also in the loan agreement while prescribing the rate of interest as being 23% per annum. It has been stated 'prevailing at the time of disbursement of the loan.....' and '.....the present rate being 23% per annum.....'.
28. The intention of the parties as can be gathered from the aforesaid documents is that the rate of interest would be at the lending rate applicable to Industry such as the petitioners concern at the time of disbursement of the loan. It was further clarified that the lending rate at the relevant time was 23%. The respondent Corporation would, therefore, have to Justify the same in order to charge the stipulated rate of interest at 23% per annum.
29. In the affidavtt-in-opposition, it has been stated that the guidelines of the Reserve Bank of India are not binding on WBFC as it is not a banking Company but a financial institution. It is also stated that WBFC follows the guidelines of Industrial Development Bank of India (IDBI) or Small Industries Development Bank of India (SIDBI) as regards the rate of interest chargeable by WBFC. It has been further stated that by a letter dated November 2, 1984 (annexure 'C' to the affidavit-In-oppositlon), the IDBI had permitted WBFC to stipulate gross rate of interest at 4% higher than the applicable rate with a provision for equivalent rebate for prompt payment. It has been further stated in the affidavit-in-opposition that the specified rate of interest chargeable by financial institution was 19% in terms of the circular of the IDBI dated May 4, 1992. It is, therefore, contended that at the time of sanction of the loan to the petitioner, WBFC was entitled to charge interest at the rate of 23% per annum (19% + 4%) In terms of the aforesaid circular dated May 4, 1992 read with the letter dated February 2. 1984 (annexures 'C' and 'D').
30. From the above, it is apparent that the prevalent rate of interest in terms of the circular dated May 4, 1992 (annexure 'D') Is 19%. The statement in the sanction letter that the 'the present rate being 23% per annum' is, therefore, not correct and as in fact misleading. The WBFC has stipulated gross rate of interest at 4% higher than the applicable rate and referred to the same as the applicable rate*. In its letter dated November 2, 1984, annexure 'C', IDBI has merely expressed its no objection in the matter. It is the admitted case of WBFC that the rate of interest is governed by the circulars Issued by IDBI or SIDBI. The circular letter dated May 4, 1992 specifies the Interest chargeable at 19%. In my view, therefore, the respondent Corporation is entitled to charge Interest as per the aforesaid circular letter and not by stipulating a higher rate of interest than applicable.
31. It is, therefore, to be held that the intention of the parties as can be gathered from the various documents, reference to which has been made supra, the rate of Interest chargeable on the facts and circumstances of the case on hand is as specified in the circular annexure 'D' and applicable to the petitioners' concern. The respondent Corporation on its own showing is bound by the said circular and accordingly, it is declared that the rate of Interest shall be as specified in the said circular namely, at the rate of 19% per annum.
32. Admittedly, petitioner defaulted in the payment of Instalments in that the amount as specified in respect of half yearly instalment/s was not paid in time. There is, therefore, no question of any rebate being either claimed by the petitioner or being granted by the respondent Corporation. It is, therefore, not considered necessary to decide on the question as to the grant of rebate to the petitioner or the rate at which the same is to be granted.
33. Before parting with the case. It must also be stated that Mr. Dhandhania referred to and relied upon the judgment of a learned single Judge in Kothari Electrodes (P) Ltd. and Ors. v. West Bengal Financial Corporation and Ors. (WP No. 7824 of 1998) (Unreported judgment), wherein it was held that the guidelines issued by the Reserve Bank of India is not applicable to WBFC As in the case on hand, it is held that the non obstante clause is not applicable, it is not necessary to consider in any great detail the contentions advanced on behalf of the petitioner as to the applicability of guidelines issued by the Reserve Bank of India to banking Companies as regards the rate of interest on term loans advanced by WBFC.
34. In the result, the writ application is allowed in part. Consequently, direction shall issue to the respondent Corporation to calculate the Interest at the rate of 19% per annum and to prepare a statement of the amounts due and payable to it by the petitioner after giving credit to the amounts already paid and upon such statement being submitted, petitioners shall be afforded an opportunity of not less than 15 days to submit its objection to the same and after affording an opportunity of hearing to the petitioner, a decision shall be taken by the respondent Corporation (WBFC) as regards the actual amount due, outstanding and payable by the petitioner after giving credit to the amounts already paid by the petitioner or that may hereafter be paid by the petitioner and in case of default, it shall be open to the respondent Corporation to take further steps pursuant to the Impugned notice for realization of the outstanding amounts.
35. It is hereby clarified that with regard to the Impugned notice (proceedings under Section 29 of the Act), no interference is warranted but with regard to further action in pursuance thereto, there shall be status quo as of today for a period of four (4) months from date of communication of this order within which time the aforesaid exercise of determination of the actual amount due and payable by the petitioner shall be completed by WBFC.
36. It is further directed that in the meanwhile, the petitioners shall not alienate, transfer and/or encumber the mortgaged and hypothecated assets in any manner.
Rule is made absolute, in terms as above. All applications shall accordingly stand disposed of.
There shall, however, be no order as to costs.
Let urgent Xerox certified copy of this judgment and order be furnished to the appearing parties, if applied for, on priority basis.