LexPUNJAB FINANCIAL CORPORATION versus M/S. SURYA AUTO INDUSTRIES
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(2009] 15 (ADDL.) S.C.R. 1187 PUNJAB FINANCIAL CORPORATION A v. ~·,.. M/S. SURYA AUTO INDUSTRIES -\ (Civil Appeal No. 7910 of 2009) DECEMBER 01, 2009 B [G.S. SINGHVI AND ASOK KUMAR GANGULY, JJ.] State Financial Corporations Act, 1951 - s. 29 - Rights of Financial Corporation in case of default - Default in payment of loan and interest - Notice by Financial c Corporation for possession of Unit of borrower - Subsequently, non-payment of outstanding dues and failure to avail concession offered by Corporation - Financial Corporation taking over collateral security and compounding ~ of penal interest - High Court quashing the same and D directing review of all pending cases in which penal interest \ -;. compounded - Sustainability of - Held: Not sustainable - I Financial Corporation being instrumentality of State, is expected to act fairly and reasonably qua its borrowers/ debtors, but is not supposed to give loans and refrain from E taking action for taking recovery thereof - Proceedings/action initiated by Corporation for recovery of outstanding dues cannot be nullified by courts except when such action is wholly arbitrary, unreasonable and unfair- On facts, Corporation had ... acted in a reasonable and fair manner - High Court F ~ overlooked important facts. The question which arose for consideration in this appeal was whether the High Court was justified in quashing the action taken by the appellant-State Financial Corporation u/s. 29 of the State Financial Corporations G Act, 1951 for recovery of its dues and also directing review of all pending cases in which penal interest was --( compounded. 1187 H 1188 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R. A Allowing the appeal, the Court HELD: 1.1. Even though the primary function of a Corporation established u/s. 3 of the State Financial Corporations Act, 1951 is to promote small and medium 8 industries in the State, but it is not obliged to revive and resurrect every sick industrial unit de hors the financial implications of such exercise. The Corporation is not supposed to give loans and refrain from taking action for recovery thereof. Being an instrumentality of the State, C the Corporation is expected to act fairly and reasonab,ly qua its borrowers/debtors, but it is not expected to flounder public money for promoting private interests. The relationship between the Corporation and borrower is that of creditor and debtor. The corporation is expected to recover the loans already given so that it can give D fresh loans to others. The proceedings initiated by the Corporation and activn taken for recovery of the outstanding dues cannot be nullified by the courts except when such action is found to be in violation of any statutory provision resulting in prejudice to the borrower E or where such proceeding/action is shown to be wholly arbitrary, unreasonable and unfair. The court cannot sit as an appellate authority over the action of the Corporation and substitute its decision for the one taken by the Corporation. [Para 14] [1204-8-F] F 1.2 High Court committed an error in declaring that the action taken by the Corporation was unfair and unreasonable and the direction issued for review of all pending . cases where penal interest has been G compounded is legally unsustainable. The appellant had acted in a most reasonable and fair manner and the High Court was not justified in nullifying the second notice issued u/s. 29_ of the Act by assuming that the appellant had not taken effective steps for realization of its dues in furtherance of first notice. High Court ignored that the H ~ 1 PUNJAB FINANCIAL CORPORATION v. SURYAAUTO 1189 INDUSTRIES respondent had not only adopted a recalcitrant attitude A in the matter of payment of the outstanding dues, but also failed to avail the concessions offered by the appellant· Corporation by reducing the rate of interest and rescheduling the payment of outstanding dues and did not take benefit of the schemes notified by the appellant- B Corporation for restoration of unit on payment of the principal amount with a 10% outstanding interest. It also erred in declaring that the appellant-Corporation will be entitled to charge simple interest at the rate of 10% after expiry of six months from the date of taking over of the c unit. Respondent had not challenged the terms of loan agreement. Therefore, High Court could not have suo motu altered
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