U.P. FINANCIAL CORPORATION AND ORS. versus M/S NAINI OXYGEN AND ACETYLENE GAS LTD. AND ANR.

Citation: [1994] SUPP. 5 S.C.R. 654 · Decided: 22-11-1994 · Supreme Court of India · Bench: KULDIP SINGH · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
D 
E 
F 
G 
·H 
U.P. FINANCIAL CCRPORA TION AND ORS. 
v. 
MIS NAINI OXYGEN AND ACETYLENE GAS LTD. AND ANR. 
NOVEMBER 22, 1994 
[KULDIP SINGH AND P.B. SA WANT, JJ.] 
UP. State Financial Corporation Act, 1951: Section 29-Default in 
repayment of loan ·instalments-Corporation justified in taking over .the 
industrial establishment-Jn matters commercial the Courts should not risk 
their judgments for the judgments of the statutory bodies. 
The appellant - State Financial Corporation was established under 
the State Financial Corporation Act, 1951. On 10.12.1975 it sanctioned 
a term loan of Rs. 30 lakhs to the first respondent - Company payable 
in 17 half-yearly instalments by 22.8.1986. The Memorandum of 
Agreement executed-between the appellant and respondent provided 
for recall of the entire balance of the loan in the event of default on the 
part of the respondent in paying two instalments of the loan and 
further to recover the balance of loan as arrears of land revenue. 
The re~pondent, however, made persistent defaults in repayment of 
the loan instalments with the result that the recovery certificate was 
issued against it under section 3 of the U.P. Public Moneys (Recovery of 
Dues) Act. Thereafter on 30th November, 1981, the respondent filed 
Company Petition under Sections 397 and 398 of the Companies Act in 
the High Court seeking removal of certain persons on grave charges of 
manipulation of accounts, re-allotment of forfeited shares etc. 
On 30.5.86 the appellant issued to the respondent notice under 
Section 29 of the Act for recovery of Rs. 90,31,102.13. On 13.6.86 the 
appellant took over the industrial establishment under Section 29 of the 
Act. The respondent filed a writ petition in the High Court challenging 
the take over. The High Court allowed the petition and directed the 
appellant to hand-over the industrial unit to the respondent. 
On 5.3.1987, 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 respondent - Company. On 29.1.1988, the IRBI made a 
654 
U.P. FIN. CORP. v. NAINI OXYGEN 
655 
report stating therein inter alia that after reschedulement and further A 
infusion of about Rs. 1 crore, the unit will be "marginally viable". 
On behalf of the appellant a question was raised whether it was 
obliged to invest a further sum of Rs. 1 crore in the establishment and 
whether even after such investment the unit would be viable or whether 
it should realise its loan from the sale of the assets of the respondent - B 
Company. 
Allowing the appeal, this Court 
HELD : 1. The fact that the appellant is an independent 
autonomous statutory body having its own constitution and rules to C 
abide by, and functions and obligations to discharge, cannot be lost 
sight of. As such, in the discharge of its function, it is free to act 
according to its own right. The views it forms and the decisions it 
makes are on the basis of the information in its possession and the 
advice it receives and according to its own perspective and calculations. D 
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 subditute 
its decision, however more prudent, commercial or business like it may 
be, fo.r the decision of the appellant. Hence, whateve.- the wisdom (or 
the lack of it) of the conduct of the appellant, the same cannot be 
assailed for making the appellant liable. (664 B, C) 
E 
2. It cannot further be forgotten that in the present case, the 
Company had made persistent defaults in repayment of the loan-
instalments 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 F 
Company Petition had to be filed seeking its removal on grave charges 
of manipulation of accounts, re-allotment 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 G 
establishment under Section 29 of the Act. The report of the IRBI 
which was given at the instance of this Court on 29th January, 1988 
had stated that th

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