MAHESH CHANDRA versus REGIONAL MANAGER, U.P. FINANCIAL CORPORATION AND ORS.

Citation: [1992] 1 S.C.R. 616 · Decided: 12-02-1992 · Supreme Court of India · Bench: K. RAMASWAMY · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
B 
MAHESH CHANDRA 
v. 
REGIONAL MANAGER, U.P. FINANCIAL CORPORATl()N AND 
ORS. 
FEBRUARY 12, 1992 
[K. RAMASWAMY AND R.M. SAHA!, JJ.] 
State Fi11a11cial Corporations Act, 1951: 
• 
C 
Sectio11 29'-Utta; Pradesh State Fi11a11cial Corporation-Loan to in-
;.c .c 
dustrial concenr-Defa11/t i11 payment of loan-Power of Corporation to take 
possession and sell the mortgaged property-Guidelines for exercising powers 
t111der section 29 issued. 
Financial Corporation-Loan to industrial concern against hypothe-
D cated property-Default in payment of loan by debtoi-Corporation's refusal 
to release hypotheca to debtor for private sale for repayment of debt-Taking 
possession of property by Corporatio11 a11d sale by invitation of tenders 
without 11oticc or oppon11nity to debtoi-Corporation's action held contrary 
to Section 24.--Sale held vitiated a11d 11ot binding on debtor-Held Corpora-
E 
tion is an instnunentality of State-It is bound to act fairly and reasonably in 
selling the property of debtor-Section 29 does .not exclude principles of 
nat1lral justice. 
Section 24--State Fi11ancia/ Corporation are extended amis of Welfare 
Stat<-Thcir approach should be public orie11ted-Board should discharge· its 
F ft111ctio11s 011 business principles. 
Words and Phrases. 
'Business'-Meaning of. 
The appellant was owner of two plots. In one of the plots a rice mill 
G was constructed by the partnership in which he was a managing partner. 
For taking a loan he hypothecated the mill and- the plots with U.P. 
Financial Corporation which sanctioned a loan of Rs. 4,28,000, but dis-
bursed only Rs. 3,78,660 to him. Due to non-cooperation of other partners, 
lack of working capital and failure of the Financial Corporation to release 
H the balance loan the mill landed into a rough weather. Consequently 
616 
MAHESH CHANDRA v. REGIONAL MANAGER 
617 
defaults were committed in repayment of loan. The appellant requested A 
the Corporation to release the vacant hypothecated plot to enable him to 
negotiate for private sale to pay off his debt and also stated that he was 
ready and willing to pay the outstanding amount of Rs. 5,03,165 towards 
principal and interest in full satisfaction under "one time settlement 
scheme". The Corporatien rejected his request and exercising its power 
under section 29 of the State Financial Corporations Act, 1951 took 
possession of the hypotheca, invited tenders for its sale and without giving 
B 
any notice or, opportunity to the appellant accepted the tender of Rs. 
2,55,000 given by respondents 3 to 5 •. Pursuant to the sale the 3rd respon-
dent took . possession of the property and invested a large sums for the 
improvement of the mill. The appellant filed a writ petition in the High C 
Court which was dismissed. Against the decision of the High Court the 
appellant filed an appeal in this Court. 
Allowing the appeal, this Court, 
HELD : 1. Section 29 of the State Financial Corporations Act confers D. 
very wide power on the Corporation to ensure prompt payment by arming 
it with effective measure to realise the arrears. Every wide power, the 
exercise of which has far reaching repercussion, has inherent limitation 
on it. It should be exercised to effectuate the purpose of the Act. [629D-E] 
1.1. The Corporation has been given statutory right to take over 
possession and management of the defaulting unit or hypotheca or both 
including the right to sell and realise the loan or advance due from the 
unit or debtor. The Corporation is an instrumentality of the State. The 
Corporation or its employees or officers are bound to act reasonably and · 
fairly in dealing With the property of the debtor. The exercise of the power 
or discreti~n in· its dealing would be subject to the same constitutional or 
public law limitation as the Government. The Corporation also equally 
must conform its action with the same standard that meet the test. of 
justness, fairness, reason.ableness and relevance. [628G·f!l 
E 
F. 
. 
G 
Kasntri/al Laxmi Reddy v. State of J & K, [1980] 3 S.C.R. 1338, 
referred to. 
1.2. Sub-section 4 of section 29 treats the Corporation "to be a 
trustee" of the debtor or person claiming title through him •. It saddles the 
Corporation or the officer concerned with inbuilt duties, responsibilities H 
618 
SUPREME COURT REPORTS 
[1992] 1 S.C.R. 
A and obligations towards the debtor in dealing with the property and entails 
him to act as a prudent and reasonable man standing in the shoes of the 
o
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