TMI Blog1992 (2) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Corporation was contrary to the spirit and scheme of section 24 of the Act. Section 24 of the Act requires the Board to discharge its function on business principles, due regard being had to the interest of industry, commerce and general public. Instead of agreeing to receive five lacs in lump-sum as offered by the appellant it opted for two lacs fifty thousands tendered by the purchaser that too in four yearly instalments. It was neither business principle, nor in the interest of commerce and industry, nor good of general public. This solicitous attitude, at the expense of the appellant, appears to be unjust and unfair and no reasonable prudent owner would accept such an offer. [626C, 625F; 626A-B; 635G; 636A] 1.6. Section 29 does not exclude the application of the principles of natural justice. Before accepting the tender of the third respondent, an opportunity should have been given to the appellant as to why such an offer of the third respondent be not accepted. No bonafide actions have been taken or attempted by the Corporation. The sale of the property is vitiated by unjust and unreasonable act on the part of the Corporation and is liable to be set aside. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tendered amount. If he brings third parties with higher offer it would be tested and may be accepted. (F) Sale by private negotiation should be permitted only in very large concerns where investment runs in very high amount for which ordinary buyer may not be available or the industry itself may be of such nature that by normal buyers may not be available. But before taking such steps there should be advertisements not only in daily newspapers but business magazines and papers. (G) Request of the unit holder to release any part of the property on which the concern is not standing of which he is the owner should normally be granted on condition that sale proceeds shall be deposited in loan account. [634H, 635A-G] 4. `Business' is a word of wide import. It has no definite meaning. Its perceptions differ from private to public sector or from institutional financing to commercial banking. [625F] 5. The law consists of body and soul. The letter of the law is the body and the sense and reason of its is the soul quia ratio legis est enima legis. In other words, like a nut the letter of the law represents the shell and sense and the purpose of its Kernal. The law inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cooperation of the other partners and lack of working capital, due to failure to release the balance loan, landed the running mill into rough weather and defaults in payment were committed. While finding that interest was getting mounted, the appellant wrote repeated letters to the Corporation requesting to release plot No. 220 so as to enable him to negotiate for private sale of it along with his two more plots to pay off the debt. It is his case that, pursuant to his letter dated December 22, 1983, on oral promise to release the plot, he paid a sum of ₹ 65,000 and was received by the corporation. He also promised to pay ₹ 50,000. The Corporation did not release it. According to him, in his letter dated February 10, 1986,Annexure 6, as on March 31, 1986 the simple interest payable was ₹ 1,93,670, the principal amount was ₹ 3,70,660 and expenses was ₹ 3,835. After deducting ₹ 65,000 towards arrears of interest, the outstanding was ₹ 5,03,165 and he was ready and willing to pay the same in full satisfaction under one time settlement scheme , provided compound interest is waived. The record also shows that in a meeting held in September, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c performance. They offered to pay ₹ 40,000 said to be the consideration therein but the appellant declined to accept the same. The Corporation though filed an exhaustive counter affidavit, did not deny the offer made by the appellant in his letter dated February 10, 1986. When we enquired, the counsel for the Corporation, on instruction, stated that they had informed the appellant that his proposal was not acceptable to the Corporation, but no material has been placed on record of such communication. It was stated that as on the date of the sale a sum of ₹ 8,61,969.57 was due from the appellant towards principal and interest @ 18%. The break- up has been given in a separate statement filed by the counsel. Thus the proposed settlement had been fissled out. Mahatma Gandhiji, the father of the nation, in Swaraj at page 92, stated that, from the very beginning it has been my firm belief that agriculture provides the only unfailing and perennial support to the people of this country. India lives in villages . Villagers are poor and most of them are unemployed or underemployed who need productivity which would add to the wealth of the nation. This vast human resources an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cabined. The bureaucracy should adopt positive approach to stimulate production and productivity in every sector of economy so as to increase the size of the national cake. Finance is the most important catalyst. The State of Uttar Pradesh constituted the Corporation under s.3 of the State Financial Corporation Act 1951, Act 63 of 1951, for short, `the Act' which came into force from October 31, 1951. To promote industrialisation in the States by encouraging small entrepreneurs to participate in economic growth of the country by giving them financial assistance for setting up medium and small scale industries. Section 25(1)(g) of the Act provides that the Corporation may grant loans or advances to an industrial concern (rice mill is an industrial concern) repayable within a period not exceeding 20 years from the date the loan was granted. Although the activity has multiplied, capital has grown, field of operation has been widened but the disturbing state of affairs, which at times, surfaces, is complete lack of awareness of principles on which these institutions are required to function. More distressing is unreasonable attitude adopted, often, by the Corporation while exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant, it comes to ₹ 3,29,000 only. Whereas the appellant was willing to pay ₹ 5,00,000 and odd in 1986 over and the above the amount which he had paid, if plot No. 220 was released or one time payment scheme was accepted. Similar offer was accepted in relation to mill at Meerut. It did not get back the interest. Even what it disbursed was the borrowed public money. Of course, the transferee got a mill with project cost estimated at 6 lacks and odd in 1980 at ₹ 2,55,000 in 1986 when the value must have gone up instead of going down. There is a theorem that the economic self-interest and profit motive induce entrepreneurs to reallocate resources among activities until they get the same (approximately, if not exactly in practise) rate of return from different lines of activity. No body would like to lose money. No body would like to miss an opportunity to make profit or to lose his money either. Resources allocation in a market economy, thus, primarily is a matter of relative priority to different activities. The very process of economic growth implies continuous reallocation of resources to generate income to plough it back and earn profit. One of the major caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be to get money as loan and not as equity. Anyhow we have to run the industry, margin money was provided as loan on the same terms and conditions regarding interest and repayment. So, on this question also, rethinking is needed. Since margin money has to come from the owner, and since the Government is the owner of the public sector, it should consider margin money released as equity . At page 43 it is stated that, a drastic change in policy is needed to make those units viable and to enable them to stand on their own legs. The rehabilitation programme is going on (we do not call it modernisation , though in the government the term modernisation is used)... For losing concerns, even the payment of interest adds to their woes in finding necessary working capital... by way of equity, so that these units are able to overcome the difficulty and start standing on their own legs . With regard to the problems with the bank at page 45 and 46 it was stated thus: If the banks take a helpful attitude in normally sanctioning the respective limits as announced by the committee for working capital, it will be quite helpful for the public sector-may be even for the private sector . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment's action fails to satisfy the test of reasonableness and public interests are found to be wanting in quality of reasonableness or lacking in the quality of public interest, it would be liable to be struck down as invalid. It must follow as a necessary corollary, that the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would not be both unreasonable and contrary to public interest. The law consists of body and soul. The letter of the law is the body and the sense and reason of its is the soul, quia ratio legis est enima legis. In other words, like a nut the letter of the law represents the shell and sense and the purpose of its Kernal. The law intends to serve the purpose. Justice is both the cause and effect, the origin and the legitimate end of law. One will receive no benefit from the law, if the ratio and the letter of law defeats its purpose. Section 29 confers very wide power of the Corporation to ensure prompt payment by arming it with effective measure to realise the arrears. But the simplicity of the language is not an index of the enormous power stored in it. From notice to pay the arrears, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in trouble. This is what happened in this case. The partners did not cooperate and the Corporation without any explanation refused to release the full amount. Result was the appellant stood pressed on one hand from absence of capital and on the other by recovery proceedings. The Corporation, therefore, should honour their commitments of releasing entire loan timely except for very good reasons which should be intimated beforehand to enable the unit holder to comply with shortcoming if any. In its absence of its completion, the proceedings for recovery under section 29 may not be justified. Similarly various situations may arise which may hamper start of the unit - delay in electric supply or delayed delivery of machinery vital for the functioning of the unit. Such difficulties do require rescheduling of payment of instalment because, if the unit, for reasons beyond the control of the unit holder, could not start, then how will the amount be repaid. Endeavour should be to adjust and accommodate as business considerations require the unit to function for benefit, both, of the general public and the Corporation. It is not mandatory, as a matter of law, to observe the process of takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of breach of trust. If the purchaser is privy of the fraud the property itself can be recovered from him. The sale may be either by public auction or private contract. In either case the trustee has to keep in mind that the most advantageous price. Kerr on Receivers 17th Edition, at page 208 stated that a receiver, however, is not expected any more than a trustee or an executor to take more care of their property entrusted to him than he would have as a reasonably prudent man of business . In Halsbury's Law of England, 4th Edition, Vol. 39, at para 919 it is stated that the receiver will be compelled to show that he has acted with perfect regularity and has used such degree of prudence as would be expected from a private individual in relation to his own affairs . The trustee or a receiver is, therefore, duty bound to protect and preserve the property in his possession and the standard of conduct expected of him, in dealing with the property or sale thereof, is as a prudent owner would exercise in dealing with his own property or estate. The degree of care expected of him in handling property taken possession of is measured by the degree of care expected of a person act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property by public auction or by inviting tenders. Though that is the ordinary rule, it is not an invariable rule. There may be situation where there are compelling reasons necessitating departure from the rule but then the reasons for the departure must be rational and should not be suggestive of discrimination. Appearance of public justice is an important as doing justice. Nothing should be done which give an appearance of bias, jobbery or nepotism. In Haji T.M. Hassan v. Kerala Financial Corporation, [1988] 1 S.C.R. 1079 this court further held thus:- The public property owned by the State or by any instrumentality of the state should be generally sold by public auction or by inviting tenders. This court has been insisting upon that rule, not only to get the highest price for the property but also to ensure fairness in the activities of the state and public authorities. They should undoubtedly act fairly. There actions should be legitimate. There dealings should be above board. There transactions should be without aversion or affection. Nothing should be suggestive of discrimination. Nothing should be done by them which gives an impression of bias, favourtism or nepotism. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the legitimate actions or resultant consequences thereof. To enthuse efficiency into administration, a balance between accountability and autonomy of action of management in public enterprises should be carefully maintained. Over emphasis on either would impinge upon public efficiency. But undermining the accountability would give immunity or carte blanche power to deal with the public property or of the debtor at whim or vagary. Whether the public authority acted bona fide and in the best interest as prudent owner in the given facts would do, be gauged from impugned action and attending circumstances. The authority should justify the action assailed on the touchstone of justness, fairness, reasonableness and as a reasonable prudent owner. Keeping these various factors giving rise to conflicting interest the following directions are necessary to be issued to be observed by the Corporation while exercising power under s. 29: Every endeavour should be made, to make the unit viable and be put on working condition. If it becomes unworkable: (1) Sale of a unit should always be made by public auction. (2) Valuation of a unit for purposes of determining adequacy of offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of the plots should be paid to discharge the liability and it be a condition in the sale deed itself. Before accepting the tender of the third respondent, an opportunity should have been given to the appellant as to why such an offer of the third respondent be not accepted. The appellant would have come forward to give his own offer or brought third parties with higher offers. No such bona fide actions have been taken or attempted by the Corporation. Thus the acts smacked of bona fides or responsibility or reasonableness as an ordinary prudent businessman/trustee/owner acting in or dealing with such trust. Thus the sale of the property is vitiated by unjust and unreasonable act on the part of the Corporation or its officers or employees and is liable to be set aside. The possession given to the respondents 3 to 5 or L.Rs. of the respondent is illegal and immediately be resumed by the Corporation. The third respondent claimed to have improved the mill or entered into an agreement of sale of open plot No. 220/2 with third parties. But this is subject to litigation attracting the doctrine of lis pendens under s. 52 of the Transfer of Property Act. The appellant, therefore, is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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