Equivalent Citation: AIR2010SC3534, 2010(6)ALD29(SC), 2010

AWC(Supp)4387SC, 2010(5)BomCR684, RLW2011(1)SC41,

(2010)7SCC489, [2010]8SCR358

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 7189 of 2002

Decided On: 09.07.2010

Appellants: Managing Director, Maharashtra State Financial

Corporation and Ors.
Vs.
Respondent: Sanjay Shankarsa Mamarde

Hon'ble Judges:
D. K. Jain and H. L. Dattu, JJ.

Subject: Consumer

Catch Words

Mentioned IN

Acts/Rules/Orders:

Consumer Protection Act , 1986 - Sections 2

and 23

Cases Referred:
U.P. Financial Corporation and Ors. v. Naini Oxygen and Acetylene Gas
Ltd. and Anr. MANU/SC/0638/1995 : (1995) 2 SCC 754; Haryana
Financial Corporation and Anr. v. Jagdamba Oil Mills and
Anr. MANU/SC/0056/2002 : (2002) 3 SCC 496

Disposition:
Appeal allowed

Citing Reference:

U.P. Financial Corporation and Ors. v. Naini Oxygen and Acetylene

Gas Ltd. and Anr. MANU/SC/0638/1995
Relied On
Haryana Financial Corporation and Anr. v. Jagdamba Oil Mills and Anr.
MANU/SC/0056/2002 Relied On

Case Note:

Consumer - Compensation - Consumer

Protection Act , 1986 - National Consumer

Disputes Redressal Commission allowed Respondent's
complaint and directed Corporation to pay an amount of
compensation with further interest to complainant - Hence,
this Appeal - Whether, Commission was correct in holding that
there had been deficiency in service provided by Corporation
to complainant on account of their failure to release balance
loan amount - Held, there was no shortcoming or inadequacy in
service on part of Corporation to performed its duty or to

discharge its obligations under loan agreement -

However, Corporation was constrained not to release balance
installments and recall loan on account of defaults on part of
complainant himself - Moreover, complainant was defaulter
right from inception in his dealing with corporation in
discharging its liability, despite repeated demand for payment
- Therefore, failure of Corporation to render 'service' could not

be held to give rise to claim for recovery of any amount

under Act - Hence, order passed by Commission was set

aside - Appeal allowed.

Ratio Decidendi:
"Where borrower has no genuine intention to repay and
adopts pretexts and ploys to avoid payment, then no
grievance can make out against Corporation."

JUDGMENT

D.K. Jain, J.

1. Challenge in this appeal, filed under Section 23 of

the Consumer Protection Act, 1986 (for short "the Act"), by the
Maharashtra State Financial Corporation (hereinafter referred to
as "the Corporation"), is to the final order, dated 7th January,
 2002, passed by the National Consumer Disputes Redressal
Commission, New Delhi (for short "the Commission") in Original
Petition No. 9 of 1995. By the impugned order, the Commission
has accepted the complaint preferred by the respondent
(hereinafter referred to as "the complainant") against the
Corporation and has directed the Corporation to pay to the
complainant an amount of Rs. 4,84,457/- as compensation,
within a period of two months from the date of the order and in
case of default, to pay interest at the rate of 18% per annum
from the date of order till actual payment.

2. Succinctly put, the material facts giving rise to the present

appeal are as follows:

The complainant approached the Corporation for sanction of loan

for his hotel project at Amravati. As per the project report, the
capital outlay was of Rs. 74.45 lakhs. The means of finance
envisaged in the project report were as follows:

i) Proprietor's capital : Rs. 16.80 lakhs

ii) Term loan from : Rs. 30.00 lakhs

Corporation

iii) Special Capital : Rs. 21.30 lakhs

Incentive from
SICOM

iv) Unsecured loans : Rs. 6.35 lakhs

Total : Rs. 74.45 lakhs

3. The Complainant's loan proposal was approved by the Executive

Committee of the Corporation on 27th May, 1992, sanctioning a
term loan of Rs. 30 lakhs to the complainant. Accordingly, a
sanction letter along with terms and conditions of the loan was
issued to the complainant on 2nd July, 1992. The material
conditions of loan were as follows:

(a) The loan shall be utilised exclusively for the project as per
the scheme approved by MSFC and the specific purposes
for which the same is sanctioned.

(b) The loan shall be disbursed by MSFC in one lump sum or in

instalments as and when the said purposes are fulfilled or
 at the entire discretion of the Corporation or may be
refused if in the opinion of the Corporation, the purpose for
which the full loan has been sanctioned are not properly
fulfilled.

(c) The loan will be disbursed either for acquisition of fixed

assets under the said scheme or for reimbursement of
funds utilised for acquisition of fixed assets taken for

security under the said scheme.

(d) A minimum margin of 55% over all on fixed assets shall be

maintained during the currency of the loan.

(e) The loan shall be repaid within a period of 8 years by 13

half yearly instalments commencing from the end of 2nd
year of disbursement of the first instalment of the loan.
The amount of each instalment repayable being about 1/13
of the amount sanctioned regardless of the amount
disbursed.

(f) The interest shall be charged @ 22% p.a. and the same
shall be payable quarterly on the total loan and the same
shall be charged from the date of disbursement of first
instalment of the loan.

Additionally, it was also agreed that the loan amount would be

disbursed depending on the progress of the work in accordance
with a set time schedule. The progress of the construction work
was required to be evaluated by the valuer approved by the
Corporation.

4. The said conditions were accepted by the complainant. Pursuant

to complainant's request vide his letter dated 2nd September,
1992, undertaking to bring entire 100% capital; filing his
banker's confirmation for grant of bridge loan against subsidy i.e.
(SCI) and load sanction letter from MSEB, before availing of the
next disbursement, the first instalment of the loan of Rs.
2,90,000/- was released by the Corporation to the complainant.
On the same day, the complainant issued a cheque in the sum of
Rs. 30,000/- towards up-front fees to the Corporation. However,
the said cheque of Rs. 30,000/- was dishonoured when presented
for payment. By their letter dated 15th December, 1992, the
Corporation intimated the complainant that despite the release
of first instalment of Rs. 2.90 lakhs, he had neither submitted
papers for further disbursements nor reported progress of the
 project and had also failed to submit Chartered Accountant's
certificate showing his investment. Subsequently, a valuation
report dated 7th January 1993, showing that a total amount of
Rs. 6,97,057/- (Rs. 5,02,099/- as per previous valuation + Rs.
1,94,958/- as per present valuation) had been spent on the
construction of the hotel was filed by the complainant. According
to the Corporation, despite the fact that the complainant had
failed to submit complete documents, second instalment of Rs.
87,000/- was released to him on 19th January 1993, after
adjusting therefrom the amount of interest due in terms of the
conditions of loan.

5. Vide their letter dated 5th March, 1993, the Corporation

requested the complainant to inform them about the progress of
the project and avail the balance loan limit by submitting
valuation report, Chartered Accountant's certificate towards
further investment made by him for creation of fixed assets.
According to the Corporation, since they had learnt that there
was a proposal for laying a railway line between Amravati and
Narkhed which was likely to affect the hotel project and the
complainant had also defaulted in payment of interest despite
repeated requests by them vide their letters dated 10th
December 1993 and 24th February, 1994, they did not release
further instalments of the loan sanctioned to the complainant. On
the contrary, the stand of the complainant was that although by
June 1993, he had spent Rs. 27,25,510/- but no evaluation was
done by the valuer of the Corporation and all his request for
release of further instalments fell on deaf ears. All the time, the
Corporation insisted on a written assurance from the railway
authorities that the proposed Amravati and Narkhed railway line
would not be passing through the hotel project site, before
releasing the balance loan amount.

6. Finally, vide their letter dated 5th September, 1994, the

Corporation informed the complainant that the entire balance
unavailed term loan of Rs. 26.23 lakhs had been treated as
cancelled. The said intimation was followed by a legal notice
dated 18th October, 1994 by the Advocate of the Corporation,
wherein it was alleged that the complainant had failed to pay the
interest on the amount already disbursed to him; as on 31st
March, 1994 he was in arrears by more than Rs. 1 lakh as
interest and he had also failed to give any alternative proposal
for the hotel project as the project at the existing site was likely
to be affected by new railway track from Amravati to Narkhed.
The complainant was called upon to repay the entire loan
amounting to Rs. 5,19,726/-, the outstanding amount as on 23rd
 September,1994, within fifteen days from the date of receipt of
the said notice.

7. It appears from the impugned order that by his letter dated 15th
September 1994, the complainant protested to the recall of loan
sanctioned to him. It is stated that the complainant pointed out
that though a number of instalments of the loan had fallen due
to be paid to the complainant, it was only as late as on 29th July,
1994, that he was asked to submit a letter from the competent
authority regarding the status of the railway line and that he
promptly submitted a certificate issued by the Commissioner,
Amravati Division affirming that there was no proposal of
Amravati - Narkhed line.

8. Having failed to get any favourable response from the

Corporation, on 17th January 1995, the complainant filed a
complaint with the Commission. It seems that during the
pendency of the complaint before the Commission, the
Corporation retraced their steps and proposed to renew the loan
on certain conditions, which were not acceptable to the
complainant.

9. As already stated, the Commission has accepted the complaint

and has come to the conclusion that there was no justifiable
ground for the Corporation to deny disbursement of loan to the
complainant. According to the Commission, having sanctioned
the loan and then stopping its disbursement without any cause
amounted to deficiency in service on the part of the Corporation.
However, keeping in mind the passage of time, the Commission
did not find it expedient to direct the Corporation to release
further instalments of the loan, sanctioned as far back as in July
1992.

10. Being aggrieved by the award of compensation, the Corporation

has preferred this appeal.

11. We have heard Mr. Santosh Paul, learned Counsel appearing for
the Corporation and Mr. Manish Pitale, learned Counsel
appearing for the complainant.

12. Learned Counsel appearing for the Corporation submitted that in

the instant case there was no deficiency in service as defined in

Section 2(g) of the Act . The learned Counsel argued that

the Commission has exceeded its jurisdiction in examining the
administrative decision of the Corporation to recall the loan as it
 felt that having regard to the past conduct of the complainant it
was not in the interest of the Corporation to disburse the balance
amount of loan to him. Relying on the decision of this Court in
U.P. Financial Corporation and Ors. v. Naini Oxygen and
Acetylene Gas Ltd. and Anr. MANU/SC/0638/1995 : (1995) 2 SCC
754 it was submitted that unless the action of the Corporation
was held to be mala fide, even a wrong decision taken by it was
not open to challenge as it is not for the Courts or a third party to
substitute its decision, however more prudent, commercial or
businesslike it may be, for the decision of the Corporation.
Reliance was also placed on another decision of this Court in
Haryana Financial Corporation and Anr. v. Jagdamba Oil Mills and
Anr.MANU/SC/0056/2002 : (2002) 3 SCC 496 to contend that in
commercial matters the Court should not risk their judgments for
the judgments of the bodies to whom that task is assigned. It
was asserted that since the Corporation was of a bona fide belief
that the entire hotel project of the complainant may get affected
because of the proposed railway line and further there were
defaults on the part of the complainant to discharge his liability
towards quarterly instalments of interest, the decision of the
Corporation not to disburse further instalments cannot be termed
as mala fide or unreasonable and, therefore, there was no
question of any deficiency in the service of the Corporation
towards the complainant.

13. Supporting the impugned judgment, learned Counsel appearing

for the complainant, on the other hand, submitted that in the
absence of any stipulation in the conditions of loan for stopping
the disbursement on account of default in the payment of
interest on time, the action of the Corporation in not releasing
the remaining instalments on the stipulated dates not only
affected the hotel project, it also caused a huge loss to the
complainant as he was deprived of the special capital incentive
by SICOM. It was argued that the non release of the instalments
on the specious plea that there was a proposal for a railway line
was mala fide inasmuch as there was no such proposal.

14. The short question arising for consideration is whether the

Commission was correct in holding that there has been
deficiency in service provided by the Corporation to the
complainant on account of their failure to release the balance
loan amount?

15. Clause (o) of Section 2 of the Act defines "service" to mean:

 "service" means service of any description which is made
available to potential users and includes, but not limited to, the
provision of facilities in connection with banking, financing
insurance, transport, processing, supply of electrical or other
energy, board or lodging or both, housing construction,
entertainment, amusement or the purveying of news or other
information, but does not include the rendering of any service
free of charge or under a contract of personal service;

The use of the words 'any' and 'potential' in the context these
have been used in Clause (o) indicates that the width of the
clause is very wide and extends to any or all actual or potential
users. The legislature has expanded the meaning of the word
further by extending it to every such facilities as are available to
a consumer in connection with banking, financing etc.
Undoubtedly, when the bank or financial institutions advance
loans, they do render 'service' within the meaning of the clause.
In that behalf, there is no dispute.

16. "Deficiency" under Clause (g) of Section 2 of the Act means:

"deficiency" means any fault, imperfection, shortcoming or

inadequacy in the quality, nature and manner
of performance which is required to be maintained by
or under any law for the time being in force or has been
undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service;

It is manifest from the language employed in the clause that its

scope is also very wide but no single test as decisive in the
determination of the extent of fault, imperfection, nature and
manner of performance etc. required to be maintained can be
laid down. It must depend on the facts of the particular case,
having regard to the nature of the 'service' to be provided.

17. Therefore, in so far as the present case is concerned, in order to

examine whether there was a deficiency in service by the
Corporation, it has to be seen if there was any inadequacy in the

quality, nature and manner of performance which was

required to be maintained by the Corporation in terms of their
letter dated 2nd July, 1992, conveying the sanction of loan to the
complainant. As noted above, the Corporation was obliged to
disburse to the complainant a loan of Rs. 30 lakhs in instalments
on complainant's furnishing the progress report of the project.
Although, no specific information with regard to the actual dates
 for release of the instalments of the loan amount are
forthcoming, yet it can be gathered from the correspondence on
record that the loan amount was to be disbursed periodically
(perhaps half yearly), on the basis of the report of the approved
valuer on the progress of the project. It is evident from
Corporation's letters dated 5th March, 1993, 10th December,
1993, 24th February, 1994 and 29th July, 1994 that the
complainant not only failed to furnish the progress report, he
also did not discharge his liability towards interest, as demanded
from him from time to time. As already stated, even the cheque
in the sum of Rs. 30,000/- issued by the complainant to the
Corporation on 2nd September, 1992 towards up-front fee was
returned unpaid by his bankers. In Corporation's letter dated
24th February, 1994 it was alleged that the complainant had not
only failed to pay interest, it was also found on inspection on
couple of occasions by the Regional Manager that during the last
four months there was no further progress in implementation of
the project. It is significant that these allegations and details of
interest due from the complainant had not been seriously
disputed by the complainant either before the Commission or in
the counter affidavit filed by him in this appeal. In the
background of the factual scenario as emerging from the
material on record, we are convinced that there was no
shortcoming or inadequacy in the service on the part of the
Corporation in performing its duty or discharging its
obligations under the loan agreement. The Corporation was
constrained not to release the balance instalments and recall the
loan on account of stated defaults on the part of the complainant
himself. Non release of loan amount was not because of any
deficiency on the part of the Corporation but due to
complainant's conduct and therefore, the failure of the
Corporation to render 'service' could not be held to give rise to
claim for recovery of any amount under the Act.

18. We also find substance in the contention of learned Counsel for

the Corporation that unless the action of a financial institution is
found to be mala fide, even a wrong decision taken by it is not
open to challenge, as the wisdom of a particular decision is
normally to be left to the body authorized to decide. In U.P.
Financial Corporation and Ors. v. Naini Oxygen & Acetylene Gas
Ltd. and Anr. (supra) this Court had observed that a Corporation
being an independent autonomous statutory body having its own
constitution and rules to abide by, and functions and obligations
to discharge, in the discharge of its functions, it is free
to act according to its own right. The views it forms and the
decisions it takes would be on the basis of the information in its
 possession and the advice it receives and according to its own
perspective and calculation. In such a situation, more so in
commercial matters, the court should not risk their judgments for
the judgments of the bodies to which that task is assigned. It was
held that: (SCC p. 761, para 21)

Unless its action is mala fide, even a wrong decision taken by it

is not open to challenge. It is not for the courts or a third party to
substitute its decision, however more prudent, commercial or
businesslike it may be, for the decision of the Corporation.
Hence, whatever the wisdom (or the lack of it) of the conduct of
the Corporation, the same cannot be assailed for making the
Corporation liable.

19. Having considered the matter in the light of the correspondence

exchanged between the Corporation and the complainant, we
have no hesitation in holding that there has not been any
deficiency in the service the Corporation was required to provide
to the complainant. In our opinion, the Commission was not
correct in coming to the aforestated conclusion. We are of the
view that the complainant being himself a defaulter right from
inception of his dealing with the Corporation, when his cheque in
the sum of Rs. 30,000/- got dishonoured, coupled with persistent
defaults in discharging his liability to the Corporation towards
interest, despite repeated demands, he cannot be permitted to
plead at the later stage that he suffered on account of deficiency
in service by the Corporation because of non-disbursement of
balance instalments of loan by them. As was observed by this
Court in Jagdamba Oil Mills (supra), while not insisting upon the
borrower to honour the commitments undertaken by him, the
Corporation alone cannot be shackled hand and foot in the name
of fairness. Fairness cannot be a one-way street. Where the
borrower has no genuine intention to repay and adopts pretexts
and ploys to avoid payment like in the present case, he cannot
make the grievance that the Corporation was not acting fairly,
even if requisite procedures have been followed.

20. For the foregoing reasons, we allow the appeal; set aside the
order passed by the Commission and dismiss the complaint filed
by the complainant. Amount deposited in terms of order dated
19th July, 2004 shall be released to the Corporation on maturity
of the fixed deposit. There shall, however, be no order as to
costs.
Equivalent Citation: I(1996)BC1(SC), [1995]82CompCas671(SC),
1995(1)CTC362, JT1994(7)SC551, 1994(4)SCALE1076, (1995)2SCC754,
[1994]Supp5SCR654
IN THE SUPREME COURT OF INDIA
Civil Appeal No. 568 of 1987
Decided On: 22.11.1994
Appellants: U.P. Financial Corporation and Ors.
Vs.
Respondent: Naini Oxygen & Acetylene Gas Ltd. and Anr.
Hon'ble Judges:
Kuldip Singh Singh and P.B. Sawant, JJ.
Subject: Civil
Catch Words
Mentioned IN
Acts/Rules/Orders:
State Financial Corporation Act, 1951 - Section 29; Constitution of India
- Articles 136 and 226; Uttar Pradesh Public Moneys (Recovery of Dues)
Act - Section 3
Case Note:

Civil - loan to company - Section 29 of State Financial

Corporation Act, 1951, Articles 136 and 226 of Constitution of
India and Section 3 of Uttar Pradesh Public Moneys (Recovery
of Dues) Act - persistent default in repayment of loan
instalments by respondent company to State Financial
Corporation - under Section 29 of Act of 1951 corporation took
over defaulting company when huge amount of dues accrued -
when Industrial Reconstruction Bank of India (IRBI) submitted
its report it was found that machinery of industrial
undertaking deteriorated due to long closure and non usage -
Corporation under such circumstances refused to comply with
relief package suggested by IRBI - Corporation being
independent autonomous body is free to act in discharge of its
functions - it is not for Courts to substitute its decision for
decision of Corporation - held, High Court not justified in
stepping in and substituting its judgment for judgment of
Corporation.

JUDGMENT
P.B. Sawant, J.

1. The case of the appellant-State Financial Corporation [for short

the "Corporation"] is that it was established under the State
Financial Corporation Act, 1951 [hereinafter referred to as the
"Act"]. On 10th December, 1975, it sanctioned a term loan of Rs.
30 lakhs to the 1st respondent-Company [for short the
"Company"] payable in 17 half-yearly instalments by the 22nd of
August, 1986. The Memorandum of Agreement executed the
Corporation and the Company and the Deeds of Mortgage and
Hypothecation executed by the Company in favour of the
Corporation, inter alia provided for recall of the entire balance of
the loan in the event of default on the part of the Company in
paying two instalments of the loan and further to recover the
balance of loan as arrears of land revenue. Accordingly, the
Corporation disbursed Rs. 18 lakhs to the Company in 1977 and
Rs. 10 lakhs in 1978. In 1979, the Acetylene Gas plant of the
Company was commissioned. In 1980, the Corporation disbursed
the balance of Rs. 2 lakhs to the company thus making the total
payment of loan of Rs. 30 lakhs. In July 1981, the Oxygen Gas
plant of the Company was also commissioned.

2. The Company, however, made persistent defaults in repayment

of the loan instalments with the result that the recovery
certificate was issue against it under Section 3 of the U.P. Public
Moneys [Recovery of Dues] Act. The Company challenged the
said recovery proceedings before the High Court in W.P. No.
15648 of 1981 which, however, was withdrawn by it later.
Thereafter on 30th November, 1981, the Company filed
Company Petition No. 23 of 1981 under Sections 397 and 398 of
the Companies Act in the High Court seeking removal of persons
then in management on grave charges of manipulation of
accounts, re-allotment of forfeited shares etc.

3. On 25th March, 1982, the State Government issued Office

Memorandum enunciating a scheme for rehabilitation of sick
units and setting up, inter alia a State Level Inter-institutional
Committee with power to approve loan upto Rs. 30 lakhs. On 9th
 January, 1984, there was a compromise in Company Petition No.
23 of 1981 whereunder the then management of the Company
started running the plants. On 30th November, 1984, the Joint
Director of Industries declared the Company to be a sick unit. On
5th October, 1985, the State Level Inter-institutional Committee
suggested a Rehabilitation Package which envisaged
reschedulement of payment by the Company, arrangement of
finances by the Company, appointment of two Directors
nominated by the Corporation and execution of personal
guarantee by the DirectOrs.

4. On 19th October, 1985, the Corporation wrote a letter to the

Company stipulating the said conditions of the package. On 28th
November, 1985 the terms of the Rehabilitation Package were
acknowledged by the Company. On 5th December, 1985, the
Board of Directors of the Corporation approved the Rehabilitation
Package. The Company, however, did not take any steps to
implement the Rehabilitation Package.

5. On 30th May, 1986, the Corporation issued to the Company

notice under Section 29 of the Act for recovery of Rs.
90,31,102.13 which was made up on the principal amount of Rs.
30 lakhs, interest amount of Rs. 59,40,514.13 upto 31st March,
1986 and expenses of Rs. 90,588.00. The Company gave reply to
the notice on 5th June, 1986.

6. On 13th June, 1986, the Corporation took over the industrial

establishment under Section 29 of the Act. On 11th August,
1986, the Corporation pointed out to the Company that none of
the conditions of the Rehabilitation Package was complied with.
On 1st October, 1986, the Company filed W.P. No. 16691 of 1986
in the High Court. On 16th December, 1986, the Corporation
declined to further liberalise the package. On 13th/15th January,
1987, the High Court allowed the writ petition and directed the
Corporation to hand over the possession of the industrial unit to
the Company without any adjustment. On 5th March, 1987, this
Court granted special leave and stayed the operation of the High
Court's order and asked the Industrial Reconstruction Bank of
India [IRBI] to submit its report as to the viability of the
Company. On 29th January, 1988, the IRBI made a report stating
therein inter alia that after reschedulement and further infusion
of about Rs. 1 crore, the unit will be "marginally viable".

7. On these facts, the question raised by the Corporation in this

appeal is whether the Corporation is obliged to invest a further
sum of Rs. 1 crore in the establishment and whether even after
 such investment the unit will be viable or whether the
Corporation should realise its loan from the sale of the assets of
the Company.

8. As against the aforesaid case of the Corporation, the contention

of the Company is that pursuant to the loan sanctioned by the
Corporation, the Company imported two heavy-duty compressors
from the U.S.A. and commissioned the Acetylene
and Oxygen plants in 1979 and 1980 respectively. On account of
the mismanagement of the majority group then dominating the
management of the company, the present management which
consisted of a minority of shareholders, had to institute
proceedings in the High Court under Sections 397 and 398 of the
Companies Act, and in February 1984 the High Court under a
compromise order got the shares of the then management
transferred to the present management at the face value of Rs.
10/- per share. The equity capital invested by the present
management, viz., D.P. Agrawal Group, therefore, became of the
order of Rs. 18 lakhs. Thereafter, the present management took
various steps to revive the Company which had become sick and
brought the plants into running condition after overhauling them
at a considerable cost. For the purpose, the present
management gave loans of about Rs. 30 lakhs to the Company.
On this investment, the total investment of the present
management group became of the order of about Rs. 50 lakhs.

9. On 30th November, 1984, the unit was declared sick by the Inter-
institutional Committee consisting of various State Government
agencies including the Corporation. This Committee was formed
under the Government Order dated 25th March, 1982. By the
said G.O. the Committee had been given full powers to take all
steps to revive sick units in the State which were found viable
and which could be restored to health. The Committee had also
the power to wind up such units as were found not viable.

10. On 5th October, 1985, the State-level Inter-institutional

Committee which was presided over by the Commissioner,
Allahabad Division, suggested the Rehabilitation Package. On the
same day, viz., 5th October, 1985 the Board of the Corporation
met and noted that the new management of the Company had
brought about Rs. 8.30 lakhs during 198.4-85 and 1985-86 and
approved of the Rehabilitation Package suggested by the
Committee. On 19th October, 1985, the Corporation also issued
to the Company a formal letter communicating that the request
for rehabilitation of the unit had been considered and the reliefs
and concessions set out in the said letter had been granted. The
 concession included rescheduling of the payment of the principal
amount of the loan of Rs. 30 lakhs so as to require the said
repayment from 22nd August, 1987 to 22nd August, 1993. The
concessions also included the grant of interest-free funding on
simple interest which was made repayable from February 1987
to February, 1996. The penal and compound interests were
waived. The result of the grant of these concessions was that the
repayment of the amount due to the Corporation was only to
commence in 1987 and not before.

11. On 23rd December, 1985, the Commissioner and Director of

Industries, U.P. wrote to the Reserve Bank to place the matter
relating to the Company before the State Level Inter-institutional
Committee for their final decision and asked the Reserve Bank to
request all departments including the Corporation to stay their
recovery proceedings till the final decision was taken on the
rehabilitation. On 6th January, 1986, the Reserve Bank requested
the Corporation to stay the recovery proceedings.

12. In spite of this and in spite of the fact that the matter concerning
the rehabilitation of the unit was pending consideration before
the State Level Inter-institutional Committee and the Corporation
itself had granted deferment of the repayment of the loan to
1987 to be completed in 1996, the Corporation issued another
recovery notice of 9th January, 1986. However, on 18th January,
1986, the Head Office of the Corporation advised its Allahabad
branch to stay the recovery proceedings. On 2nd May, 1986,a
meeting of the State Level Inter-institutional Committee
convened by the Reserve Bank, was held and the representative
of the Corporation informed the Committee that the Corporation
had stayed the recovery proceedings against the Company and
in consultation with the Canara Bank a proposal for rehabilitation
of the Company had been forwarded to the IRBI. The Committee
decided that the Reserve Bank will call a joint meeting of all the
agencies to take a decision in the matter. However, the
Corporation once again issued a recovery notice on 30th May,
1986. The Company replied to the said notice on 5th June, 1986
stating that on account of the deferment of the repayment
scheduled by the Corporation itself, dues for which the notice
was issued were not payable before 1987 and further the whole
matter of rehabilitation was pending to be finalised.

13. Both the Acetylene and Oxygen plants, in the meanwhile,

were working to full capacity, the same being 24 hour continuous
process plants. However, on 13th June, 1986, the Corporation got
the factory sealed and the workers were forcibly evicted from the
 factory. This arbitrary action of the Corporation was criticised by
all Government agencies and officers in [written] letter which are
on record. They are: IRBI's letter dated 30th June, 1986, Canara
Bank's letters dated 14th, 16th and 17th June, 1986; letter dated
28th June, 1986 of the Commissioner, Rehabilitation Division and
the letter dated 30th June, 1986 of the Additional Director of
Industries. The Corporation, however, did not consider the advice
given by these institutions and instead wrote to the Company's
customers asking them not to pay the dues of the Company's
bills and not to return the Company's empty cylinders [about
1000 of the value of about Rs. 20 lakhs]. The said cylinders are
now not traceable with the lapse of time.

14. On 11th August, 1986, the Director of Industries again wrote to

the Reserve Bank requesting it to take up the matter of
rehabilitation before the State Level Inter-institutional
Committee. On the same day, the Corporation wrote to the
Company agreeing to give to the company the possession of the
unit stating that the IRBI shall prepare a total rehabilitation
proposal within three months and the Corporation will follow the
said proposal. The letter further stated that the present Directors
of the Company should give personal guarantee for the
repayment of the liabilities of the Corporation. On 21st August,
1986, the Company accepted the terms stipulated by the
Corporation in its said letter and also confirmed that the
Directors will give personal guarantee for such amounts as were
decided upon by the IRBI. On the same day, i.e., 21st August,
1986 the Reserve Bank wrote to the Director of Industries that in
the meeting of the State Level Inter-institutional Committee held
on 2nd May, 1986 an assurance was given by the representative
of the Corporation that the recovery proceedings against the
Company had been stayed, and, therefore, a decision was taken
to call another meeting for the rehabilitation of the unit. Since,
however, the Corporation had taken physical possession of the
unit, no further action could be taken pursuant to that decision.
The Reserve bank in that letter also desired that the matter be
taken up with the State Government so that the Government
could intervene to stay the actions of the Corporation. By his
letters of 29th August, 1986, the Director of Industries advised
the Corporation to withdraw its action and allow the unit to run.

15. It was in these circumstances that the Company was forced to

file the writ petition in the High Court on 1st August, 1986. The
High Court had, by its impugned judgment, found that the action
of the Corporation was very arbitrary and had directed it to
restore the possession to the Company forthwith. It had also
 directed the IRBI to prepare rehabilitation package within four
months of the restoration of the possession.

16. At the time the Corporation sealed the unit viz., on 13th June,
1986, according to the Company, the value of its assets was
about Rs. 96 lakhs. This valuation had been done at the instance
of the Corporation by a registered valuer in the later part of
1985. Under the Rehabilitation Package proposed by the
Corporation, the Company was liable to pay to it the principal
amount of Rs. 30 lakhs and interest on it in deferred instalments
from 1987 to 1993 and without any further interest on the said
interest amount in easy instalments from 1987 to 1996. In
addition, the liabilities of the Canara Bank had already been
quantified at Rs. 12.5 lakhs and the Bank had also to recover the
said liabilities in easy instalments. Thus, as against the assets of
the Company worth Rs. 96 lakhs, the total liabilities of the
Company to the Corporation and the Canara Bank together were
between Rs. 75 to 80 lakhs and these liabilities were also to be
discharged in easy instalments upto 1996. Hence it is the case of
the Company that the impugned judgment of the High Court was
perfectly justified.

17. However, the Corporation obtained the stay of the said judgment
from this Court which has continued form 1987 to this day. The result
has been that the plants have continued to remain closed and the
interest has continued to accumulate on the dues of the Corporation
and the Canara Bank. The plants have, in the meanwhile become
almost a junk, and the cylinders worth Rs. 20 lakhs are not traceable.
Today, the total value of the assets including land and buildings has
come down to Rs. 42 lakhs from Rs. 96 lakhs in 1986. It is, therefore,
the contention of the Company before us that the Corporation's appeal
should be dismissed and the Company should be restored to the same
position in which it had been on the date the stay order was obtained
in this appeal. It is contended that if the stay order had not been
obtained by the Corporation, the Company would have got the
possession of the plants in January 1987 in good condition and its
liabilities would have been only between Rs. 75 to 80 lakhs. The
Company further prays that the interest which has accrued on the dues
of the Corporation should be waived and that on the dues of the
Canara Bank should be borne by the Corporation. It is further
contended by the Company that as per the order of this Court passed
on 5th March, 1987, the IRBI has submitted its report on 5th February,
1988 according to which the unit was found viable. In this connection,
the following passages from the said report are relied upon by the
Company.
 Resolved that the proposal contained in memorandum of IRBI No.
8793/88 dated 1.12.88 for sanction of Rupee term loan not
exceeding Rs. 190 lakhs (Rupees one hundred and ninety lakhs

only) to Naini Oxygen & Acetylene Gas limited (NOAG)

towards the cost of proposed modernisation - cum-rehabilitation
scheme on the terms and conditions contained in Appendix of
the memorandum, besides normal terms and conditions
applicable to such loan from IRBI, be and is hereby approved.
*********
In the light of IRBI having submitted a report on the viability
aspect of NOAG as elaborated earlier, the Hon'ble Supreme Court
has directed IRBI to consider the report and intimate its decision
to this Court. UPFC some time in August, 1986 had
communicated earlier to the Company its intention, inter-alia, to
follow the rehabilitation proposal approved by IRBI. In the
discussion with Canara Bank it appeared that the Bank was
favourably inclined to support rehabilitation proposal approved
by IRBI. Meanwhile, market study undertaken by M/s.
Development consultant Pvt. Ltd., reflects a favourable market
condition for the proposed produced mix of NOAG.

18. The Report had provided for a package of reliefs and concessions
relating to the Corporation and the Canara Bank. Apart from the
waiver of penal and compound interests which had also been
agreed to by the Corporation and refunding of the simple interest
which had also been agreed to by the Corporation, the package
proposed in the report, "interest holiday" during the period of the
closure of the factory, i.e., from the date of the take-over of the
factory to the date of the reopening of the same.

19. In this connection, the Company also pointed out that the IRBI
was prepared to give a term loan of Rs. 1.9 crores for making the
unit profitable and no additional finance was required either from
the Corporation or the Canara Bank. The Company had
thereupon made an application to this Court for permitting it to
repair the machinery under the supervision of the Corporation
pending the disposal of the appeal. However, the Corporation
through its counsel had undertaken to carry out the said repairs
itself, and this was recorded by this Court in its order of 27th
April, 1988. In spite of the undertaking to carry out the repairs,
the Corporation did not do so with the result the Company was
compelled to file an application for contempt being CMP No.
2715 of 1989. That Contempt Petition is still pending. The
Company would, therefore, also be entitled to be compensated
 for the losses caused to it on account of the non-fulfilment of the
undertaking given by the Corporation to the Court.

20. No doubt, there is nothing on record to explain certain events,

viz., [i] when on 19th October, 1985 the Corporation had issued
to the Company a formal letter communicating to it its
acceptance of the rehabilitation package and grant of reliefs and
concessions set out therein, what impelled the Corporation to
issue recovery notice on 9th January, 1986 which was later on
stayed by the Corporation itself on 18th January, 1986; [ii] if on
2nd May, 1986, the. Corporation had informed the State-level
Inter-Institutional Committee that it had stayed the recovery
proceedings, what impelled the Corporation once again to issue
the recovery notice on 13th May, 1986; [iii] if the Corporation
itself had agreed by its letter on 19th October, 1985 to
reschedule the payment of loan from 1987 to 1986, what
impelled it to issue the said recovery notice on 13th May, 1986
when admittedly as per the Corporation's offer, the payment of
loan and interest from the Company was not due and when the
entire matter of the rehabilitation of the Company was under
active consideration; [iv] what impelled the Corporation on 13th
June, 1986 to seal the unit and write to the customers not to pay
the bills and not to return the cylinders to the Company; [v]
when on 11th August, 1986, the Corporation had written to the
Company agreeing to give it back the possession of the unit and
to follow the rehabilitation proposal that would be prepared by
the IRBI on the condition that the Directors of the Company
would give personal guarantee for the payment of the liabilities
and the Company had accepted the terms by its letter of 21st
August, 1986 and when the Director of Industries had advised
the Corporation on 12th August, 1986 to withdraw the recovery
notice, why had the Corporation not handed over the possession
of the unit to the Company;. [vi] why had the Corporation not
taken steps to repair the machines, in spite of the undertaking
given to this Court and [vii] why had the Corporation not
accepted the report of the IRBI submitted on 5th February, 1988
to this Court when the IRBI was prepared to invest term loan of
Rs. 1.9 crores for making the unit marginally viable?

21. However, we cannot lose sight of the fact that the Corporation is
an independent autonomous statutory body having its own
Constitution and rules to abide by, and functions and obligations
to discharge. As such, in the discharge of its functions, it is free
to act according to its own light. The views it forms and the
decisions it takes are on the basis of the information in its
possession and the advice it receives and according to its own
 perspective and calculations. Unless its action is mala fide, even
a wrong decision taken by it is not open to challenge. It is not for
the courts or a third party to substitute its decision, however
more prudent, commercial or business like it may be, for the
decision of the Corporation. Hence, whatever the wisdom [or the
lack of it] of the conduct of the Corporation, the same cannot be
assailed for making the Corporation liable.

22. It cannot further be forgotten that in the present case, the

Company had made persistent defaults in repayment of the loan
installments with the result that recovery certificate had to be
issued against it under Section 3 of the U.P. Public Moneys
[Recovery of Dues] Act. The then management had mismanaged
the Company and a Company Petition had to be filed seeking its
removal on grave charges of manipulation of accounts,
reallotment of forfeited shares, etc. The non-discharge of the
liabilities of the Company was on account of the said fraudulent
practices of the management. By 30th May, 1986, the dues of
the Company mounted to Rs. 90,31.102/13 with the result that
on 13th June, 1986, the Corporation had to take over its
industrial establishment under Section 29of the Act. the report of
the IRBI which was given at the instance of this Court on 29th
January, 1988 had stated that the industrial unit could be made
only marginally viable provided another Rs. one crore were
invested in it and the loan instalments were rescheduled.
Between 1981 when the industrial establishment was closed
down and 1988 when the IRBI report was submitted, the
machinery of the establishment was lying idle and was almost
rusty with the result that by 1988, the value of the machinery
had gone down considerably, while its liabilities had gone up still
further. In the circumstances, if the Corporation thought that the
revival of the unit even after giving all concessions and reliefs as
per the package deal was problematic and the Corporation will
stand to lose whatever little it could retrieve towards its dues,
the Corporation could hardly be blamed for the same.

23. We are, therefore, of the view that this is not a matter where the
High Court should have stepped in and substituted its judgment
for the judgment of the Corporation which should be deemed to
know its interests better whatever the sympathies the Court had
for the prosperity of the Company. In matters commercial, the
courts should not risk their judgments for the judgments of the
bodies to whom that task is assigned.

24. If the situation was bad on the date of the impugned judgment, it
has become worse today. Between 1988 when the IRBI gave its
report and this day, the situation has worsened with the further
deterioration of the machinery and the spiralling of the liabilities.
To grant any indulgence to the Company at this stage will be
akin to flogging a dead horse. In the circumstances, we, allow
the appeal and set aside the impugned judgment of the High
Court. The Corporation will now be free to proceed according to
law.