Everest Wools Pvt. Ltd. and Others. Vs. U.P. Financial Corporation and Others
 Insc 1299 (14
Sinha & Harjit Singh Bedi S.B. Sinha, J.
Application of Section 29 of the State Financial Corporations Act, 1951
(the 1951 Act) vis-`-vis the Uttar Pradesh Public Moneys (Recovery of
Dues) Act, 1972 (the 1972 Act) 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.
Before embarking on the questions raised at the bar, we may notice the basic
fact of the matter.
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.
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.
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.
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;
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 was also issued.
However, in the meantime some machinery parts were found to be missing,
although security guards had been posted in the said factory.
thereof was made and a sum of Rs.45,000/- was credited to the account of the
appellant-company. Again some theft took place.
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:- IN CMWP No. 34059/1999.
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
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).
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.
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.
issue any other suitable order or directions as this Honble Court may deem
fit and proper in the circumstances of the case.
award cost of this petition. IN CMWP No. 41848/1999
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
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).
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.
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.
any other suitable writ, order or directions as this Honble Court may deem
fit and proper in the circumstances of the case.
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.
Award cost of this petition to the petitioner against the respondents.
Whereas in the former only direction for stay of recovery proceedings was
prayed for but in the writ petition filed by Vinod Kumar Agrawal recovery of
possession of the unit was also prayed for.
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.
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.
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.
The Corporation, however, contended that value of the machinery missing would
be of not much significance.
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.
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 bailee
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.
view of the order proposed to be passed by us, we do not intend to deal with
all the rival contentions of the parties.
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.
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
State 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 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
Power under Section 29 of the 1951 Act empowers the Corporation to take
recourse to either:-
over the possession of the plant and machinery;
over management of an on going concern ; and
the property pledged, mortgaged, hypothecated or assigned to it.
it takes over possession of the plant and machinery in exercise of its
statutory power, apart from its obligation as a bailee, it also acts
as a trustee. 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
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.
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.
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
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
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.
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
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.