9911796707
TMI Blog1997 (10) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... not satisfactory. On 13-10-1992, a high level meeting presided over by the Chief Minister, Punjab, was held to consider the steps which could be taken to accelerate the setting up of the mills. It was decided to implement the mills in the corporate sector instead of the co-operative sector. In the year 1993, the sugar mills were taken over by the Punjab State Industrial Development Corpn. respondent No. 1. It was further decided that the mills shall be handed over to the private sector. On 5-3-1993, a memorandum of understanding was signed between the first respondent and Maini Bros. with regard to Dasuya Sugar Mills. On 29-3-1993, the petitioner-company was incorporated. Similarly, it was decided that the mills at Amloh and Patran be implemented in collaboration with Nahar Spinning Mills and Piccadily Holiday Resorts. On 29-4-1993, the Secretary of Industries, Government of Punjab, informed the Government of India that the "PSIDC and the co-promoters have already started taking effective steps for early implementation of these mills". He requested that the letters of intent may be transferred in the name of the three companies. On 24-6-1993, an agreement was executed between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trans-ferred in its favour and also to revise the schedule of repayment. Vide letter dated 21-12-1995, the first respondent rejected the petitioner's request for deferment of payment. On 30-1-1996, it served a notice under section 29 of the State Financial Corporations Act calling upon the petitioner "to pay a sum of Rs. 13,65,45,876.91 along with interest at the institutional lending rate from the date of taking possession of the assets in pursuance of the agreement till the date of payment within 15 days...". It was further observed that in case of failure to make the payment, "the assets and management of your unit shall be taken (over) by the Corpo-ration in exercise of powers conferred under section 29...". The petitioner sent a reply to this notice vide letter dated 6-3-1996. The petitioner alleges that on 29-3-1996, a meeting was held. The notice and all proceedings were dropped. In spite of that, on 12-7-1996, an order was passed for the take over of the sugar mill under section 29. A copy of this order has been produced as annexure P-26 with the writ petition. The respondent pub-lished a notice in the press for the sale of the sugar mill on 24-7-1996. The petitioner repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it was only thereafter that any other action could be taken. The petitioner-company without making any payment in terms of clause 3 of the agreement executed between the parties, took over the possession of the unit. The petitioner failed to make payment in spite of the demand having been raised". Later on, a request was made by the petitioner for conversion of this amount into a term loan. For this purpose, an agreement dated 30-8-1994, was executed. It was also agreed that interest shall be paid. The machinery was hypothecated in favour of the respondent. Thus, it was clear 'that the amount was payable by the petitioner before it could seek transfer of letter of intent or land in its favour". It has been admitted that the Government of India was requested vide letter dated 26-4-1993, to transfer the letter of intent. However, "it was noticed that the intention of the petitioner-company was not clear as it had failed to make any payment towards the take over of the assets.... the petitioners before seeking any such transfer were bound to pay the amount which was the basic consideration which was liable to be paid simultaneously with take over of the assets in terms clause 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt into term loan was accepted. It had to pay the amount in instalments along with the interest. However, it failed to make any payment. The payment of the amount to the Land Acquisition Collector, if any, was to be over and above the amount due to the respondent and it had no relevance or concern with the payment made to the Collector. The land could not be transferred in favour of the petitioner-company till the amount due to the respondent was paid. The petitioner "with an ulterior motive, was not getting the conveyance deed executed by making the payment due from it so as to avoid creation of charge which was agreed to be created vide annexure P-7". Since the petitioner-company was completely ignoring its liabilities towards payment of money, it cannot complain of discrimination vis-a-vis the other sugar mills as they had "discharged their obligations and did not raise false claims as was being done by the petitioner-company". It has been pointed out that "both these companies had made the payment of the consideration amount and only the claim with regard to interest is in dispute whereas the petitioner-company has not paid even a single penny". It has been averred that "as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vitiated. It has also been contended that the impugned order does not conform to the provisions of section 29. Consequently, it is untenable. Since the respondent-corporation had failed to get the letter of intent transferred in favour of the petitioner-company, it was barred by the rule of estoppel from passing the impugned order. 8. On the other hand, it was contended by Vinod Sharma that the petitioners had failed to pay the sale consideration. They were, thus, not entitled to claim transfer of either the letter of intent or the land, etc., still further, the petitioners had not paid a penny in spite of the lapse of a long time. They could not claim parity with the other two promoters as they had actually made the payment. The petitioners having failed to pay, the respondent had no choice but to take over. The questions that arise for consideration are : "(i)Is the action of the respondents in proceeding to take over possession under section 29 discriminatory and arbitrary ? (ii)Is the action violative of the provisions of section 29 of the State Financial Corporations Act, 1951 ? (iii)Is the action barred by the principle of estoppel ?" Reg : (i) Mr. Sibal contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his situation, it cannot be said that the two were similarly placed. That being so, the charge of discrimination is apparently unfounded. 12. There is another aspect of the matter. Let us assume that the two firms had defaulted in making the payment like the petitioner. In spite of that, no order under section 29 was passed against them. Still, it cannot be said that two wrongs will make a right or that the respondent was debarred from taking any action against the petitioner. 13. Mr. Sibal referred to the decision of their Lordships of the Supreme Court in Mediwell Hospital & Health Care (P.) Ltd. v. Union of India [1997] 1 JT 270 to contend that the action was violative of article 14. In this case, the claim of the petitioner for grant of exemption from customs duty was rejected by the Government. The action was upheld by the High Court. However, on appeal, it was held by their Lordships that "a diagnostic centre run by a private individual purely on commercial basis may not be entitled to the exemption under the notification issued by the Central Government. The conclusion of the Central Government as well as that of the High Court on this score, may not be held to be incorrec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass another unwarranted order". Still further, the necessity for a detailed examination of this matter is obviated by the fact that the decisions of their Lordships of the Supreme Court in Mediwell Hospital & Health Care (P.) Ltd.'s case (supra) itself been reconsidered by a larger Bench in Faridabad C.T. Scan Centre v. D.G. Health Services [1997] 8 JT 171. It has been held that the decision does not lay down the correct law. It is, thus, clear that an illegal order cannot form the basis of a charge of discrimination under article 14. Consequently, it is held that the plea of discrimination as raised by the petitioner is not tenable. 15. It was then contended that the action was arbitrary. 16. Even this contention is misconceived. Admittedly, the State Government had acquired 164 acres of land for the setting up of the mill. Certain civil works had been executed and equipment purchased. Thus, an investment of Rs. 13,65,45,876.91 had already been made. The agreement executed on 24-6-1993, categorically provided that the petitioner had undertaken to pay this amount "spent by the sugar mill towards payment for acquisition of land, payment made to the machinery suppliers, amount sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Rights of Financial Corporation in case of default.-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 obligation, 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." 19. This provision is calculated to enable the Corporation to speedily recover its dues without having to "wade its way through the meandering lanes and by-lanes of law courts". Whenever any industrial concern which is under a liability to make payment of any loan, etc., makes a default in meeting its obligation, the Corporation has the right to "take over the management or possession or both of the industrial concern...". In the present case, the petitioner has admittedly made a default. It did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner. It was in pursuance of these communications that the letter of intent was actually transferred in favour of the promoters of the sugar mill at Amloh on 18-10-1993, and regarding the other mills subsequently. However, it was not transferred in favour of the petitioner for the obvious reason that it had failed to carry out its obligation under the agreement. In any event, whatever may be the position with regard to the other two mills, there is nothing on record to show that the respondent-corporation was under any obligation to get the letter of intent transferred or to execute a conveyance deed in favour of the petitioner without getting the price of the property or the repayment of the loan. 24. Sibal relied on the decision of their Lordships of the Supreme Court in Mahesh Chandra v. U.P. Financial Corpn. [1993] 78 Comp. Cas. 1, to contend that the power under section 29 should not have been invoked merely because there was a default. 25. It is true that their Lordships in the above-mentioned case were pleased to observe that the power under section 29 (page 11) "It should be exercised to effectuate the purpose of the Act...It demands a purposeful approach. The exercise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the respondent-corporation had adopted an unfair procedure. It had handed over possession of the mill to the petitioner even without getting a penny. It had later on accepted the petitioner's request to convert the sale consideration into a loan. It had even accepted the request for payment according to a time schedule. The Corporation had executed a fresh agreement on 30-8-1994. In spite of that, the petitioner did not carry out its obligation to repay even the first instalment which had fallen due on 31-3-1995. It was after waiting for a considerable length of time that the Corporation had given a notice dated 30-1-1996, to the petitioner. The petitioner had submitted a reply. It was duly considered. Thereafter, the impugned order was passed on 12-7-1996. In spite of this order, the corporation had shown willingness to reconsider the matter if the petitioner deposited an amount of Rs. 5 crores. This was even less than the principal amount of Rs. 5,65,45,876.91 which had fallen due till March, 1996. The petitioner did not pay even a penny. 27. The facts clearly show that the petitioner was given opportunity to pay. It was also given an opportunity to put forth its explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents having failed to carry out their obligation to get the letter of intent transferred and to execute the conveyance deed, they are estopped from invoking the provisions of section 29. 32. As already observed, the petitioner was under an obligation to pay the consideration money. It did not do so. In spite of that, the respondents had requested the competent authority to transfer the letter of intent. However, in the circumstances of the case, it cannot be said that the respondents were bound to even transfer the land in favour of the petitioner. It was not in public interest to do so. The petitioner having continuously defaulted cannot complain that the respondents had failed to carry out their obligations or that they were estopped from resorting to the provisions of section 29. 33. Mr. Vinod Sharma pointed out that the petitioner had not carried out its obligations in making the payment to the respondent-corporation. Still further, he stated that Company Petition No. 45 of 1996 had been filed for the winding up of the petitioner-company. A notice dated 8-9-1997, had appeared in the press. He had even produced a copy of the notice of the company-petition. 34. A perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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