M/S. EVEREST WOOLS PVT. LTD. AND ORS. versus U.P. FINANCIAL CORPORATION AND ORS.

Citation: [2007] 13 S.C.R. 857 · Decided: 14-12-2007 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

~ 
MIS. EVEREST WOOLS PVT. LTD. AND ORS. 
A 
I 
v. 
U.P. FINANCIAL CORPORATION AND ORS. 
DECEMBER 14, 2007 
B 
(S.B. SINHA AND HARJIT SINGH BEDI, JJ.] 
< 
... 
U.P. State Financial Corporation Act, 1951; Ss.29 and 31/UP. 
Public Moneys (Recovery of Dues) Act, 1972: 
c 
Recovery of loan-A company took loan from State Financial 
Corporation and later ji·om another State Undertaking-Issuance of 
Notice to company by the Corporation to explain as to why it took 
loan from the State Undertaking and purchased second hand plant and 
machinery in breach of contract-In exercise of power u/s. 29of1972 D 
Act, assets of company taken over by the Corporation and the State 
Undertaking invoking guarantees executed by Managing Director of 
Company-Challenge to-Dismissed by High Court-On appeal, 
Held: Statutory power to realize dues conferred on Corporation, a 
statutory authority/State in terms of Article 12 of the Constitution-
E 
It has to act fairly and reasonably-Taking over possession of an 
ongoing concern without taking over the Management would be 
termed as sale of the Unit-Supreme Court is not aware as to whether 
any steps in regard to sale of the Unit had been taken by the 
.... 
Corporation-Hence, in the interest of justice, matter remitted to High 
-.-
Court for consideration afresh-Constitution of India, 1950-Articles F 
12 & 14-Indian Contract Act, 1872-Contract-Breach of 
Corporation/State-Duty of-Contract-Terms-Breach of-
Discussed. 
Words and Phrases: 
G 
t 
'Fairness '-Meaning of in the context of Section 29 of the U.P. 
State Financial Corporation Act, 1951. 
857 
H 
858 SUPREME COURT REPORTS 
[2007] 13 (Addi.) S.C.R. 
A 
Appellant-Company took loan from Respondent-Corporation. 
The Company also applied for grant ofloan to respondent No.3, the 
Pradeshiyalndustrial and Investment ofU.P. Ltd. (PICUP). A notice 
was issued by the Corporation on the premise that the company had 
purchased second-hand plants and machinery worth Rs.6.75 lacs 
B from one of their financed units and obtained financial assistance 
from PICUP in breach of terms ofloan. An explanation, pursuant 
thereto, was submitted by the company. However, entire loan was 
recalled by the Corporation on the premise that the company had 
committed defaults in paying the instalments. The Corporation, in 
C exercise of its powers under Section 29 of the U.P. State Financial 
Corporation Act, has taken over possession of the assets of the 
company. First Information Report was also lodged in respect of the 
purported purchase of second-hand plant and machinery by the 
company. On enquiry, the allegations against the company were not 
D found to be correct; whereafter a request was made by the company 
to the Corporation as also PI CUP 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 company. 
A recovery proceeding was also initiated. The Company and its 
E Managing Director filed writ petitions for directions to the 
Corporation to quash the personal recovery certificates for recovery 
of loan and also for recovery of the Unit. The petitions were 
dismissed by the High Court. Hence the present appeals. 
Appellants contended that the provisions of Section 29 of the 
F 1951 Act have been misused in the instant case; 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; and 
that taking recourse to invocation of the personal guarantees of the 
Directors of the Company for recovery of the loan amount was totally 
G illegal. 
Respondents submitted that in terms of the provisions of the 
1951 Act as also U.P. Public Moneys (Recovery of Dues) Act, they 
were not only entitled to take possession of the properties under 
H Section 29 of the 1951 Act but were also entitled to invoke the 
.. 
M/S.EVERESTWOOLSPVT.LTD. v. U.P.FINANCIAL 
859 
CORPORATION 
.. 
guarantees furnished by the Directors of the company; that A 
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; and that even for B 
the said purpose only a suit would be maintainable and not a writ 
application. 
,. 
Allowing the appeal
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