http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

CASE NO.: Appeal (civil)  2707-2708 of 2003

PETITIONER: M/s. Everest Wools Pvt. Ltd. and others.

RESPONDENT: U.P. Financial Corporation and others

DATE OF JUDGMENT: 14/12/2007

BENCH: S.B. SINHA & HARJIT SINGH BEDI

JUDGMENT: JUDGMENT

S.B. SINHA, J.  

1.      Application of Section 29 of the State Financial Corporations Act,  1951 (\021the 1951 Act\022) vis-‘-vis the Uttar Pradesh Public Moneys (Recovery  of Dues) Act, 1972 (\021the 1972 Act\022) is in question in these appeals which  arise out of a common judgment and order dated 29th September, 1999  passed by a Division Bench of the High Court of Judicature at Allahabad in  Civil Misc. Writ Petition Nos. 41848 and 34059 of 1999.

2.      Before embarking on the questions raised at the bar, we may notice  the basic fact of the matter.

3.      M/s. Everest Wools Pvt. Ltd. of which Pradeep Kumar Agrawal is a  Managing Director took loan from the U.P. State Financial Corporation  (Corporation).  The company applied for re-scheduling of the loan and the  same was granted.  Appellant company intended to expand their unit.  It  applied for grant of loan to the respondent No.3, the Pradeshiya Industrial  and Investment of U.P. Ltd. (PICUP).  Rs. 47 lacs was sanctioned by it.  A  sum of Rs. 41.60 lakhs was disbursed to it by March, 1992.  Some other  amount was also disbursed by way of State Capital Investment Subsidy by  the Government.  

4.      Inter alia on the premise that the appellant-company had purchased  some plants and machinery worth Rs.6.75 lacs from one of their financed  units namely M/s. Uttrakhand Woolen Yarn Udyog Pvt. Ltd. and obtained  financial assistance from PICUP, a notice was issued by U.P. State Financial  Corporation to the appellant asking for its response thereto failing which it  was threatened that action under Section 29 of the 1951 Act would be taken.   An explanation, pursuant thereto, was submitted.  However, entire loan was  recalled inter alia on the premise that the company had committed defaults  in paying the instalments.  Some letters were exchanged between the parties.   However, it appears that PICUP authorized U.P. State Financial Corporation  to act as its agent as both of them are premium financial institutions of the  State of U.P.   A representation was again made by the appellants before the  Financial Corporation for adjusting the over-due amount which was not  acceded to.  In exercise of its powers under Section 29 of the 1951 Act  possession of the assets of the appellant company was taken over by the U.P.  State Financial Corporation.  A First Information Report was also lodged in  respect of the purported purchase of plant and machinery by the appellant  company from M/s. Uttrakhand Woolen Yarn Udyog Pvt. Ltd.  On enquiry,  the allegations against the appellant company were not found to be correct;  whereafter a request was made by the appellant company to the Financial  Corporation as also PICUP for handing over the possession of the unit to it  as also for waiver of interest etc.  PICUP, however, invoked the guarantees  executed by the Directors of the appellant company.  A recovery citation

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

was also issued.        5.      However, in the meantime some machinery parts were found to be  missing, although security guards had been posted in the said factory.    Valuation thereof was made and a sum of Rs.45,000/- was credited to the  account of the appellant-company.  Again some theft took place.    

6.      Two writ petitions were filed, one by the company and three others,  including Vinod Kumar Agrawal, (CMWP No. 34059 of 1999) and the other  by Vinod Kumar Agrawal  (CMWP No. 41849 of 1999).  In the said writ  petitions following reliefs were prayed for :-               \023IN CMWP        No. 34059/1999.  a.      to issue a writ, order or direction in the nature of  certiorari quashing the impugned personal recovery  certificate dated 31.07.1999 (Annexure 12) passed by  respondent No.1.         b.      to issue a writ, order or direction in the nature of  mandamus restraining the respondents from recovering  the loan from the petitioners in pursuance of impugned  personal recovery certificates dated 31.07.1999  (Annexure 12).   c.      to issue a writ, order or direction in nature of ad interim  mandamus staying operation of the impugned recovery  citation dated 31.07.1999 (Annexure 12) issued by  respondent no.5 against the petitioners. d.      to issue a writ, order or direction in the nature of  mandamus directing the respondent not to take any  coercive methods against the petitioners such as arrest,  attachment/sale of their moveable and immoveable  properties. e.      to issue any other suitable order or directions as this  Hon\022ble Court may deem fit and proper in the  circumstances of the case. f.      to award cost of this petition.\024                   IN CMWP    No. 41848/1999  i)      issue a writ, order or direction in the nature of certiorari  quashing the impugned recovery citation dated 31.07.99  (Annexure No.14) passed by the respondent no.1.          ii)     issue a writ, order, direction in the nature of mandamus  restraining the respondent from recovering the loan from  the petitioner in pursuance of impugned personal  recovery citation dated 31.07.99 (Annexure 14).   iii)    issue a writ, order or direction in nature of ad interim  mandamus staying operation of the impugned recovery  citation dated 31.07.99 issued by the respondent no.4  against the petitioner. iv)     issue a writ, order or direction in the nature of mandamus  directing the respondent not to take any coercive method  against the petitioner such as arrest, attachment/sale of  their moveable and immoveable properties. v)      issue any other suitable writ, order or directions as this  Hon\022ble Court may deem fit and proper in the  circumstances of the case. vi)     issue writ, order or direction in the nature of mandamus  directing the respondents Nos. 1 and 2 to hand over the  physical possession of the unit as per the conditions of  30.11.98. vii)    Award cost of this petition to the petitioner against the  respondents.\024  

7.      Whereas in the former only direction for stay of recovery proceedings  was prayed for but in the writ petition filed by Vinod Kumar Agrawal

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

recovery of possession of the unit was also prayed for.  

8.      By reason of the impugned judgment, a Division Bench of the High  Court, without going into the questions involved therein, inter alia, on a  finding that the appellants had been trying to evade payment of the amounts  under the personal guarantee bonds, which had been invoked by the PICUP,  the recovery proceedings initiated by it cannot be stopped, dismissed the  writ petition.        9.      During the pendency of the appeals before this Court, an  advertisement for sale of the unit was issued by the U.P. State Financial  Corporation.  An order of stay was passed on 15th November, 2002 by this  Court restraining the respondent for finalizing the sale.  By an order dated  31st March, 2003, on an oral prayer made on behalf of the appellants, this  Court directed the respondents to permit the to have inspection of the plant  and machinery and take photographs thereof, pursuant whereto an inspection  was made and it was found as of fact that not only some plants and  machinery were missing but the plant and machinery were also not being  maintained.  

10.     In its order dated 23rd April, 2007, this Court noticed that an inventory  of the plants and machinery had been prepared at the time when possession  of properties belonging to the appellants had been taken over.  Having  regard to the interest of the parties, a fresh inventory was directed to be  made by a judicial officer, who was to be nominated by the District Judge,  Dehradun.  One Mr. Manish Mishra, 1st   Additional Civil Judge (Senior  Division), Dehradun was nominated for the said purpose, He submitted his  report which speaks for itself.    

11.     The Corporation, however, contended that value of the machinery  missing would be of not much significance.         12.     Submission of Mr. S.K. Verma, learned counsel appearing on behalf  of the appellants, is that the provisions of Section 29 of the 1951 Act have  been misused in the instant case.  It was contended that the action, on the  part of the respondents, in recalling the loan and in taking over possession of  the running unit was neither fair nor reasonable.  Taking recourse to  invocation of the personal guarantees of the Directors of the Company for  recovery of the loan amount was, it was urged, totally illegal.            13.     Mr. Shrish Kumar Misra, learned counsel appearing on behalf of the  Corporation and Mr. Aarohi Bhalla, learned counsel appearing for PICUP,  on the other hand, would submit that in terms of the provisions of the 1951  Act as also 1972 Act, they were not only entitled to take possession of the  properties under Section 29 of the 1951 Act but were also entitled to invoke  the guarantees furnished by the Directors of the company.  It was submitted  that possession of the respondents in relation to the plant and machinery was  that of a \021bailee\022 and as it has not been alleged that proper care thereof had  not been taken  as envisaged under Section 151 of the Indian Contract Act,  1872, the respondents are not liable to reimburse the appellants for the loss  of articles.  According to the learned counsel, even for the said purpose only  a suit would be maintainable and not a writ application.         14.     In view of the order proposed to be passed by us, we do not intend to  deal with all the rival contentions of the parties.            15.     The High Court, in our opinion, was not correct in passing the  impugned order.  The Corporation, no doubt, is entitled to realize its dues,  but it must be borne in mind that it had been conferred with a special  statutory power in terms of Section 29 and 31 of the Act of 1951 therefor.   Such a power in the Corporation was conferred by an Act of Parliament,  inter alia, keeping in view the fact that it being a statutory authority and,  thus, being a \021State\022 within the meaning of Article 12 of the Constitution of  India, will act fairly and reasonably.  The entire loan was recalled  not only  because the appellants were defaulters but also on the allegation that they

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

had purchased second hand plant and machinery from another financial  institution in breach of the contract, which having been found to be wholly  incorrect, it must be held that it had acted on extraneous consideration.  So  far as the PICUP is concerned, it was bound to act in terms of the provisions  of the 1972 Act.  Whether it did so, is a question which should have been  gone into by the High Court.   

16.     Power under Section 29 of the 1951 Act empowers the Corporation to  take recourse to either :- (1)     take over the possession of the plant and machinery ; (2)     take over management of an on going concern ; and (3)     sell the property pledged, mortgaged, hypothecated or assigned  to it.    

       When it takes over possession of the plant and machinery in exercise  of its statutory power, apart from its obligation as a \021bailee\022, it also acts as a  \021trustee\022.  Its   action otherwise must be fair and reasonable.  It is true that  fairness cannot be a one way street, but then whereas the Corporation  indisputably has a right to realize its dues, it must act strictly in terms of the  statutory and constitutional Scheme.  If it acts unfairly, it fails the system.   While it exercised its enormous statutory power, it is expected perform its  duties also.  Such a duty is envisaged not only under the law but also under  Article 14 of the Constitution of India.  A person aggrieved by the action of  the State must have an effective remedy.  The purpose of taking over  possession and that too of an on-going concern, without taking over the  Management, would be to sell the unit.  A buyer may like to purchase the  on-going concern.  If the plant and machinery are kept in order and in a  working condition they would fetch one price but if the machinery are stolen  or allowed to rust, the same would not.   

17.     For taking recourse to sale of the unit and in a case of this nature  where the possession of the plant and machinery had been taken of an on- going concern, an extra care on the part of the authorities of the Financial  Corporation was expected.  We do not know whether immediate steps for  sale of the properties had been taken or not.  It is stated that some  advertisements were issued, but why a running concern could not be sold is  a matter which requires a deeper scrutiny.         18.     We are also not aware whether PICUP invoked personal guarantees of  the Directors in contravention of the 1972 Act.  We have noticed the  controversy between the parties in regard to the theft of the properties and  the valuation thereof.  We do not know if any step had been taken by the  Corporation against the officials or the security guards who were found to be  responsible therefor.   We are even not aware as to whether a criminal case  had been initiated in that behalf or not.   

19.     We, therefore, keeping in view the aforementioned factual matrix, are  of the opinion that interest of justice would be met if the impugned judgment  is set aside and the matters are remitted to the High Court for its  consideration afresh.   As technicalities may come in the way of the High  Court for grant of proper reliefs in favour of the appellants, in the event they  are found entitled thereto, we grant liberty to them to amend writ petitions  suitably.  Parties may bring on records subsequent events also by filing  additional affidavits.

20.     In the peculiar facts and circumstances of the case, the High Court is  requested to consider all aspects of the matter and pass appropriate order(s)  as it may seem fit and proper.  

21.     For the aforementioned purpose subsequent events should also be  taken into consideration including the report of the learned Civil Judge and  the replies filed thereagainst.  As the matter is pending for a long time, the  High Court may consider the desirability of the disposal of the same as  expeditiously as possible.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

22.     The appeals are allowed on the aforesaid terms.  However, keeping in  view the facts and circumstances of the case, there shall be no order as to  costs.