TMI Blog1985 (2) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... the rapid growth of industries in different States, and to facilitate the object of industrialising the States, it was felt that financial institutions should also be set up in different States and for that purpose, the Parliament enacted the State Financial Corporations Act, 1951 (Central Act LXIII of 1951). The said Act authorises the State Government to establish a Financial Corporation whose main object would be to provide long-term loans to industrial concerns as well as to guarantee loans raised by such industrial concerns. The said Act also provides for recovery and confers on the Corporation the right to take over the management and possession of the industrial concern in case an industrial concern makes any default in repayment of loan or advance or any instalment thereof or fails to comply with the terms of the agreement with the Financial Corporation. 3. According to the case of the petitioner, the Corporation sanctioned a loan of ₹ 6.75 lakhs on 20th January, 1978 and the stipulation in the agreement was that the loan would be repaid by eighteen half-yearly instalments of ₹ 37,500/- each beginning from 28th of October, 1979. The rate of interest was agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that it was motivated to bestow some favour on opposite party No. 2 is baseless. Mr. Mohapatra also submits that the statute, more particularly, Section 29 of the Act does not postulate a notice for hearing before taking any action under Section 29 and, at any rate, repeated demands having been made and yet the Company not having paid it cannot make a grievance of violation of principles of natural justice. He also contends that there are large number of disputed questions of fact which cannot be appropriately adjudicated upon in this writ petition and accordingly the petition is liable to be dismissed. Mr. B. K. Mohanty the learned counsel appearing for opposite party, Orissa Ceramic Industries Limited while supporting the contentions of Mr. Mohapatra, the counsel for the Corporation, contends that the company not having pointed out any mistake in the earlier calculation indicating the default on the part of the Company, the contention of the petitioner on that score is an after thought and further vague and bald assertions of arbitrariness and mala fides without giving any particulars must be ignored and the petitioner's contention on that score is liable to be reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration. Therefore, even if there may have been some errors in these figures, it is admitted by the petitioner's counsel that the Company has not been able to pay up the instalments in accordance with the stipulations in the loan agreement. At this stage it would be appropriate to dispose of one submission made on behalf of the counsel for the petitioner to the effect that the payments made by the Company must be adjusted first towards the principal and not towards interest and according to the learned counsel for the petitioner that was the real intention of the parties under the loan agreement. We, however, fail to find out from the loan agreement that what has been contended by the petitioner is correct. The normal rule is that in the case of a debt due with interest, any payment made by the debtor is in the first instance to be applied towards satisfaction of interest and thereafter towards the principal. (See Meghraj v. Mst. Bayabai, AIR 1970 SC 161 at page 163, para-6). In this view of the matter, we unhesitatingly reject the submission of Mr. Mohanty, the learned counsel for the petitioner. 6. Mr. Mohanty, the learned counsel for the petitioner, then submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 29,000/- which had already been sanctioned to the petitioner Company as subsidy should also be adjusted and, therefore, according to the petitioner a sum of ₹ 59,000/-has been paid to the Corporation in January, 1984. According to the petitioner, notwithstanding the aforesaid understanding with the Branch Manager a notice was pasted on the factory gate of the petitioner-Company on 28-1-1984 purporting to be one under Section 29 of the Act. The said notice has been annexed as Annexure-3 to the writ petition in O.J.C. No. 427 of 1984. It is thus quite clear, and which is also the stand of Corporation, that the purported notice under Section 29 of the Act dated 6-1-1984 which is being impugned in O.J.C. No. 340 of 1984 was not given effect to and instead by order dated 27-1-1984 (Annexure-3 to the writ petition in O.J.C. No. 427 of 1984) the Managing Director of the Corporation took over the possession of the petitioner-industry on as is where is basis under Section 29 of the Act. Thereafter an advertisement was given in a local newspaper on 28 1-1984 inviting tender to be submitted on 31-1-1984 with down payment of ₹ 50,000/- and in the said advertisement sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidy amount before taking final decision to take over possession under Section 29 of the Act on 27-1-1984 vitiates the decision i of taking over on 27-1-1984. There cannot be any manner of doubt that the power given to the Corporation under Section 29 of the Act is an extraordinary power and the same must be resorted to only when the Corporation bona fide forms the opinion after taking into consideration all relevant factors including all payments made by the entrepreneur till the date of the order that the pre-conditions of Sub-section (1) of Section 29 of the Act have been fully satisfied. If the Corporation fails to take into account the upto date payments made by the entrepreneur while deciding to take action under Section 29 of the Act, then even though the conditions prescribed under Sub-section (1) might have been satisfied, yet the decision will be vitiated on account of non-consideration of relevant materials. If Section 29(1) is literally interpreted and if the power of the Corporation to take over the industry is conceded as soon as one of the instalments falls due notwithstanding some payments being made in the interregnum, then that would be contrary to the purpose fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J-6 Trucks, Mahindra Mini Truck and Car seized under Section 29 of the Act. In pursuance of the said sale notice, opposite party No. 2 in O.J.C. No. 427 of 1984 gave tender and ultimately the Disposal-cum-Advisory Committee in its meeting on 1-2-1984 decided to accept the offer of Orissa Ceramic Industries (opposite party No. 2). The extract of the proceedings of the Disposal Committee dated 1-2-1984 which has been annexed as Annexure-5 to the writ petition in O.J.C. No. 427 of 1984 indicates that the Managing Director of the petitioner-Company also appeared before the said Committee and requested for some time to make payments, but the same was not found favour with the members of the Committee, as the petitioner-Company was found to have defaulted to a huge extent. There is lot of controversy between the parties in respect of the recording of the aforesaid resolution of the disposal Committee, as has been averred in paragraph 23 of the writ petition and denied in the counter-affidavit, but we are not going into that aspect since it is not possible for us to embark upon an enquiry into those disputed questions of fact and come to any definite conclusion about the same. But one thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said assertion of the petitioner. 11. We would then examine the question whether there has been a violation of the principles of natural justice, inasmuch as no notice has been given before taking action under Section 29 of the Act on 27-1-1984. According to the learned counsel for the petitioner, although the Corporation has a right to take over the management and possession of the industrial concern and then put the same to lease or sale when the said Industrial concern defaults in repayment of loan or advance or any instalment thereof, yet, the rules of natural justice require that the said industrial concern must be given a notice before the Corporation actually decides to take over the industrial concern in exercise of its power under Section 29 of the Act. Mr. Mohapatra appearing for the Corporation, on the other hand, submits that there is no requirement of either giving a notice or hearing to the industrial concern in Section 29 of the Act and, therefore, it would not be appropriate for the court to implant rules of natural justice in Section 29 of the Act. That apart, in the case in hand, Mr. Mohapatra submits, sufficient notice had been given and, therefore, the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbodied rules and, therefore, the question whether the requirements have been met by the procedure adopted in a given case must depend to a great extent on the facts and circumstances of the case, the constitution of the tribunal and the rules under which it functions. It has been indicated in that case that if the person accused knows the nature of the accusation made, he is given an opportunity to state his case and further where the tribunal acted in good faith, then this rule must be held to have been satisfied. In the case of A. K. Kraipak v. Union of India AIR 1970 SC 150, the Supreme Court held:-- The aim of the rules of natural justice is to secure justice of to put in negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules, namely (1) no one shall be a judge in his own cause (Nemo debet esse judex propria causa), and (2) no decision shall be given against a party without affording him a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished by judicial decisions and they are summarized by S.A. de Smith in Judicial Review of Administrative Action, 2nd. Edn. at pages 168 to 179. If we analyse these exceptions a little closely, it will be apparent that they do not in any way militate against the principle which requires fair play in administrative action. The word 'exception' is really a misnomer because in these exclusionary cases, the audi alteram partem rule is held inapplicable not by way of an exception to fair play in action', but because nothing unfair can be inferred by not affording an opportunity to present or meet a case. The audi alteram partem rule is intended to inject justice into the law and it cannot be applied to defeat the ends of justice, or to make the law 'lifeless, absurd, stultifying, self defeating or plainly contrary to the common sense of the situation'. Since the life of the law is not logic but experience and every legal proposition must, in the ultimate analysis, be tested on the touchstone of pragmatic realism, the audi alteram partem rule would, by the experimental test, be excluded if importing the right to be heard has the effect of paralysing the administra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pre-decisional stage, unless, viewed pragmatically, it would paralyse the administrative process or frustrate the need for utmost promptitude. In short, this rule of fairplay 'must not be jettisoned save in very exceptional circumstances where compulsive necessity so 'demands'. The Court must make every effort to salvage this cardinal rule to the maximum extent possible, with situational modifications. But, to recall the words of Bhagwati, J., the core of it must, however, remain, namely, that the person affected must have reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise. Keeping these principles in view, if we examine the provisions of the State Financial Corporations Act, more particularly Section 29 thereof, we find that the Act is intended to regulate the activities of the financial corporation and the main object of such corporation is to finance medium and small-scale industries. With the rising tempo of industrialisation of the country, it became necessary to enlarge the field of operation of the State Financial Corporation and to meet the growing needs of industries to offer finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porting to be one under Section 30 of the Act indicating the position as on 31-12-1983 and requested the petitioner that the entire outstanding dues indicated therein should be paid by 5-1-1984 failing which the Corporation would take action under Section 29 of the Act. Then came the cruder dated 6-1-1984 which has been annexed as Annexure-l to the writ petition in O.J.C. No. 340 of 1984 by which order the Corporation purports to have taken over possession of the industrial unit of the petitioner on as is where is basis. On the very same date, the petitioner appears to have addressed a letter to the Deputy General Manager of the Corporation giving an undertaking that the petitioner would make payment by instalments indicated therein and the petitioner asserts in the writ petition that the Branch Manager of the Corporation had a thorough discussion with the petitioner and after some negotiation it was agreed and understood that the notice dated 6-1-1984 shall not be acted upon. Though this part of the petitioner's case has been denied by the Corporation in its counter-affidavit, but all the same the stand of the Corporation is that notice dated 6-1-1984 was not at all served o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles of natural justice and must be set aside. If the order dated 27-14984 is set aside, all subsequent actions including handing over the possession of the industrial concern to Orissa Ceramic Industries Limited is also bad in law and the petitioner would be entitled to get back possession of the industrial premises. 14. Before we direct the delivery of possession of the industrial premises to the petitioner, one other fact also has to be taken note of. There is no dispute that the petitioner was in default though there is dispute amongst the parties as to the exact quantum. In Annexure-2 dated 6-1-1984, the petitioner had indicated that by 31-3-1984, the Company would be able to pay ₹ 1,55,000/- in different instalments. The agreement for sale between the Corporation and the Orissa Ceramic Industries Limited which has been annexed as Annexure-8 to the writ petition in O.J.C No. 427 of 1984 indicates that there has been a cash payment of ₹ 3,61,000/- and the next instalment for payment is due on 1-3-1985. Therefore, we assume that the Orissa Ceramic Industries Limited has made the payment of ₹ 3,61,000/- to the Corporation. The Orissa Ceramic Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X
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